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In re South Jersey Land Corp.

decided: May 26, 1966.


Staley, Smith and Freedman, Circuit Judges.

Author: Staley

STALEY, Chief Judge.

These appeals arise out of two separate orders, which, although entered in two distinct proceedings involving two separate reorganizations (the "Hydrocarbon" reorganization in No. 15557 and the "South Jersey" reorganization in No. 15556), apply to the same piece of realty on which the appellant holds a mortgage. Despite the non-existence of any substantial factual dispute, ascertainment of the essential facts necessary to a proper disposition of these appeals has perplexed the court. The briefs, appendices,*fn1 and oral argument have shed little light on this problem. Counsel, however, have been most helpful in making further stipulations to the record on appeal.

The facts can be briefly stated, and we summarize them as follows: Virtually all the parties undergoing reorganization in both proceedings are engaged in a massive land development project in New Jersey. The Berkeley Township project involved the development of some 3000 home sites, the building of homes and the development of incidental properties. In December of 1960, Berkeley Shore Estates, the primary developer (and party to the Hydrocarbon reorganization), sold two pieces of property to the South Jersey Land Corporation. One parcel, containing some 600 lots, had been or was undergoing subdivision. The other was a proposed shopping center site, through which all potential residents of the development would have to pass as a matter of ingress and egress from their homes to the major highways in the vicinity.

In the following year Hydrocarbon Realty Development Company, a subsidiary of Hydrocarbon Chemicals (and also a party to the Hydrocarbon reorganization), acquired a one-third interest in the South Jersey Land Corporation by purchasing ten shares of its stock for $30,000.

On May 31, 1963, South Jersey executed and delivered to the Bank of Commerce a mortgage covering the shopping center property to secure anticipated advances in the amount of $75,000. On the same day, South Jersey conveyed the shopping center property to Jersey Shore Shopping Center, Inc. No consideration was given for the transfer. Apparently because of recording difficulties (the deed to Jersey Shore was recorded on June 3, 1963, whereas the previously executed mortgage was not recorded until June 5, 1963), the shopping center was deeded back to South Jersey on June 21, 1963.

Prior to the reconveyance of the shopping center back to Jersey Shore by South Jersey, an interesting development occurred. Berkeley Shore Estates (a subsidiary of Hydrocarbon Chemicals) acquired a two-ninths interest in the South Jersey Land Corporation, thus giving Hydrocarbon a controlling five-ninths interest in South Jersey. It should also be noted that at this time Hydrocarbon also held a one-third interest in the Jersey Shore Shopping Center.

Once the shopping center property had been deeded back to South Jersey, the May 31st mortgage between South Jersey and the Bank of Commerce was re-executed and re-recorded on July 6th and 12th respectively. After the mortgage had been recorded for the second time, the property was once again conveyed to Jersey Shore.*fn2

Hydrocarbon Reorganization -- Appeal in No. 15557.

The Hydrocarbon proceeding commenced on July 10, 1963, with the filing of a petition for an arrangement under Chapter XI of the Bankruptcy Act. On March 17, 1964, a petition for reorganization under Chapter X was filed. The seven corporations recited in the caption herein were made parties to that reorganization.

On April 14, 1964, the appellant herein, Bank of Commerce, secured an order of execution on the shopping center property in a foreclosure proceeding in the New Jersey Superior Court. Both Jersey Shore (the record title holder) and South Jersey (the mortgagor in default) were parties to that foreclosure proceeding. The New Jersey court ordered that the shopping center property heretofore described be sold at a sheriff's sale. On May 19th, the attorneys for the trustees of the Hydrocarbon debtors petitioned the district court for an order enjoining the sale of the shopping center property. An ex parte order to that effect was issued on the same day. On June 18, 1964, the Bank of Commerce moved to have the injunction dissolved. The appeal at No. 15557 followed the district court's denial of that motion on June 30, 1965.

The sole issue raised on this appeal is that the district court lacked jurisdiction to enjoin the foreclosure sale. Appellant contends that the property owned by Jersey Shore (or South Jersey)*fn3 is not within the jurisdiction of a reorganization court as defined in § 111 of the Bankruptcy Act, 11 U.S.C. § 511: "Where not inconsistent with the provisions of this chapter, the court in which a petition is filed shall, for the purposes of this chapter, have exclusive jurisdiction of the debtor and its property, wherever located." (Emphasis supplied.)

Simply stated, appellant's argument boils down to this: the mortgaged premises are the property of Jersey Shore (or South Jersey) and not that of Hydrocarbon and/or its subsidiaries. It goes on to state that the mere fact that Hydrocarbon owns a substantial number of the shares of Jersey Shore (and South Jersey) is not sufficient to make the shopping center site the property of Hydrocarbon. Its argument rests on the well established theory of distinct corporate entities.

Does the meaning of the word "property" in § 111 transcend the well established principle of distinct corporate personalities? Realizing that the answer must depend on each particular case, we believe as a general rule it does not. Though in the past this court has not hesitated to disregard the traditional theory of separate entities, Cf. In re Pittsburgh Rys., 155 F.2d 477, 483-485 & n. 15 (C.A.3), cert. denied, Philadelphia Co. v. Guggenheim, 329 U.S. 731, 67 S. Ct. 89, 91 L. Ed. 632 (1946)*fn4 to yield to that temptation here would be unwarranted*fn5 and might create unfavorable precedent for future cases.*fn6 Our position in this regard is consistent with the Supreme Court's admonition "that Congress did not give the ...

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