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Matched Legal Cases: ['§ 2', '§ 23', '§ 1', '§ 1', '§ 1', '§ 1', '§ 1', '§ 2', '§ 23', '§ 2', '§ 23', '§ 23', '§ 60', '§ 60', '§ 2', '§ 60', '§ 60', '§ 2', '§ 23', '§ 23', '§ 23', '§ 2', '§ 2', '§ 23', '§ 23', '§ 2', '§ 23', '§ 23', '§ 23', '§ 23', '§ 77', '§ 23', '§ 77', '§ 23', '§ 23', '§ 23', '§ 77', '§ 23', '§ 2', '§ 23', '§ 23', '§ 2', '§ 23', '§ 115', '§ 115', '§ 115', '§ 2', '§ 23', '§ 23', '§ 23', '§ 23', '§ 23', '§ 1', '§ 2', '§ 23', '§ 23', '§ 23', '§ 2', '§ 2', '§ 77', '§ 23', '§ 23', '§ 77', '§ 77', '§ 115', '§ 23', '§ 23', '§ 23', '§ 23', '§ 1', '§ 2', '§ 1', '§ 2', '§ 1', '§ 23', '§ 2', '§ 23', '§ 23', '§ 2', '§ 23', '§ 23', '§ 2', '§ 2', '§ 711', '§ 256', '§ 371', '§ 711', '§ 2', '§ 2', '§ 102', '§ 23', '§ 23', '§ 2', '§ 2', '§ 2', '§ 23', '§ 2', '§ 23', '§ 23', '§ 23', '§ 23', '§ 23', '§ 23', '§ 23', '§ 23', '§ 23', '§ 23', '§ 23', '§ 23']

Williams v. Austrian - 331 U.S. 642 (1947) :: Justia US Supreme Court Center
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Williams v. Austrian - 331 U.S. 642 (1947)
Case	U.S. Supreme CourtWilliams v. Austrian, 331 U.S. 642 (1947)Williams v. AustrianNo. 850Argued April 10, 11, 1947Decided June 16, 1947331 U.S. 642CERTIORARI TO THE CIRCUIT COURT OF APPEALS
(a) The phrase "proceedings under this Act," as used in § 2, does not relate solely to summary proceedings, but includes plenary Page 331 U. S. 643 suits as well. Lathrop v. Drake, 91 U. S. 516, followed. Bardes v. Hawarden Bank, 178 U. S. 524, and Schumacher v. Beeler, 293 U. S. 367, distinguished. Pp. 331 U. S. 646-662.
A District Court in New York dismissed for want of jurisdiction a suit brought by trustees appointed by a District Court in Virginia in a reorganization proceeding under Chapter X of the Bankruptcy Act. 67 F.Supp. 223. The Circuit Court of Appeals reversed. 159 F.2d 67. This Court granted certiorari. 330 U.S. 813. Affirmed, p. 331 U. S. 662. Page 331 U. S. 644
Congress, however, in the Chandler Act of 1938, declared the inapplicability of § 23 in reorganization proceedings under Chapter X, and it is upon the significance Page 331 U. S. 645 of this action to the jurisdiction of the federal courts that this case turns. [Footnote 3]
"the Constitution of the United States (Article I, Section 8, Clause 4, and Article III, Section 2), the Act of Congress relating to Bankruptcies (U.S.Code Title 11), and . . . Page 331 U. S. 646 the provisions of Section 24(1), (19) of the Judicial Code. . . ."
