Court Opinion

ID: 8791043
Source: CourtListenerOpinion
Date Created: 2022-11-26 13:51:27.609525+00
Date Added: 2024-06-11T17:03:21.571836
License: Public Domain

KOHLS AAT, Circuit Judge
(after stating the facts as above). The main question here presented is whether or not it was error for the District Court to permit the introduction into this bankruptcy proceeding of an independent and entirely irrelevant matter. For respondent it is claimed that by analogy the law and practice relative to permitting suits against receivers is applicable to trustees in bankruptcy. If this be so, then the District Court had the power, in its legal discretion, to permit the garnishment of the trustee. Undoubtedly the bankruptcy court has power to permit suit against its trustee or receiver with reference to liens upon or title to specific property claimed by the trustee. This, however, is not such a case. Here the respondent sought to create a lien. The effect is to inject into' the bankruptcy proceedings a suit to enforce payment of a claim against a creditor of the bankrupt, a matter in which the trustee was not concerned and one neither covered nor contemplated by the bankruptcy act. Clause 2 of section 47 of the Act July 1, 1898, c. 541, 30 Stat. 557 (U. S. Comp. St 1901, p. 3438), requires the trustee to “close up the estate as expeditiously as is compatible with the best interests of the parties in interest.” Clause 9 of said section directs the trustee to “pay dividends within ten days after they are declared by the referee.”
It is apparent that any attempt to adjust the rights of a creditor of the bankrupt as against the rights of one seeking to, enforce a claim against the creditor’s dividend must, when carried out to its logical result, place an additional burden upon the bankruptcy court and work a delay in the settlement of the estate. It is conceivable that garnishment proceedings may be prolonged for years, so that the court may be congested with unfinished business which in no way concerns the bankruptcy cases so remaining undisposed of, thus becoming an independent collection tribunal, whereas it was the purpose of the act, as stated in Wood v. Wilbert, 226 U. S. 384-387, 33 Sup. Ct. 125, 127, 57 L. Ed. 264, “to secure an equality of distribution of the estate of the bankrupt among his creditors.” In the present case, the rights of Grant as assignee of Lyman are involyed and would have to be adjusted.
As long ago as 1879 it was held (In re Cunningham, Fed. Cas. No. 3,478) that garnishment of a dividend in a bankruptcy cause could not be entertained; that it would work delay; and that the court knew no law or usage which would justify the court in making an order directing the assignee (trustee) to pay the creditor’s dividend to the party garnisheeing; 'as a matter of comity.
In Re Kohlsaat, Fed. Cas. No. 7,918, the court refused to give leave to attach the dividend of a creditor of the bankrupt on the ground that it was “no part of the province of this court to become the stakeholder for parties litigant in a state court.” “Whereas, in this case,” says the court in Re Hollander (D. C.) 181 Fed. 1020, “the petitioner neither claims title to nor specific lien upon the fund in question, and has not procured the appointment of a receiver, who has succeeded to the creditor’s title, the court cannot be asked to suspend or deny the right of the creditor to receive his dividend.”
The Circuit Court of Appeals for the Ninth circuit, in Re Argonaut Shoe Co., 187 Fed. 784, 109 C. C. A. 632, held, in a case similar to *91the present case, that “the right to garnishee funds in custodia legas must depend upon express statutory authority,” and that “the distribution of the assets of the bankrupt, therefore, cannot be stayed or prevented by the process of a state court, the' object of which is to withhold a dividend from a creditor entitled thereto for the security of a plaintiff pending litigation.”
In the case of In re Kranich, 182 Fed. 849, the District Court, upon a different state of facts from those here obtaining, permitted a garnishment proceeding to be enforced, basing its judgment upon the ground that the only objector had failed to establish his right to the fund, and the fact that a judgment had' been rendered in the state court and that the trustee was not opposing the garnishment. The court insisted, however, that the allowance must be accepted as purely ex gratia.
In Re St. Albans Foundry Co., 4 Am. Bankr. Rep. 594, the referee permitted the garnishment of a dividend where the bankrupt had been served as garnishee previous to the bankruptcy proceedings.
Upon principle, however, we are of the opinion and hold that the question involved is not affected by any rule of comity, but is one of right; that it is not within the power of a bankruptcy court, in the absence of statutory authority, to permit the garnishment of a declared dividend, especially where, as in the present case, the rights of an assignee are involved; that the entertainment of an application to withhold distribution is contrary to the language and spirit of the bankruptcy act; that to aid a state court attachment by withholding the payment to the creditor gives entrance to a parasite upon the bankruptcy proceedings which may seriously affect the efficiency of the act and should not be tolerated.
We think it was error on the part of the District Court in the present case to refuse to direct the trustee to deliver the check for the dividend to Grant in accordance with his motion and to permit the same to be held to await the result of the attachment proceedings.
The petition to review and revise is sustained, with direction to the District Court to grant petitioner’s motions to vacate the order of May 18, 1912, and direct the check for said dividend to be delivered to the petitioner and make such further order in the premises as may be necessary to fully carry, out this order.