Source: https://supreme.justia.com/cases/federal/us/271/191/
Timestamp: 2019-04-22 08:29:50+00:00

Document:
1. A proceeding instituted by a trustee in bankruptcy, in the bankruptcy suit, to recover property in the possession of an adverse claimant, is a controversy in bankruptcy reviewable by the circuit court of appeals, both as to fact and law, by an appeal taken under § 24a of the Bankruptcy Act. P. 271 U. S. 193.
2. A court of bankruptcy is without jurisdiction to adjudicate in a summary proceeding a controversy over property held adversely to the bankrupt estate unless the adverse claimant consent or the claim be merely colorable. P. 271 U. S. 193.
3. An actual claim may be adverse and substantial even though in fact fraudulent and voidable. P. 271 U. S. 194.
4. A claim is to be deemed substantial when the claimant's contention discloses a contested matter of right, involving some fair doubt and reasonable room for controversy, in matters either of fact or law, and is not to be held merely colorable unless the preliminary inquiry shows that it is so unsubstantial and obviously insufficient, either in fact or law, as to be plainly without color of merit, and a mere pretense. P. 271 U. S. 195.
Certiorari to a judgment of the circuit court of appeals reversing an order, made by the district court summarily in a bankruptcy case, requiring the respondent Chamberlin to deliver money, adversely claimed by her, to Harrison, the trustee in bankruptcy.
the respondent was adverse to the trustee, and not merely colorable, and that the district court was therefore without jurisdiction to proceed against the respondent summarily, and the order of the district court was reversed, with instructions to dismiss the proceeding without prejudice to the institution of a plenary action by the trustee in any court of proper jurisdiction. Chamberlin v. Harrison, 298 F. 926. This writ of certiorari was then granted. Harrison v. Chamberlain, 266 U.S. 598.
The contentions of the trustee are: (1) that the circuit court of appeals had no jurisdiction to review the order of the district court under the appeal, and (2) that, even if such jurisdiction existed, the decree reversing that order was erroneous.
1. It is clear that the proceeding instituted by the trustee for the recovery of property in the possession of the respondent, to which she asserted an adverse claim, presented "a controversy arising in a bankruptcy proceeding," as distinguished from an administrative "proceeding" in bankruptcy, which might be reviewed by the circuit court of appeals, as to fact and law, by an appeal taken under § 24a of the Bankruptcy Act. Taylor v. Voss, ante, p. 271 U. S. 176, and cases therein cited; Hinds v. Moore, 134 F. 221, 223; In re Eilers Music House, 270 F. 915, 925.
F. 433, 435, 437. However, the court is not ousted of its jurisdiction by the mere assertion of an adverse claim, but, having the power in the first instance to determine whether it has jurisdiction to proceed, the court may enter upon a preliminary inquiry to determine whether the adverse claim is real and substantial or merely colorable. And if found to be merely colorable, the court may then proceed to adjudicate the merits summarily, but if found to be real and substantial, it must decline to determine the merits and dismiss the summary proceeding. Mueller v. Nugent, supra, 184 U. S. 15; Louisville Trust Co. v. Comingor, supra, 184 U. S. 25; Taubel Co. v. Fox, supra, 264 U. S. 433; May v. Henderson, supra, 268 U. S. 116; Board of Education v. Leary, supra, 236 U. S. 525; Lynch v. Roberson, supra, 287 U. S. 436.
"that a claim alleged to be adverse is only colorably so when, admitting the facts to be as alleged by the claimant, there is, as matter of law, no adverseness in the claim."
It is clear, however, that an actual claim may be adverse and substantial even though in fact "fraudulent and voidable." Mueller v. Nugent, supra, 184 U. S. 15; Johnston v. Spencer, 195 F. 215, 220; Board of Education v. Leary, supra, 236 U. S. 525. And, on the other hand, a claim is merely colorable if "on its face made in bad faith and without any legal justification." May v. Henderson, supra, 268 U. S. 109.
Without entering upon a discussion of various cases in the circuit courts of appeals in which divergent views have been expressed as to the test to be applied in determining whether an adverse claim is substantial or merely colorable, we are of opinion that it is to be deemed of a substantial character when the claimant's contention "discloses a contested matter of right, involving some fair doubt and reasonable room for controversy," Board of Education v. Leary, supra, 527, in matters either of fact or law, and is not to be held merely colorable unless the preliminary inquiry shows that it is so unsubstantial and obviously insufficient, either in fact or law, as to be plainly without color of merit, and a mere pretense. Compare Binderup v. Pathe Exchange, 263 U. S. 291, 295 [argument of counsel -- omitted], and Moore v. New York Cotton Exchange, 270 U. S. 593.
In the present case, it clearly appears that the validity of the respondent's claim depended upon disputed facts, as to which there was a conflict of evidence, as well as a controversy in matter of law. Its determination involved "fair doubt and reasonable room for controversy" both as to fact and law. It was therefore substantial, and not merely colorable, and its merits could only be adjudged in a plenary suit.

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