Source: https://supreme.justia.com/cases/federal/us/222/300/
Timestamp: 2019-04-23 03:57:39+00:00

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Justia › US Law › US Case Law › US Supreme Court › Volume 222 › Acme Harvester Co. v. Beekman Lumber Co.
The denial of a right claimed under the judgment of a federal court lays the foundation for a review in this Court, and where the state court proceeds to judgment on the ground that bankruptcy proceedings against the defendant had been concluded by denial of adjudication and the injunction against suits in the state court thereby dissolved, this Court has jurisdiction.
of adjudication and to proceed with the election of a trustee and administration of the estate, and it cannot, even if for the benefit of creditors, deny an adjudication and hold jurisdiction over the estate for the purpose of allowing some of the creditors to effect a reorganization and distribution of the property.
With the denial of adjudication, the jurisdiction of the bankruptcy court ends and the property becomes subject to ordinary methods and jurisdiction of courts of competent jurisdiction.
There is no power in the district court to issue an ex parte injunction, without notice or service of process, attempting to restrain a creditor suing in a state outside the jurisdiction of the district court. Ancillary jurisdiction in aid of the jurisdiction of the district court exists under the Act of June 25, 1910, c. 412, 36 Stat. 838. In re Wood & Henderson, 210 U. S. 246, distinguished.
The facts, which involve the jurisdiction of the bankruptcy court, are stated in the opinion.
offices, and the committee to have power to elect a board of directors, who should act until the debts of the company were paid in full, and, when so paid, the shares of stock to be redelivered to the owners. In the circular accompanying the agreement for the signature of the creditors, it was set forth that the affairs of the company were in such shape that, if kept a going concern, the debts could be paid, and deprecating a resort to legal proceedings in court.
receiver in handling a large manufacturing concern like the Acme Harvester Company."
"You may not be aware that United States Judge Kohlsaat has stopped the matter of anyone bringing suit against this company or endeavoring to throw it into bankruptcy, he having decided that we are solvent, and that the only reasonable and fair way to handle the business, paying its debts, etc., is through the medium of the credit committee, elected by our heaviest creditors. This being the case, the only basis on which your claim will receive recognition is by joining with the balance of our creditors, signing the agreement, thus putting yourselves on record that you are a creditor, and are entitled to such dividends as from time to time the committee might declare."
for lumber sold and delivered prior to the institution of the proceedings in bankruptcy. No trustee having been selected in the bankruptcy proceedings, the Acme Harvester Company appeared in the state court to file a motion to stay the proceedings, setting up the pending proceedings in bankruptcy. This motion was sustained on January 11, 1904. On May 14, 1904, motion to stay was overruled, and the former order set aside. On October 3, 1904, a petition was filed in the district court of the United States at Chicago, where the bankruptcy proceedings were pending, for an injunction against the Beekman Lumber Company to restrain it from further pursuing its action in the state court. An injunction was granted, without notice to the Beekman Lumber Company, on ex parte hearing the same day. From reports in the record, it appears that the creditors' committee took charge of the company's property, and, as such committee, made reports to the United States district judge at Chicago of the doings of the committee in the management of the property, purchases, sales, etc. The creditors' committee also issued a statement to the creditors, showing the results of the business, enclosing copies of the reports made to the federal district court, and commending a reorganization of the company on the basis of stock issued to creditors at par, for their claims, and fifty cents on the dollar to creditors who did not go into the reorganization. A circular letter, issued by the committee on April 1, 1905, states that two-thirds of the creditors had already been heard from, about eighty percent (80%) of them desired stock, and the rest preferred fifty percent (50%) in cash.
account was directed and rendered on June 20, 1905, in favor of the plaintiff for the amount of its account. Thereafter, proceedings in review were prosecuted to the Supreme Court of Missouri, and that court held that the district court of the United States had no authority to issue the injunction against proceedings in the state court, and held further that the facts disclosed that the district court of the United States had declined to adjudicate the Acme Harvester Company a bankrupt, and left the property to be administered outside of the Bankruptcy Law, and that the prosecution in bankruptcy had been abandoned. 215 Mo. 221.
A motion to dismiss the proceedings for want of jurisdiction was made in this Court and passed for consideration to the merits. The contention is that, inasmuch as the supreme court of the state found as a matter of fact that the bankruptcy proceedings had been concluded by denial of the adjudication and an abandonment of the proceedings, that this finding of fact is binding upon this Court upon writ of error to the state court, and therefore there is no substantial basis for the writ of error. We are of the opinion that the contention in this respect is not well founded. The defendant below set up a proceeding in a federal court as a protection against further prosecution in the state court. It further set up the issuing of an injunction in the federal court undertaking to stay proceedings in the state court. Thereby the defendant claimed the benefit of a federal right, which brought the case within § 709 of the Revised Statutes of the United States. The denial of a right claimed under the judgment of a court of the United States lays the foundation for a review in this Court. Pittsburgh &c. Railway Co. v. Long Island Loan & Trust Co., 172 U. S. 493; Deposit Bank v. Frankfort, 191 U. S. 499.
reviewing a question of this character. The defendant asserted the power and jurisdiction of the federal court, invoked before the beginning of the state proceedings, and alleged its sufficiency to protect it against further proceedings in the state court. The right of ultimate determination of a contention of that character in this Court cannot be defeated by the finding of the state court that the federal court had exceeded or ended its jurisdiction. The determination of a question of that kind is not a finding upon a disputed question of fact, nor within that class of cases in which this Court has repeatedly held that the facts as found in the state court would be regarded as conclusive here. Moreover, the case involved a construction of the Bankruptcy Act. As the plaintiff in error contended that the proper construction of the act would defeat the jurisdiction of the state court, the adverse ruling gave this Court jurisdiction. Rector v. City Deposit Bank Co., 200 U. S. 405.
