Court Opinion

ID: 8762440
Source: CourtListenerOpinion
Date Created: 2022-11-26 12:11:45.853216+00
Date Added: 2024-06-11T17:01:39.366619
License: Public Domain

McCORMICK, Circuit Judge,
after stating the case as above, delivered the opinion of the court.
The features of this case call to mind the opinion which seems to have been quite prevalent in many quarters at one time while the bankrupt act of 1867 was in force, that the moment a man is declared bankrupt, the District Court, which has so adjudged, draws to itself, by that *964act; not only all control of the bankrupt's property and credits, but that no one can litigate with the trustee contested rights in any other court except in so far as the Circuit Courts had concurrent jurisdiction, and that other courts could proceed no further in suits of which they had, at that time, full cognizance; as the result of which opinion the practice became prevalent to bring any person who contested with the trustee any matter growing out of disputed rights of property or contracts, into the bankruptcy court by service of the rule to show cause, and dispose of their rights in a summary way. Against this view of the matter and practice which for a time sweepingly prevailed, the Supreme Court steadily set its face. Eyster v. Gaff et al., 91 U. S. 525, 23 L. Ed. 403. On the going into effect of the present act, some of the referees in bankruptcy and of the judges of those courts, unmindful of the teaching of the Supreme Court under the act of 1867, or disregarding its lesson, began to follow the practice which had prevailed under that act against which the Supreme Court had steadily set its face. With the usual tendency toward the growing weight of precedents, that practice had extended and become widely prevalent before the case of Bardes v. Hawarden Bank (U. S.) 20 Sup. Ct. 1000, 44 L. Ed. 1175, distinctly presented for the decision of the Supreme Court the question as to whether under the act of 1898 a District Court of the United States, in which proceedings in bankruptcy had been commenced and are pending under the act, has jurisdiction to entertain a suit by a trustee in bankruptcy against a person holding and claiming as his own, property alleged to have been conveyed to him by the bankrupt in fraud of creditors. It was considered that the determination of this question depends mainly upon the true construction of section 2 and section 23 of the present act (Act July 1, 1898, c. 541, 30 Stat. 545, 546, 552, 553 [U. S. Comp. St. 1901, pp. 3420, 3431]), which sections are embodied, in haec verba, in the opinion of the court, and the question of their effect, considering the language of each and their relations to one another, was approached by referring to the terms, and to the judicial construction of the bankrupt act of 1867, and comparing its provisions as to the jurisdiction of proceedings in bankruptcy, and as to the original jurisdiction of actions at law and suits in equity with the provisions of the present act; and after a full review and discussion of previous decisions and provisions of the act under which they were made, and of the analogous provisions of the present act, it was held that the provisions of section 23b control and limit the jurisdiction of all courts over suits brought by trustees to recover property from third parties, or to set aside transfers of property to third parties alleged to have been fraudulently made as against creditors, and that the District Court of the United States can, by the proposed' defendant’s consent, but not otherwise, entertain jurisdiction over such suits.
On the same day, and through the same justice as its organ, the Supreme Court announced its decision in White v. Schloerb (U. S.) 20 Sup. Ct. 1007, 44 L. Ed. 1183. That case, therefore, can hardly be considered or, read so as to qualify the opinion in Bardes v. Bank. In entire consistency with all the reasoning in the opinion in the Bardes Case, the White Case held that, after an adjudication in bankruptcy, *965an action of replevin in a state court cannot be commenced and maintained against the trustee for property in the possession of and claimed by the bankrupt at the time of the adjudication, and in the possession of the trustee in bankruptcy at the time the action of replevin is-begun, and that the District Court sitting in bankruptcy has jurisdiction by summary proceedings to compel the return of property so seized. This decision rests on principles that are elementary.