Section 2 is substantially identical with § 1 of the Bankruptcy Act of 1867, [Footnote 8] Babbitt v. Dutcher, 216 U. S. 102, Page 331 U. S. 647 216 U. S. 107, and cases dealing with that Act, while recognizing that certain suits brought by bankruptcy assignees should proceed in plenary, rather than summary, fashion, held that § 1 gave jurisdiction to the bankruptcy courts to proceed in both ways. [Footnote 9] And, although certain aspects of a bankruptcy proceeding could be handled only by the court in which the adjudication was had, § 1 conferred upon all bankruptcy courts jurisdiction to hear plenary suits brought by bankruptcy assignees against adverse claimants or against debtors of the bankrupt. [Footnote 10]
Lathrop v. Drake, 91 U. S. 516, viewed the jurisdiction of the district courts in this manner and, we think, contrary to the statements later made in Bardes v. Hawarden Bank, 178 U. S. 524, and Schumacher v. Beeler, 293 U. S. 367, upon which petitioners rely, considered the jurisdiction of the district courts over plenary suits to rest upon § 1 of the 1867 Act. [Footnote 11] Page 331 U. S. 648
Section 2 of the Bankruptcy Act of 1898 substantially repeated the broad grant of jurisdiction contained in § 1 of the 1867 Act. The bankruptcy courts were given "such jurisdiction at law and in equity as will enable them to exercise original jurisdiction in bankruptcy proceedings. . . ." [Footnote 12] But § 2(a)(7), while granting to all bankruptcy courts jurisdiction to collect and to hear controversies Page 331 U. S. 649 relating to the estate of the bankrupt, appended the words "except as herein otherwise provided." The exception had reference to § 23, [Footnote 13] which, in the clause applicable to the district courts, provided that, unless by the consent of the defendant, suits by the bankruptcy trustee should be brought only in the courts where the bankrupt might have brought them if bankruptcy proceedings had not been instituted. In sharp contrast to the broad language of § 2(a)(7), and to the practice under the 1867 Act, [Footnote 14] § 23, in the interest of litigants and witnesses, deliberately directed to the state courts most of a bankruptcy trustee's plenary suits. [Footnote 15] Page 331 U. S. 650
Congressional reaction to the Bardes case was almost immediate. Wishing to allow the trustee to resort to federal courts in recovering fraudulent transfers and preferences, Congress, in 1903, created exceptions to § 23 in favor of suits brought under §§ 60(b), and 67(e); [Footnote 17] and, being doubly cautious, Congress also inserted in §§ 60(b) and 67(e) clauses giving any bankruptcy court jurisdiction to hear plenary suits brought under those sections. [Footnote 18] It was explained at the time by the House judiciary committee Page 331 U. S. 651 that § 2(a)(7) would probably have been ample basis for the jurisdiction of the bankruptcy courts, and that it was only to remove all doubt that §§ 60(b) and 67(e) had also been amended. [Footnote 19]
Where §§ 60(b), 67(e), and 70(e) were not involved, the Bardes rule continued to be applied where plenary proceedings were required, as in cases relating to property adversely Page 331 U. S. 652 held [Footnote 20] and suits upon choses in action belonging to the bankrupt's estate. [Footnote 21] Left for summary disposition under § 2 were those proceedings in which the controversy related to property in the possession or constructive possession of the court or to property held by those asserting no truly adverse claim. [Footnote 22]
From its inception, § 23 contained a clause seemingly mitigating the rigors of the jurisdictional requirements imposed. A trustee, "unless by consent of the proposed defendant," could bring suit only in courts where the bankrupt could have sued. Subsequent to the Bardes case, some lower federal courts held that, even with the consent of a defendant, some independent ground for federal jurisdiction must be present. [Footnote 23] The conflict was resolved in Schumacher v. Beeler, supra. It was held that, in § 23, Congress had exercised its bankruptcy powers to confer upon federal courts jurisdiction conditioned upon a defendant's consent, [Footnote 24] and that, given consent, no independent Page 331 U. S. 653 ground for federal jurisdiction was required. The case turned upon the meaning of the consent clause in § 23. The remarks offered concerning § 2 were unnecessary, and, in any event, were based upon the similar statements made in Bardes v. Hawarden Bank, supra.
The Beeler decision, like that in the Bardes case, does not direct a conclusion that § 2, in the absence of § 23, confers only a summary jurisdiction; for it was because of the limitations of § 23 that plenary suits had been excluded from the otherwise broad scope of § 2. [Footnote 25] Cases construing the latter in the presence of the overriding prohibitions of Page 331 U. S. 654 § 23 are not persuasive in a situation where, for the first time, § 23 has been declared inoperative.
The committee reports and Congressional debates do not elaborate upon the decision to eliminate § 23, [Footnote 27] and the hearings reveal only that § 23 was one of several sections which the National Bankruptcy Conference desired to eliminate, and which might be held applicable if not expressly deleted. [Footnote 28] However, the action occurred in the Page 331 U. S. 655 process of developing a workable reorganization technique and should be viewed in that context. While an equity receivership court had dependent jurisdiction, regardless of diversity or other independent grounds for federal jurisdiction, to hear plenary suits related to the estate of the Page 331 U. S. 656 debtor, [Footnote 29] under § 77B, which made reorganization of nonrailroad corporations a part of the bankruptcy scheme, it was believed in some quarters that § 23 would have its traditional effect upon the jurisdiction of federal courts to hear plenary suits, even though the reorganization court was given the "powers" of an equity receivership court. [Footnote 30] Other commentators, thinking that § 77B should not provide a less efficient procedure than the equity receivership, considered § 23 inapplicable to 77B cases and regarded the reorganization courts as having jurisdiction to hear plenary suits. [Footnote 31] The controversy had not been settled when Congressional committees were considering the bill which became the Chandler Act of 1938, and such a background for the suspension of § 23 in Chapter X cases obviously raises no inference of a desire to restrict, rather than to expand, the jurisdiction of the federal courts.
