In Whitney v. Wenman, 198 U.S. 539, 25 S.Ct. 778, 49 L.Ed. 1157, the latter section was characterized as a limitation; in Schumacher v. Beeler, supra, a later case, it was characterized as a grant.Summary of this case from Austrian v. Williams
Submitted April 24, 1905. Decided May 29, 1905.
The bankruptcy court has jurisdiction of a proceeding in the nature of a plenary action brought by the trustee to determine controversies in relation to property held by the bankrupt or by other parties for him, and the extent and character of liens thereon; and this applies to a suit brought against parties claiming possession of goods in the bankrupt's store, as warehousemen, under a nominal lease of the store from the bankrupt. A receiver in bankruptcy is appointed as a temporary custodian and it is his duty to hold possession of property until the termination of the proceedings or the appointment of the trustee, and meanwhile the bankruptcy court has possession of the property and jurisdiction to hear and determine the interests of those claiming liens thereon or ownership thereof, and this jurisdiction cannot be affected by the receiver turning the property over to any person without the authority of the court.
Mr. Robert D. Murray, Mr. J. Aspinwall Hodge and Mr. George H. Gilman for appellant:
The District Court had jurisdiction over this suit, because the subject matter thereof is in its custody. White v. Schloerb, 178 U.S. 542; Bardes v. Bank, 178 U.S. 524, distinguished.
Where a court of equity has taken possession of property for any reason, and has placed it in the custody of receivers, sequestrators or custodians, it will maintain its possession of such property and will determine all rights with respect thereto, even though the actual physical custody of the property may have been parted with by its officers, either under void orders of the court, Minnesota Co. v. St. Paul Co., 2 Wall. 609, 632, or where the property has been obtained from the receiver or other court officer, through collusion with him (as in this case) or by fraud. De Winton v. Brecon, 28 Beavan, 200. See also Morgan's Co. v. Texas Central, 137 U.S. 171, 201; Smith v. Express Co., 135 Ill. 279, 292; Sharpe v. Doyle, 102 U.S. 686.
Section 70 e of the bankrupt act, as amended, expressly confers jurisdiction upon the District Court of a suit to set aside transfers made prior to the filing of a petition.
Appellees are not bona fide holders of the silks and the accounts. Shaw v. Railroad Co., 101 U.S. 557; Pollard v. Vinton, 105 U.S. 7. As to rights of the holders of warehouse receipts see Friedlander v. Texas Pacific, 130 U.S. 415, 424; The Carlos F. Roses, 177 U.S. 655, 665. The goods never having been really stored the receipts are voidable. Yenni v. McNamee, 45 N.Y. 614.
As to Gregory v. Atkinson, 127 F. 183, cited and referred to by the appellees to effect § 70 e, does not give jurisdiction where the defendants do not consent, see cases holding that § 70 e does give jurisdiction without the consent of the defendants. Horskins v. Sanderson, 132 F. 415, 416; In re Leeds Woolen Mills, 129 F. 922, 926; Pond v. N.Y. Nat. Exch. Bank, 124 F. 992; Lawrence v. Lowrie, 133 F. 995; Delta National Bank v. Easterbrook, 133 F. 521.
The question has not, as yet, been passed upon by this court.
In construing a statute, a meaning must be given to each and every part thereof, and the plain intent as expressed in the amendment to § 70 e, that suits of the character therein enumerated may be brought in the District Court, requires a construction which will confer such jurisdiction, and not a construction such as is contended for by the appellees, which will render its language meaningless.
Section 23 b is a general provision and § 70 e is a special one. Where there is any conflict between a general and a special provision, the universal rule of construction requires that the special provision shall be considered as an exception to the general rule, contained in the general provision. Townsend v. Little, 109 U.S. 504, 512; United States v. Nix, 189 U.S. 199, 205.
Appellees having demurred only as to jurisdiction cannot now bolster up their case by arguing the merits of the cause of action as if they had demurred generally. This they cannot do. The certificate raises only the question of jurisdiction of courts of the United States as such. Schweer v. Brown, 195 U.S. 171; Lucius v. Cawthon-Coleman Co., 190 U.S. 149. The merits of the case are not before this court.
Appellees confuse the New York lien law as to chattel mortgages with the personal property law as to pledges and other charges. Hangen v. Hachemeister, 114 N.Y. 566; Southard v. Benner, 72 N.Y. 424; Russell v. Winne, 37 N.Y. 591. And the question of jurisdiction alone can be considered. Act of March 3, 1891, c. 517, § 5; Hennessy v. Richardson Drug Co., 189 U.S. 25, 33; Huntington v. Laidley, 176 U.S. 668, 679; McDonald v. Smalley, 1 Pet. 620.
As to Re Economical Printing Company, 110 F. 514, cited to effect, that there should have been an allegation in the bill that there was a judgment creditor in existence, in whose right the trustee was acting, see In re Garcewich, 115 F. 87.
