Court Opinion

ID: 9641068
Source: CourtListenerOpinion
Date Created: 2023-08-22 17:22:10.05712+00
Date Added: 2024-06-11T09:05:19.477249
License: Public Domain

SWAN, Circuit Judge
(dissenting).
The question presented by these motions is whether a suit by a trustee in bankruptcy, brought in the District Court to avoid a preferential transfer made by the bankrupt prior to the institution of the bankruptcy proceeding, is a “controversy arising in bankruptcy proceedings from a court of bankruptcy” within the meaning of section 24a of the Bankruptcy Act, 11 USCA § 47 (a). If it is, section 24e, which was added by the amendment of 1926 (44 Stat. 644,11 USCA § 47 (e), requires the appeal to be taken within thirty days after judgment or decree. It is a question which seems never to have been previously adjudicated. Consequently an expression of my reasons for differing with the majority opinion may be justified.
Under the Bankruptcy Act of 1867, the courts of bankruptcy were given jurisdiction to hear plenary suits at law or in equity brought by the assignee in bankruptcy against an adverse claimant. 14 Stat. 517; Goodall v. Tuttle, 10 Fed. Cas. page 579, No. 5533 (W. D. Wis.); Sherman v. Bingham, 21 Fed. Cas. page 1270, No. 12762 (C. C. Mass.); Lathrop v. Drake, 91 U. S. 516, 23 L. Ed. 414. The United States Circuit Courts had concurrent jurisdiction over sueh suits under section 2, clause 3, of that act.
But the jurisdiction of courts of bankruptcy over sueh suits was severely limited in the 1898 act prior to the amendments of 1903 and 1910. Section 2 of the Act of 1898 (11 USCA § 11) vests the District Courts as courts of bankruptcy “with such jurisdiction at law and in equity as will enable them to exercise original jurisdiction in bankruptcy proceedings * * * (7) [to] cause the estates of bankrupts to be collected, reduced to money and distributed, and determine controversies in relation thereto, except as herein otherwise provided.” The exception “herein otherwise provided” refers to section 23. Paragraph (a) of section 23, as originally enacted (30 Stat. 552), related only to the Circuit Courts. It invested them with “jurisdiction of all controversies at law and in equity, as distinguished from proceedings in bankruptcy, between trustees as such and adverse claimants concerning the property acquired or claimed by the trustees,” but limited it to the same extent as though bankruptcy had not intervened and the controversy were between the bankrupt and the adverse claimant. Bush v. Elliott, 202 U. S. 477, 26 S. Ct. 668, 50 L. Ed. 1114; Goodier v. Barnes, 94 F. 798 (C. C. N. Y.). Paragraph (b) of section 23 as originally enacted (30 Stat. 552) read as follows: “b. Suits by the trustee shall only be brought, or prosecuted in the courts where the bankrupt, whose estate is being administered by sueh trustee, might have brought or prosecuted them if proceedings in bankruptcy had not been instituted, unless by consent of the proposed defendant.”
