Court Opinion

ID: 8816210
Source: CourtListenerOpinion
Date Created: 2022-11-26 15:19:16.427133+00
Date Added: 2024-06-11T17:04:28.922663
License: Public Domain

REED, District Judge
(after stating the facts as above). From the foregoing statement it seems plain that this court has and had undoubted jurisdiction to exercise proceedings in bankruptcy in aid of the United States District Court for the District of Montana against George E. Elaherty and Clara R. Carter as copartners under the firm name and style of George E. Flaherty, doing business as such partners in Missoula, Mont., and that said United States District Court for the District of Montana had jurisdiction to adjudicate said George E. Flaherty and Clara R. Carter as an involuntary bankrupt, if it was in fact such a partnership.
It was formerly held by several of the lower federal courts that the bankruptcy courts, under the present Bankruptcy Act as originally enacted, had no ancillary jurisdiction beyond their territorial limits in aid of bankruptcy courts in other districts than their own. In re Williams (D. C.) 120 Fed. 38; In re Williams (D. C.) 123 Fed. 321; In re Sutter Bros. (D. C.) 131 Fed. 654; In re Von Hartz et al., 142 Fed. 726, 74 C. C. A. 58 (C. C. A. 2d Circuit). But in Babbitt, Trustee, v. Dutcher, 216 U. S. 102, 30 Sup. Ct. 372, 54 L. Ed. 402, 17 Ann. Cas. 969, and Elkus, Petitioner, v. Madson Steele Co., Bankrupt, 216 U. S. 115, 30 Sup. Ct. 377, 54 L. Ed. 407, it is held that the respective District Courts of the. United States under said act as so enacted, sitting in bankruptcy, have ancillary jurisdiction to make orders and to issue process in aid of proceedings pending and being administered in the District Court of another district, and that courts of bankruptcy have jurisdiction to grant orders for the examination of witnesses who reside within their own district, although the bankruptcy proceedings in which the examination is desired are being administered in the original court of bankruptcy sitting in another district, in aid of the court having original jurisdiction in bankruptcy.
In the Elkus Case the opinion is by Chief Justice Fuller, who recites the facts as follows:
“On the 28th day of February, 1908, a petition in involuntary bankruptcy was filed in the United States District Court for the Northern District of Illinois against the Madson Steele Company, and in due course the said corporation was adjudicated a bankrupt, and Frank M. McKey was appointed its trustee in bankruptcy. Application was made to the United States District Court for the Southern District of New York for an authorization to examine pursuant to the provision of section 21a of the national Bankruptcy Act, the officers of a New York corporation which it was alleged had, within four months prior to the filing of the petition in bankruptcy, received a payment under circumstances which would permit of recovery by the trustee in bankruptcy as a voidable preference. These officers were residents of the Southern district of New York. The application in the Southern district of New York was made on behalf of the trustee of the bankrupt’s estate, whielr was being administered in tile Northern district of Illinois, and the order proposed for signature required the examination of witnesses within the jurisdiction of the District Court for the Southern district of New York, and the production of books and vouchers which contained transactions between the bankrupt corporation and the New York corporation. The United States District Court for the Southern District of New York refused to direct the appearance and examination of the said witnesses, on the ground that it had no jurisdiction to grant an order for examination in a proceeding which was not pending within its own district, and from the order denying the right to examine the petition to review was taken to this court.
*748“The questions submitted are: T. Did the United States District Court for the Southern District of New York have jurisdiction to grant an order for the examination of witnesses, who were residents of that district, when the bankrupt proceedings in which the examination was desired were being administered in the Northern district of Illinois? II. Have the respective District Courts of the United States sitting in bankruptcy ancillary jurisdiction to make orders and issue process in aid of proceedings pending and being administered in the District Court of another district?’ On thp authority of Babbitt, Trustee, v. Dutcher, just decided, ante p. 102, we answer both questions in the affirmative, and it will be so certified.”
