Court Opinion

ID: 9651580
Source: CourtListenerOpinion
Date Created: 2023-08-23 16:27:46.949876+00
Date Added: 2024-06-11T18:12:36.368590
License: Public Domain

BINGHAM, Circuit Judge
(dissenting). These are proceedings brought by the trustee in bankruptcy of the Old Colony Foreign Exchange Company (which has been adjudicated a bankrupt as an unincorporated company) to recover eertain funds alleged, proved, and found by the District Court to have been the funds of the Old Colony Foreign Exchange Company which Brightwell and Meyers misappropriated and paid to the defendants for legal services to be rendered Brightwell and Meyers individually in the trial of certain indictments.
In paragraph 7 of the bill of complaint it is alleged that the Old Colony Foreign Exchange Company received $383,704.50 for notes which it had sold and issued, and that “this money was the property of the Old Colony Foreign Exchange Company as between itself and said Brightwell and Meyers.” In .paragraph 8 of the complaint it is alleged that “on August 12, while said run was in process, the said Brightwell and Meyers paid to the defendants Dennison and Gallagher the sum of $5,000 from the money aforesaid of the Old Colony Foreign Exchange Company, and later on, on the same day, paid them another sum of $5,000 from the money of the Old Colony Foreign Exchange Company, making total payments of $10,000 to said Gallagher and Dennison for services to be rendered by said Dennison and Gallagher as counsel in any criminal or other matters that might arise against them personally.” In paragraph 10 there is a like allegation with reference to payments by Brightwell and Meyers from the money of the Old Colony Foreign Exchange Company to Mclsaac, namely, that it was paid to him by Brightwell and Meyers as a retainer in any criminal proceedings that might be instituted against them as individuals.
*177In the course of the trial the court stated the issue to be tried as follows:
“The question is, Had Brightwell and Meyers, or whatever their names were, any right to use the money of the Foreign-Exchange to further their own interest in defending themselves ? They might have been angels of purity, and so found by the court, but that wouldn’t alter the question of whether they had any right to use those funds, or any of them.”
Again, the District Court said:
“It is rather my idea — I don’t say I have decided it — that these people had no right to use this money for their own personal uses even, though those uses might be most exemplary. In other words, if they wanted to found a foundling hospital they couldn’t do it. It wasn’t their money.”
There was evidence that Brightwell and Meyers took the money from the Old Colony Foreign Exchange Company and paid it to Dennison, Gallagher, and Mclsaac to compensate them for services to be rendered in defending them individually in certain criminal prosecutions and not for services to be rendered the company, and that the defendants knew or had reason to believe that the money which they received had been taken by Brightwell and Meyers from the funds of the Old Colony Foreign Exchange Company. The District Court found that the defendants Dennison, Gallagher, and Mclsaac, “knew that the money was not that of Brightwell and Meyers, but came from the Old Colony Foreign Exchange Company,” and in the course of its opinion said: “It was contended that the defendants could keep the money as a fee given by a bankrupt for professional advice in the case of bankruptcy. I find that the money was not given for this purpose.” He also found:
“The law of the case is simple. As to the defendants Dennison, Gallagher, and Me-Isaae, money of the company was given them for purposes unconnected with the business of the company, and was a fraudulent transfer, which may be recovered by the trustee in bankruptcy.”
The defendants contend that, on the allegations of the bill and the findings of the District Court, the District Court as a federal court, or a court of bankruptcy, was without jurisdiction. There was no diversity of citizenship on which its jurisdiction as a federal court could be based and the defendants never consented to be sued in the District Court.
Section 23b of the Bankruptcy Act (Comp. St. § 9607) provides:
“23b. Suits by the trustee shall only be brought or prosecuted in the courts where 'the bankrupt, whose estate is being administered by such trustee, might have brought or prosecuted them if proceedings in bankruptcy had not been instituted, unless by consent of the proposed defendant, except suits for the recovery of property under section sixty, subdivision b; section sixty-seven, subdivision e; and section 70, subdivision e.”
