Dempster v. Waters Pierce Oil Co.

172 F. 353, 97 C.C.A. 51, 1909 U.S. App. LEXIS 4914

Opinion

AMIDON, District Judge

(after stating the facts as above). The appellant mainly contends that the written admission of the corporation that it was insolvent and unable to pay its debts was collusive, and that the adjudication in bankruptcy in New York was without authority of law. This is a collateral attack upon the judgment of the New York court, which cannot be permitted. When the petition in bankruptcy in that court was filed, it was a caveat to all the world, and the appellant here was thereby made a part}'' to that proceeding. If in his judgment is was without authority of law, or the petition was collusive, it was his duty to appear in that court and contest the proceeding, and, if dissatisfied with the judgment, seek his redress by appeal. He cannot be beard to raise the question collaterally in another court.

We are of the opinion, however, that the entire proceeding in the trial court was coram non judice. It was definitely decided in this circuit in the case of In re Granite City Bank, 137 Fed. 818, 70 C. C. A. 316, that under the present bankruptcy law “there are no such things in bankruptcy proceedings as courts of primary and ancillary jurisdiction." The court in which the petition is filed has plenary jurisdiction in bankruptcy throughout the United States. Within that limit all the estate in the possession of the bankrupt or held by another as his property is brought immediately within the custody of the court and made subject to its protection. The filing of the petition is an attachment of the estate, and an injunction restraining any act which will interfere with its administration in bankruptcy. This jurisdiction is national, and takes no account of districts or states. In re Wood and Henderson, 210 U. S. 246, 28 Sup. Ct. 621, 52 L. Ed. 1016; In re Williams (D. C.) 123 Fed. 321, approved by the Circuit Court of Appeals of the Second Circuit, in the case of In re Von Hartz, 142 Fed. 726, 74 C. C. A. 58. See, also, In re Williams (D. C.) 120 Fed. 38; In re Schrom (D. C.) 97 Fed. 760. Any proceeding necessary for the protection of the estate had in any other district must take the form of a plenary action at law or suit in equity. A petition or motion, such as was presented to the trial court, can only be made in an action, suit, or proceeding pending in court. The appointment of a receiver or the issuance of an injunction can only he made in some cause properly before the court. Inasmuch as there was no cause or bankruptcy proceeding pending in the Eastern District of Missouri to which the petition or motion here under review could be attached as a provisional remedy, the trial court was wholly without jurisdiction to entertain the motion.

A contrary conclusion is reached in the cases of In re Benedict (D. C.) 140 Fed. 55. and In re Dunseath & Son Co. (D. C.) 168 Fed. 973, where the authorities are reviewed. The decisions there relied on, however, are misapprehended. Sherman v. Bingham, Fed. Cas. No. 12,762, and Lathrop v. Drake, 91 U. S. 516, 23 L. Ed. 414, were both plenary suits. The former was an action of assumpsit, instituted by declaration and summons, to recover money wrongfully received from the bankrupt. The latter was a suit in equity, instituted by hill and subpmna, to set aside a fraudulent preference. The question raised in these cases was whether under Bankr. Act March 2, 1867 (14 Stat. 517, c. 176), United States courts had jurisdiction of a plenary action brought by the trustee in any district other than that in which the petition was filed, and it was decided that such jurisdiction existed. Such suits are spoken of by the court as ancillary; but the word “ancillary,” as there used, simply means that the suits are in aid of the court of bankruptcy in collecting the assets of the estate. They lend no countenance to the filing of a petition or motion in a court where no cause is pending'.

Under the present bankruptcy law the trustee is vested with all the property belonging to the bankrupt, and may pursue any remedy available to the owner of property. If the property has been reduced to possession, the court of bankruptcy can grant him full relief in the exercise of its summary jurisdiction. If it is held adversely, he can only recover it by plenary action or suit. The only court in which he can proceed by petition or motion is the court in which the proceeding is originally instituted. In re Williams (D. C.) 123 Fed. 321; Ross-Mecham Foundry Co. et al. v. Southern Car & Foundry Co. (D. C.) 124 Fed. 403; In re Von Hartz, 142 Fed. 726, 74 C. C. A. 58. The only cases to the contrary, besides those mentioned in the preceding paragraph, are In re Peiser (D. C.) 115 Fed. 199, in which the subject is not in any way discussed; and In re Sutter Bros. (D. C.) 131 Fed. 654, which must be regarded as overruled by the case of In re Von Hartz, 142 Fed. 726, 74 C. C. A. 58.