These cases were decided February 21, 1910, prior to the amendment of the Bankruptcy Act of that year, section 2 (Comp. St. § 9586) of which is amended by striking from clause 19 the word “and” and -adding a new clause, to be known as clause 20, so that said clauses shall read as follows:
“(19) Transfer eases to other courts of bankruptcy; and
“(20) Exercise ancillary jurisdiction over persons or property within their respective territorial limits in aid of a receiver or trustee appointed in any bankruptcy proceedings pending in any other court of bankruptcy.”
Whatever doubts may have existed as to the right of the several District Courts to exercise ancillary jurisdiction under the present Bankruptcy Act before its amendment in 1910 is put at rest by the decision of the Supreme Court in Babbitt v. Dutcher, 216 U. S. 102, 30 Sup. Ct. 372, 54 L. Ed. 402, 17 Ann. Cas. 969, and Elkus, Petitioner, v. Madson Steele Co., Bankrupt, 216 U. S. 115, 30 Sup. Ct. 377, 54 L. Ed. 407, and by the amendment of section 2 of the Act of June 25, 1910.
The order of this court upon December 11, 1918, granting ancillary jurisdiction in this district to Frederick D. Whisler, as trustee of George E. Flaherty and Clara R. Carter, as copartners, if they are in fact copartners, is well within its jurisdiction, and upon filing said order with the clerk of this court in the Central division, the order of the referee was issued, directing the said Glara R. Carter to appear before him upon a date fixed and show cause why she should not file in this district schedules of her assets and liabilities, and otherwise comply with the order of this court in aid of the United States District Court of Montana, wherp the proceedings against her and her alleged copartner, George E. Flaherty, under the firm name of George EFlaherty, is pending.
Instead of complying with such order of the referee and of this court granting ancillary proceedings herein in aid of the proceedings in the United States District Court of Montana, Clara R. Carter appeared specially by counsel and filed a plea in abatement to the proceedings in this court, and to the jurisdiction of this court to entertain ancillary proceedings in said cause upon the grounds:
(1) That this court and the referee are without jurisdiction to entertain ancillary proceedings in bankruptcy in this cause, for thp reason that, at the time of the adjudication of George L. Flaherty and Clara R. Carter, doing business under the firm name and style of George E. Flaherty, the said Clara R. Carter was not then a *749citizen or resident of Montana, and was not engaged in business at any place within said state.
(2) That she was not at the time of the adjudication of said bankrupt copartnership a resident of or doing business in said state of Montana, and that said District Court of Montana was without jurisdiction for that reason to entertain such proceedings against tiie firm of George I/. Flaherty, a copartnership, and that the adjudication of such firm is void.
(-3) That she has not been personally served with any notice of the filing of the ancillary proceedings in this court.
(4) That there is no averment in any of such pleadings that she is insolvent; that she is entitled to a hearing on the question of her alleged bankruptcy, and to a jury trial upon the question of her solvency, and whether or not she was a member of the firm of George F. Flaherty; that she has never waived her right to such trial, and she now insists upon and demands that she have a jury trial upon such questions.
[ 1] That the United States District Court of Montana had jurisdiction to adjudge George F. Flaherty and Clara R. Carter, as partners, bankrupt, if they were and are copartners, is not and cannot be doubted, and -the involuntary petition filed against them in the United States District Court for the District of Montana alleges that they are now and at all times therein mentioned were copartners doing business under the firm name and style of George I,. Flaherty, and have had their principal place of business at Missoula, Mont., for the greater portion of the six months next preceding the date of filing said petition, and that the said copartnership and the said George I/. Flaherty, individual partner, are insolvent and owe debts to the amount of approximately $21,000. The nature and amount of the petitioners’ claims are set forth, and the petition further alleges, as to the said George F. Flaherty, a copartner ship, and George U. Flaherty, as individual partner, while insolvent, and within four months next preceding the date of the filing of said petition, that it aud lie did within said four months, and while so insolvent, commit acts of bankruptcy.
