Source: https://supreme.justia.com/cases/federal/us/321/178/
Timestamp: 2019-04-19 15:13:11+00:00

Document:
1. In a reorganization proceeding under Ch. X of the Bankruptcy Act, the bankruptcy court has exclusive jurisdiction to determine the amount which shall be allowed out of the bankrupt estate for services of attorneys who, by authority of the bankruptcy court, represented the bankrupt estate in litigation in a state court. P. 321 U. S. 180.
by the fact that the petition was filed and the main suit in the State court litigation was instituted prior to that date. P. 321 U. S. 184.
3. Nor is the result affected by the fact that the litigation in the state court was within the exclusive jurisdiction of that court. P. 321 U. S. 185.
4. It does not appear here that the State has imposed conditions for entry into its courts which are inconsistent with the authority of the bankruptcy court. P. 321 U. S. 186.
5. Assuming that the state court could decline jurisdiction of the suits to enforce claims of the bankrupt estate, it could not take jurisdiction of them but fail to apply the federal rule governing the compensation of those who are employed by the bankruptcy court and who represent it in the state tribunal. P. 321 U. S. 186.
290 N.Y. 468, 49 N.E.2d 718, affirmed.
Certiorari, 320 U.S. 722, to review the reversal of an order of the lower state Courts which fixed the amounts of fees and liens for services rendered by the plaintiffs as attorneys for a bankrupt estate. See also 290 N.Y. 868, 50 N.E.2d 249.
New York Court of Appeals held that that jurisdiction rested exclusively in the bankruptcy court. 290 N.Y. 468, 49 N.E.2d 718. The case is here on a petition for writ of certiorari which we granted because of the importance of the problem under the Bankruptcy Act.
of the state court was overruled, the value of petitioners' services determined, and the liens fixed. Those orders were affirmed by the Appellate Division (264 App.Div. 852, 36 N.Y.S.2d 420), but reversed by the Court of Appeals. And, as we read the opinion of that court, the basis of its decision was that "exclusive jurisdiction" to fix these fees was in the bankruptcy court (290 N.Y. 472, 473, 475, 49 N.E.2d 719, 720), not that New York, as a matter of local law or policy, would not undertake to fix them because of the special circumstances of this case.
Sec. 77B, like § 77 of the Bankruptcy Act, [Footnote 3] had as one of its purposes the establishment of more effective control over reorganization fees and expenses (Dickinson Industrial Site, Inc. v. Cowan, 309 U. S. 382, 309 U. S. 388; Callaghan v. Reconstruction Finance Corp., 297 U. S. 464, 297 U. S. 469) in recognition of the effect which a depletion of the cash resources of the estate may have on both the fairness and feasibility of the plan of reorganization. United States v. Chicago, Milwaukee, St. P. & P. R. Co., 282 U. S. 311, 282 U. S. 333-340 (dissenting opinion). And Ch. X of the Chandler Act, which took the place of § 77B, set up even more comprehensive supervision over compensation and allowances (H.Rep. No.
1409, 75th Cong., 1st Sess., pp. 45, 46) and provided a centralized control over all administration expenses, of which lawyers' fees are a part. Watkins v. Sedberry, 261 U. S. 571. Sec. 241 gives the judge authority to fix "reasonable compensation for services rendered" by various persons, including attorneys for the trustees. Allowances may be made only after hearing and upon notice to specified persons and groups of persons. § 247. Where the reorganization supersedes a prior proceeding in either the federal or state court, the bankruptcy court is the one which is authorized to allow the "reasonable costs and expenses incurred" in the prior proceeding. § 258. In all cases, persons who seek compensation for services or reimbursement for expenses are held to fiduciary standards. § 249; Woods v. City National Bank & Trust Co., 312 U. S. 262, 312 U. S. 267-269. And § 250 contains special appeal provisions governing orders granting or denying allowances. Dickinson Industrial Site, Inc. v. Cowan, supra. Moreover, a plan of reorganization must provide "for the payment of all costs and expenses of administration and other allowances which may be approved or made by the judge." § 216(3). In addition, the plan must provide, in furtherance of the purpose of the Act to protect the security holders against previous acts of mismanagement and to preserve all assets of the estate (S.Rep. No.1916, 75th Cong., 3d Sess., p. 22; H.Rep. No. 1409, supra, pp. 42-44), for retention and enforcement by the trustee of all claims of the debtor or the estate not settled or adjusted in the plan. § 216(13). Finally, § 221(4) provides that, in approving any plan, the judge must be satisfied that "all payments made or promised" by the debtor, the new company, or any other person "for services and for costs and expenses" are not only fully disclosed, but "are reasonable or, if to be fixed after confirmation of the plan, will be subject to the approval of the judge."
court is paramount and exclusive. Gross v. Irving Trust Co., 289 U. S. 342. Thus, the supervention of bankruptcy deprives a state court, in which a receivership was pending, of power to fix the compensation of the receivers and their counsel who were appointed by the state court and who rendered service in the state proceedings. Gross v. Irving Trust Co., supra; Emil v. Hanley, 318 U. S. 515, 318 U. S. 519.