It does not follow, from what we have said, that the parties in interest here were without remedy. The authorhy of the bankruptcy court to appoint a receiver for the preservation of the estate pending the adjudication, to authorize the receiver temporarily to conduct the business of the alleged bankrupt, and to make all orders necessary for the accomplishment of those objects, applies to the entire estate of the bankrupt, wheresoever it may be situated in the United States, and is not confined to such property as may be within the district wherein the petition in bankruptcy is filed. In short, the authority to take precautions for the preservation of the estate pending the adjudication in bankruptcy is quite as broad, territorially speaking, as is the authority to collect, administer, and settle the estate after a trustee is appointed. Section 2; cl. 3, of the bankruptcy act (Act July 1, 1898, c. 541, 30 Stat. 545 [U. S. Comp. St. 1901, p. 3421]), authorizes the court to appoint receivers “for the preservation of estates, to take charge of the property of bankrupts.” Wherever the estate is in the United States, there this jurisdiction extends. In its exercise the court may authorize the receiver to take possession of property belonging to the estate wherever situated, and restrain third parties from interfering with that possession, and may also restrain them from pursuing remedies in other courts which will conflict with the duties of the receiver. In the recent case of In re Muncie Pulp Co., 151 Fed. 732, 81 C. C. A. 116, the Circuit Court of Appeals of the Second Circuit held that a court of bankruptcy in the Southern District of New York had power to authorize its receiver to take possession of real property belonging to the estate in Arkansas, and to restrain creditors residing in that state from prosecuting actions in its courts by attachment against the property. Upon the authority of that case, the court of New York in the instant case had jurisdiction to restrain the execution sale now under consideration by specific order. If the pendency of that sale was not discovered by the receiver until he reached the state of .Missouri, and at a time when it would have been too late to. apply to the court of his appointment, there were still several courses open to him: (1) He might have applied to the state court out of which the execution issued to restrain further proceedings thereon, and it would have been the imperative duty of that court, under section 11 of the bankruptcy act, to grant the relief. (2) The sheriff held the property as the property ©f the bankrupt. Otherwise there would have been no foundation for his levy. Clarke v. Larremore, 188 U. S. 486, 33 Sup. Ct. 363, 47 L. Ed. 555. In this case the Supreme Court decided that money arising from an execution sale of the property of the bankrupt, while in possession of the officer making the sale, could be arrested and reclaimed by the trustee. Much more could property which is simply held under a levy be recovered on behalf of the estate. Holding the property as the property of the bankrupt, it would have been the duty of the sheriff, upon demand of the receiver, to acknowledge his right and suspend further proceedings under the writ. Any priorities which the creditor secured by the levy would have been fully protected in the court of bankruptcy. (3) If the state authorities had refused to accede to the requests of the receiver, he could have filed a plenary suit to enforce his right to the possession of the property and to restrain its dissipation and waste by the execution sale. It would seem that the United States Circuit Court would have jurisdiction of such a cause as a suit arising under the laws of the United States, within the meaning of the judiciary act. The limitations of section 23 of the bankruptcy law relate only to suits brought by trustees, and do not apply to suits by receivers.

It has been held that a receiver in bankruptcy, has no power to maintain suits for the recovery of property in the possession of third parties under a claim of right. Boonville National Bank v. Blakey, 107 Fed. 891, 47 C. C. A. 43; In re Kolin, 134 Fed. 557, 67 C. C. A. 481; Guaranty Title & Trust Co. v. Pearlman (D. C.) 144 Fed. 550. It Avould be easy to press the doctrine of these cases too far. It is true, as they hold, that the collection of the estate belongs to the trustee ; but its preservation pending the election of a trustee is the duty of the receiver, and in many cases the property of the bankrupt can only be saved from dissipation by the receiver’s taking it into his immediate actual possession. His powers in preserving the estate are larger than those of a trustee. When necessary for its preservation, the court may direct him to take possession of property, although the same is held adversely under a claim of right — property so situated that the trustee could only recover it by a plenary action. This is the express holding of the Supreme Court in Bryan v. Bernheimer, 181 U. S. 188, 21 Sup. Ct. 557, 45 L. Ed. 814. It is true that in that case the party having adverse possession intervened in the bankruptcy court by petition for the protection of his right. But the Supreme Court declares broadly the power of the receiver.or marshal to take possession of property though held adversely. It quotes from the case of Sharpe v. Doyle, 103 U. S. 686, 26 L. Ed. 277, where the court sustained the exercise of such a power under the act of 3867 by an officer proceeding in invitum, and holds that the doctrine declared in that case is equally applicable to receivers and marshals acting under the present bankruptcy law. See, also, Feibelman v. Packard, 109 U. S. 421, 3 Sup. Ct. 289, 27 L. Ed. 984; In re Rochford, 124 Fed. 182, 59 C. C. A. 388. Ag the Supreme Court points out in Sharpe v. Doyle, this power is indispensable to the preservation of estates. If it did not exist, it would be possible for dishonest bank rupts and those acting in collusion with them to completely dissipate the estate. Horner-Gaylord Co. v. Miller (D. C.) 147 Fed. 295.

Peculiar circumstances might also exist, owing to the great distances in this country and the wide distribution of estates, in which it would be impossible for the receiver to apply to the court of his appointment to enforce the delivery of possession of property belonging, .to the estate against persons refusing to acknowledge his rights, andi when the property would be dissipated and the estate suffer irreparable loss unless prompt relief could be obtained. In such a case the receiver could, in our judgment, maintain any action or suit necessary for the protection of the estate. The authorities which hold that a receiver in bankruptcy has no power to seize property or maintain suits for the protection of the estate outside the district of his appointment confuse such a statutory receiver with the ordinary receiver in chancery. ■ A receiver of the latter class derives all his powers from the order appointing him, and is confined to the jurisdiction of the court from which it emanates. A receiver in bankruptcy, on the contrary, not only derives his powers from the statute, but the jurisdiction of the court appointing him, as already explained, is, as to such receiverships, coextensive with the United States. This distinction is clearly recognized in Booth v. Clark, 17 How. 322. 334, 15 L. Ed. 164; Hale v. Allinson, 188 U. S. 56, 63, 23 Sup. Ct. 244. 47 L. Ed. 380. While such a receiver acts at all times under the supervision of the court, his authority to maintain suits for the protection of the estate need not be expressly granted. It would spring by implication from the nature of his duties.

The question brought to this court in the present case is a naked question of law arising upon uncontrovérted facts, and can well be dealt with under the petition to revise. The appeal is therefore dismissed.

It fpllows, from what we have said, that in no possible view of the matter was the court below possessed of jurisdiction to entertain this proceeding. Its order or decree must therefore be reversed, with a direction to dismiss the petition or motion without prejudice to the rights of airy of the parties concerned; and it is so ordered.