MR. JUSTICE BUTLER delivered the opinion of the Court.
Petitioner is the administrator of the estate of Coy E. Foust and, February 1, 1934, commenced an action at law under § 33 of the Merchant Marine Act of 1920
June 11, 1934, defendant filed its petition for reorganization under § 77B of the Bankruptcy Act.
January 26, 1935, petitioner applied for leave to prosecute his suit and supported his application by an affidavit of his attorney suggesting: The debtor is covered by liability insurance; if petitioner gets judgment, he will sue insurer to enforce its liability under § 109 of the Insurance Law of New York;
After argument, limited as suggested, the court in its first opinion on the appeal held petitioner's claim provable and dischargeable and the district court empowered to stay prosecution of the suit. 80 F.2d 859. Then there remained for consideration the question — which had not been argued — whether in the exertion of that power the district court abused its discretion. The court suggested that, if petitioner would stipulate not to use as a claim against the estate any judgment he might recover, there could be no objection to allowing his action to proceed. It held the appeal should not be finally determined without giving the parties a chance to present their views as to whether the district court ought not to allow the action to proceed and directed that, if petitioner failed to file such a stipulation within a specified time, supplemental
As a reason in support of the stay, the first opinion states that jurors often return far larger verdicts in negligence cases than reason justifies, and that the trustees have a right to take that fact into account and not to accede to a method for the liquidation of tort claims that is unusual in bankruptcy unless the ordinary method of proof before a special master would imperil the claimant's rights. In its second opinion the court adopted and emphasized the fact stated in appellant's supplemental brief to the effect that the policy covered not over one-half the value of petitioner's claim. It decided that, as the debtor's estate had a substantial interest in the amount of the recovery, the district judge did not abuse his discretion. The court said: "That mode was more convenient and expeditious than any other and was plainly an advantage to the estate." It added: "If the claim had been fully covered by the insurance so that the carrier was primarily liable for the entire damage, we might have reached a different conclusion; but, under the circumstances, we think the determination of the court below was justified," and affirmed the order appealed from.
The Circuit Court of Appeals rightly held petitioner's claim provable and dischargeable and the district judge empowered to stay proceedings in the suit.
Section 77 B (c) (10), enlarging power conferred by § 11,
Was the denial of petitioner's application for leave to prosecute his action at law an abuse of discretion?
The record contains no opinion or statement of the district judge to disclose the grounds on which he rested his denial. In reorganization proceedings neither the Act nor any rule of law entitles debtors or trustees as a matter of right to enjoin the trial of actions such as that brought by petitioner. The court is to exercise the power conferred by subd. (c) (10) according to the particular circumstances of the case and is to be guided by considerations that under the law make for the ascertainment of what is just to the claimants, the debtor and the estate. Osborn v. U.S. Bank, 9 Wheat. 738, 866. The Styria v. Morgan, 186 U.S. 1, 9. Langnes v. Green, 282 U.S. 531, 541. Burns v. United States, 287 U.S. 216, 222-223. By § 33 of the Merchant Marine Act, under which the petitioner sued, Congress ordained that upon claims for personal
There is no support for the stay in the suggestion of the Circuit Court of Appeals to the effect that in negligence cases juries often give verdicts larger than reason justifies. It is to be remembered that if without support in the evidence or contrary to the law they may be set aside. Chicago, M. & St. P. Ry. v. Coogan, 271 U.S. 472, 478. Gunning v. Cooley, 281 U.S. 90. Minneapolis, St. P. & S.S.M. Ry. v. Moquin, 283 U.S. 520, 521. It must be assumed that the courts by appropriate exertion of their power will adequately safeguard against verdicts shown to be arbitrary and unjust. While § 33 of the Merchant Marine Act remains in force courts may not assume that claims there specified cannot be justly liquidated by jury trial. Even if shown generally to attend jury trials, the suggested danger would not warrant denial of petitioner's application. We have recently said: "Maintenance of the jury as a fact-finding body is of such importance and occupies so firm a place in our history and jurisprudence that any seeming curtailment of the right to a jury trial should be scrutinized with the utmost care." Dimick v. Schiedt, 293 U.S. 474, 486.
The record does not sustain the statement that the mode of liquidation ordered is an advantage to the estate. On the contrary, the petitioner's verified application for leave to appeal states that the attorney for debtor in the action at law "represents the insurance carrier and consequently the defense of this case will impose no burden
Respondent suggests that the record fails to show that the policy was issued in New York and insists that, unless it was, the insurance may not be taken into account in determining whether the district court abused its discretion. The point is without merit. The affidavit submitted by petitioner states in substance that the debtor is protected by liability insurance and that any judgment recovered by petitioner on his claim will have to be paid by the insurer; that if allowed to establish his claim by jury trial petitioner will then sue insurer under § 109 of the New York Insurance Law for the amount, if any, awarded to him and that the only party benefiting by the delay is the insurance company. It is true that the affidavit does not directly state that the policy is governed by § 109 or that it contains the provisions required by that section, but the affidavit is sufficient adequately to suggest that petitioner claimed that insurer's liability to the debtor is in accordance with the provisions of that section. The debtor and trustees had notice of his application for release from the stay; the trustees appeared to oppose it. They failed to produce the policy or to disclose any of its provisions or whether it was issued in New York.
The injunction was a comprehensive one plainly broad enough to cover petitioner's claim; it was entered without disclosure of the existence of that claim or the pending suit and before petitioner had opportunity to be heard on the propriety of making it apply to him. On his application for leave to bring his suit to trial petitioner was seeking to remove the stay; and under the circumstances the position of debtor and trustees opposing him
The Circuit Court of Appeals dealt with the case according to the facts indicated in petitioner's supporting affidavit as modified by the statement taken from his supplemental brief to the effect that the policy did not cover the first $2,500 of the debtor's liability. Petitioner emphasizes the fact that the record does not show the modification and says that his statement as to the amount deductible was made in explanation of his refusal
Assuming that the insurance did not extend to the first $2,500 and the value of petitioner's claim was not more than $5,000, we are of opinion that the order appealed from was an abuse of the discretion vested in the district court by § 77B (c) (10). If petitioner's claim shall be established upon report of a master, grave doubts will arise as to the liability of the insurer to the petitioner. The case would not be within the words of § 109 of the New York Insurance Law. Attempt by petitioner to recover from insurer would encounter difficult questions of construction of a state statute as to which federal courts are not the final authority. Morehead v. Tipaldo, 298 U.S. 587. The imposition of that method of establishing petitioner's claim is liable to expose him to serious peril of substantial loss. On the other hand, if petitioner is permitted to liquidate his claim by jury trial and shall get judgment, and execution thereon shall be returned unsatisfied because of the debtor's insolvency, his case would appear to be plainly within the words and intent of § 109. That section applying, petitioner would be entitled to maintain an action against the insurer for the amount of his judgment but not exceeding the amount of insurer's liability to the debtor under the policy.
There is nothing in the record to warrant a finding that liquidation of petitioner's claim by trial of his pending action at law would hinder, burden, delay or be at all inconsistent with the pending corporate reorganization
MR. JUSTICE STONE took no part in the consideration or decision of this case.