A year later the Supreme Court, speaking through the same distinguished justice, who announced the decisions in the cases just cited, announced its decision in Bryan v. Bernheimer, 181 U. S. 197, 21 Sup. Ct. 557, 45 L. Ed. 814, reciting that the property involved in that controversy was not held by Davidson (private assignee of the bankrupt) under any claim, of right in himself, but under a general assignment, which was itself an act of bankruptcy; that no trustee had been appointed; that the sale by Davidson to Bernheimer was made after and with knowledge of the petition in bankruptcy; that Bernheimer consented to the form of proceeding, and that therefore the District Court, as a court of bankruptcy, was authorized to decide the matter in a summary way; which, in effect, means that Bernheimer was not an adverse claimant, and that he had expressly submitted his claim to the court in that proceeding.
In the case of Mueller v. Nugent, the claimant held the money in' controversy as the agent of his father, the bankrupt, and without any claim of adverse interest in himself; and though he had not, like Bernheimer, submitted himself to the jurisdiction of the bankruptcy court, he was held to be amenable to the control of that court by summary proceedings. 184 U. S. pp. 17, 18, 22 Sup. Ct. 269, 46 L. Ed. 405. In the course of the opinion in this case, the remark was made that the filing of the petition is a caveat to all the world and in effect an attachment and injunction. In reference to which remark, the Supreme Court afterwards said that it was made in regard to the particular facts in the case in which it was used. York Manufacturing. Co. v. Cassell, 201 U. S. 353, 26 Sup. Ct. 481, 50 L. Ed. 782. It was also said in the Bernheimer Case that the remark made in the Bardes Case, that the powers conferred on courts of bankruptcy by clause 3 of section 2, and by section 69 (30 Stat. 545, 565 [U. S. Comp. St. 1901, pp. 3421, 3450]), after the filing of the petition in bankruptcy, can hardly be considered as authorizing the forcible seizure of such property in the possession of an adverse claimant, was an inadvertence, and upon a question not arising in the case then before the court which related exclusively to the jurisdiction of the suit by the trustee after his appointment. The Supreme Court has 'never held itself bound by any part of an opinion in any case which was not needful to the ascertainment of the right or title in question between >the parties.
Mr. Chief Justice Marshall said, in Cohens v. Virginia, 6 Wheat. 399, 5 L. Ed. 257:
“It is a maxim not to be disregarded that general expressions in every opinion are to be taken in connection with the case in which those expressions are used. If they go beyond the case, they may be respected, but ought not to control the judgment in a subsequent suit, when the very point is presented. The reason of this maxim is obvious. The question actually before the court *966is investigated witli care, and considered in its full extent. Other principles which, ma3r serve to illustrate it are considered in their relation to the case decided, but their possible bearing on all other eases is seldom completely-investigated.”
And, in Carroll v. Lessee of Carroll et al., 16 How. 287, 14 L. Ed. 936, Mr. Justice Curtis referred to Ex parte Christy, 3 How. 292, 11 L. Ed. 603, and Peck v. Jenness et al., 7 How. 612, 12 L. Ed. 841, as illustrations of the rule that:
“Any opinion given here or elsewhere cannot be relied on as a binding authority, unless the case called for its expression. Its weight of reason must depend on what it contains.”
The trustee takes the property of the bankrupt in cases unaffected by fraud, in the same plight and condition that the bankrupt himself held it, subject to all the equities impressed upon it in the hands of the bankrupt, except in cases where there has been a conveyance or incumbrance of the property, which is void as against the trustee by some positive provision of the statute. Thompson v. Fairbanks, 196 U. S. 526, 25 Sup. Ct. 306, 49 L. Ed. 577. The District Court has power to ascertain in a particular case presented whether the claim asserted is an adverse claim, within the meaning of the provisions of the bankruptcy law, existing at the time the petition was filed, and in accordance to the conclusion reached, that court will retain jurisdiction or decline to adjudicate the merits. In many cases the jurisdiction may depend upon the ascertainment of facts involving the merits, and in that sense the court exercises jurisdiction in disposing of the preliminary inquiry, although the result may be that it will find it cannot go further. And in a case where the court erroneously retains jurisdiction to ascertain the merits, its action can be corrected on review. Louisville Trust Co. v. Comingor, 184 U. S. 26, 22 Sup. Ct. 293, 46 L. Ed. 413; Mueller v. Nugent, 184 U. S. 15, 22 Sup. Ct. 269, 46 L. Ed. 405.