These allegations, which fully appear in the involuntary petition in bankruptcy in the District of Montana, are sufficient, to show the jurisdiction in bankruptcy in that court to determine the facts therein alleged. The fací, conceding it to be a fact, that Mrs. Carter was not then a resident of Montana, is not material; for, if she was then a resident of Ft. Dodge, Iowa, as claimed, that would not prevent her from engaging in business in Montana, either individually or as .a partner of George U. Flaherty under the name of George U. Flaherty, or any other name, as copartners, that they cared to adopt. George U. Flaherty, the alleged partner, it is not disputed was at the time alleged a resident of Missoula, Mont., and service upon him was a good service upon the copartnership. He was within the jurisdiction of the United States District Court for the District of Montana, and subject to its jurisdiction, and that court has adjudged the alleged .copartnership to be an involuntary bankrupt, and this court has an*750ciliary jurisdiction to aid the District Court of Montana, and it has issued an order accordingly, and referred the matter to Referee Bryant for further proceedings under its order granting ancillary jurisdiction by this court. In pursuance to that reference the referee issued an order requiring Mrs. Carter to appear before him on a date named and file a schedule of her assets and liabilities, to the end that the.United States District Court for the District of Montana may collect the partnership assets and properly distribute them to those entitled thereto.
[2, 3] The referee, instead of requiring obedience to the order of this court authorizing ancillary proceedings in aid of the United States District Court of Montana, decided that this court had no jurisdiction to make such order. In deciding that this court, or the United States District ~Court of Montana had no jurisdiction to grant ancillary proceedings in this district, the referee exceeded his authority. If he felt that this court had no jurisdiction to grant ancillary pro-, ceedings, he should have simply declined to act, and so reported to this court. Neither the referee nor this court will review the judgment of the District Court of Montana adjudicating the copartnership of George L. Flaherty a bankrupt.
Counsel for Mrs. Carter have cited a number of cases holding in effect that this court cannot exercise ancillary jurisdiction in aid of the Montana court; but they are all, we think, prior to the decision of the Supreme Court in Babbitt v. Dutcher, 216 U. S. 102, 30 Sup. Ct. 372, 54 L. Ed. 402, 17 Ann. Cas. 969, Elkus, Petitioner, v. Madson Steele Co., Bankrupt, 216 U. S. 115, 30 Sup. Ct. 377, 54 L. Ed. 407, and Francis v. McNeal, 228 U. S. 695, 33 Sup. Ct. 701, 57 L. Ed. 1029, L. R. A. 1015E, 706. See, also, Armstrong v. Fisher, 224 Fed. 97, 139 C. C. A. 653, and Armstrong v. Norris, 247 Fed. 253, 159 C. C. A. 347, decided by this court, which seem to cover every question urged by counsel in behalf of Mrs. Carter, and require that the order of the referee be vacated and set aside. Clearly the referee cannot review the order of the Montana court, nor will this court review the decision of that court.
[4] Counsel also urge that Mrs. Carter is entitled to a jury trial upon the question of her insolvency-and any act of bankruptcy alleged in such petition under sections 18 and 19 of the Bankruptcy Act (Comp. St. §§ 9602, 9603); but section 19a provides that—
“A person against- wliom an involuntary petition has been filed shall be entitled to have a trial by jury, in respect to the question of his insolvency, except as herein otherwise provided, and any act of bankruptcy alleged in such petition to have been committed, upon filing a written application therefor at or before the time within which an answer may be filed. If such application is pot filed withim, such time, a trial by jury shall be deemed to have-been waived.”
In no event, however, is she entitled as matter of right to a jury trial on the question of her being a member of the partnership. The order of the referee, finding that the United States District Court of’ Montana was without jurisdiction to adjudge the copartnerships of George E- Flaherty a bankrupt, is vacated and set- aside.
*751This court may require the alleged bankrupt, Clara R. Carter, to appear before a referee of this court, as such referee or as special master, and submit to an examination by the trustee or his counsel as to tier alleged copartnership with George R. Flaherty, and her business transactions with him, upon application of the trustee therefor, if he shall deem best to make such application to the court.
It is ordered accordingly.