To interpret the elimination of § 23 in Chapter X cases as restricting the access of the trustee to the federal courts would not be in harmony with other provisions contemporaneously written into Chapter X and defining anew the position and functions of the reorganization trustee. The appointment of a disinterested trustee was made mandatory in appropriate cases, [Footnote 32] his qualifications were prescribed, [Footnote 33] Page 331 U. S. 657 and upon him were devolved functions aimed at eliminating the abuses of previous reorganization schemes. [Footnote 34] It was his duty to prepare the reorganization plan, [Footnote 35] and there were conferred upon him investigative powers and duties [Footnote 36] which not only contemplated the discovery of wrongs done the debtor by its former management, but also insured the "prosecution of all causes of action" which might "add to the assets of corporations in reorganization." [Footnote 37] These provisions were "of paramount importance in the revision of § 77B," [Footnote 38] and are hardly indicative of a Congressional desire to restrict the trustee's choice of a forum in which to litigate plenary suits. On the contrary, the conclusion more in accord with the purposes of Chapter X and with the pivotal position in which the trustee was placed [Footnote 39] is that Congress Page 331 U. S. 658 intended by the elimination of § 23 to establish the jurisdiction of federal courts to hear plenary suits brought by a reorganization trustee, even though diversity or other usual ground for federal jurisdiction is lacking.
The decision of the Circuit Court of Appeals is in entire harmony with the foregoing considerations. The language of § 2, in its ordinary sense and no longer limited by § 23, easily comprehends the present type of suit, and so to hold directly and effectively subserves Congressional desires as revealed in the plain policy of Chapter X and in the express elimination of § 23, which has, since its enactment in 1898, been viewed as a sharp restriction upon the jurisdiction theretofore exercised by bankruptcy courts, and as a strong preference for state courts. [Footnote 40] Since all reorganization courts are the objects of the jurisdiction conferred by § 2, [Footnote 41] the District Court for the Southern District of New York has jurisdiction to hear the present suit, which is brought by reorganization trustees and which charges misappropriation of the assets of a Chapter X debtor. [Footnote 42] "This seems to be the only logical conclusion to Page 331 U. S. 659 be derived from the fact that § 23 has no application under Chapter X." [Footnote 43]
3. Respondents, in the alternative, argue that the equity receivership powers conferred by § 115 [Footnote 44] include jurisdiction to hear plenary suits, and that all reorganization courts may exercise the jurisdiction so conferred. Petitioners would, in any event, confine the effects of § 115 to the reorganization court in which the reorganization petition has been approved. We need not pass on these contentions, for, assuming that § 115 is jurisdictional [Footnote 45] Page 331 U. S. 660 and that it extends only to the primary court, jurisdiction in the present case may still be rested upon § 2. That section, in the absence of § 23, supports the jurisdiction of all district courts to hear plenary suits brought by a reorganization trustee, a result consistent with the aims of Chapter X and with the elimination of a section which is itself applicable to all district courts. Congress could have carved out of § 23 only a narrow exception in favor of the court in which the reorganization proceedings are pending, and thereby left unchanged the jurisdiction of other courts over a trustee's plenary suits. Limited exceptions are familiar in the history of § 23. But Congress went further, and eliminated § 23 entirely in Chapter X proceedings. Because of the country-wide ramifications of corporate debtors placed in Chapter X reorganization, it is as usual as not for the trustee to resort to foreign jurisdictions for the disposition of plenary suits. Allowing the primary court to hear these suits will not change this situation if it is true that the process of a reorganization court does not run nationwide in plenary cases. [Footnote 46] Page 331 U. S. 661 Congressional policy would receive only limited recognition if the suspension of § 23 is interpreted as allowing the trustee access to only the appointing court and as restricting his access to all other district courts. [Footnote 47]
4. Our holding is, of course, that Congress, in 1938, extended the jurisdiction of the reorganization courts beyond that exercised by ordinary bankruptcy courts. Section 2 of the 1898 Act contained the broad language borrowed from § 1 of the Act of 1867. But the exception to § 2(a)(7) acknowledged the overriding limitations of § 23, which was the embodiment of Congressional policy to exclude from the bankruptcy courts many of the trustee's plenary suits. That same meaningful section was expressly eliminated in 1938 in the process of perfecting a chapter of the Bankruptcy Act dealing with the distinctive and special proceedings in corporate reorganization. Cf. Continental Bank v. Rock Island R. Co., 294 U. S. 648, 294 U. S. 676. This negation of longstanding policy should be given effect consistent with the aims of Chapter X, and should not be hedged by judge-made principles not in accord with those aims. Congress need not document its specific actions in elaborate fashion in order to direct this Court's attention to statutory policy and purpose. Page 331 U. S. 662 The failure to provide appropriate fanfare for the suspension of § 23 in Chapter X cases, and for the consequent expansion of federal jurisdiction, hardly invites our opinion as to the advisability of the action which Congress has taken. Judicial drives to limit the jurisdiction of federal courts should not lead to decision falling short of complete effectuation of statutory scheme. With the limitations of § 23 suspended, § 2 confers jurisdiction upon all reorganization courts to hear plenary suits brought by a Chapter X trustee.
