Memorandum — Fidelity Assurance Assn. v. Sims

Supreme Court brief1943

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‘FILE Copy StP 24 2942

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Ine epee Got the Bited Ses

Octosm ‘Ten, 1942

Fipgitry ASSURANCE Kaibtaitvans sab CENTRAL

| Prvsr COMPANY, PETITIONERS

ON PRTITION POR.A WRIT OF CERTIORARE TO THR UNITED:

STATRS COURT OF APPEALS POR THE FOURTH CIRCUIT

—

”

MEMORANDUM FOR THE: SECURITIES AND EXCHANGE

, COMMISSION 2 ae

—__

-. Opinions below Fea RN

Jurisdiction... __.....,

Questions presented. ;

Statutes involved. _ -

CITATIONS

Booth v. Clark, 17 How. 321. -__- -

Central Funding Co., In re, 75 F. (2d) 256_.

Clemons v. Liberty Savings & Real, Esiate C hawt 61 F. 5 cil

- 44 : oa

Erie R. Co. v. "Tompkins, 304.U. 8. 64 <

Gamble v. Daniel, 39 F. (2d) 1) 447—— Sa

Great Western Mining Co. v. Harris; 198 U. 8. 561.

' Kansas v. Hayes, 62 F. (2d) 597. _. _- Ae ee

Lion. Bonding Co. v. Karatz, 262 U. 8, a na

- Marine Harbor Properties, Inc. v. Manufacturers Trust Co.,

No. 24, October Term, 1942, certiorari granted, 315.U. 8.

Paloma Estates, fas. fa ts, "tie, 89, “Getober Term, 1942..

Porto Rican American Tobacco Co., In re, 112 F. (2d) 655.

Prudence Co., In re, ‘79 F. (2d) 77

* Roumanian Workers Educational Ass'n of America, ‘In re, /

108 F. (2d) 782...

Securities and Exchange Commission _v.

Improvement Co., 310 U. 8. 434. , ;

Security B. & L. Assn. v. Spurlock, 65 F. (2d) 768... 9.

U.S. Realty &-

Union-Guarantee & Mortgige Co., In re, 75 F. (2d) 984 as

L., v. Ebsary oo Co., 93 F. (2d)

Witters Associates, R.

eae

Woolsey v. Security, Trusf Co., 74 F. (2d) 334

‘Statutes: ©

. Act of August 22, gel a Stat.-789, title I:

, title 15, sec. 80a-—2 (a) (17))--

. = title 15, sec. 80a-—3 (c) (3))---

title 15, sec. 80a-—4 (1))-.-....------

Sec 2 (a) (17) (U.

See. 3 (ce) (3) (U.

Bee. 4.(U.8.C.,

Sec. 28 (U.S

484068—42——-1

C., title 15, see. 80a-28)

(T)

Statutes—Continued.

, Bankruptey Act, as amended: a

‘ Sec. 4 (a) (U. 8. C., title 11, see. 22 (a))-.----------

Sec. 67 (f), as added by see. 29 (a), title I, Act of

August 22, 1040, 54. Stat. 835 (U: 8. C., title 11,

uc. 107 (f)). ..------------------2------------=

Sec. 141,-as added by sec. 1 of Act of Juné 22, 1938,

52 Stat. 887 (U. 8.'C., title 11, sec. 541) - . --------

- Bee. 146, as added by sec. 1 of Act of June 22, 1938,

52 Stat. 887 (U. &. G. title 11, sec. FERRE

Sec. 208, as added by sec. 1 of Act of June 22, 1938,

52 Stat. 804 (U. 8. C., title 11, see. 608)... - besten

West Virginia Code, c 33, Art. 9, sec, ey eae

Miscellaneous :

4 her ore seg Survey of Chaplor Xin Operation

(1941), 18 N. Y. U. L. Q. Rev. 399, 402; |

” Finketter, Law of Bankruptcy Reorganisation (1939) a

. Bote Segre rte ed Sates

Coss Tae, 1942

No.319

FIDELITY ASSURANCE ASSOCIATION AND CENTRAL

, TRUstT COMPANY, PETITIONERS

; >.

Epcar B. Sis, Er AL.

