Sam Stein et al., Petitioners, v. Honorable William R. Collinson, United States District Judgefor the Western District of Missouri, Respondent, Andparkview-gem, Inc., a Delaware Corporation, and Parkview-gemof Hawaii, Inc., a Hawaii Corporation, Real Parties in Interest, 499 F.2d 91 (8th Cir. 1974)

ORDER

The issue presented is whether, in this case, we should prevent the District Court from asserting jurisdiction in a Chapter X reorganization proceeding over the affairs of a solvent subsidiary which is not a party to the proceeding. More specifically, we are asked to nullify by mandamus or prohibition a temporary restraining order of the District Court which effectively precludes petitioners from exercising foreclosure rights as lessor under a lease in which the lessee is the subsidiary.

The reorganization proceedings were instituted in the Western District of Missouri. The leased property is located in Hawaii and consists primarily of retail store space within a shopping center. It has had an interesting history.

The original lease dated February 15, 1968 was for a term ending in 2023 and provided for fixed monthly rental installments and an additional percentage of net sales. On May 31, 1968, Gem International, Inc. acquired the rights of the lessee by assignment. On May 4, 1970, a series of documents were executed, under which (1) Gem International, Inc. assigned its rights in the lease to Alexander J. Barket, Mary Kay Barket and Tudie S. Patti; (2) the assignees executed a sublease to Gem International, Inc. as sublessee; and (3) Parkview-Gem, Inc. guaranteed the performance of the obligations of Gem International, Inc. under the sublease agreement. On April 3, 1972, petitioners acquired the interests of Alexander J. Barket, Mary Kay Barket and Tudie S. Patti. On July 29, 1972, Gem International, Inc. assigned its interests as subleassee to Parkview-Gem of Hawaii, Inc., a wholly-owned subsidiary of Parkview-Gem, Inc., pursuant to a conditional right of assignment contained in the original sublease.¹  Shortly thereafter, on July 31, 1972, Gem International, Inc. was merged into Parkview-Gem, Inc.

On December 18, 1973, Parkview-Gem, Inc. filed a petition for reorganization in the United Sates District Court for the Western District of Missouri. Thereafter, in May, 1974, petitioners notified Gem International, Inc. of their election to exercise their right of cancellation of the sublease by reason of the reorganization proceeding instituted by Parkview-Gem, Inc.²  Upon receipt of such notice, the Trustee of Parkview-Gem, Inc. sought from the District Court for the Western District of Missouri a temporary restraining order to prevent the threatened action. Following a hearing on May 31, 1974, Judge Collinson issued a temporary restraining order enjoining petitioners herein from '(1) taking of continuing any action that threatens the leasehold interest of Parkview-Gem of Hawaii, Inc., (2) interfering with or attempting to interfere with Parkview-Gem of Hawaii, Inc. in a manner that will affect the value of the stock of Parkview-Gem of Hawaii, Inc., (3) seizing or attempting to seize the property of Parkview-Gem of Hawaii, Inc. and (4) filing or threatening to file any proceeding at law or in equity against Parkview-Gem of Hawaii, Inc.' He Further ordered that the temporary restraining order be continued in full force and effect until such time as the court shall have rule on the Trustee's pending motion for a preliminary injunction.

Petitioners contend that Judge Collinson was without jurisdiction to enter the temporary restraining order and that in view of extraordinary monetary damages which petitioners are suffering and will suffer in the future, this court should intervene by way of the issuance of an extraordinary writ.³ 

It is conceded that Parkview-Gem of Hawaii, Inc. is neither insolvent nor a party to the reorganization proceeding. Any jurisdication over the affairs of the subsidiary must therefore depend upon whether the leasehold interest is 'property' of the debtor, Parkview-Gem, Inc., within the meaning of 111 of the Bankruptcy Act:

Where not inconsistent with the provisions of this chapter, the court in which a petition is filed shall, for purposes of this chapter, have exclusive jurisdiction of the debtor and its property, wherever located.

11 U.S.C. 511.

Petitioners contend that the property interests of the subsidiary are not subject to the jurisdiction of the trial court. This contention is in agreement with the general rule that courts in Chapter X proceedings are without jurisdiction to enjoin an action against a subsidiary. 6 Collier on Bankruptcy (14th ed., 1972), 3.11, pp. 500-01. However, there is a recognized exception to this rule where the parent and subsidiary are so completely 'one' that the separate legal identity of the subsidiary may be disregarded, id., and thus it has been stated that 'the meaning of the term 'property' turns on the particular facts of each case * * *.' In re Beck Industries, Inc., 479 F.2d 410, 417 (2d Cir. 1973), cert. denied sub nom. Trustees of Beck Industries, Inc. v. Feldman, 414 U.S. 858, 94 S. Ct. 163, 38 L. Ed. 2d 108 (1973).

In this case, respondents assert that since the subsidiary corporation is not itself in default, and the right of forfeiture is found only in the reorganization proceeding of the parent, the petitioners themselves, by seeking to declare a forfeiture, implicitly recognize that the debtor, Parkview-Gem, Inc., has some property interest in the lease. Attention is drawn to the interrelationship of the parent and the subsidiary arising out of the guarantee agreement, and the significance of the fact that the notice of forfeiture was given to Gem-International rather than Partview-Gem of Hawaii. However these points are resolved, it is clear that significant factual questions, dispositive on the matter of jurisdiction, have been presented to the district court. Since findings and conclusions are yet to be entered, the district court has so far merely assumed a limited jurisdiction in order to determine the jurisdictional issue. Presented as it was with a condition of urgency, we cannot say that it was an abuse of the court's discretion to enter a temporary restraining order to preserve the status quo pending such determination.⁴ 

By seeking mandamus or prohibition relief, petitioners in effect ask us to resolve the jurisdictional issue in the first instance. This we cannot do upon the record presented here. As was said in American Airlines v. Forman, 204 F.2d 230, 232 (3d Cir. 1953):

It is true that this petition (for prohibition or mandamus) * * * challenges what can fairly be called a jurisdictional ruling. But that difference alone is not enough to make a peremptory writ appropriate. * * * The challenged assumption or denial of jurisdiction must be so plainly wrong as to indicate failure to comprehend or refusal to be guided by unambiguous provisions of a statute or settled common law doctrine. If a rational and substantial legal argument can be made in support of the questioned jurisdictional ruling, the case is not appropriate for mandamus or prohibition even though on normal appeal a reviewing court might find reversible error.

See also Holub Industries v. Wyche, 290 F.2d 852 (4th Cir. 1961); Comfort Equipment Co. v. Steckler, 212 F.2d 371 (7th Cir. 1954).

Peremptory writs are extraordinary remedies and are reserved for extraordinary situations. Will v. United States, 389 U.S. 90, 88 S. Ct. 269, 19 L. Ed. 2d 305 (1967). They may not be used as substitutes for an interlocutory appeal. Gialde v. Time, Inc., 480 F.2d 1295 (8th Cir. 1973). Upon an incomplete record, we are unwilling to bypass the limited assumption of jurisdiction by the trial court; we cannot say that the resolution of the jurisdictional issue is so obvious that it may be said that the trial judge has miscomprehended settled law and has exceeded his statutory power. We therefore refuse the writ, without prejudice to petitioners' right to challenge jurisdiction on appeal, and without prejucice to their right to reapply for extraordinary relief in the event of unconscionable delay in the trial court's determination.⁵