In re Hammond, 98 F. 845, 853.
In re Woodbury, 98 F. 833; In re Hammond, 98 F. 845; Louisville Trust Co. v. Marx, 98 F. 456.
"Section 9: Under the law of 1867, the Federal and State courts had concurrent jurisdiction of suits to recover property fraudulently or preferentially transferred. Bardes v. Bank of Hawarden (Iowa), 178 U. S. 524, has so construed section 23(b) of the law as to deny such jurisdiction to the district courts, save with the consent of the proposed defendant. In commercial centers, this amounts to a denial of justice, the calendars of the State courts being years behindhand, while, growing out of Bardes v. Bank have come decisions which have crippled the administration of the law to a marked degree. (See In re Ward (Mass.), 5 A.B.R. 215; Mueller v. Nugent (Ky.), 105 F. 581; this latter, however, recently reversed by the Supreme Court.) There is a very general demand for a return to the policy of the law of 1867. Were it not for section 23(b), section 2(a)(7) would probably confer ample jurisdiction on the district courts. The change in section 23(b) proposed by the bill simply excepts from the operation of it all suits which can, under the specific words of the law, be brought to recover property, and this merely by referring to the three sections under which alone such suits can be brought. To remove all doubt, also, sections 13 and 16 of the bill confer concurrent jurisdiction of all such suits on the State courts and the Federal district courts, by adding appropriate words to each of the three sections, section 60(b), section 67(e), and section 70(e)."
Kelly v. Gill, 245 U. S. 116; In re Roman, 23 F.2d 556; Lynch v. Bronson, 177 F. 605.
Matthew v. Coppin, 32 F.2d 100, 101; see Stiefel v. 14th Street & Broadway Realty Corp., 48 F.2d 1041, 1043; Coyle v. Duncan Spangler Coal Co., 288 F. 897, 901; Operators' Piano Co. v. First Wisconsin Trust Co., 283 F. 904, 906; De Friece v. Bryant, 232 F. 233, 236; McEldowney v. Card, 193 F. 475, 479. Contra: Beeler v. Schumacher, 71 F.2d 831; Toledo Fence & Post Co. v. Lyons, 290 F. 637, 645.
Lynch v. Bronson, 160 F. 139, 140. See also Lowenstein v. Reikes, 54 F.2d 481, 485 (dissenting opinion), and the analysis of the interplay of §§ 2 and 23 in Ross, Federal Jurisdiction in Suits by Trustees in Bankruptcy, 20 Iowa L.Rev. 565 (1935), which was written after the Beeler decision.
The similar "powers" provision in § 77B has been viewed as nonjurisdictional. In re Standard Gas & Electric Co., 119 F.2d 658, 662; see In re Prima Co., 98 F.2d 952, 958. These cases were decided after the passage of the Chandler Act, and considered § 23 fully applicable in pending 77B proceedings. In Tilton v. Model Taxi Corp., 112 F.2d 86, § 23 was considered applicable in § 77B proceedings so as to permit jurisdiction of the district court to be based upon a defendant's consent. And see Thompson v. Terminal Shares, 104 F.2d 1, for a treatment of a similar provision contained in § 77. On the other hand, § 115 has been interpreted as jurisdictional. In re Cuyahoga Finance Co., 136 F.2d 18; see Warder v. Brady, 115 F.2d 89, 93, 94. Other courts have thought the suspension of § 23 in Chapter X cases would give the reorganization court jurisdiction to hear plenary suits. See Clarke v. Fitch, CCH Bankr.Law Ser. � 53,805 (1942); Tilton v. Model Taxi Corp., supra, 112 F.2d at 88.
It has been so held. In re Standard Gas & Electric Co., 119 F.2d 658; Bovay v. H. M. Byllesby & Co., 88 F.2d 990; United States v. Tacoma Oriental S.S. Co., 86 F.2d 363; Clarke v. Fitch, CCH Bankr.Law Ser. � 53,805 (1942).
