195 F. 865 | 8th Cir. | 1912
Has a United States District Court, which in the exercise of its ancillary jurisdiction has seized and converted into money the property of a third “person,” a partnership, as the property of a “person,” another partnership, against which proceedings in bankruptcy have been commenced in the court of original jurisdiction, the jurisdiction to restore the proceeds of the property which are still in its possession to a creditor of the true owner, the partnership, against which no proceedings in bankruptcy have been commenced, which is equitably entitled to them? This is the chief question which this appeal presents.
The stock of goods in controversy in this case was located in Kansas City, Mo. It was the property of a partnership, which, for the sake of brevity, will be called the Beeson firm. It was seized and sold by the United States District Court for the Western District of Missouri as the property of the partnership which, for brevity, will be called the Simon firm, and that court was about to remit its proceeds to the trustee in bankruptcy of the property of the latter firm appointed by the referee in bankruptcy of the United States District Court for the Western District of New York when the Fidelity Trust Company, the appellant, filed an intervening petition in which it alleged these to be the facts. About October 8, 1910, an involuntary petition in bankruptcy was filed in the United States District Court for the Western District of New York against Michael C. Simon, individually, and M. C. Simon, as surviving partner of the firm of Ely Meyer, who died in May, 1910, and M. C. Simon, and that court appointed receivers of the estates of Simon as such surviving partner and as an individual. On October 13, 1910, upon an affidavit of the attorney for the petitioning creditors that their petition had been filed in the New York court, that such receivers had been appointed by that court, that Simon as surviving partner and individually owned a stock of merchandise situated in Kansas City, and that it was for the best interest of the estate that a receiver should be appointed to carry on the mercantile business with this stock, the United States District Court for the Western District of Missouri appointed the appellee, Lon H. Gaskell, ancillary receiver of the estate of Simon as such surviving partner and as an individual, authorized him to conduct a mercantile business with the property of the alleged bankrupt, and required him to report to that court. Ely Meyer and M. C. Simon, prior to the death of Meyer, were copartners in the Simon firm which had its principal offices and was engaged in the clothing business at Rochester, N. Y., but Joe Beeson was not a member of that partnership. At the same time Meyer, Simon, and Joe Beeson were partners in the Beeson firm, which was conducting a clothing business in Kansas City, under the personal direction and management of Beeson, who was a resident of that city. The Beeson firm was a partnership separate from and independent of the Simon firm, and it owned „the stock of goods at Kansas City which the receiver seized and sold. It had held out and represented to the appellant, the Fidelity Trust Company, that its stock of goods at Kansas City and its business were and would be separate from and independent of the assets and debts of the Simon firm, available to satisfy its obligations and exempt from the debts of the Simon firm. In reliance upon these facts and representations, the intervener loaned to the Beeson firm $15,000 in March, 1906, and took its promissory notes therefor. It now holds the notes of that firm for this identical indebtedness, and they have not been paid. The only property of the Beeson firm is the proceeds of the sale of this stock of goods which the receiver,
. None of the averments of this petition were denied by answer or otherwise, so that, in the consideration and decision of the issues now presented to this court, all the allegations of this petition must be, taken to be true. Instead of challenging the averments of this petition, the receiver pleaded to the jurisdiction of the court below, and his plea was that the United States District Court of the Western District of Missouri had no jurisdiction to determine whether or not the goods it had seized and sold and their proceeds were the property of the Simon firm, and hence of the alleged bankrupts, or the property of the Beeson firm, and hence not a part of the assets of the alleged bankrupts, and this because, as the receiver claimed, the .original proceedings in bankruptcy against the Simon firm and against Simon were in the New York court, and, as he averred, that court alone had jurisdiction to determine whether the court in Missouri had seized and sold the property of that estate or the property of a stranger. This plea the court below sustained. It dismissed the petition of the intervener, and from its order the intervener appealed.
Why, then, should not the court below return the proceeds of this property to the creditor of its owner whom it has by mistake deprived of it? The answer is, because that court is exercising ancillary and not primary jurisdiction, and for that reason alone has no power to right its own wrong and deliver the property to the party entitled to it. If it had no jurisdiction of this property whatever because no original proceeding in bankruptcy and no plenary suit was brought in that court, then it had no jurisdiction whatever to seize or to sell it, and, if it had no such jurisdiction, it is its undoubted duty to restore the proceeds of it forthwith to the Beeson firm in Kansas City, from which it took it, or to the creditors of that firm who are equitably entitled to apply it to the payment of their claims. If, on the other hand, it had jurisdiction to seize it and to sell it, that jurisdiction imposed upon it the duty to' détermine whether it was the property of the bankrupt or the property of the Beeson firm and to caüse its receiver to deliver it to the party equitably entitled to it. It is true that prior to the year 1910 this court was of the opinion that the District Courts of the United States had ho ancillary jurisdiction in bankruptcy proceedings, and that the court of original jurisdiction had the power to determine the title, the right to the possession and the existence of liens upon specific property claimed as a part of the bankrupt’s estate situated in other districts, and the power to enforce its decisions in those districts. In re Granite City Bank, 137 Fed. 818, 70 C. C. A. 316; In re Dempster, 172 Fed. 353, 355, 356, 97 C. C. A. 51. But in January, 1910, the'Supreme Court decided in Babbitt v. Dutcher, 216 U. S. 102, 110, 114, 30 Sup. Ct. 372, 54 L. Ed. 402, 17 Ann. Cas. 969, and in Elkus, Petitioner, 216 U. S. 115, 117, 30 Sup. Ct. 377, 378 (54 L. Ed. 407), that “the re
Moreover, it seems to be settled by the decisions in Babbitt v. Dutcher, and other cases, that the limitation of section 2 of the Bankruptcy Act of the jurisdiction granted to the District Courts in bankruptcy to “their respective territorial limits” restricts ihe exercise of the power of a district court in which a petition in bankruptcy is filed to its own district, and that it may not enforce its process or its order for the delivery of property without the territorial limits of its district. Lathrop v. Drake, 91 U. S. 516, 517, 23 L. Ed. 414: Babbitt v. Dutcher, 216 U. S. 102, 110, 30 Sup. Ct. 372, 54 L. Ed. 402, 17 Ann. Cas. 969; Staunton v. Wooden, 179 Fed. 61, 64, 102 C. C. A. 355; In re Peiser (D. C.) 115 Fed. 199, 200; In re Sutter Bros. (D. C.) 131 Fed. 654; In re Benedict (D. C.) 140 Fed. 55; In re Robinson (D. C.) 179 Fed. 724.