Sherman v. Buckley, 119 F.2d 280, which arose in ordinary bankruptcy, is relied upon for the contrary conclusion. In that case, an action brought by the bankrupt had been pending in the state court for seven years before the adjudication in bankruptcy. The trustee obtained the consent of the bankruptcy court to allow the action to be prosecuted in the state court on behalf of the estate and to substitute attorneys other than those retained by the bankrupt. It was held that the state court could require as a condition upon the substitution the liquidation of the New York charging lien of the displaced attorneys. Whether that case was correctly decided on its facts we need not stop to inquire. It is sufficient to say that it does not state the correct rule of law under Ch. X of the Act.
& Gas Co., 309 U. S. 294, 309 U. S. 303. The state court has full control over the litigation. But, even as an incident thereto, it may not take action which involves the performance of functions which Congress has entrusted to the bankruptcy court. See Eau Claire National Bank v. Jackman, 204 U. S. 522, 204 U. S. 537-538.
The suggestion has been made that New York could open its courts to the prosecution of such suits as the trustees instituted on condition that New York control the legal fees incident to the litigation, and that, so long as New York did not discriminate against those asserting rights under the federal act, such condition would be valid. Cf. Douglas v. New York, N.H. & H. R. Co., 279 U. S. 377. It does not appear, however, that New York has followed that course. The fact that New York has adopted measures designed to protect attorneys practicing in its courts does not demonstrate that New York has made its control over the fees a condition to the use of its tribunals. There is no such indication in the opinion of the New York Court of Appeals. Thus, we cannot say that New York has provided conditions for entry into its courts which collide with a Congressional enactment. We can only assume, therefore, that the case is no different in principle from the one where a state grants to creditors attachments in aid of the collection of their claims. There can be no doubt that such liens could be nullified by supervening bankruptcy, whether the creditor be lawyer or merchant.
fees in the bankruptcy court is no less clear than its purpose to limit the amount of fees in the Hines case. In each, the federal rule is the supreme law of the land.
Respondents sought an order from the bankruptcy court directing petitioners to turn over their papers and memoranda. That motion was resisted by petitioners, who claimed that the New York court had exclusive jurisdiction. Thereupon, a stipulation was entered into with the approval of the bankruptcy court whereby respondents withdrew their motion and petitioners agreed to institute a suit in the state court for fixation of their liens, if any. The parties reserved their right to question the jurisdiction of the state court or bankruptcy court over the matter.
"From the commencement of an action, special or other proceeding in any court or before any state or federal department, except a department of labor, or the service of an answer containing a counterclaim, the attorney who appears for a party has a lien upon his client's cause of action, claim or counterclaim, which attaches to a verdict, report, determination, decision, judgment or final order in his client's favor, and the proceeds thereof in whatever hands they may come, and the lien cannot be affected by any settlement between the parties before or after judgment, final order, or determination. The court, upon the petition of the client or attorney, may determine and enforce the lien."
See Continental Illinois Nat. Bank v. Chicago, Rock Island & P. R. Co., 294 U. S. 648, 294 U. S. 685; Reconstruction Finance Corp. v. Bankers Trust Co., 318 U. S. 163.
The submission of the matter to the state court with objections to its jurisdiction was a procedure which gave that "due regard for comity" suggested by the Court in Gross v. Irving Trust Co., 289 U. S. 342, 289 U. S. 345.
Even if the petition had been approved prior to the effective date of Ch. X, its provisions would have applied in their entirety to the proceedings, provided such approval was within three months prior to that date. § 276(c)(1).
"a. The United States district courts shall have jurisdiction of all controversies at law and in equity, as distinguished from proceedings under this Act, between receivers and trustees as such and adverse claimants, concerning the property acquired or claimed by the receivers or trustees, in the same manner and to the same extent as though such proceedings had not been instituted and such controversies had been between the bankrupts and such adverse claimants."
"b. Suits by the receiver and the trustee shall be brought or prosecuted only in the courts where the bankrupt might have brought or prosecuted them if proceedings under this Act had not been instituted, unless by consent of the defendant, except as provided in sections 60, 67, and 70 of this Act."
See Weinstein, The Bankruptcy Law of 1938 (1938), pp. 63, 64; 2 Collier on Bankruptcy, 14th Ed., pp. 435, 436.
See In re Standard Gas & Electric Co., 119 F.2d 658.