The Court makes a shift in the distribution of judicial power between State and federal courts which has prevailed for half a century. Such a break with the past is Page 331 U. S. 663 not required by what Congress has written, nor by any inference drawn from disclosed Congressional policies. On the contrary, I believe that the result reached is repelled by every consideration relevant to the proper construction of the statutory materials by which the jurisdiction of the federal courts is to be determined.
In 1867, Congress granted jurisdiction to the then lower federal courts over suits on claims owing to one whose estate was administered in bankruptcy, though the claims were based wholly on local law and were devoid of any federal aspect which would give a federal court jurisdiction were the creditor not in bankruptcy. This was another one of those enactments of the Reconstruction period when the influences toward expansion of federal jurisdiction were at flood-tide. As part of the recession from this Reconstruction tendency, Congress, in the Bankruptcy Act of 1898, withdrew from the federal courts suits that rested solely on local law even though they involved claims asserted on behalf of one whose estate was being administered in the bankruptcy court. By a tenuous process of implication, the Court now concludes that Congress, through the Chandler Act of 1938, enlarged federal jurisdiction in one aspect of the bankruptcy law, though neither the terms of the legislation, nor its context, nor its legislative history, nor considerations of policy heretofore suggested, call for such construction, while the history and structure of the legislation, its judicial interpretation, regard for congruity in finding meaning, and the larger claims of the federal judicial system support a different reading of the statute. The large assumptions of the decision are that, by indirection and without manifested design, Congress reversed its prevailing policy of limiting federal jurisdiction and preserving a proper balance between federal and State courts; that Congress deviated from a principle of our federalism especially respected in recent times, according to which claims arising under State Page 331 U. S. 664 law shall be tried under local trial procedure in the local courts; that Congress has departed from a settled policy of fifty years uniformly applicable in bankruptcy proceedings and which now continues as to all other proceedings in bankruptcy, although this established policy of leaving local claims to the State courts does not at all interfere with those aims for effective reorganization through use of the bankruptcy power which gave rise to Chapter X.
No doubt Congress could authorize such a suit. See Schumacher v. Beeler, 293 U. S. 367, 293 U. S. 374. Nor is there any doubt that Congress has not conferred upon the district courts the power to entertain such a suit by an ordinary bankruptcy trustee. Section 23 of the Bankruptcy Act specifically limits plenary jurisdiction to a few enumerated cases (of which this is not one), or where defendant consents. The Court finds, however, that Congress, by making § 23 inapplicable to Chapter X proceedings, opened all the federal courts to plenary suits by a Chapter X trustee. To determine the significance of the inapplicability Page 331 U. S. 665 of § 23 to Chapter X proceedings, it is necessary to consider the affiliations between the Bankruptcy Act of 1898 and the Chandler Act. That, in turn, makes it necessary to examine the Act of 1898 in relation to its predecessor, the Act of 1867. These three enactments -- the Bankruptcy Act of 1867, the Bankruptcy Act of 1898, and the Bankruptcy Act of 1938 -- are an interrelated process of legislation. The role of § 23 cannot be properly assessed merely by a textual reading, or by ascertaining its presence or absence in these three Acts. It must be placed in the context of the history of the Act of 1867 and of the Act of 1898, and the relation of that history to the aims of the Chandler Act.
91 U.S. at 91 U. S. 517. But the terms of the Act were read to confer the latter jurisdiction on the lower federal courts. It is worth noting that Mr. Justice Bradley was a well known exponent of expansive Page 331 U. S. 666 federal jurisdiction. See, e.g., his dissenting opinion in Murdock v. Memphis, 20 Wall. 590, 87 U. S. 639.
4. The shift in jurisdictional direction was duly respected when the Act of 1898 first came here for construction. Speaking for a unanimous Court, Mr. Justice Gray pointed out the marked structural differences between Page 331 U. S. 667 the Act of 1898 and that of 1867. The latter granted summary jurisdiction to the district court in § 1; plenary jurisdiction was conferred by § 2 on district and circuit courts concurrently of "suits at law or in equity, between the assignee in bankruptcy and an adverse claimant." The Act of 1898 took over § 1 of the Act of 1867, and discarded § 2. Section 2 of the Act of 1898, derived from § 1 of the 1867 Act, confers only summary jurisdiction. Plenary jurisdiction was not conferred by the Act of 1898 on either the district or circuit courts, except to the very limited extent granted by § 23.