ON PETITION FOR A. WRIT OF CERTIORARI TO THE UNITED

STATES COURT OF APPEALS oad TRE air er,

MEMORANDUM FOR THE SECURITIES. AND EXCHANGE

COMMISSION

In the District Court the Securities and Ex.

change Commission became a party to the present

proceeding for.the reorganization ef Fidelity As-

- surance Association under Chapter X of the Bank-

- Tuptey Act,’ participated as an appellee before

the Circuit Court of Appeals, and is named a re-

| spondent’ by petitioner here.

This memorandum is. filed in support of the

petition. ;

- The Commission ‘iadieiak; at the court’s request pursu-

ant to the provisions of section 208 of the Bankruptcy Act, ©

as added by section 1 of the Act of June 22, 1938, 52 Stat.

894 (U. S.C., title 11, sec. 608).

(1)

OPINIONS BELOW

.T he opinion of the Circuit: Court of Appeals

(R. 363-387) is reported in- 129 F. (2d) 442. The

opinion of the District Court (R. saa is reported

in.42 F. Supp. 973. | ape.

JURISDICTION :

~The judgment WY the Circuit Court of Appeals

was entered June 16; 1942 (R. 387-388). A. pe-

. tition for rehearing (R. 389-393) was denied July

22° 1942 (R. 397). . Jurisdiction of this Court is”

a@pvoked under section 240 (a) of the Judicial,

Cote, as amended by the Act of eoeetz 13,

= | QUESTIONS PRESENTED

1, Whether petitioner assoc iation was an “in-

surance corporation” within the meaning of sec-

tion 4 of the Bankruptcy Act when it filed a peti:

~ for reorganization as a corporate debtor. aoe

| 2. Whether the court below erred j in hi Iding that

s the petition had not been filed in good faith within

the meaning of section 146 (3) and (4) of the

Bankruptey Act. :

er atures INVOLVED -

Section 4 (a) of the Bankruptcy Act, as

amended. (U.S. G,, title 11, see. 22 (a)), provides:

Any person, except a municipal, railroad,

- insurance, or banking corporation or a build-

ing and loan association, shall be entitled to

the benefits of this Act as a voluntary

—-

. 3 ; ¢

Section 141 of the Bankruptcy Act, as added by

section 1 of the Act of June. 22, 1938, 52 Stat. 887

_ (U.S, C,, title 11, sec. 541), provides: |

Upon the filing of a petition by a debtor,

the judge shall enter an order ‘approving

the ‘petition, if’ satisfied that it com-

plies with the requirements of this chapter

Ee and has been filed in good faith, or dis-

missing it if not so satisfied. _

‘Section 146. of ‘fhe Bankruptcy Act, as added by

section 1 of the Act of June 22, 1938, 52. Stat. 887

(U.S. C.title.11, see. 546), provides, in part: |

- Without limiting the generality of the.

meaning of the.term ‘‘good faith’’, a peti-

.tion shall be deemed not to be filed in good

faith if— *

(3) it is unreasonable to expect that a

plan of reérganization can be effected; or

(4) a prior proceeding is pending in any

court and it appears that the interests of- —

creditors and statkholders would be best

‘subserved in such prior proceeding. -

STATEMENT

"Petitioner Fidelity Assurance Association isa:

West Virginia corporation with its principal place

- of business in Wheeling, West Virginia (R. 5, ,

363-364). From November 1912: to the end. of

_” 1940, under the name of Fidelity Investment Asso-

',. Clation, it was engaged exclusively ‘in. the business

of selling its own securities in the form of invest-

ment contracts (recently known as face-amount

. Bos

“s-status ef the several series separately, and par-

ae Ne various ‘funds. (R. 9). .;

vty The State of West Virginia required Fidelity to

- “&

, ~

ance. features, but, the insurance: risks were ear-

standing ‘contracts, Tesa the amount:-of similar de-

"$181 48,026. 40, representing a et cash liability. of $23,475, .

certificates) and. in investing’ and reinvesting the

proceeds of such sales (R. Dy: 364). It sold 6 dif- |

ferent series of contracts at: various times. in 29

states and the District of Columbia (R..7, 365—

366, ! 368). Some. of the contracts earried insur-

ried by, an » iftsurance company to .which Fidelity

"paid. premiums, nd’ not by; Fidelity, (Ri, 6, 19,

368-369, . 870). Fidelity, contracted | to: segregate

‘ the ‘proceeds ‘of contracts of each series (less ex- _

_ pense deductions) ‘for the benefit of contract hold. .”