1. Since 1789, rights derived from federal law could be enforced in state courts unless Congress confined their enforcement to the federal courts. This has been so precisely for the same reason that rights created by the British Parliament or by the Legislature of Vermont could be enforced in the New York courts. Neither Congress nor the British Parliament nor the Vermont Legislature has power to confer jurisdiction upon the New York courts. But the jurisdiction conferred upon them by the only authority that has power to create them and to confer jurisdiction upon them -- namely, the lawmaking power of the New York -- enables them to enforce rights no matter what the legislative source of the right may be. See, for instance, United States v. Jones, 109 U. S. 513, 109 U. S. 520.
"If the state does provide a court to which its own citizens may resort in a certain class of cases, it may be that citizens of other states of the Union also would have a right to resort to it in cases of the same class."
"the state courts must make no hostile discrimination against litigants who come within the act in question; . . . they must treat litigants under the federal act as other litigants are treated; . . . they are to act in conformity with their general principles of practice and procedure, and are not to deny jurisdiction merely because the right of action arises under the act of Congress."
Murnan v. Wabash Railway Co., 246 N.Y. 244, 247, 158 N.E. 508, 509.
"rights, whether legal or equitable, acquired under the laws of the United States may be prosecuted in the United States courts, or in the State courts, competent to decide rights of the like character and class, subject, however, to this qualification, that, where a right arises under a law of the United States, Congress may, if it see fit, give to the Federal courts exclusive jurisdiction."
is to be composed, whether it is to be a jury of twelve or less, whether decision is to be by unanimity or majority, whether security is to be furnished, and of what nature -- in sum, whether a state court can take jurisdiction and what the incidents of the litigation should be -- all these are matters wholly within the control of the State creating the court, and without the power of Congress. See, for instance, Minneapolis & St. Louis R. v. Bombolis, 241 U. S. 211. As it was put by Mr. Justice Story in Martin v. Hunter's Lessee, 1 Wheat. 304, 14 U. S. 330-331, "Congress cannot vest any portion of the judicial power of the United States except in courts ordained and established by itself." Congress may avail itself of state courts for the enforcement of federal rights, but it must take the state courts as it finds them, subject to all the conditions for litigation in the state courts that the State has decreed for every other litigant who seeks access to its courts.
"As to the grant of jurisdiction in the Employers' Liability Act, that statute does not purport to require State Courts to entertain suits arising under it, but only to empower them to do so, so far as the authority of the United States is concerned. It may very well be that, if the Supreme Court of New York were given no discretion, being otherwise competent, it would be subject to a duty. But there is nothing in the Act of Congress that purports to force a duty upon such Courts as against an otherwise valid excuse. "
5. The simple fact is that, from 1789 to this day, no act of Congress has attempted to force upon state courts the duty of enforcing any right created by federal law on terms other than those on which like litigation involving rights other than federal rights is required to be conducted in a state court. It certainly has not done so by the Bankruptcy Act, nor can any implication to that effect be derived from the Supremacy Clause of the Constitution. For the Supremacy Clause does not give greater supremacy to the Bankruptcy Act over the free scope of the States to determine what shall be litigated in their courts, and under what conditions, than it gives with reference to rights directly secured by the Constitution, such as those guaranteed by the Full Faith and Credit Clause, see Anglo-American Provision Co. v. Davis Provision Co. No. 1, supra, or with reference to the power exercised by Congress under the Commerce Clause, see Minneapolis & St. Louis R. v. Bombolis, supra.
"as a matter of fact, the retainer of these attorneys was subject to the condition that the amount of any fees would be fixed by the United States District Court."
290 N.Y. 468, 475, 49 N.E.2d 718, 720. The disposition of this case requires neither the assumption made in the Court's opinion relating to New York law nor the application given to Chapter X, both of which must be inescapable before we even reach the constitutional issue needlessly projected.
into New York courts applicable to all other litigants. Congress has never said that it can subvert the declared policy of a State as to the manner in which, or the conditions under which, litigation in state courts should be conducted. The federal law in any field within which Congress is empowered to legislate is the supreme law of the land in the sense that it may supplant state legislation in that field, but not in the sense that it may supplant the existing rules of litigation in state courts. Congress has full power to provide its own courts for litigating federal rights. The state courts belong to the States. They are not subject to the control of Congress, though, of course, state law may, in words or by implication, make the federal rule for conducting litigation the rule that should govern suits to enforce federal rights in the state courts. Surely it cannot be that, should New York decide to regulate the public profession of the law by putting the determination of all attorneys' fees in charge of its courts, Congress could provide that actions thereafter brought in New York courts in the enforcement of federal rights shall not be subject to New York's fee system. I repeat, Hines v. Lowrey, supra, gives no support whatever to a claim which was not involved in that case, which it did not consider, and which runs counter to the whole course of federal judiciary legislation and federal adjudication.

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 § 276
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