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WILLIAMS V. AUSTRIAN, 331 U. S. 642 - Volume 331 - 1947 - Full Text - US Supreme Court Center - USSC Cases - Nolo
US Supreme Court Center > Volume 331 > WILLIAMS V. AUSTRIAN, 331 U. S. 642 (1947) > Full Text
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
Section 2 is substantially identical with § 1 of the Bankruptcy Act of 1867, [Footnote 8] Babbitt v. Dutcher, 216 U. S. 102,
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]
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
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]
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
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
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
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
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
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
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]
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
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
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]
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]
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.
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
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
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
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
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
Lathrop v. Drake, supra, at 91 U. S. 518.
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
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
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
(Analysis of H.R. 12889, 74th Cong., 2d Sess., Committee Print p. 134.)
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
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,
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
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
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
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
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
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
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.
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