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In Indemnity Ins. Co. v. Reisley, 153 F.2d 296 (2d Cir.), cert. denied, 328 U.S. 857, 66 S.Ct. 1349, 90 L.Ed. 1629 (1946), the Court held specifically that Rule 60(b) had no application to an order directing payment of a claim until such time as the bankruptcy proceeding was terminated.
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No. 137.
December 3, 1945. Rehearing Denied January 22, 1946.
Appeal from the District Court of the United States for the Southern District of New York.
Proceeding in the matter of A.L. Hartridge Company, Inc., bankrupt. The Indemnity Insurance Company of North America petitioned for order directing trustee to pay amount received by him in part payment for performance of construction contract by bankrupt in payment of petitioner's judgment against bankrupt, wherein Bayard I. Reisley, as trustee, filed an answer in opposition which included a cross-petition for reconsideration of a prior order directing a payment to the insurance company. From an order affirming referee's ruling, the petitioner appeals and the trustee cross-appeals.
Affirmed on petitioner's appeal, and reversed on trustee's appeal.
A.L. Hartridge Company, Incorporated, a general building contractor, contracted on April 28, 1939, with W.T. Grant Company for the construction of a building on land owned by Grant in Buffalo, New York. Hartridge performed the contract, completing the work on July 1, 1940. Indemnity Insurance Company of North America had insured Hartridge for workman's compensation, public liability and general liability insurance in connection with the work on the Grant building. For the premiums due from Hartridge to the insurance company, $13,050.34, the latter received a judgment against Hartridge at some time before September 15, 1944 when, on Hartridge's voluntary petition filed on that day, it was adjudicated a bankrupt in the court below. On January 6, 1942, Grant paid Reisley, the trustee in bankruptcy, $6,763.04 in part payment for performance of the construction contract. On March 10, 1942, the insurance company applied in the bankruptcy proceeding for an order directing the trustee to pay that sum to the insurance company in part payment of the amount due it. An order was entered by the Referee on April 14, 1942, adjudging the money received from Grant to be a trust fund to be applied to payment of the claim of the insurance company and to creditors similarly situated having claims for material furnished, work performed and services rendered in connection with Hartridge's performance of the Grant contract. The order directed that $5,263.40 be paid to the insurance company and that $1,500, the balance of the money received from Grant, be held subject to the further order of the court. The $5,263.40 was paid pursuant to that order.
On September 29, 1943, Tyler, as trustee of a creditor of the bankrupt, applied for a reconsideration of the April 14, 1942 order, and for an order directing the return to the trustee of the $5,263.40 on the ground that the earlier order had been made under a mistake of law. On the hearing of Tyler's application, the trustee participated. The Referee denied the application on the ground that the insurance company had "changed its position." On petition for review, the court below affirmed the Referee's order.
On March 2, 1943, Grant made a further payment of $17,085.62 to the trustee under the construction contract. On February 24, 1945 the Referee made an order which directed this sum to be used in payment of a dividend of 5% to bankrupt's general creditors.
On March 6, 1945, the insurance company petitioned the Referee for an order vacating the order of February 24, 1945, directing the trustee to pay it the $1,500 retained under the order of April 14, 1942, and also to pay it $6,286.94 out of the $17,085.62 received from Grant. The trustee filed an answer in opposition which included a cross-petition for reconsideration of the order of April 14, 1942 and for an order directing the insurance company to repay the trustee the amount of $5,263.40 paid the insurance company pursuant to the April 14, 1942 order. The Referee, after hearing the matter, denied the relief requested by both parties. On petitions for review filed by both parties, the court below made an order on July 14, 1945, affirming the Referee. Both parties have appealed from that order.
Smith Carroad, of New York City (Julius S. Smith and Abraham Brass, both of New York City, of counsel), for petitioner.
Emanuel Bloch, of New York City (Edgar E. Harrison, of New York City, of counsel), for trustee.
Before L. HAND, SWAN, and FRANK, Circuit Judges.
1. The insurance company's appeal: The order of April 14, 1942, was based upon an interpretation of § 36-a of the New York Lien Law, Consol.Laws, c. 33, as in effect before amendments effective September 1, 1942. But since April 1942, New York's highest court has held that that statute creates no lien. See Raymond Concrete Pile Co. v. Federation Bank Trust Co., 288 N.Y. 452, 43 N.E.2d 486; New York Trap Rock Corp. v. National Bank of Far Rockaway, 293 N.Y. 884, 59 N.E.2d 787. The insurance company's appeal must therefore fail. We cannot agree with the insurance company's contention that, absent any lien under state law, a bankruptcy court can create a lien on the basis of "fire side equity."
That section, before such amendments, provided: "The funds received by a contractor from an owner for the improvement of real property are hereby declared to constitute trust funds in the hands of such contractor to be applied first to the payment of claims of subcontractors, architects, engineers, surveyors, laborers and materialmen arising out of the improvement, and to the payment of premiums on surety bond or bonds filed and premiums on insurance accruing during the making of the improvement and any contractor and any officer, director or agent of any contractor who applies or consents to the application of such funds for any other purpose and fails to pay the claims hereinbefore mentioned is guilty of larceny and punishable as provided in section thirteen hundred and two of the penal law."
The insurance company concedes that the amendments are inapplicable here.
