Foust v. Munson Steamship Lines, 299 U.S. 77 (1936)

Foust v. Munson Steamship Lines

No.19
Argued October 15, 1936
Decided November 9, 1936
299 U.S. 77

CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE SECOND CIRCUIT

Syllabus

1. A claim against a steamship corporation under § 33 of the Merchant Marine Act is provable and dischargeable in a proceeding to reorganize the corporation under § 77B of the Bankruptcy Act. P. 81.

2. In a proceeding to reorganize a steamship corporation under § 77B of the Bankruptcy Act, the District Court has jurisdiction to enjoin the prosecution of an action at law instituted against the corporation before the petition for reorganization was filed, by the administrator of a deceased seaman, seeking to recover damages, under § 33 of the Merchant Marine Act, for alleged negligence of the corporation, assigned as the cause of the seaman’s death. P. 82.

3. The granting of the injunction rests in the sound discretion of the court. P. 83.

4. Exercise of the power to stay suits against the debtor, conferred by § 77B(c)(10) of the Bankruptcy Act, must accord with the particular circumstances of the case and be guided by justice to the claimants, the debtor, and the estate. P. 83.

5. Reorganization proceedings under § 77B of the Bankruptcy Act, are not inherently inconsistent with jury trial for the liquidation of claims under § 33 of the Merchant Marine Act. P. 84.

6. In support of an application for leave to prosecute an action at law which had been stayed by an injunction issued ex parte in a proceeding to reorganize the debtor corporation under § 77 B of the Bankruptcy Act, there was evidence tending to show that the estate would not be unjustly affected, because the debtor’s liability in the action was covered by insurance and defense of the action would be borne by the insurer.

Held:

(1) That the burden was upon the debtor and the trustees in reorganization to prove that the estate would be affected unjustly. P. 84.

(2) Definite evidence respecting the insurance being within the control of the debtor and trustees, their failure to produce it tends strongly to discredit their opposition to the application and, by inference, to support it. P. 85.

(3) In the absence of a showing of facts sufficient to require a finding that liquidation of applicant’s claim by jury trial would encumber the reorganization proceedings, the debtor and trustees were not entitled to have the injunction continued in force against applicant. P. 86.

(4) It was abuse of discretion to deny the application even if, as assumed by the court below, the insurance was less than the applicant’s full claim, this partly in view of doubts whether, under the New York law, the insurer would be liable if the claim were liquidated through reference to a master in the reorganization proceeding, rather than through trial by jury. P. 87.

82 F.2d 289 reversed.

Certiorari 298 U.S. 649, to review the affirmance of an order of the District Court in reorganization proceedings under § 77B of the Bankruptcy Act. The order denied leave to prosecute an action at law for death by negligence, and referred the claim to a special master. For an opinion of the court below earlier than the one cited above, see 80 F.2d 859.