The lien law of New York provides that transactions such as are disclosed by the appellant's bill, shall be "absolutely void as against creditors."
Muller v. Nugent, 188 U.S. 1, 14, holds that the filing of a petition in bankruptcy is in effect a levy of attachment and it is settled law of the State of New York that an attaching creditor may attack an invalid chattel mortgage.
Other Circuit Courts of Appeals have refused to follow Re Economical Printing Company, supra. See Chesapeake Co. v. Seldner, 112 F. 593; Re Antiago Screen Co., 123 F. 249; Re Rodgers, 125 F. 169; Re Pekin Plow Co., 112 F. 308; Spencer v. Duplex Co., 112 F. 638, 643; In re Beede, 126 F. 853; Mueller v. Bruss, 112 Wis. 406, 412, and cases cited.
Hewit v. Berlin Co., 194 U.S. 302, held in construing § 112 of the lien law of New York with respect to conditional sales, that a trustee in bankruptcy has no standing to attack a voidable transaction thereunder.
Mr. Edwin B. Smith for appellee, Security Warehousing Company, as to question of jurisdiction:
The fair presumption as to a court of limited jurisdiction is against the jurisdiction until the contrary appears. Thomas v. Board, 195 U.S. 210; People v. Spencer, 55 N.Y. 1; Fife v. Whittell, 102 F. 539; Pacific Railway v. Los Angeles, 194 U.S. 118. The history of the act shows this jurisdiction never was intended; that § 70 e affects fraudulent conveyances running back through the period of the State's statutes of limitations which are a fraud on creditors though made without reference to the bankrupt act. These long past transactions are left to the state courts unless defendant consents to the jurisdiction of a Federal court. Collier on Bankruptcy, 4th ed., 250; Gregory v. Atkinson, 127 F. 183; Brandenberg, 369, § 578.
To maintain an equity suit under § 70 e, by a trustee, these facts must be averred with the certainty and positiveness required in equity pleadings, viz.: (1) A transfer by the bankrupt; (2) such as his creditor might have avoided; (3) that the defendant is not a bona fide holder for value; (4) that the proposed defendant has consented to the bringing and prosecution of the suit in the Federal court. Before a party can avail himself of the statutory right he must show upon the record that his is a case which comes within the provisions of the statute. Pacific Railway v. Los Angeles, 194 U.S. 118.
In this case the bill does not properly aver any one of the necessary jurisdictional facts. It is immaterial how this failure to state jurisdictional facts is called to the attention of the court. Chase v. Palmer, 23 Me. 345; Richards v. Lake Shore, 124 Ill. 521, and the presumptions are against it. Wels. Eq. Pl. 10, 126; M. F. 128; Vernon v. Vernon, 2 Myl. Cr. 145; Clark v. Dillon, 97 N.Y. 373.
The transfer by the bankrupt was not one that any creditor might have avoided. A general lien was created at common law and sustained by statute. Brooks v. Hanover Bank, 26 F. 302; Stallman v. Kimberly, 121 N.Y. 393; Yenni v. McNamee, 45 N.Y. 614. A trustee in bankruptcy can avoid a transfer only to the extent that a judgment creditor could. Re N.Y. Economical Printing Co., 49 C. C.A. 133; Re Kellogg, 112 F. 52; Hewit v. Berlin, 194 U.S. 302; Thompson v. Fairbanks, 196 U.S. 526; In re Garcewich, 115 F. 87.
The bill does not charge that defendants were holders for value.
It is not the defendant's consent that is made a condition precedent to jurisdiction, but that of the person whom the trustee proposes to make a defendant.
A "proposed" defendant is not one in esse, but a person intended to be made such in futuro. 27 A.D. 110. The purpose to sue him in a bankruptcy court must be communicated, and assented to by him, before service of the summons; for that service makes him, eo instanti, a defendant, calling him into court to make some defense. 184 U.S. 26.
Section 23 does not say simply no suit shall be brought without the consent of the proposed defendant; it adds "or prosecuted." Consent to the prosecution of a suit requires something more than merely appearing to demur. The Bardes case went up on a demurrer to the jurisdiction. 178 U.S. 525; In re Thomson, 112 F. 946; Donnelly v. Cordage Co., 66 F. 613; St. Louis Ry. v. McBride, 141 U.S. 127; Louisville Traction Co. v. Cominger, 184 U. S, 26; In re Mitchie, 116 F. 725; In re Steuer, 104 F. 977; In re Hembey-Hutchinson Pub. Co., 105 F. 909. Mr. Louis F. Doyle for appellees, Wenman and others:
The bill is not framed as an application for the exercise of the summary jurisdiction of the court of bankruptcy and it seeks relief wholly beyond that jurisdiction. Bardes v. Bank, 178 U.S. 524; Whitney v. Wenman, 96 A.D. 290; White v. Schloerb, 178 U.S. 542; Mueller v. Nugent, 184 U.S. 1; Minnesota v. St. Paul Co., 2 Wall. 609; Morgan Co. v. Tex. Cent. Ry., 137 U.S. 171; Sharpe v. Doyle, 102 U.S. 171, distinguished.