Cf. Huddleston v. Dwyer, 322 U.S. 232, 64 S.Ct. 1015, 88 L.Ed. 1246; Vandenbark v. Owens-Illinois Glass Co., 311 U.S. 538, 61 S.Ct. 347, 85 L.Ed. 327.
2. The trustee's appeal. The order of April 14, 1942, directing payment to the insurance company was open to reconsideration at any time before the estate was closed, for § 57, sub. k of the Bankruptcy Act, 11 U.S.C.A. § 93, sub. k, expressly so provides Federal Rules of Civil Procedure, rule 60 (b), 28 U.S.C.A. following section 723c, has no bearing here, since, under General Order No. 37, 11 U.S.C.A. following section 53, the Rules are applicable only "in so far as they are not inconsistent with the Act." The order denying Tyler's previous application for reconsideration cannot operate as res judicata, in the light of § 57, sub. k, and Wayne United Gas Co. v. Owens-Illinois Glass Co., 300 U.S. 131, 57 S.Ct. 382, 81 L.Ed. 557. The court below erroneously decided against the trustee on the ground of his delay.
However (particularly as the trustee on oral argument here assented) we remand for determination of whether the insurance company changed its position since it received payment of the $5,263.40.
The previous decision that it had is not to be taken as res judicata or otherwise binding.
Affirmed on the insurance company's appeal; reversed and remanded on the trustee's appeal.
On Petition for Rehearing.
As the order of April 14, 1942, was based upon a reclamation petition, we erred in our original opinion when we said that § 57, sub. k, 11 U.S.C.A. § 93, sub. k, governed. Nevertheless, Rule 60(b), 28 U.S.C.A. following section 723c, is not applicable because it relates only to a final order; and no order in a bankruptcy proceeding is final (in the sense that it cannot be reopened) until the proceeding has been terminated.
American United Life Ins. Co. v. Haines City, Florida, 5 Cir., 117 F.2d 574, 575. See Marconi Wireless Tel. Co. v. United States, 320 U.S. 1, 47, 63 S.Ct. 1393, 87 L.Ed. 1731, decided after the Rules became effective.
Wayne United Gas Co. v. Owens-Illinois Gas Co., 300 U.S. 131, 57 S.Ct. 382, 81 L.Ed. 557; Pfister v. Northern Illinois Fin. Corp., 317 U.S. 144, 149, 63 S.Ct. 133, 87 L.Ed. 146; Bowman v. Lopereno, 311 U.S. 262, 61 S.Ct. 201, 85 L.Ed. 177; Rafert v. Equitable Life Assurance Soc., 8 Cir., 138 F.2d 185, 187, certiorari denied 320 U.S. 801, 64 S.Ct. 431, 88 L.Ed. 484; Curtis v. O'Leary, 8 Cir., 131 F.2d 240, 245; Mulligan v. Federal Land Bank of Omaha, 8 Cir., 129 F.2d 438, 440; Walgreen Drug Stores v. Scruggs, 4 Cir., 129 F.2d 789, 790; In re Chicago, M. St. P.R. Co., 7 Cir., 138 F.2d 235, certiorari denied Abrams v. Scandrett, 321 U.S. 770, 64 S.Ct. 528, 88 L. Ed. 1066; American United Life Ins. Co. v. Haines City, Florida, 117 F.2d 574, 575.
This in no way implies that an order in a "controversy arising in a proceeding in bankruptcy" may not be final for the purpose of taking an appeal therefrom.
The insurance company argues that the trustee's appeal is from the denial of a petition for a reconsideration of an earlier order and is therefore not appealable. We do not agree. This being a bankruptcy proceeding, the Referee, as the Court of Bankruptcy had discretion to re-examine and vacate the former order. The issue before the Court below was whether the Referee had abused his discretion; and that question comes before us on this appeal. We think the discretion was clearly abused.
Bankruptcy Act § 1(9), 11 U.S.C.A. § 1(9).
Kimm v. Cox, 8 Cir., 130 F.2d 721, 732, 733; Wharton v. Farmers Merchants Bank, 8 Cir., 119 F.2d 487. See also the cases cited in footnote 2, supra.
Cf. Huddleston v. Dwyer, 322 U.S. 232, 64 S.Ct. 1015, 88 L.Ed. 1246.
The petition for review was timely. For where an application is made for reconsideration, the time for review begins to run from the date of denial of such relief, provided the Referee reconsidered the merits of the original order. We think that the Referee did thus reconsider the merits for he based his denial of relief on res judicata (i.e., the rejection of a previous petition for reconsideration) which was a defense on the merits. In such circumstances, the petition to review must relate to the original order, not to the denial order; literally the petition here asked review of the Referee's denial order, but we consider it as, in effect, the same as a petition to review the original order.
Pfister v. Northern Illinois Fin. Corp., 317 U.S. 144, 63 S.Ct. 133, 87 L.Ed. 146; Bowman v. Lopereno, 311 U.S. 262, 61 S.Ct. 201, 85 L.Ed. 177.
That a decision based on res judicata is on the merits, cf. Buck v. Spofford, 35 Me. 526.
Cf. Safeway Stores v. Coe, 78 U.S. App.D.C. 19, 136 F.2d 771, 772, 148 A.L.R. 782.
Accordingly we adhere to our earlier ruling and deny the petition for rehearing.