It is therefore no longer true that one court, the court making the adjudication in bankruptcy, takes exclusive jurisdiction and alone collects and determines the titles to and liens upon the property wherever situated claimed as part of the estate of the bankrupt. It was undoubtedly because this was not true and because the court of primary jurisdiction in New York had no power to enforce its process or its order for the seizure or delivery of the property here in question situated in the state of Missouri that the ancillary jurisdiction of the court below was invoked. The earlier conclusion of this court, therefore, to the effect that the District Courts sitting in bankruptcy had no ancillary jurisdiction and the arguments in its opinions that were believed to sustain that view, are no longer authoritative. We turn to the consideration of the rights and remedies of parties under the decisions of the Supreme Court and the act of Congress, to which reference has been made.
A proceeding in bankruptcy is a proceeding in equity, and a district court sitting in bankruptcy, whether it is exercising its primary or its ancillary jurisdiction, is a court of equity. It is an established principle of equity jurisprudence that whenever a court of chancery takes into its legal custody, and thereby withdraws and withholds property from replevin, attachment, or other legal proceedings, it
It is true that the Supreme Court once said that the filing of a petition 'in bankruptcy “is a caveat to all the world and in effect an attachment and injunction” (Mueller v. Nugent, 184 U. S. 1, 14, 22 Sup. Ct. 269, 275, 46 L. Ed. 405), that the adjudication in bankruptcy puts the property of the bankrupt in custodia legis, and that its title vests in the trustee upon his appointment. But the later decisions of 'that court adjudge that the statement quoted applies only to parties who' have no' substantial claim of a lien upon or title to the property claimed as that of 'the bankrupt, and that against those who have such claims of existing titles or liens when the petition in bankruptcy is filed its filing is neither a caveat nor an attachment', that it creates no lien, and that they are strangers to the proceedings in the absence of an order or process making them parties, or some equivalent notice. Jaquith v. Rowley, 188 U. S. 620, 625, 23 Sup. Ct. 369, 47 L. Ed. 620; York Mfg. Co. v. Cassell, 201 U. S. 344, 352, 353, 26 Sup. Ct. 481, 50 L. Ed. 782; Hiscock v. Varick Bank of New York, 206 U. S. 28, 41, 27 Sup. Ct. 681, 51 L. Ed. 945; In re Rathman, 183 Fed. 913, 924, 106 C. C. A. 253. Again, it is the title of the bankrupt only that is placed in custodia legis by the adjudication and that vests in the trustee when appointed, and if the averments of the petition of the intervener are true, as we must assume in the consideration of this plea to the jurisdiction, the stock of goods taken by the court below never was the property of the bankrupts. The Bee-son firm had a title to it which-was created before and existing when the petition in bankruptcy was filed and the intervener’s equitable right to it relates back to that title. The property was held by the Beeson firm under an adverse claim and title when the court below seized it and when the petition in bankruptcy was filed.
Attention is called to the fact that by the act of June 25, 1910, “ancillary jurisdiction over persons or property within their respective territorial limits” is granted to the District Courts “in aid of a receiver or trustee appointed in any bankruptcy proceedings pending in any other court of bankruptcy”; and it is contended that the true construction of this grant is that it makes the District Court thé agent, the mere hand of the receiver or trustee appointed by the court of primary jurisdiction, bound to seize, convert into money, pay over to him, and send to' that court the proceeds of any property in its territorial jurisdiction which he may point out as the property of the bankrupt, without judicial power or duty to inquire, or to decide, whether the property it takes and sends forth beyond its- jurisdiction is that of the bankrupt or of a stranger, what legal or equitable liens
Therefore, after the ancillary jurisdiction of the court below had been invoked and it had appointed its receiver and empowered him to take the .property of the bankrupts within its territorial jurisdiction, it had exclusive jurisdiction and the court of primary jurisdiction was without jurisdiction over that specific property. The power was conferred and the duty was imposed upon it to hear and adjudge all claims to the title to and to legal and equitable liens upon the property that its receiver took, which the claimants by intervention submittéd to and requested it to determine, and it could not lawfully renounce that power nor avoid that duty. It had plenary jurisdiction to hear and decide the issue tendered by the petition of intervention. It was. its duty to do so, and according to its decision to turn the proceeds of the property over to the trustees of the estate of the bankrupts, or to the Beeson firm and its creditors. Accordingly the decree below must be reversed, the case must be remanded to the District Court with instructions to permit the receiver to answer'the, petition of intervention, and to take further proceedings not inconsistent with the views expressed in this opinion.