On the admitted facts it does not appear that the property was in custodia legis. See Bush v. Export Co., U.S. Circuit Ct., E.D. Tennessee, August, 1904.
Jurisdiction is not conferred by § 70 e. Bardes v. Bank, 178 U.S. 524, and cases cited by other counsel for appellees.
This case is here upon the question of the jurisdiction of the District Court to entertain the action. The case in the court below was dismissed for want of jurisdiction, the demurrer having been sustained solely upon the ground that the bankruptcy act of July 1, 1898, as amended by the act of February 5, 1903, gave the court no jurisdiction. We are not concerned with the merits of the controversy further than the allegations concerning the same are necessary to be considered in determining the question of the jurisdiction of the District Court as a court of bankruptcy to entertain this suit. It is sufficient to say that in our opinion the bill made a case which presented a controversy for judicial determination as to the right of the defendants to hold the lease and property under the alleged security of the warehouse receipts undertaken to be issued in the manner set forth in the petition. Whether it will turn out upon full hearing that the lease and securities are good is not now to be determined. The bill makes allegations which raise a justiciable controversy as to the validity of the alleged lien in view of the lack of change of possession of the goods under the circumstances set forth. The question for this court now to determine is whether the bankruptcy court, on the allegations made and admitted as true by the demurrer, had jurisdiction to determine the controversy. It is positively alleged in the bill that the supervision and control of the goods continued in the firm of Dresser Company, and that the alleged doings of the Security Warehousing Company and its agents were merely colorable and did not, in fact, change the control over the goods, nor give any notice of the alleged lease of the Warehousing Company, nor the lien of the instruments thereby secured. It is further positively averred that when the receivers were appointed upwards of $150,000 worth of goods belonging to the firm were in the possession and under the control of the bankrupts, and after the receivers had taken possession of the store the goods were delivered up to the Warehousing Company without any order or attempt to procure the sanction of the court to such surrender of the property. Under these circumstances had the bankruptcy court jurisdiction to determine the rights of parties claiming interests in the property?
Section 2 of the bankrupt act of 1898, among other things, confers jurisdiction upon the District Courts of the United States, as courts of bankruptcy, (3) to "appoint receivers or the marshals, upon application of parties in interest, in case the court shall find it absolutely necessary, for the preservation of estates, to take charge of the property of bankrupts after the filing of the petition and until it is dismissed or the trustee is qualified;" (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."
This section, in connection with section 23, was before this court for construction in the case of Bardes v. Hawarden Bank, 178 U.S. 524, in which case it was held that section 23 b of the act as it then stood prevented the courts of the United States from entertaining jurisdiction over suits brought by trustees in bankruptcy to set aside fraudulent transfers of money or property made by the bankrupt to third parties before the institution of the bankruptcy proceedings, without the consent of the defendants. In that case it was held that the power conferred in subdivision 7 of section 2, above quoted, was limited by the direct provisions of section 23 as to the jurisdiction of suits brought by trustees, the effect of which section was to compel the trustee to resort to the state courts to set aside conveyances of the character named where an alleged fraudulent transfer had been made by the bankrupt before the beginning of the proceedings, unless jurisdiction in the District Court was by consent. This case, Bardes v. Bank, did not determine the right of the District Court to entertain jurisdiction of a proceeding having in view the adjudication of rights in or liens upon property which came into the possession of the bankruptcy court as that of the bankrupt; the right to proceed concerning which would seem to be broadly conferred in the section of the bankruptcy act above quoted. At the same term at which the Bardes case was decided, this court determined the case of White v. Schloerb, 178 U.S. 542. In that case it was held that, after an adjudication in bankruptcy, an action in replevin could not be brought in the state court to recover property in the possession of and held by the bankrupt at the time of the adjudication, and in the hands of the referee in bankruptcy when the action was begun, and that the District Court of the United States, sitting in bankruptcy, had jurisdiction by summary process to compel the return of the property seized. In the case of Bryan v. Bernheimer, 181 U.S. 188, it appeared that the bankrupt had made a general assignment for the benefit of his creditors nine days before the filing of his petition in bankruptcy, and the assignee sold the property after the bankruptcy proceedings had been begun, after the adjudication in bankruptcy, but before the appointment of a trustee. Upon petition of creditors the District Court ordered that the marshal take possession, and the purchaser appear within ten days and propound his claim to the property, or, failing so to do, be declared to have no right in it. The purchaser appeared and set up that he bought the property in good faith from the assignee, and prayed the process of the court that the creditors might be remitted to their claim against the assignee for the price, or that same be ordered to be paid into court by the assignee and paid over to the purchaser who was willing to rescind the purchase upon receiving his money. It was held that the purchaser had no title to the bankrupt's estate, and that the equities between him and the creditors should be determined by the District Court, bringing in the assignee if necessary. In that case Mr. Justice Gray, who also delivered the opinion in the Bardes case, said:
"The bankrupt act of 1898, § 2, invests the courts of bankruptcy `with such jurisdiction, at law and in equity, as to enable them to exercise original jurisdiction in bankruptcy proceedings, in vacation in chambers, and during their respective terms'; to make adjudications of bankruptcy; and, among other things, `(3) appoint receivers or the marshals, upon the application of parties in interest, in case the courts shall find it absolutely necessary for the preservation of estates to take charge of the property of bankrupts after the filing of the petition and until it is dismissed or the trustee is qualified;' `(6) bring in and substitute additional persons or parties in proceedings in bankruptcy when necessary for the complete determination of a matter in controversy; (7) 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 refers to the provision of section 23, by virtue of which, as adjudged at the last term of this court, the District Court can, by the proposed defendant's consent, but not otherwise, entertain jurisdiction over suits brought by trustees in bankruptcy against third persons to recover property fraudulently conveyed by the bankrupt to them before the institution of proceedings in bankruptcy. Bardes v. Hawarden Bank, 178 U.S. 524; Mitchell v. McClure, 178 U.S. 539; Hicks v. Knost, 178 U.S. 541."
This case ( Bryan v. Bernheimer) would seem to limit the effect of the decision in the Bardes case to suits against third persons on account of transfers made before the bankruptcy, and to recognize the right of the bankruptcy court to adjudicate upon rights in property in the possession of the court belonging to the bankrupt. In the case of Mueller v. Nugent, 184 U.S. 1, this court recognized the power of the bankruptcy court to compel the surrender of money or other assets of the bankrupt in his possession or that of some one for him. In that case the decisions in Bardes v. Hawarden Bank, White v. Schloerb and Bryan v. Bernheimer were reviewed by the Chief Justice, who delivered the opinion of the court, and it was held that the filing of a petition in bankruptcy, is a caveat to all the world, and in effect an attachment and injunction, and that on adjudication title to the bankrupt's estate became vested in the trustee with actual or constructive possession, and placed in the custody of the bankruptcy court.
We think the result of these cases is, in view of the broad powers conferred in section 2 of the bankrupt act, authorizing the bankruptcy court to cause the estate of the bankrupt to be collected, reduced to money and distributed, and to determine controversies in relation thereto, and bring in and substitute additional parties when necessary for the complete determination of a matter in controversy, that when the property has become subject to the jurisdiction of the bankruptcy court as that of the bankrupt, whether held by him or for him, jurisdiction exists to determine controversies in relation to the disposition of the same and the extent and character of liens thereon or rights therein. This conclusion accords with a number of well-considered cases in the Federal courts. In re Whitener, 105 F. 180; In re Antiago Screen Door Co., 123 F. 249; In re Kellogg, 121 F. 333. In the case of First National Bank v. The Chicago Title Trust Company, decided May 8 of this term, ante, p. 280, in holding that the jurisdiction of the District Court did not obtain, it was pointed out that the court had found that it was not in possession of the property. Nor can we perceive that it makes any difference that the jurisdiction is not sought to be asserted in a summary proceeding, but resort is had to an action in the nature of a plenary suit, wherein the parties can be fully heard after the due course of equitable procedure.
It is insisted that in the present case the property was voluntarily turned over by the receiver, and thereby the jurisdiction of the District Court, upon the ground herein stated, is defeated, as the property is no longer in the possession or subject to the control of the court. But the receiver had no power or authority under the allegations of this bill to turn over the property. He was appointed a temporary custodian, and it was his duty to hold possession of the property until the termination of the proceedings or the appointment of a trustee for the bankrupt. The circumstances alleged in this bill tend to show that the transfer of the property was collusive, and certainly if the allegations be true, it was made without authority of the court. The court had possession of the property and jurisdiction to hear and determine the interests of those claiming a lien therein or ownership thereof. We do not think this jurisdiction can be ousted by a surrender of the property by the receiver, without authority of the court. Whether the rights of the claimants to the property could be litigated by summary proceedings, we need not determine. What we hold is that under the allegations of this bill the District Court had the right in a proceeding in the nature of a plenary action, in which the parties were duly served and brought into court, to determine their rights, and to grant full relief in the premises if the allegations of the bill shall be sustained. This view renders it unnecessary to consider the effect of the amendments of the bankruptcy act, passed February 5, 1903, broadening the power of the bankruptcy courts to entertain suits by trustees to set aside certain conveyances made by the bankrupt.