As to plenary suits instituted by the trustee in the bankruptcy court to recover property in the possession of the adverse claimant, it is apparent that this subdivision was intended to limit the jurisdiction which section 2(7), 11 USCA § 11(7), would otherwise have conferred upon courts of bankruptcy “to determine controversies” in relation to the collection of the estates of bankrupts, to suits brought by the trustee with the consent of the defendant. See In re Abraham, 93 F. 767, 774 (C. C. A. 5). Hence, it was held in Bardes v. Hawarden Bank, 178 U. S. 534, 20 S. Ct. 1000, 44 L. Ed. 1175, that, where the defendant had not consented, the court of bankruptcy had no jurisdiction of a suit by a trustee to set aside a fraudulent conveyance. Similarly as to a preference. Perkins v. McCauley, 98 F. 286 (D. C. Calif.). Of course it was implied that with consent sueh a suit might be brought in the court of bankruptcy; and so it was later held. Philips v. Turner, 114 F. 726 (C. C. A. 5); In re Durham, 114 F. 750 (D. C. Md.); Boonville Nat. Bank v. Blakey, 107 F. 891 (C. C. A. 7). But such consent was seldom given. Therefore, since the District Courts did not have diversity jurisdiction at the time of the enactment of the present bankruptcy statute, the practical effect of section 23b, in the great majority of cases, was to relegate the trustee to the Circuit Court for sueh a suit if the requisite diversity of citizenship and jurisdictional amount existed, and, if they did not, to the appropriate state court. Inconvenience and delay in the administration of bankrupt estates resulting from this situation led to the' enactment of the 1903 and 1910 amendments to sections 23b, 60b, 67e, and 70e, 11 USCA § 46(b), 96(b), 107(e), 110 (e), excepting suits under the last three sections from the consent requirement of 23b and providing for concurrent jurisdie*486tion in the state courts and in the courts of bankruptcy. Thereafter the District Court as- a court of bankruptcy was free to exercise jurisdiction over these types of controversies relating to the collection of bankrupt estates, regardless of the defendant’s consent, as though section 23b had never been enacted and the jurisdiction were derived directly from section 2(7). Flanders v. Coleman, 250 U. S. 223, 39 S. Ct. 472, 63 L. Ed. 948; Collett v. Adams, 249 U. S. 545, 39 S. Ct. 372, 63 L. Ed. 764.
It remains to determine whether such controversies when heard in a court of bankruptcy fall within section 24a relating to appellate jurisdiction. In Hewit v. Berlin Machine Works, 194 U. S. 296, 300, 24 S. Ct. 690, 691, 48 L. Ed. 986 the court said: “Section 24a relates to controversies arising in bankruptcy proceedings in the exercise by the bankruptcy courts of the jurisdiction vested in them at law and in equity by § 2, to settle the estates of bankrupts, and to determine controversies in relation thereto.”
Moreover, it is not clear from whence the appellate jurisdiction of this court over this type of controversy would derive if not from section 24a. Paragraphs (a) and (b) of section 24, as originally enacted (30 Stat. 553) made a distinction between “controversies arising in bankruptcy proceedings from the courts of bankruptcy” and “proceedings of the several inferior courts of bankruptcy.” Of the former, appellate review could be had by appeal or writ of error; of the latter, by petition to revise in matter of" law. The act itself specified no time limitation for either form of appellate review. - The distinction between them was a prolific source of litigation, and the amendment of 1926 modified section 24b (11 USCA § 47(b) by doing away with the petition to revise and substituting therefor an appeal to be allowed in the discretion of the appellate court; it also added paragraph (c) providing that “all appeals under this section” shall be taken within thirty days.
As I understand the view of the majority, it classifies litigation in the bankruptcy courts into (1) proceedings; (2) controversies arising in bankruptcy proceedings;' and (3) controversies at law and in equity in plenary suits between trustees and adverse claimants. Appellate review of class 1 is governed by sections 24b and 25, 11 USCA §§ 47(b), 48, of class 2 by 24a, and of class 3 by the general provisions of the Judicial Code (28 USCA § 1 et seq.). The difficulty I find with this classification is that mention of class 3 is found only in section 23a, which originally related only to suits in the Circuit Courts, and, after their abolition in 1911, only to suits in the District Courts as such (jurisdiction depending upon diversity and the amount involved), not to suits in the District Courts as courts of bankruptcy. True, section 23b relates to such suits in the courts of bankruptcy, but it did not itself confer jurisdiction ; it merely imposed a condition upon the exercise of their jurisdiction, which condition the amendments removed. According to the majority, “controversies arising in bankruptcy proceedings” include suits! to recover preferences or fraudulent conveyances adversely claimed only when the procedure is summary; if the procedure is by plenary s.uit to recover property in possession of the adverse claimant, then the litigation, though in a court of bankruptcy, falls into class 3. While the precise point has not been decided, it seems to me that the language of numerous cases, hereafter referred to, is against this distinction, as is also the language of section 738 (c) of the Judicial Code (26 USCA § 225 (e), which reads as follows: “(e) The circuit courts of ap-i peals shall also have an appellate and supervisory jurisdiction under sections 47 and 48 of Title 11, over all proceedings, controversies, and cases had or brought in the district courts under Title 11, relating to bankruptcy, or any of its amendments, and shall exercise the same in the manner prescribed in those sections.”