Section 60, subdivision b (section 9644), relates to preferences and can have nothing to do with this case as the defendants were not creditors of the bankrupt association. Section 67, subdivision e (section 9651), reads:
“67e. That all conveyances, transfers, assignments, or incumbrances of his property, or any part thereof, made or given by a person adjudged a bankrupt under the provisions of this act subsequent to the passage of this act and within four months prior to the filing of the petition, with the intent and purpose on his part to hinder, delay, or defraud his creditors, or any of them, shall be null and void as against the creditors of such debtor, except as to purchasers in good faith and for a present fair consideration; and all property of the debtor conveyed, transferred, assigned, or incumbered as aforesaid shall, if he be adjudged a bankrupt, and the same is not exempt from execution and liability for debts by the law of his domicile, be and remain a part of the assets and estate of the bankrupt and shall pass to his said trustee, whose duty it shall be £o recover and reclaim the same by legal proceedings or otherwise for the benefit of the creditors. And all conveyances, transfers, or in-cumbrances of his property made by a debt- or at any time within four months prior to the filing of the petition against him, and while insolvent, which are held null and void as against the creditors of such debtor by the laws of the state, territory, or district in which such property is situate, shall be deemed null and void under this act against the creditors of such debtor if he be adjudged a bankrupt, and such property shall pass to the assignee and be by him reclaimed and recovered for the benefit of the creditors of the bankrupt. For the purpose of such recovery any court of bankruptcy as hereinbe-fore defined, and any state court which would have had jurisdiction if bankruptcy had not intervened, shall have concurrent jurisdiction.”
And section 70, subdivision e (section 9654), reads:
“70e. The trustee may avoid any transfer *178by the bankrupt of his property which any creditor of such bankrupt might have avoided, and may recover the property so transferred, or its value,-from the person to whom it was transferred, unless he was a bona .fide holder for value prior to the date of the adjudication. .Such property may be recovered or. its value collected from whoever may have received it, except a bona fide holder for value. For the purpose of such recovery any court of bankruptcy as hereinbefore defined, and any state court which would have had jurisdiction if bankruptcy had not intervened, shall have concurrent jurisdiction.”
To give the District Court, as a court of bankruptcy, jurisdiction under section 67e or 70e it is necessary that the transfers complained of in these eases should have been made by the bankrupt, the Old Colony Foreign Exchange Company, to the defendants. But the allegations, proofs, and findings in these cases are to the effect that the transfers were not made by the bankrupt but were made by Brightwell and Meyers from the funds of the Old Colony Foreign Exchange Company, which Brightwell and Meyers misappropriated and devoted to their own private uses. In the opinion of the court, my associates, in order to bring the ease within the provisions of 67e and 70e, have ignored the findings of the District Judge based on the allegations of the bill and the evidence in the case, and have held that Brightwell and Meyers, in misappropriating the funds of the Old Colony Foreign Exchange Company and applying them for their own benefit, were acting as agents of the Old Colony'Foreign Exchange Company and for its benefit." But it is evident and does not call for much discussion that where officers of a corporation or association misappropriate its funds and apply them to their own uses, they can-riot reasonably be found in so doing to be acting as agents of the corporation or association whose funds they have misappropriated. Then again, Brightwell and Meyers having misappropriated the funds of the Old Colony Foreign Exchange Company and devoted them to their own uses, it cannOt be found that the Old Colony Foreign Exchange Company transferred those funds in fraud of its creditors. As no transfer was made by the Old Colony Foreign Exchange Company or any one authorized by it to make a transfer, it is plain that these proceedings should have been dismissed in the District Court for want of jurisdiction, the same as was done in Park v, Cameron, 237 U. S. 616, 35 S. Ct. 719, 59 L. Ed. 1147.
Although the District Court as a federal court or as a court of bankruptcy was without jurisdiction'in'these cases, it does not follow that on the facts here found the plaintiff has not a right of action. On the contrary, I- am of the opinion that he has a right of action, but must enforce it in a state court that has jurisdiction of the subject-matter and of the parties. The finding of the District Court that Brightwell and Meyers misappropriated the funds of the Old Colony Foreign Exchange Company, and that the defendants received them knowing that they were the funds of the Old Colony Foreign Exchange Company, and that Brightwell and Meyers had no right to use them for their own benefit, establishes a common-law right, which may be enforced in the proper forum.