‘ers of that. series. . It kept. books showing the

ticular securities acquired were allocated to the

de posit, as, sec urity “for its. obligations to contract,

holders, property of a value. equal to $100,000 more

than the company’s ‘net ‘cash liability on‘all'its out: ie

_Dosits required br ‘other | states. . West Virginia

Code, ©. 33, Art. 9; see. 3. Fourteen other states ,.

require some sort of déposit (R. 7-8, 365). ‘The ™>

property_thus: deposited by Fideljty constitutes ~ .’

‘about 95 per cent of its tissets (R. 306). The state

- depositaries did not segregate the deposited securi-

* Theve: are ontstanding vontracts in the face amount of

OC8.07 owed to approximately, 88,000 holders {R. 366). Hold-

ers of such contracts now reside in each of the 48 states; the

District of & lumbia, and foreign countries (R. 366).

Sk SE eee tty

e ‘

ties: according to series even where they had notice

of the particular series of contracts to which the-

deposited securities belonged (R. 9). In five

‘states the local -statute excludes nonresideat. con!

- tract holders from participating in the local de-

_ posit; in-other states it is not clear that nonresi-

dentshave no interest.’ The ‘statutes do not ex-

a pressly, indicate whether the measure of claims

~ against the deposits is the amount paid in at the

cash surrender value, the reserve value of the

contracts, ‘0 some other amount.

At least. as early. as 1940 Fidelity was insolvent.

S. It could x 11 ‘meet the reserve requirements for

face-amonnt ‘Certificate companies contained in

section 28 of title I of the Investment’ Company

‘Att.of August 22, 1940, 54 Stat. 829 (U. S.-C., title

15, see, 80a-28) (R. #1, 367, 369). On Vinal

ae 31, 1940, the day. before that statute was to become .

effective: and ifs reserve requirements become ap: —

| plie “able to Fidelity, it amended its charter so as to

‘obtain insurance powers, at the same time chang-

ing its name to Fidelity Assurance Assoc iation; .

this arrendment was designed to avoid the require-

— ments.of the Investment Company Act, which do

>. not apply to insurance companies (R. 11, 19-20,

| 340-341, 367,-369 ). Fidelity received a license. to

* There is also uncertainty under most statutes on the ques-

“tion .of who are residents: whether the’ deposits secure

persons residing inthe state at the tine of sale.of the con-

tracts, persons residing in the state at thé time the deposit is

‘made, or persons now residing in the state.

_ Application. for a renewal of the lieense was made,

* “County, West Virginia, appointed receivers for

fraeae,

do busiziess as an insurance company from’ Janu-

ary 1, 1941, to April 1, 1941, upon an understand-

ing with the Auditor of West Virginia (ex officio

: Commissioner of Insurance ) that it weuld. engage

in no business until he gave it permission to do so

(R. 11-12, 369-370).‘ Subsequently, without an

authorization from the Auditor, it sent out riders

_ to its series B contract holders assuming direct -

_ liability on the insuranée provisions of the series | °

B contracts, continuing, however, to pay pre-

miums to fhe insurance company which kad there-

tofore carried these risks (R. 341-343, 370). It

wrote no new investment contracts after Decem-

_ ber 31, 1940, but. it continued to service existing

contracts (RR, 11-12). ;

-The insurance license expired March 31. 1941.

but no: renewal -was granted. The Auditor of

West Virginia on April 4, 1941, directed Fidelity

to discontinue the transaction of all business: On

April -11, 1941,. the Cireuit .Court of Kanawha

Fidelity ona petitivn filed by the Auditor with a

view to reorganization. (R. 12-13, 249-258, 370.)

One of the receivers is a meniber of the law firm «

which represented Fidelity, and this firm now acts

* Fidelity also agreed to write io more investment, \con-

. tracts, although its license to issue face-amount certificates

did not expire until April 1, 1941 (R. 11, 370).

as’ attorneys for the receivers (R. 32, 139-140,

314). Other receivership: proceedings were

begun it ‘eleven other states (R. 13, 370-371).

