In re Clark

5 F. Cas. 835, 4 Ben. 88

Opinion

BLATCHFORD, District Judge.

It is apparent, from the frame of the complaint in the suit in the state court, that the reason for bringing it was, that a large sum would, on a final accounting between Clark and Bin-inger, be found due to Clark, after paying the debts of the copartnership, over and above all advances or otherwise made by Bininger to Clark, or to the copartnership, and that the conduct of Bininger had been such towards Clark, and in the management of the business of the copartnership, before and after its suspension, that, if the management and settlement of such business were to be left to Bininger, the rights and interests of Clark and of the creditors of the copartnership would be put in peril. Hence the prayer for a receiver, for a judicial winding up of the the affairs of the co-partnership, and for an injunction against Bininger. On the facts stated, and with a net surplus of assets amounting to $300,000, after paying the debts of the copartnership, it is apparent that a large individual property would remain, to go to Clark. By virtue of the 14th and 36th sections of the bankruptcy act, this individual property of Clark’s passed to the assignee in bankruptcy, to be applied, if necessary, to the payment of his separate debts. By the 14th section it is specially provided, that all rights in equity of the bankrupt, and all his rights of action for property or estate, real or personal, and for any cause of action which he had against any person, arising from contract, with the like right, title, power, and authority to sue for and recover the same, as the bankrupt might or could have had, if no assignment had been made, shall, in virtue of the adjudication of bankuptcy and the appointment of his assignee, be at once vested in such assignee. Under this provision, all the rights and rights of action which Clark is seeking to enforce in the suit brought by him, have passed out of Clark and are vested in the assignee in bankruptcy. The 14th section also provides, that the assignee may sue for and recover such estate, and may prosecute and defend all suits at law or in equity, .pending at the time of the adjudication of bankruptcy, in which the bankrupt is a party, in his own name, in the same manner, and with the like effect, as they might have been prosecuted or defended by such bankrupt. The 16th section provides, that if, at the time of the commencement of proceedings in bankruptcy, an action is pending, in the name of the debtor, for the recovery of a debt or other thing, which might or ought to-pass to the assignee by the assignment, the assignee shall, if he requires it, be admitted to prosecute the action in his own name, in like manner, and with like effect, as if it had been originally commenced by him. These provisions of the 14th and 16th sections include suits and actions pending in the state courts, and are addressed to the courts in which such suits or actions are-pending, quite as much as to the federal courts. The 20th section provides, that the bankrupt shall, at all times, until his dis charge, be subject to tbe order of tlie bankruptcy court, and shall, at the expense of the estate, execute all proper writings and instruments, and do and perform all acts required by the court touching the assigned property or estate, and to enable the as-signee to demand, recover, and receive all Hie property and estate assigned, wherever situated, and that, for neglect or refusal to obey any order of the court, such bankrupt may be committed and punished as for a contempt of court.

F. N. Bangs, for' assignee. J. F. Morgan, for receivers.

As all the rights of action which Clark is seeking to enforce in the suit pending in tl#e state court, are now vested in the assignee in bankruptcy, it is proper that such assignee should be allowed to prosecute such action in his own name, and that this court should require Clark to execute all such writings, and do all such acts, as will enable such as-signee so to prosecute such action. To that end, an order will be entered, that Clark execute and deliver to the assignee the proper papers to enable the assignee to be admitted to prosecute such action in his own name, in the same manner, and with the like effect, as it might have been prosecuted by Clark, and that Clark himself refrain from further prosecuting said action, or applying for any order or decree therein, without the leave of this court. The bankrupts must be enjoined from interfering with the property of which the receivers have possession.

This relief, of turning over to the assignee the prosecution of the action brought by Clark in the state court, though not specifically prayed for in the petition, was asked for by the assignee, on the hearing on the petition, under the prayer for general relief, and as a corollary to the prayer for an injunction restraining Clark from further prosecuting such action. As it is quite probable that, if the assignee be substituted as plaintiff in the action, it may be desirable that the possession of the receivers should not be disturbed until such substitution shall take place, a decision on the other matters involved in the prayer of the petition is suspended for the present.

