Court Opinion

ID: 9425758
Source: CourtListenerOpinion
Date Created: 2023-08-02 23:15:45.69051+00
Date Added: 2024-06-11T17:22:57.389372
License: Public Domain

*478Me. Justice Rehnquist,
dissenting.
The question in this case is whether the United States District Court for the Northern District of Illinois, wherein petitioners filed their claim for money damages against respondent, and the Court of Appeals for the Seventh Circuit, which affirmed the District Court’s order setting off respondent’s claim against petitioners, acted within the permissible limits of their discretion. The statute most closely in point is § 68a of the Bankruptcy Act, 11 U. S. C. § 108, which provides:
“(a) In all cases of mutual debts or mutual credits between the estate of a bankrupt and a creditor the account shall be stated and one debt shall be set off against the other, and the balance only shall be allowed or paid.”
In the only case of this Court dealing with the applicability of § 68a to railroad reorganizations, the Court said:
“[T]he trustees must have the power to gather in the assets and keep the business going. To exercise that power, they may find it necessary to sue, and the suit may turn upon the right of set-off, as it does in the case at hand. In a suit for such a purpose, a suit collateral to the main proceeding and initiated at a time when the outcome of that pro*479ceeding is still unknown and unknowable, § 68 of the statute does not control the disposition of the controversy ex proprio vigore. It governs, if at all, by indirection and analogy according to the circumstances. . . .” Lowden v. Northwestern National Bank & Trust Co., 298 U. S. 160, 164 (1936). “When all the facts are known, they may be found to offer no excuse for a departure from the rule in bankruptcy which, as indicated already, is generally, even if not always, the rule in equity as well.” Id., at 166.
The Court's opinion in Lowden, supra, makes no mention of subsection l of § 77 of the Bankruptcy Act, 11 U. S. C. §205 (i), which provides in pertinent part as follows:

“(l) Jurisdiction of court, duties of debtor and rights of creditors same as in voluntary bankruptcy.

“In proceedings under this section and consistent with the provisions thereof, the jurisdiction and powers of the court, the duties of the debtor and the rights and liabilities of creditors, and of all persons with respect to the debtor and its property, shall be the same as if a voluntary petition for adjudication had been filed and a decree of adjudication had been entered on the day when the debtor’s petition was filed.”
Section 77, in turn, was a part of the Act of Mar. 3, 1933, c. 204, 47 Stat. 1467, which added Chapter VIII to the Bankruptcy Act. Any lingering doubt that the term “voluntary petition for adjudication” in subsection l refers to ordinary bankruptcy proceedings is dispelled by an examination of § 73, which was the first section of that Act:
“Sec. 73. Additional Jurisdiction. — In addition to the jurisdiction exercised in voluntary and involun*480tary proceedings to adjudge persons bankrupt, courts of bankruptcy shall exercise original jurisdiction in proceedings for the relief of debtors, as provided in sections 74, 75, and 77 of this Act.” 47 Stat. 1467.
The language of subsection l of § 77, even more emphatically than the Lowden decision, would seem to unconditionally mandate the application of the rule regarding setoffs contained in § 68 of the Bankruptcy Act to railroad reorganizations such as this.
Subsection a of § 77, 11 U. S. C. § 205 (a), giving the Reorganization Court “exclusive jurisdiction of the debtor and its property wherever located,” upon which the Court’s opinion heavily relies, seems to me to have virtually nothing to do with this case. We are not dealing with property that was actually or constructively in the possession of the trustees at the time of the commencement of the reorganization proceedings, nor are we dealing with a creditor who in any way submitted itself to the jurisdiction of the Reorganization Court in the Eastern District of Pennsylvania.
This is a simple contract claim for freight charges on the part of the trustees, against which the respondent has sought to set off a concededly valid claim for damage in transit. While the Reorganization Court undoubtedly had plenary authority over the trustees, and over the “property” of the debtor, it certainly does not have such jurisdiction over whatever funds of respondent might be used to satisfy a judgment against it in favor of the trustees. The trustees’ “property” in this case is a chose in action and under no conceivable circumstances could § 77 authorize the summary determination of the claim in this case.
“[T]he bankruptcy court does not have summary jurisdiction to enforce a chose in action against the bankrupt’s obligor, even when the bankrupt’s rights *481seem clear. . . In re Lehigh & Hudson River R. Co., 468 F. 2d 430, 433 (CA2 1972) (Friendly, C. J.). “Even though [the obligor’s] refusal were no better than colorable, its property remained its own; it had only broken its promise, and, like any other promisor, was liable to an action for damages. . . . It would not be permissible to collect even a bank deposit due a bankrupt by these means.” In re Roman, 23 F. 2d 556, 558 (CA2 1928) (L. Hand, J.).
Cases such as Ex parte Baldwin, 291 U. S. 610 (1934), and Warren v. Palmer, 310 U. S. 132 (1940), do no more than reaffirm the well-established doctrine that the jurisdiction of the bankruptcy court over the property of the debtor is exclusive. They do not touch upon the case before us, where the trustees have chosen to convert the chose in action, which is concededly the property of the debtor and subject to the jurisdiction of the Reorganization Court, into a money judgment in another forum.
Callaway v. Benton, 336 U. S. 132 (1949), though not on all fours with the present case, can hardly be said to support the result reached by the Court. There an action had been brought in the state courts of Georgia to enjoin the board of directors of a corporation which had leased trackage to the Central of Georgia Railway from consenting to the plan of reorganization which had been proposed on behalf of Central of Georgia, which was a debtor in a § 77 proceeding. The bankruptcy court had in turn enjoined this litigation on the ground that it interfered with the exclusive jurisdiction of the bankruptcy court. This Court reversed that determination saying:
“We have held that a court of bankruptcy has exclusive and nondelegable control over the administration of an estate in its possession. Thompson v. Magnolia Petroleum Co., 309 U. S. 478 (1940); Isaacs v. *482Hobbs Tie & T. Co., 282 U. S. 734 (1931). There can be no question, however, that Congress did not give the bankruptcy court exclusive jurisdiction over all controversies that in some way affect the debtor’s estate.” 336 U. S., at 142 (footnote omitted).
If we accept Lowden as the final word from this Court on the question, even though the opinion nowhere refers to the language of subsection l, which on its face would carry over the rule of § 68 bag and baggage, the most that can be said in favor of the petitioners here is that the District Court in which suit is brought has discretion as to whether or not a setoff should be allowed.
Nothing could be more inconsistent with Lowden than the flat order of the Reorganization Court in this case, entered at the commencement of the reorganization proceedings, to the effect that no setoffs were to be allowed, unless it be that part of the Court’s opinion in this case stating that “[a]s a general rule of administration for § 77 Reorganization Courts, the setoff should not be allowed.” Ante, at 474. And it seems a sufficient answer to the Court’s observation that the allowance of a setoff grants a preference, ante, at 473, to say that the Bankruptcy Act’s strictures against preferences apply with as much force to ordinary bankruptcies as to reorganizations, and yet § 68 of the Act specifically allows this type of “preference” in an ordinary bankruptcy proceeding.
It may be that upon a proper showing to the District Court for the Northern District of Illinois the trustees could have satisfied that court that the allowance of a setoff in this case would be inconsistent with higher priorities of the reorganization. But no such showing was made by the trustees, and they were content to rely on the ex parte order of the Reorganization Court which made no pretense of considering matters on a case-by-*483case basis. The District Court for the Northern District of Illinois was, therefore, in my opinion, justified in authorizing the setoff under the doctrine of Lowden, and the Court of Appeals for the Seventh Circuit was correct in affirming its judgment.