On June 6, 1941, Fidelity filed a voluntary peti-

~~ tion under Chapter X of the Bankruptey Act in

spb.

‘the District Court of the United States for the

Southern District of West Virginia.“ The court

> then appointed a trustee, ‘enjoined the Various

state receivers and others from disposing of Fidel-

ity’s property .in their hands, and .ordered the-

receivers to deliver to the trustee the property-of

Fidelity which they held. “The court later ordered.

state officials holding deposits of Fidelity’s prop-

erty to deliver them to the. trustee. The state

receivers and depositarics were permitted by the

court to intervene and file answers contreverting

the allegations of Fidelity’s position, Extended

hearings were held, during which the court

rescinded its turn-over order with respect to state

depositaries (R. 3-4, 319-334, 371).

At the conclusion of the hearing the District

Court approved Fidelity’s petition and overruled

motions to rescind its standing turi-over and

freezing orders (R. 38-40). The Cireuit Court of

Appeals reversed, holding (1) that Fidelity was

> The District Court.found that the history of Fidelity ists

been marked by eat eeageene and other serious mismianage-

ment (R, 29). “A number of its officers and directors are

under indictment for violations of the Securities Act of 1933

and the federal mail fraud statute.

454068 —42———_2 . ; sent,

an insurance corporation and therefore not eli-.

gible. for reorganization under Chapter X of the

" Bankruptey Act, and (2) that the petition had

not been filed in good faith; rehabilitation of

Fidelity not being reasonably possible, continua-

tion of the prior state-court receiverships for liqui-

dation purposes would serve the interest of credi-

tors better than proceedings under Chapter X (R. *

36: +085).

, _ ARGUMENT

‘Fidelity’s business before December 31, 1940,

was unquestionably that of ansinvestment -com-

pany selling face-amount certificates, and not that>

of an insurance corporation. Clearly, if it had.

then sought Chapter X reorganization it would

have beeu held eligible. “The fact.that at the end

of 1940 it changed its name ‘from Fidelity Invest-

ment Association to Fidelity Assurance Associa-

tion, procured a vharter amendment conferring i in-

surance powers, and obtained a license to do in- -

‘surance btisiness with the. understanding that it

should doe none except with specific permission.

from’ the state licensing official should not alter

Fidelity’s status. Its sole business of substance

continued to be investment contracts. Such i insur-

ance a A as it later. purported to transact, :

without the West Virginia Auditor's authori 1Za-

tion, was insubstantial ; its assumption of liabil-

.e.

ity « on the insurance features of some of i. con-

tracts was only secondary, so that: it incurred no

real risks, since Lincoln National Life Insurance

Company continued to insure these contracts ona

policy maintained by Fidelity.’

The Cireuit Court of Appeals, however, held

that ‘Fidelity’ s status for purposes of the Bank-

yuptey Act was to be determined not by its pre-

dominant business activity (pursuant to which ‘it

liad aequired all its assets and incurred all its sub-

stantial liabilities) but by its charter powers and

classification under state law, although this status

on which the court relied was assumed only after

Fidelity had gone virtually out of business (see

R.-372-373, 376, 379). The court believed that

_ under the laws of West Virginia’ (and of most ©

At the states in 1910, when Congress inserted the

“present excepting clause in section 4 of the Bank-

ruptey Act) Fidelity was an insurance corporation

with incidental annuity powers at the time of filing

its petition for reorganization. ° The rule that

classific ation of a company for purposes of state

re gulation is determinative. of its stafas under the

federal. Bankruptcy ‘Act was rested by the court on

the theory that Congress had excluded “insurance

“In its dealings with the Virginia Corporation Commis-

sion Fidelity specifically stated that it had issued no in-

surafice polici ies, pointing out that the riders sent to series B

contract holders ereated no insurance risks (R. 359-360).