The authorities do not, in my opinion, justify making the distinction between plenary suits and summary proceedings the basis of determining whether or not section 24 (a) provides appellate review for “controversies arising in bankruptcy proceedings from the courts of bankruptcy.” See Clements v. Conyers 31 F.(2d) 563 (C. C. A. 7); Jones v. Blair, 242 F. 783 (C. C. A. 4); Whitney v. Wenman, 198 U. S. 539, 25 S. Ct. 778, 49 L. Ed. 1157; In re Rockford Produce Co., 275 F. 811 (C. C. A. 7). In Swift & Co. v. Hoover, 242 U. S. 107, at page 109, 37 S. Ct. 56, 57, 61 L. Ed. 175, it is stated that controversies arising in bankruptcy proceedings embrace litigation that is “usually plenary in character.” And in Weidhorn v. Levy, 253 U. S. 268, at page 269, 40 S. Ct. 534, 535, 64 L. Ed. 898, the court said: “It is assigned for error that the Circuit Court of Appeals ought not to have entertained the petition'to revise under section 24b (Comp. St. § 9608); the contention *487being that since the decree complained of was made in a plenary suit the exclusive remedy was by appeal under section 24a. Had the District Court sustained the jurisdiction and passed upon the merits the point would be well taken, as the court thereby would have determined a 'controversy arising in bankruptcy proceedings.’ Hewit v. Berlin Machine Works, 194 U. S. 296, 300, 24 S. Ct. 690, 691 (48 L. Ed. 986). But since the decision turned upon a mere question of law as to whether the referee had authority to hear and determine the controversy—in effect a question of procedure—it properly was reviewable by petition to revise under section 24b.”
Moreover, ratio decidendi and dicta in many circuits and in the Supreme Court support the view that, when the suit is in a court of bankruptcy, the “controversies” referred to in section 23 and in section 24a are the same. In re Friend, 134 F. 778, 779-780 (C. C. A. 7); Liddon & Bro. v. Smith, 135 F. 43, 45 (C. C. A. 5); Thompson v. Mauzy, 174 F. 611, 614 (C. C. A. 4); In re Breyer Printing Co., 216 F. 878, 880 (C. C. A. 7); Jones v. Blair, 242 F. 783 (C. C. A. 4); Denver First Nat. Bank v. Klug, 186 U. S. 202, 205, 22 S. Ct. 899; 46 L. Ed. 1127; Holden v. Stratton, 191 U. S. 115, 118, 119, 24 S. Ct. 45, 48 L. Ed. 116; Taylor v. Voss, 271 U. S. 176, 180, 46 S. Ct. 461, 70 L. Ed. 889; Weidhorn v. Levy, 253 U. S. 268, 271, 40 S. Ct. 534, 64 L. Ed. 898. The Eighth circuit alone has taken the contrary view. See In re Jacobs, 99 F. 539, 542 (C. C. A. 8); Thomas v. Woods, 173 F. 585, 588, 26 L. R. A. (N. S.) 1180, 19 Ann. Cas. 1080 (C. C. A. 8); In re Rathman, 183 F. 913, 918 (C. C. A. 8).
For the purpose of determining whether an appeal under section 24a or a petition to revise under section 24b was the proper mode of review, several courts have expressly held that such a suit as that involved here presents a controversy arising in bankruptcy proceedings from a court of bankruptcy. Barnes v. Pampel, 192 F. 525 (C. C. A. 6); Kirkpatrick v. Harnesberger, 199 F. 886 (C. C. A. 5). And see Delta Nat. Bank v. Easterbrook, 133 F. 521 (C. C. A. 5); Childs v. Ultramares Corp., 40 F.(2d) 474, 476 (C. C. A. 2). That a preference suit in a bankruptcy court is such a controversy, under section 24a, and that therefore section 24e limits the time to appeal from a decree rendered therein, is also the opinion of an eminent text-writer on bankruptcy. Remington, § 38491/2.
In my opinion the statute requires us to grant the motion to dismiss.