In re Clark

5 F. Cas. 841 | U.S. Circuit Court for the District of Vermont | 1872

WOODRUFF, Circuit Judge.

In the conclusions of the district judge upon the questions of fact, I concur. I shall, therefore,, content myself with stating the questions raised on this appeal, and, very briefly, my conclusions thereon.

It is contended, for the appellant: (1.) That the district court had no power to proceed, summarily, in this case; (2.) that the as-signee is concluded by a former order, which will be hereafter referred to; (3.) that this-proceeding is, in substance, a suit in equity, and an appeal, under the 8th section, is proper; (4.) that it was irregular and erroneous to try the questions of fact by the examination of witnesses in open court, but the testimony should have been taken [and reduced to writing]³ before an examiner [which is claimed to be prescribed by the rules of the supreme court in equity].³ (5.) that neither the proofs, nor the law applicable thereto, warranted the order, in any form of proceeding.

(1.) I have no doubt whatever of the power and jurisdiction of the district court, under the 1st section of the bankrupt law, to assume the entire administration of the estate of the debtor, to determine all questions-touching the existence of liens thereon, to-ascertain and settle the amount of such liens, and to make provision for the liquidation and settlement thereof; and, as incidental to this, it has ample power to restrain a claimant of such lien from proceeding elsewhere to enforce his lien. Language more comprehensive can hardly be suggested than is employed in the act, giving power to collect all the assets, to ascertain and liquidate the liens and other specific claims thereon, adjust the various priorities, and marshal and dispose of the different funds and assets, so as to secure the rights of all parties. To this end, power is given to compel obedience to all orders, by process of contempt and other remedial process. The entire estate is brought within the reach of these comprehensive powers, by vesting it in the assignee appointed by the court, to administer it, under the direction of the court. Nor can it make any difference with the power of the court over this subject, that the lien or alleged lien is inchoate, and incapable of execution, until the amount secured thereby is-ascertained and settled. Ascertainment and liquidation are expressly authorized; and the subsequent provisions of the act, relating to creditors having mortgages, liens or other security, show how fully the whole administration of the estate is confided to the court. True, it does not necessarily follow, that, in all cases, the court must prohibit any proceeding in the state court for the benefit of a creditor having a lien. There is, however, no want of power. Often, it is quite convenient, and, ordinarily, it may be quite desirable, to permit pending actions to proceed, so far as to ascertain the amount due. In one case, — In re Iron Mountain Co. [Case No. 7,065], — a foreclosure of a mortgage in the state court was permitted, though begun after petition filed in the district court, and, under the special circumstances of the case, I deemed it proper, on review in this court, to affirm the order. But, the power to control the creditors in this respect is, I think, clearly given. Two considerations illustrate the importance of the power, which are especially applicable to liens by attachment: 1. Without such power, there is no adequate protection to the other creditors, against collusion between the bankrupt and the claimant, not even aided by the authority given to the assignee to defend. 2. The early settlement of the estate may sometimes require that, the court in bankruptcy should take the determination of claims which are in dispute into its own hands. I deem it equally • clear, that this power conferred by the 1st section is to be summarily exercised, and does not require a formal suit. Indeed, whatever powers are given by the 1st section are designed to be exercised summarily.

There are cases, in which, in order to bring the property pursued by the assignee within the control of the court or its assignee, or to remove obstacles to its administration, it may be necessary for the assignee to prosecute an action at law or a suit in equity; and such cases are provided for in the 2d section. But, when the property affected by a lien is confessedly the property of the bankrupt, and has passed to the assignee, and it only remains to ascertain and liquidate the alleged lien, the summary jurisdiction of the district court is entirely adequate.

(2.) On a prior petition', setting out some of the matters alleged in the present petition, the district court had made an order enjoining Burton from making any use of a written agreement entered into between him and the bankrupt, on the ground that it was a collusive and fraudulent arrangement, for the purpose of securing to Burton a preference over other creditors, in respect of certain claims which had already been merged in a judgment, or barred by such judgment, and for which, so long as such judgment was in force, Burton had no security. But such order did not invalidate or impeach a previous reversal, which had been entered by consent, of that judgment, because it did not then sufficiently appear that such collusive and fraudulent arrangement was entered into prior to such reversal, or that such reversal was part of the scheme devised to secure to Bruton a preference. Shortly after such reversal, the said written agreement was entered into between Burton and the bankrupt, which, if carried into execution, would have permitted Burton to prove all claims which he had or alleged against the bankrupt, in an action “on book,” in which he had attached the bankrupt’s property, and thus secure an apparent lien, and, possibly, an actual lien, for the amount due to him upon the said claims, for which, so long as the said judgment was in force, he had no security. The former order of the district court left to Burton such right to prove the-said claims, as the laws of Vermont might give to him. That order, this court, on review, affirmed, but leave was given to the assignee to renew his application for other or further order in the premises, upon new or additional evidence. Thereupon, the present petition was presented to the district court.

The suggestion, that the decision upon the former hearing was final and conclusive, as-res adjudic-ata, is without foundation. Even in a formal suit in equity, the court may qualify the decree, so that it shall not operate to prevent a new suit; and nothing is more common, in disposing of motions, than to give leave to renew, or apply, upon new or further evidence, for additional relief. The highly equitable and remedial powers conferred on the court in bankruptcy are not less free from restriction, nor are they hampered by such technical rules as will prevent the doing of what is just and for the protection of the estate, even if it requires the revocation of an order once made.

(3.) The proceeding in question was not a formal suit, but was a summary proceeding. It does not conform, in the manner of its institution, the manner of its prosecution, or in its form, to a suit in equity. True, the facts stated and the relief sought were like, in some of their features, to bills for analogous relief in suits in equity; but that proves-nothing. These same facts were the proper ground of a summary application, and for the relief which it was competent for the court summarily to grant. If these proceedings are compared with the rules prescribed to the courts of the United States in equity,, relating to the commencement of suits, the form of bills, appearance therein, &c., &c., no question will, I think, remain on this-point. It would seem to follow, that the mode adopted to obtain a review of the order of the district court, was not warranted. It will, however, be more satisfactory to the parties, if the case is disposed of upon grounds which import that no error was committed in the order appealed from, and, also, upon grounds alike applicable to the proceeding, if it were regarded as a suit in form? and I therefore consider the other points.

(4.) It was not ground for a reversal of the order, that the witnesses were orally examined before the court. The rules of the supreme court have not taken away the power which the court has, as a court of equity, to have the testimony of the witnesses taken, in open court. That power is expressly reserved in the seventy-eighth rule, which implies its existence and its perpetuation. It is there left to the discretion of the court.

(5.) I have, perhaps, already sufficiently expressed my views of the merits. The conclusions of the district judge were, I think,. warranted by tbe evidence. The power of the court over the subject I have already •stated. Independent of any question of actual corrupt design, the arrangement to remove the impediment of an actual adjudication, and bring the claims therein determined ■under the operation of the attachment in the action “on book,” was an attempt to give •an illegal preference in fraud of the bankrupt law. On that subject I have already expressed my opinion, on the former review, above mentioned. It is not enough to say, that, if the debt were permitted to be established in the pending action, the court could •control the execution of the judgment. I would not express any doubt of that; but it '-will save embarrassment, expense, and any apparent effect of a formal judgment, to be avoided by the assignee, to arrest the execution of the fraudulent scheme. And this is •especially true, in view of the evidence of •actual fraudulent collusion, which is deemed •established.

The order should be affirmed.

3 [From 6 N. B. R. 403.]