Opinion
No. 76-B-2839
April 9, 1979
Chapter XI Arrangements — Jurisdiction — Stockholders Derivative Suit
A bankruptcy court did not have jurisdiction over a stockholder's derivative suit even though the corporate beneficiary was a Chapter XI debtor, since the mere allegation of the existence of a chose in action was not sufficient to establish jurisdiction.
The stockholder owned shares of the debtor's common stock. In turn, the debtor owned all of the stock of the American Bank Trust Company (the Bank). The stockholder alleged that the defendants caused the Bank to enter into loan transactions and business relationships solely for the benefit of their own interests to the detriment of the Bank and the debtor, the Bank's sole shareholder. The stockholder contended that Section 311 of the Bankruptcy Act conferred the proper subject matter for the exercise of the bankruptcy court's jurisdiction.
Section 311 confers on the Chapter XI court "exclusive jurisdiction of the debtor and his property whereever located". A chose of action may be property of the debtor, noted the court. However, the existence of property is not at one with conferring jurisdiction on the bankruptcy court to vindicate the debtor's right to it. The court cited the case of Slenderella Systems of Berkeley v. Pacific T. T. Co., Bank. L. Dec. ¶ 60,097, where it was held that "the court does not acquire summary jurisdiction if the property does not belong to the debtor and is not in his possession, or if title to property not in his possession is disputed by a substantial adverse claim". According to the bankruptcy court, the instant case was similar to Slenderella Systems.
The court reasoned that the debtor, through its shareholder, had no possession of the chose in action as property sufficient to confer jurisdiction because it was precisely the existence of the merits of the action which was the property ultimately in dispute. Thus, the court concluded that the mere allegation of the existence of a chose in action was not sufficient to establish jurisdiction. Accordingly, the court dismissed the stockholder's complaint. See Sec. 311 at ¶ 3313.