After the making, on the 17th of February, of the order above granted, the assignee applied to the state court for an order adjudging that, as the former interests of both of the parties to the action in that court in the property in controversy therein had become, by the bankruptcy act, vested in the as-signee in bankruptcy, such action had abated for want of proper parties to prosecute or defend the same, and that such assignee was entitled to the property in controversy in the cause, subject to any lawful right or claim of the receivers, for the purpose of disposing of the same pursuant to the bankruptcy act. and directing a discontinuance of such action, and a dismissal of the complaint therein. The question of the granting of such order by the state court was still pending unheard, when the assignee renewed his application to this court for an order to the marshal to take the property in question from the possession of the receivers, and to enjoin the receivers from any further interfering therewith. This application was founded on the petition before presented, and on an affidavit made by the assignee on the 23d of February, in which he set forth that he was unwilling to make any further application to the state court, lest he might expose himself to censure and punishment from said court; that he believed that if this court had jurisdiction to take from the receivers the possession of the property in controversy, there was a great necessity for the exercise of such jurisdiction, and he prayed that it might be exercised; that the claims of the receivers for compensation and fees were extravagant, and far beyond what the law allowed; that while he did not apprehend that the state court would make any allowance beyond what the law authorized, yet he believed that the receivers would persist in their extravagant demands, and that, by reason of the appeals which are permissible in the state courts, a very great length of time must necessarily elapse, in case an attempt was made to adjust such fees in the state court; and that so long as the receivers were permitted to retain the property as security for a lien which did not exceed five per cent, of its actual value, sales were prevented, expenses were accruing, and waste was committed. The affidavit concluded with the prayer that if this court decided that it had no jurisdiction or power to take the property from the custody of the receivers, and put it into the custody of the assignee, to the end that, without prejudice to the lien and claim of the receivers, it might be converted into money, this court would direct the assignee to apply to the state court, so that he might be acting in that court upon the order and responsibility of this court, and might not seem voluntarily to have gone out of or waived any reliance upon the jurisdiction of this court.

BLATCHFOBD, District Judge. The petition of the assignee, on which this application is founded, and which makes the bankrupts and the receivers parties thereto, is not founded upon any allegation that the transfer of property effected by the proceedings in the state court, was void under the 35th or the 39th section of the bankruptcy act, nor does it pray that such transfer may be adjudged void and set aside. On the contrary, it sets forth, on its face, that prior to the commencement of the proceedings in bankruptcy, the action in the state court was brought, and one of the two receivers was appointed by that court, and such receiver had taken possession of the property in question. The property is still in his possession and in that of his co-receiver, and the application to this court is, that, under these circumstances, this court will summarily declare such property to have so heen the property of the bankrupts at the time of the commencement of the proceedings in bankruptcy, and to have so passed to the assignee by the assignment in bankruptcy to him, as to warrant this court in directing the marshal to forcibly dispossess the receivers, and take the property and put it into the hands of the assignee. The jurisdiction of the state court over the subject-matter of the suit, therein, and over the parties thereto, when it was instituted and the receiver was appointed, and its jurisdiction to appoint such receiver, are in no manner impeached or questioned. It is only claimed, that, by reason of subsequently transpiring events, this court shall decide that the state court ought to, and shall be made, by compulsion from this court, to give up possession of the property', without its being shown that such possession of the property by the state court can be properly adjudged by this court to be void or invalid, by reason of provisions of the bankruptcy act.

It would seem to be only necessary to state these propositions, to reach the conclusion that this court cannot grant the particular relief asked. The questions involved were considered by this court in the case of In re Vogel [Case No. 16,982], When property is lawfully placed in the custody of a receiver by the court which appoints such receiver, it is in the custody, and under the protection and control, of such court, for the time being, and no other court has a right to interfere with such possession, unless it be some court which has a direct supervisory control over the court whose process has first taken possession, or some superior jurisdiction in the premises. Peck v. Jenness, 7 How. [48 U. S.] 612, 625; Williams v. Benedict, 8 How. [49 U. S.] 107, 112; Wiswall v. Sampson, 14 How. [55 U. S.] 52, 66; Peale v. Phipps, Id. 368, 374; Taylor v. Carryl, 20 How. [65 U. S.] 5883, 594-597; Freeman v. Howe, 24 How. [65 U. S.] 450; Buck v. Colbath, 3 Wall. [70 U. S.] 334. In the present posture of this case, it does not appear that this court has such superior jurisdiction in the premises, or such supervisory control over the state court, in respect to the property in question, as to authorize it to take away from the state court the possession of such property, or to enjoin the receivers from further interfering with such property. This court will always be sedulous to enforce its just powers, but it will not demand from any other tribunal anything which it would not itself be willing to concede under like circumstances. In the case referred to, of In re Vogel, it compelled the restitution to an assignee in bankruptcy of property which had been taken away by process of a state court, from the custody of this court, and its decision was affirmed by the circuit court on review. The principle on which such restitution was enforced would authorize the state court, in the present case, to compel restitution to its' receivers of such property as this court should take away, by force, from the custody of such state court, and this court might then retaliate, and the confusion and endless strife would ensue which are so forcibly characterized by the supreme court, in the opinion delivered in the case of Buck v. Colbath, before cited.

In respect to the application made at the conclusion of the assignee’s affidavit, that this court will direct him to apply to the state court, so that he may be acting in that court on. the order and responsibility of this court, and may not seem voluntarily to have gone out of, or waived any reliance upon, the jurisdiction of this court — inasmuch as he has asked and obtained from this court an order providing him with the means of being admitted to prosecute, in his own name, the action in the state court, and enjoining the bankrupt Clark from opposing his application to the state court in the premises, and giving him leave > to apply to the state court for such order in the action as he should be advised to apply for, and inasmuch as he has applied to the state court for the granting of the order, before mentioned, discontinuing the action in that court, and dismissing the complaint therein, it seems hardly necessary that this court should direct him to apply to the state court.

The applications are, therefore, denied.