) oy mane from federal corporate reorganiza-

_" mniniste ‘red in case of rehabilitation or dissolution ;

to determine. whether a particular company fell

‘within the class it-was necessary: to inquire. con-

‘verning its classification under the applicable state’ .

noted that face-amount certificate companies in

insurance corporations and were subject to identi-

—Ln-ve-Roumanian Workers Educational Ass’n of

. Cireuit, . that the character of aetivity @tually

-10

tion because companies in. such a category. were ;

comprehensively regulated) during their active |

existence by state laws and should he similarly ad-

law (see R, 374-378). The soundness of this

rationale in. the: present case disappears. when it is

West V irginia were subject to regulation similar

to and as comprehensive as that applied there to

cal liquidation procedures (see R. 124-130; Pet.”

2-56). Unquestionably, an investment. company

under state law is eligible for reorganization under

Chapter X.

The decision of the Circuit — of Appeals

that Fidelity’s charter powers and classifieation

umler West Virginia law govern its-eligibility for

reorganization conflicts with the dec ision of’ the

Circuit Court of Appeals: for the Sixth Circuit

America, 108 F. (2d) 782. The view of the Sixth

carried on is the important’ ‘criterion, is the view

taken by legal writers.. Finletter, Law of Bank-

rupley; Reo ‘ganization (1939) 107; Note, Bank-

ruptey; Corporate Reorganization: Survey of

11 a

Chapter X in Operation (1941), 18 N. Y. U. L. Q.

Rev. 399, 402.' ~

In addition, the first question presented by this

-ease is one for certiorari because of its’ impor-

tance in the administration of federal statutes.

It involves the -eligibility for and amenability to _

_. corporate reorganization under Chapter X of face-

- amount certificate and other investment companies:

which procure incidental insurance powers, mak-

ing insubstantial use of them. ‘Fidelity alone hag

in excess of $20,000,000 of assets; other similar

companies are also large financial institutions

which have attracted the savings of large numbers

_ The court below referred to tases in other circuits as sup-

porting ‘its rule (see R. 375-379). Those cases contain state-

ments that charter power and state classification constitute

the controlling consideration. £. g., In re Union Guarantee

| & Mortgage Co., 75 F..(2d) 984, 985.(C. C. A. 2) ; Woolsey.v.

Security Trust Co., 74 F. (2d) 334, 335, 387 (C. C. A. 5);

Security B. & L. Assn. v. Spurlock, 65 F. (2d) 768, 771 (C. C.

A. 9); Kansas .v. Hayes, 62-F. (2d) 597, 599-600 (C. C.

“ 10) ; Clemons v. Liberty Savings & Real Estate Corp., 61

F. (2d) 448, 450 (C. C. A. 5). It is to be noted, however,

that j in most of the cases the decisions were equally, consistent

with the view that business actually done should be the con-

trolling factor. Woolsey v. Security TPust Co., supra; Secu-.

rity B. & L.. Assn, v. Spurlock, supra; Hansas v. Hayes,

supra; Clemons v. Liberty Savings & Real Estate. Corp.,

supra. °Charter power and state classification have in fact

-. been determinative in only two situations :(1): where there

is the possibility that activities carried on wtra. vires affect

the corporation’s amenability to bankruptcy (Gamble v. Dan-

iel, 39 F: (2d)/447 (C. C. A. 8)), and {2) where the activi-

ties "carried on do not fall within an’ easily recognized

category (In re Prudence Co., 79 F. (2d) 7 (C. C. A. 2);

- In re Union Guarantee & Mortgage Co., supra). Clearly,

neither of those situations exists in Fidelity’ 8 case. ]

of persons throughont the United States for in-

vestment." ‘As we endeavor to point out in part II _

of this memorandum (infra, pages 14-16), it is

a matter of ¢onsiderable-eonsequence whether such

companies are reorganized in a single federal pro- °

ceeding or their affairs are settled piecemeal in

_ humerous state proceedings. '

-The decision below, by pointing out a way in

which face-amount certificate corupanies may avoid

bankruptcy, also interferes with the applicability .