The numerous reported cases decided by the Supreme Court, beginning with Bardes v. Bank, and including Manufacturing Co. v. Cassel, supra, illustrate the application to particular cases of the sound construction placed upon the provisions of section 23, in Bardes v. Bank, and aid in the inquiry as to whether a given claimant is, in truth, an adverse claimant within the meaning of the provisions of that section, but did not, and do not, qualify the construction put upon those provisions in that case. The amendatory act of 1903 gave concurrent jurisdiction to the courts of bankruptcy and any state court which would have had jurisdiction if bankruptcy had not intervened, of suits by a trustee for the purpose of such recoveries as are authorized by section 60, subd. b, and section 67, subd. e (30 Stat. 562, 564 [U. S. Comp. St. 1901, pp. 3445, 3449]), in addition to-those which could be entertained by the consent of the proposed defendant. These amendments do not touch the case of the appellant. It does not claim the property here in controversy under any transfer from the bankrupt; it expressly disclaims being a creditor of the bankrupt at the time of the institution of this suit. The suit is not founded upon a claim from which a discharge in bankruptcy would be a release, and therefore is not *967subject to the provisions of section 11a (30 Stat. 549 [U. S. Comp. St. 1901, p. 3426]). Before the filing of the involuntary petition, which imparted life to the jurisdiction of the court of bankruptcy as to Morgan and his estate, the appellant asserted its title to the specific personal property, clearly marked, branded, and distinctly pointed out, which it sought to recover against the bankrupt, then in possession of it, and obtained appropriate preliminary process for placing the property in safe custody pending the trial of appellant’s title thereto. It did not seek to acquire or fix a lien by the levy of its writs of sequestra - tion, or by the recovery of a judgment, hut to establish its rights to the specific property and recover, lawfully, the possession of it. The appellant could not have sued in the Circuit Court, because the value of the property was less than $2,000; it could not sue in the United States District Court, because that court had no jurisdiction in civil cases, apart from its jurisdiction as a court of bankruptcy, and its jurisdiction as a court of bankruptcy had then not yet been vitalized by the filing of the involuntary petition. Therefore, it could invoke the jurisdiction of the proper state court only, which it did, and by its petition and the suing out of the writs for which it prayed, that court obtained jurisdiction of the cause, and the jurisdiction was not lost, or in any way affected by the subsequent filing of the involuntary petition against Morgan, or by the subsequent adjudication that he was a bankrupt. The trustee might have obtained leave of the court of bankruptcy to appear and defend the suit, and have so appeared by leave of the state court; but be was not a necessary party, and whether he did so appear or not the suit could proceed to final judgment which would be binding on the trustee equally with any other party acquiring an interest pendente lite. Therefore, so far as the property itself or the admitted proceeds of that property are concerned, it is immaterial whether we consider that the trustee became or not, legally, a party to the litigation in the state court. It is conceded that he did personally appear and plead, and that the issue as to the title was not only directly involved as against the bankrupt who made default, but was ably contested by the trustee by demurrer, plea, and answer. The physical facts appear to have been undisputed. The conclusions of law and fact deducible therefrom were directly and fully considered, and the appellant’s ownership of the property adjudged.
It follows that the District Court erred in retaining possession of the appellant’s property and proceeding to dispose of" the same; and that it also erred in dismissing the appellant’s application to review and correct the erroneous proceedings had before and by the referee, which were duly brought to the attention of the court by the proper certificate; that, in the condition things were at the .time the certificate came on to he heard before the District Court, it should have ordered that the proceeds of the sale of the property in the custody of the court should be surrendered to the appellant, and without any costs against it or any deduction from the amount of the proceeds to meet the expenses and charges which were claimed by the trustee, or by any of the officers of the court of bankruptcy or the parties to the proceedings in that court as a lien against that fund. In support of *968this conclusion, and without further present argument, we refer to the opinion of this court in Beach et al. v. Macon Grocery Co. et al., 125 Fed. 513, 60 C. C. A. 557.
The action of the District Court sought to be reviewed on this appeal is wholly reversed, and the cause is remanded to that court, with directions to take order therein in accordance with the conclusions above expressed.