Court Opinion

ID: 8835189
Source: CourtListenerOpinion
Date Created: 2022-11-26 16:19:32.804771+00
Date Added: 2024-06-11T17:05:02.505910
License: Public Domain

HUNT, Circuit Judge
(after stating the facts as above). [1] Petitioners’ position that the District Court for the Southern District of California had no power to make the order above described is not tenable. By the terms of the Bankruptcy Act of 1898, as amended June 25, 1910, section 2 (Comp. St. § 9586), the courts of bankruptcy are empowered to 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.” In Lazarus v. Prentice, 234 U. S. 263, 34 Sup. Ct. 851, 58 L. Ed. 1305, the Supreme Court held that under this amended statute the court exercising ancillary jurisdiction has authority “to take summary proceedings for the restoration of the bankrupt’s estate which was in the custody of people having no right to it, in order that the same might be turned over to the bankruptcy court having jurisdiction for administration.” The power that may be exercised by the ancillary court to take possession of property rests on the interest in the prop*600erty of the person or estate in whose right the proceeding is carried on, and it follows that what this interest may be icannot be ascertained without determining conflicting interests that may be claimed by others in the property. Fidelity Trust Co. v. Gaskell, 195 Fed. 865, 115 C. C. A. 527; Emerson v. Castor, 236 Fed. 29, 149 C. C. A. 239.
It is said that the trustee has no right to any of the life insurance money because, the policy having been executed in Washington and the bankruptcy proceedings being within that jurisdiction, the insurance policy is governed by the laws of Washington, and that under those laws the proceeds of the policy are exempt. ^ Under section 569, Remington & Ballinger’s Compiled Statutes, the proceeds or avails of all life insurance shall be exempt from all liability for any debt, and under section 7230 — 1, Code of 1922, if a policy of life insurance is effected by one in favor of a person other than himself, the lawful beneficiary thereon, other than himself, shall be entitled to the proceeds as against the creditors or legal representatives of the person effecting the policy, “provided, that, subject to the statute of limitation, the amount of any premium for said insurance paid in fraud of creditors, with interest thereon, shall inure to their benefit from the proceeds of the'policy,” etc. By this statute the creditors of one insured are given an interest in the policy to the amount of the premiums paid in fraud of such creditor’s rights. Under section 6 of the Bankruptcy Act (Comp. St. § 9590), bankrupts are entitled to exemptions which are prescribed by the state laws in force at the time of the filing of the petition in bankruptcy, and under section 70a5 (Comp. St. § 9654), respecting title to property vesting in the trustee, a bankrupt may, by complying with the prescribed conditions, continue to hold policies of life insurance payable to himself, his estate, or personal representative, free from claims of creditors participating in the distribution of his estate under the bankruptcy proceedings. It will be observed that under section 70a5 there is no provision for an exemption of life insurance policies. Whether there is an exemption must depend upon the state statute. Holden v. Stratton, 198 U. S. 202, 25 Sup. Ct. 656, 49 L. Ed. 1018; Hiscock v. Mertens, 205 U. S. 202, 27 Sup. Ct, 488, 51 L. Ed. 771. The Supreme Court of Washington, in Elsom v. Gadd, 93 Wash. 603, 161 Pac. 483, 162 Pac. 867, construed the statute (sections 569 and 7230 — 1, 1922 Code) and held that the proceeds of a policy of life insurance payable to the estate of an insured person are not always exempt from claims of creditors; the court saying:
“If a policy were made payable to a named beneficiary, tbe proceeds and avails were exempt to tbe named beneficiary, but if made payable to tbe estate, they would not be exempt.”
There is nothing in the case which conflicts with the reasonable view that in any amounts that the premiums were paid in fraud of creditors the trustee can claim the proceeds of the policy, and that Iris claim should be sustained as prior to any right of the bankrupt and wife. Bailey v. Wood, 202 Mass. 552, 89 N. E. 147, 25 L. R. A. (N. S.) 722. Here the finding of the District Court that premiums were paid on the policy in advance each year for five years at the rate of $2,478.20 per *601annum, making a total of $12,391 paid since the adjudication in bankruptcy, and that all the money paid for insurance premiums was property of the bankrupt’s estate, and the finding that the premiums, at least to the extent of $12,391, were paid in fraud of creditors, exclude any claim of exemption which can operate as against the claim of the trustee.
In thus referring to the merits, we do not mean to imply that under the statutes of the state of Washington one who borrows upon a life insurance policy, or the beneficiary of the policy, can claim that the money received on the loan shall be exempt from all liability for debt. There may be a well-founded distinction between an exemption which pertains to the proceeds of a policy payable to a beneficiary and money obtained upon a loan made to the policy holder where he and the beneficiary named assign the policy as collateral for the loan. That question is reserved.
It is argued that in no event could the trustee have any claim or title to the annual premiums upon the policy of insurance paid by Mrs. Levinson, because the state courts had rendered a judgment for a certain amount, and limited the trustee’s right to the judgment, and that therefore such judgment passed title to the thing converted. In effect this argument invokes the doctrine of election. But, even assuming that the judgment of the state court is a judgment for all of the income of the property, it would not bar another proceeding instituted by the trustee to recover the income unless it appears that the judgment of the state court has been paid. Thomas v. Sugarman, 218 U. S. 129, 30 Sup. Ct. 650, 54 L. Ed. 967, 29 L. R. A. (N. S.) 250; Lovejoy v. Murray, 3 Wall. 1, 18 L. Ed. 129; 26 R. C. L. 1157; Jacobs v. Teachout (Wash.) 219 Pac. 38.
Finding no error in the order of the District Court, the petition for revision is denied, and the order of the District Court is affirmed.