Lathrop v. Drake, supra, at 91 U. S. 518. Page 331 U. S. 668
6. But we are now told that the Bardes and Schumacher cases misconstrued the Act of 1898 and its relation to that of 1867. The opinions of Mr. Justice Gray and Mr. Chief Justice Hughes were, according to this view, the products of misreading of judicial history and of a faulty analysis of the Act of 1898. Indeed, the foundation of the decision of the court below and of the argument at the bar of this Court is the claim that the construction placed upon the jurisdictional Act of 1898 by the Bardes and Schumacher cases was erroneous, and to be rejected without compunction because, after all, merely the expression of erroneous dicta. Whether the discussion of the whole structure of an Act in order to find meaning for a particular part more immediately in litigation constitutes dicta, in the technical sense, is a nice exercise in legal Page 331 U. S. 669 dialectics. The fact of the matter is that it was rationally relevant to the problem calling for adjudication in the Bardes cases to consider comprehensively the relation of the Act of 1898 to that of 1867. The view that was taken had the strength that comes not only from a unanimous Court, but one contemporaneous with the legislation under scrutiny. And when the construction so placed upon an Act is reaffirmed thirty-four years later by a Court particularly strong in justices who had had extensive experience in commercial law, it seems pretty late in the day to suggest that such weighty constructions by this Court are now to be found wrong. [Footnote 2/1] The court below was driven to this drastic undertaking. For if § 2 of the Act of 1898 is the source solely of summary proceedings in bankruptcy, and jurisdiction for plenary suits, to a limited extent, was granted solely by § 23, the elimination of § 23 for purposes of Chapter X cannot serve to put into § 2 a plenary jurisdiction which was never there.
7. To reexamine the ground covered in the Bardes and Schumacher cases would, as it seems to me, be a work of supererogation. And so I will content myself with some observations pertinent to a proper view of the Act of 1898 as an entirety. The different features of an organic statute Page 331 U. S. 670 are not discrete parts. They cast light upon each other and illumine the whole. The Act of 1898 was read as it was by this Court because it established a comprehensive bankruptcy scheme. Sections 2 and 23 were read in combination, for they drew a sharp line between "proceedings in bankruptcy" and plenary "suits at law or in equity." For fifty years, it has been the policy of Congress that a bankruptcy trustee bringing an action like that before us should sue in a State court. (This, of course, includes a federal court sitting in the State where there is diversity of citizenship. Erie R. Co. v. Tompkins, 304 U. S. 64; Guaranty Trust Company v. York, 326 U. S. 99.) Howsoever any section of the Act of 1898 might have been read had it existed by itself, on a view of the Act as an entirety, it was settled that summary proceedings may be brought in any federal court, whereas plenary suits at law and in equity, distinguished as such from proceedings in bankruptcy, can be brought only where they could have been brought between the bankrupt and the opposing party had there been no bankruptcy. Section 2 had an intrinsically limited scope in its setting with § 23. The scope continues so limited, and does not automatically expand because § 23 is pro tanto eliminated.
Bardes v. Hawarden Bank, supra, at 178 U. S. 538; Schumacher v. Beeler, supra, at 293 U. S. 374. Congress saw good reason for not infringing on the ordinary jurisdiction of State courts where a suit is not really part of the bankruptcy proceedings. It chose to leave such litigation to the appropriate local practice and local rules Page 331 U. S. 671 concerning jury trial in the local court, and at the same time to relieve thereby an overworked federal judiciary.
(Analysis of H.R. 12889, 74th Cong., 2d Sess., Committee Print p. 134.) Page 331 U. S. 672
The indicated exceptions do not touch the jurisdiction here asserted. Yet the Court now concludes that as to Chapter X trustees Congress implied an exception so as to allow the trustee to sue in any federal district court in the country. If this be so, I see no escape from the conclusion that not only have the federal courts jurisdiction. but the State courts no longer have it. Consideration of so destructive a consequence ought not to be postponed as though it were not immediately relevant to the proper construction of the legislation before us. If such suits are "bankruptcy proceedings" [Footnote 2/2] within the jurisdictional grant of § 2 -- for it is necessary to find in some language an explicit grant of jurisdiction, and only § 2 is invoked -- how can the bankruptcy aspect of the proceeding evaporate when it comes to "matters and proceedings in bankruptcy" as to which "[t]he jurisdiction vested in the courts of the United States . . . shall be exclusive of the courts of the several States"? Rev.Stat. § 711, Judicial Code, § 256, 28 U.S.C. § 371. No support can be found for this shifting attribution of meaning to the same concept in the history of proceedings under the Act of 1867. To be sure, it was held under that Act that the State courts were not deprived of jurisdiction of such plenary suits. But that was so far the conclusive reason that the provision making federal jurisdiction exclusive in bankruptcy proceedings came into the law much later than the Act of 1867. Federal exclusiveness as to bankruptcy proceedings, formally so-called, was brought in by § 711 of the Revised Statutes of 1874. During the few years within which the Bankruptcy Act of 1867 coexisted with the requirement of exclusiveness of jurisdiction in the federal courts, the occasion did not arise for applying the provision excluding the State courts. But this Court was well aware of the problem, and carefully put Page 331 U. S. 673 it to one side. See Claflin v. Houseman, 93 U. S. 130, 93 U. S. 133, and Wilson v. Goodrich, 154 U. S. 640. Intrinsically, that question now presses for decision. If plenary suits are "bankruptcy proceedings" within § 2 of the Act of 1898, as the Court holds, how do they cease to be "proceedings in bankruptcy" as to which the federal courts have jurisdiction "exclusive" of the jurisdiction of the several States? [Footnote 2/3] Only a forced disharmony can avoid the grievous consequences of a construction equally forced as to the relations between §§ 2 and 23 of the Act of 1898.