of section 67 (f) of the Bankruptcy Act, as added, |

by section 29 (a) of title I of the Act of August

22, 1940, 54 Stat. 835 (U.S. C., title 11, see. 107

(f)), providing for the avoidance in certain cases,

_ by the trustee in bankruptcy, of deposits made _

with state officials by face-amount certificate com-

_ panies and providing for the distribution in bank-

ruptcy of such deposits. This section is applicable

‘ to face-amount certificate companies as defined in®

section 4 of title I of the Act of August 22, 1940,@

54 Stat. 799 (U.S. C., title 15, see. 80a-4 (1)).

Section 3 (¢): (3) of title I. of the ‘same act ex-

cepts insurance companies from the category. OF

Stat. 797 (U.S. C., title 15, see. 80a-3 (e) (3)). -

Thus the holding of the Circuit Court of Appeals

- reaches so far as the coverage of the: ‘Thvestment |

Company Act of 1940." _

“It is significant that the Investment Company Act‘defines.

an insurance company as one, “whose primary and predomin- }

ant business activity is the writing of insurance or the rein-

suring of risks underwritten by insurance companies.” Sec-

tion 2 (a) (17) of title I of the Act of August 22, 1940, 54

, Stat. 790 (U.S. C., title 15, see: 80a-2 (a) (17)).

| ; II

The court below held also that Fidelity’s peti-

tion was: not filed in good faith within the mean-

ing of section 146 of the Bankruptcy Act. It

adverted to the unlikelihood that-a_plan of reor-

ganization of Fidelity as a going concern could

be effected (R. 382-384). If the court’s ultimate

‘conelusion that the petition lacked good faith is’ —

to be construed as embodying a holding’ under

section 146 (3) of the statute, we think that this

Court should grant review of that question. The

apparent view of the Circuit Court of f Appeals that-—

“rehabilitation of the debtor must be in prospect

(see R. 383, 384) conflicts with decisions that a plan‘

for slow and orderly liquidation meets the require-

ments of section 146 (3). In re Porto Rican ..

American Tobacco Co., 112 F. (2d) 655 (C. C. A.

2); 8. L. Witte Ts Associates v. Ebsary Gypsum Co.,

93 F. (2d) 746 (C.C. A. 5); In re Central Fustg

Co., 75 F. (2d) 256 (C,C. A. 2).

_. ‘Phe Cireuit Court of Appeals clearly held that

' the petition lacked good faith because the pending

proceedings in various states would best subserve.

the interests of creditors. The statutes govern-

ing those proceedings (see R. 40-57, 203-209; Pet.

52-56) are liquidation and receivership statutes —

of the type customarily applicable to banks, insur-

ance companies, and other financial corporations. ..

In general the ‘receivers would have jurisdiction.

« -

over only the assets in the states of their respee-

tive appointment, and would have no power to

bring suit to secure assets and ‘surplus deposits

in other states. Booth y. Clark, 17 How. 321, 339;

Great Western Mining Co. v. Harris, 198 U.S.

_ 561; Lion. Bonding Co. v. Karatz, 262 U. S. 77.

Nevertheless the court below concluded that con-

tinuation of the state proceedings would best sub-

serve the interests of the creditors because (1) it.

did not clearly.appear that there wouldsbe any

surplus in any state other than West Virginia;

(2) the mannér of distribution of funds. in each

state had to be: determined ‘in any event accord-—

ing tu state law; and (3) creditors could as well -

. file claims for the West Virginia surplus in. a-

~ West Virginia state court as in the federal court

for West Virginia having — of these

proceedings.

In reaching this iio the court below -

failed to give die weight to circumstances which

should: be. controlling : Setar mee

(1). There‘is need in this case for “the impartial

investigation, into the acts of the management, by

an independent trustee. {as required by section 167 -

of the Bankruptey ‘Act), looking to recoveries for

the benefit of eyeditors. The past history of Fidel-

ity is marked by extravagance and other serious

mismanagement. Many of its officers are now

under ‘indictment. The general advantages of

_ Chapter X asa reorganization statute have been

pointed out by this Court in Securities and Ex-

9”

questions must be settled:

wee

: change Commission v. U. 8. Reilty. df ries

ment Co:,-310 U. 8. 434. These advantages are

. particularly clea? as against the state procedures

-in this case, where one of the West Virginia

receivers is a member of the law firm which has —

been counsel to Fidelity, and is a law. partner of |

one of ‘the Fidelity. officers ‘under indictnient.

