In re Louis Neuburger, Inc., 240 F. 947

In re Louis Neuburger, Inc.

240 F. 947 | 2d Cir. | 1917

ROGERS, Circuit Judge

(after stating the facts as above). [1, 2] The assignee for creditors claims that the order- of the District Court requiring him to file his accounts in that court is erroneous. He asserts that he had a right to account to the state court, from which he derived his authority, and he denies the power of the trustee to compel another accounting in the federal court; the matter being res ad-judicata by the action of the state court.

Under the Bankruptcy Act an assignment for the benefit of creditors is in itself an act of bankruptcy. The assignment reniains valid, unless and until an adjudication in bankruptcy is made. It is properly regarded as potentially a fraud upon the Bankruptcy Law and upon the creditors, since its necessary effect would be to defeat the operation of the Bankruptcy Law and to'deprive creditors of the protection that that law affords them and the provisions it makes for a speedy and equal distribution of the estate. In re Gutwillig, 92 Fed. 337, 34 C. C. A. 377.

If an adjudication in bankruptcy follows an assignment, it has the effect of automatically and of its own- force avoiding the assignment. The trustee immediately becomes invested with title to the property. He does not take title as the successor of the assignee, but as the successor of the bankrupt. It becomes at once the duty of the assignee to turn over to the trustee, when elected, the estate covered by the asr-*949signment, and in the meantime to preserve the estate intact. If he does more than that, he assumes the risk of his conduct, as he is chargeable with knowledge of the extent of his powers. The adjudication of the assignor in bankruptcy invests the bankruptcy court from that time with exclusive jurisdiction of the bankrupt’s estate. There can be no question of concurrent jurisdiction with the state court in respect thereof. As the Supreme Court declared in Re Watts, 190 U. S. 1, 27, 23 Sup. Ct. 718, 724 (47 L. Ed. 933):

“The operation of the bankruptcy laws of the United States cannot be defeated by insolvent commercial corporations applying to be wound up under state statutes. The bankruptcy law is paramount, and the jurisdiction of the federal courts in bankruptcy, when properly invoked, in the administration of the affairs of insolvent persons and corporations, is essentially exclusive.”

As the jurisdiction over the bankrupt’s estate is exclusive, it follows necessarily that the jurisdiction of the state court is at once superseded upon the adjudication of bankruptcy, and that there is no authority in that court thereafter to authorize any expenditures from the estate the title being at the time in the trustee in bankruptcy. The matter was thoroughly- considered by District Judge Augustus N. Hand, and his opinion is satisfactory to this court. The state court was without jurisdiction to settle the accounts of the assignee. It is his plain duty to account in the bankruptcy court for the assets- of the bankrupt estate which came into his hands as assignee.

Order affirmed.