9. The Court finds a reversal in the policy of contraction of federal jurisdiction which began with the end of the Reconstruction era, found expression in cases culminating in Gully v. First National Bank, 299 U. S. 109, and undoubtedly furnished the momentum for the radical reversal of historic policy initiated by Erie R. Co. v. Tompkins, 304 U. S. 64. The Court extends the jurisdiction of the federal courts and, I cannot escape concluding, withdraws it from the State courts. It resolves whatever ambiguity may be found in § 102 of Chapter X by interpolating an exception which effects a break with the past and creates difficulties for the future. One would naturally expect that such an innovation in a matter of vital concern to the scope of federal jurisdiction, with its resulting effect upon the relations between the State and federal courts, would be explicitly stated, and not depend for discovery upon intricate exegesis. One would suppose that some indication at least of Congressional awareness of the problem could be found. Diligence of counsel has not unearthed the remotest hint that such shift in jurisdiction was contemplated, or that the need for it was asserted. Our own investigation has been equally fruitless. There is nothing in Chapter X, in its terms, Page 331 U. S. 674 its antecedents, its history, its advocacy, that gives the remotest hint of a purpose calling for a different policy for reorganization trustees in this respect from other trustees in bankruptcy, or any intimation that the district courts, other than the particular reorganization court, would play a special role as to plenary suits in reorganization proceedings. Nor do the purposes of the Chandler Act bear upon this aspect of jurisdiction. Chapter X provided new facilities for reorganization of bankrupt estates and extended the scope of reorganizations. But it is hardly relevant to the purpose of easier and more comprehensive methods of reorganization to establish a claim through the federal courts, rather than the State courts, when the basis of recovery is State law, calling for application of State law and procedure. The Court draws support for its conclusion from the fact that other powers are conferred upon the Chapter X trustee which were not possessed by other bankruptcy trustees. But the powers to which attention is called are all explicitly conferred and are not derived by roundabout inference. And, unlike the extension of jurisdiction here claimed, the additional powers conferred on the trustee all bear directly upon the very process of reorganization and the purposes for which Chapter X was designed.
The result has been spun largely out of words in the Act of 1898 by disregarding the controlling facts of its history and its long judicial and practical construction. The other source from which the argument is spun is the provision making § 23 inapplicable to proceedings under Chapter X. As we have seen, our decisions ruled that § 23 was not an exception to § 2, but an emphasis of the limited scope of § 2, together with a grant, of little importance, of consent jurisdiction. [Footnote 2/4] If § 2 did not grant Page 331 U. S. 675 jurisdiction to the district courts over a plenary suit like the one before us, merely eliminating § 23 could add no new head of jurisdiction to § 2. And yet the Court finds that the purpose of making § 23 inapplicable to Chapter X was to throw all the federal courts open to plenary suits in Chapter X proceedings, although, as we have seen, not a clear expression either of such purpose, or an assessment of its consequences, is to be found in all the literature on this subject prior to this litigation. If a perfectly reasonable explanation can be given to the elimination of § 23 from Chapter X proceedings, we ought not lightly to attribute to Congress a radical change affecting the jurisdiction of the federal courts, without even an indirect mention of the need or desirability for such a change in the thousands of pages of legislative hearings, debates, and reports on the various bills leading up to the Chandler Act.
The provision to make § 23 inapplicable did not appear in the earlier drafts of Chapter X, and was not in the bill as it came from the House. It came into the Act through amendments proposed before the Judiciary Committee of the Senate by the National Bankruptcy Conference through its spokesman, Mr. John Gerdes. His statement is all we have by way of legislative history for Page 331 U. S. 676 the amendment. [Footnote 2/5] It will be noted that Mr. Gerdes intimated nothing regarding the need for extending federal jurisdiction, nothing of the desirability of granting Page 331 U. S. 677 plenary jurisdiction to all federal courts, nothing to the effect that a Chapter X trustee needed such greater freedom, nothing to indicate that the plan of that Chapter required a different rule as to ordinary plenary suits from that which was reaffirmed as to suits by other bankruptcy trustees. Yet the court below seemed to find in his statement warrant for its result. And it sought to reenforce its conclusion by appeal to an article by Mr. Gerdes elucidating the Chandler Act after its passage. Gerdes, Corporate Reorganizations: Changes Effected by Chapter X of the Reorganization Act, 52 Harv.L.Rev. 1, 21.