_ (2) The diffieult problems of distribution in

this case can best be settled in a single adminis-

tration. Ooneededly if: the respective state ,

deposits were distributed to local creditors there.

would probably” be no surplus in any state.

other than West Virginia (with the possible ex-

ception of Wisconsin, where the assets appear

to be worth more than the cash yalue of the con-.

tracts held ly Wisconsin residents). But, before

there can-be any conclusion that no part of the

assets in any state is available to contract: holders

not resident in that state, the following: difficult

(a) It must first be -determined whether the.

staté deppsits are solely for the’ benefit of local

residentsg-and not for the benefit of all contract

holders: In West Virginia, where clearly non: —

‘residents have an interest ih the deposit, it must

be determined: whether West Virginia creditors

have a preferential interest. :

(b) It. must be determined whether. the loval :

’ deposit is for the beriefit of contract holders who

resided in the state when their - contracts were

g 4

d obs resided . iliere when: the »_depodite, were. —

sei Agi. or who now reside inthe state, a

“aire of. claims” & the ‘eash value of the contracts,

the reserve value,. the amount necessary to mature

)

(d) It must bb determined WW hether ‘states whic h

accepted ‘deposits . from Fidelity t®seenre-con-

tracts in a-partic ular Fidelity series, with knowl-

* edge; that the securities dejosited costituted a

- fund belonging by contract to another. series, ‘may

xX ‘keep such assets. o

t is obvious that sec urity holders: from states:

thou deposits: or states with inadequate depos-

‘a central: administration in.a court of bank-

. ruptey. ' The facile. distributions mentioned 1 in the

_ briefs in opposition, filed by respondents (W. Va.

’ Br. 34, 37; Tenn. Br, 16-19) would be effected only

by lisregarding these questions. We think there -

should be a central administfation even. though

i. the contrac ts, the. amount.paid in, or sdme other R

| ‘amount, ae |

eo ~ litigate ‘these questions in each of the-

- , fifteen States having deposits unless there is. to be

the questions must'be determined according: to state.

law, as remarked by the Cireuit Court of se

(R386) Ne.

ns . :

questions of state law in-cases arising because of diversity in

citizenship of, red paves Erie R.Co.v. Tompkins, 34ULS

64. The coordingfe constitutional jurisdiction of the federal

e *

such as those set out above if determining whether

the interests of the creditors will be best subserved

by the continuation of prior state proceedings, is

‘one of importance. This Court recently granted -

certiorari in a case presenting similar problems.

Marine Harbor Properties, Tnm., Vv. Manufacturers

Trust Co., No. 24, October Term, 1942, certiorari

“granted, 315 U. S..794." Unlike the situation in

the Marine Harbor and Paloma Estates cases, the

property of the debtor here is not all located i ina.

single jurisdiction, but. fs spread through many.

* °" . conciusion. : s

ae Cireuit Court of Appeals erred in holding

that the petition for reorganization should be

7 dismissed. Its decision conflicts * with the deci-

sions of other circuit courts of appeals in holding -

that petitioner Fidelity ‘Assurance Association |

Was an insurance corporation in 1941 and ‘that the

petition was not filed in good faith. The ques-

tions presented are important and warrant con- -

sideration’ by this Court. Tt is therefore respect-

courts im bankrupte: ~y“cases should not remain unexercised

under a permissive statute merely ‘because questions of state

law are raised. The nature of Chapter’ X and of. other

Bankruptcy: Act tapes is such that these ae cal

are normally raised. :

te Another similar case, In re Polotva Estates, ] at. ‘No. ‘89,

October Term, 1942, is. pending on pee “for writ of.

certiorari. . aia

“ we ‘

: i es Cs af. *

The question of thé weight to be given to factors -

fully submitted that the petition for certiorari

shouldebe ar anted.

NA | Cmieia Wie,

Solicitor General,

Ore : - LEONARD: (. MEEKER,

: bE aek ae * Attorney.

iy ouN F. Davis, :

Solicitor,

J ‘Homer Krirkr,

Assistant Solicitér,

/ Justin. N, REIN HARDT,

Attorney, ~e

Securities and, Exchange Cc ommMission.—

_ SEPTEM BER 1942.

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W S$ SOVERMMENT PRINTING OFFICE: 1842 :

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.