Proceeding, then, to the determination of the case upon its merits, the first question is, should the state court have declined to exercise its jurisdiction when the pending proceeding in bankruptcy was set up in denial of the right to entertain further proceedings in the state tribunal? It appears from the facts already stated that the petition in bankruptcy had been filed some time before the attempt to attach the property of the bankrupt in the hands of the garnishee in the state court. There is no dispute upon this record that the money attached was owing to the bankrupt, and was unquestionably its property.
(§§ 70, 21e), with actual or constructive possession, and placed in the custody of the bankruptcy court,"
"property which, prior to the filing of the petition [the bankrupt] . . . could by any means have transferred or which might have been levied upon and sold under judicial process against . . . [the bankrupt]."
for the prompt taking possession of the bankrupt's property, before adjudication, if necessary (§ 69a). Every person is forbidden to receive any property after the filing of the petition, with intent to defeat the purposes of the act. These provisions and others might be recited show the policy and purpose of the Bankruptcy Act to hold the estate in the custody of the court for the benefit of creditors after the filing of the petition and until the question of adjudication is determined. To permit creditors to attach the bankrupt's property between the filing of the petition and the time of adjudication would be to encourage a race of diligence to defeat the purposes of the act and prevent the equal distribution of the estate among all creditors of the same class, which is the policy of the law. The filing of the petition asserts the jurisdiction of the federal court, the issuing of its process brings the defendant into court, the selection of the trustee is to follow upon the adjudication, and thereupon the estate belonging to the bankrupt, held by him or for him, vests in the trustee. Pending the proceedings the law holds the property to abide the decision of the court upon the question of adjudication as effectively as if an attachment had been issued, and prevents creditors from defeating the purposes of the law by bringing separate attachment suits, which would virtually amount to preferences in favor of such creditors. See in this connection the well considered cases of State Bank v. Cox, 143 F. 91; Shawnee County v. Hurley, 169 F. 92, 94.
lost its jurisdiction because of the proceedings had therein. In addition to the facts stated, the Supreme Court of Missouri, in its opinion, said that, at the time of the hearing in that court, five years after the institution of bankruptcy proceedings, counsel admitted that no adjudication in bankruptcy had as yet taken place. The case presented therefore shows that the bankruptcy court, upon the filing of the petition in bankruptcy, found an outstanding creditors' agreement under which it was proposed to administer and distribute the estate. It declined to appoint a receiver; it recognized the propriety of the proceedings of the creditors' committee; it received reports of the creditors' committee, and allowed it for years to go on in the operation of the property, to mature a plan for the settlement of the debts outside of the court and not contemplated in the Bankruptcy Act. The creditors in large numbers signified a purpose to take stock in a reorganization, and for more than five years after the time of the filing of the petition, it was found by the Supreme Court of Missouri, had made no attempt to adjudicate the corporation a bankrupt, or proceed to the settlement of the estate under the requirements of the act.
over the property for the purpose of allowing some of the creditors to effect a reorganization and distribution of the property.
We cannot say that the Supreme Court of Missouri was wrong; indeed, we think it was right in reaching the conclusion that the district court had declined to adjudicate the corporation a bankrupt and vest its property in a trustee, and, deeming it best for the creditors to follow out their plans, had found that the case was not one calling for the intervention of the bankruptcy court. Indeed, there is nothing in the record to contradict the statement of the circular in evidence in the court below that the court had found the corporation solvent. With the question of adjudication determined against the right to proceed in bankruptcy, the jurisdiction of the district court ended, and the property became subject to the ordinary methods of procedure in courts of competent jurisdiction.
It is suggested that even now the bankruptcy court may proceed to an adjudication, but this suggestion is at war with all that has been done with the knowledge and sanction of the district court. As we have seen, the property to be administered in the bankruptcy court is that which belonged to the bankrupt at the filing of the petition, and then subject to his debts. This property can never be recovered. With the sanction of the district court, much of it has been sold, its character has been changed, and it has been dealt with by the creditors' committee regardless of the provisions of the Bankruptcy Law. Many of the creditors have signified their purpose to adjust their claims by taking stock in a reorganization, or fifty cents on the dollar, of the amount of their claims. The whole proceeding makes it clear that the district court denied the adjudication and declined to exercise its jurisdiction as a bankruptcy court.
without notice or service of process, attempting to restrain the Beekman Lumber Company from suing in a state outside the jurisdiction of the district court. Such proceeding could only have binding force upon the lumber company if jurisdiction were obtained over it by proceedings in a court having jurisdiction, and upon service of process upon such creditor.
in the cases just referred to, Congress has passed the Act of June 25, 1910, amending the Bankruptcy Law, specifically giving ancillary jurisdiction over persons and property within their respective territorial limits to the district courts of the United States in aid of the receiver or trustee appointed in a bankruptcy proceeding pending in another court of bankruptcy. Statutes of the U.S. of 1909-1911, part 1, page 838.
Nor is there anything in the decision in In re Wood and Henderson, 210 U. S. 246, running counter to the conclusion herein announced. In that case, it was held, under § 64d, giving the bankruptcy court having jurisdiction of the estate the right to determine the amount of an attorneys' fee paid out of the estate in anticipation of bankruptcy proceedings, that notice might be served outside the district with a view to a hearing to determine the amount of such compensation. In that case, it was expressly held that § 64d was sui generis, and the right to send notice to the attorneys outside of the district was based upon the theory of that section that the property was within the jurisdiction of the bankruptcy court, which could alone determine the amount to be deducted for the attorneys' fee in anticipation of the proceedings, that the proceeding was administrative in character, and that, for its purpose, a hearing might be had upon form of notice sufficient to advise the attorneys that the court was proceeding to act under the authority conferred by the law.

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