The Circuit Court of Appeals, it seems to me, finds in Mr. Gerdes' observations what he did not put into them. Nowhere is there the remotest suggestion that, in this roundabout and undisclosed way, he sought to throw all litigation by or against a reorganization trustee into federal courts, other than the reorganization court, because the federal courts might be a more convenient forum. He was concerned with various provisions, of which § 23 was one, which either were intrinsically in conflict with the new provisions of Chapter X or might be deemed to be in conflict with them. He used the terms "inconsistent" and "not applicable" interchangeably. He was concerned with removing all limitations in the existing Bankruptcy Act that were inconsistent with provisions in Chapter X, limitations which might impair the new scheme for bankruptcy reorganization. While Mr. Gerdes was not explicit as to possible inconsistency between § 23 and Chapter X, a controversy which had arisen in regard to § 23 prior to Page 331 U. S. 678 the Chandler Act, and with which he was thoroughly familiar, fully explains why Mr. Gerdes deemed it desirable that § 23 be made inapplicable to Chapter X.
To remove doubt as to this effect of § 23 -- namely its possible limitation upon the power of the reorganization trustee to sue in his home court -- is the full purpose and scope of its elimination from Chapter X. It was not to give the reorganization trustee roving authority for plenary suits in all federal courts that § 23 was made inapplicable. It was a desire to remove the danger that § 23 might be deemed to deprive a reorganization trustee of the power which he ought to have in his reorganization court, that was implicit in the short statement of Mr. Gerdes on behalf of the National Bankruptcy Conference. It is this purpose that prevailed, and it is this purpose that should be enforced, and not a radical departure upsetting the distribution of jurisdiction between State and federal courts, for which there is not a vestige of a claim by anybody in the history that led up to the legislation. The article of Mr. Gerdes to which the court below refers seems to leave no doubt as to the limited purpose of making Page 331 U. S. 679 § 23 inapplicable. "The bankruptcy provision restricting plenary jurisdiction," he wrote,
This construction gives scope to the provision making § 23 inapplicable in Chapter X proceedings. It is consistent with the policy of the whole Bankruptcy Act, and gives effect to the grant of equity powers to the reorganization court. On the other hand, nothing in the policy of the Chandler Act, in its language, in its history, or in any other factor relevant to its construction, justifies a Page 331 U. S. 680 finding that Congress, by implication and indirection, without comment or discussion, changed the meaning which this Court had given to its legislation for fifty years, and expanded a federal jurisdiction which is already overburdened and which Congress has tended to contract; that it upset the relation between federal and State courts which demands that, even in bankruptcy, claims created by State law be litigated in local courts, applying local law under local rules of procedure and trial practice, "to the greater economy and convenience of litigants and witnesses."
When Congress has not, by plain language, extended the jurisdiction of the district courts which are the feeders of the Circuit Courts of Appeals and of this Court, an unexpressed purpose to swell the dockets of the federal judiciary ought not to be attributed to Congress by considering in isolation the desirability of allowing a particular class of litigation to be brought in a federal court. Any advantage of giving jurisdiction to the federal courts must be balanced against the disadvantages of taking away from the State courts causes of action rooted in State law. Page 331 U. S. 681 And, in considering the advantages of absorption by the federal courts of jurisdiction theretofore vested in the State courts, it should be our special concern to be mindful that the district courts are part of a single judicial system. Increase in the scope of the business of the district courts inevitably reflects itself in the business of the Circuit Courts of Appeals and of this Court. It is a truism, but vital to keep in mind, that increase in the quantity of the Court's business affects the quality of its work. [Footnote 2/7]
Where Congress has clearly enlarged the jurisdiction of the district courts, it cannot be withheld no matter what the effect upon the dockets. But, where Congress has not manifested its purpose with clarity -- more particularly, where such purpose is derived by way of elaborate argumentation Page 331 U. S. 682 -- resolution of jurisdictional doubts properly takes into account the strong policy of Congress, expressed through a series of judiciary acts, not to cast burdens upon the federal courts which interfere with the effective discharge of their functions. See, for instance, American Security and Trust Co. v. District of Columbia, 224 U. S. 491, and Phillips v. United States, 312 U. S. 246, 312 U. S. 250-251. These are considerations that will seem far afield to the issues of this case only if its decision is not related to the workings of the federal judiciary in the light of its history.