Louis Katchen and Howard M. Katchen v. Hyman D. Landy, Trustee in Bankruptcy, in the Matter of Katchen's Bonus Corner, Inc., Bankrupt

336 F.2d 535, 8 Fed. R. Serv. 2d 13, 1964 U.S. App. LEXIS 4375

• Court: Court of Appeals for the Tenth Circuit
• Decided: September 9, 1964
• Docket: 7483_1
• Status: Published

Opinions

MURRAH, Chief Judge.

This appeal involves the bankruptcy court’s summary jurisdiction of four counterclaims, three of which seek to recover voidable preferences, and one to recover from the claimant the purchase price of subscribed organizational stock of the bankrupt corporation. This latter claim does not appear to arise out of the same transaction on which the claim is based. The trial Court upheld the bankruptcy court’s assumed summary jurisdiction of,all the counterclaims on authority of Inter-State National Bank of Kansas City v. Luther, Trustee, 221 F.2d 382, cert. granted 350 U.S. 810, 76 S.Ct. 77, 100 L.Ed. 726, cert. dismissed by stipulation of parties, Id., 944, 76 S.Ct. 297, 100 L.Ed. 823.

In Inter-State, we upheld the power of the bankruptcy court to entertain a counterclaim to fully adjudicate and recover a § 57, sub. g preference, whether such counterclaim is compulsory under Rule 13(a) or permissive under Rule 13(b), F.R.Civ.P. A majority of the court en banc took the view that the filing of a claim in bankruptcy operates to invoke the bankruptcy court’s exclusive jurisdiction under § 2, sub. a(2), to sift the cii-cumstances surrounding any claim and allow or disallow it, according to equitable precepts. And, more specifically, the filing of the claim in bankruptcy operates to invoke the court’s concurrent jurisdiction with the state courts under § 60, sub. b, to fully adjudicate and recover any voidable preference. See: Inter-State, supra, 221 F.2d p. 389. We were furthermore of the opinion that the right to plenary suit being procedural, may be waived, i. e., see: O’Dell v. United States (10 CA), 326 F.2d 451, and having voluntarily invoked the summary jurisdiction of the bankruptcy court, the claimant could not thereafter limit the exercise of that jurisdiction over the subject matter by objection thereto. See: Inter-State, supra, 221 F.2d p. 388; and Continental Casualty Co. v. White, 4 Cir., 269 F.2d 213, 216. Cf.: United Artists Corporation v. Masterpiece Productions, 2 Cir., 221 F.2d 213.

Appellants concede that the three preferential counterclaims are ruled by InterState, supra, and candidly say that insofar as that case sustains summary jurisdiction to grant affirmative relief on a counterclaim over the objection of the claimant, it is an unwarranted extension of jurisdiction by implied consent and should now be overruled. We heard this case en banc, to re-examine Inter-State in the light of the claims made for it here and because it presents an important question of bankruptcy administration, as to which there is a difference of opinion on this court and elsewhere.

Since Inter-State, other Circuits have considered the question of summary jurisdiction of counterclaims based' upon: consent implied by the filing of'-claims. Soon after Inter-State, the Seventh Circuit concurred in the view that the filing of a claim in the bankruptcy court gave consent to be sued on counterclaims arising out of the same transaction, but was of the view that such filing did not constitute implied consent to be sued “on an alleged cause of action arising out of a different subject matter.” In Re Majestic Radio & Television Corporation, 227 F.2d 152, 156. The Fourth Circuit: has also concurred in the view that the filing of a claim gave consent to the exercise of summary jurisdiction over a. compulsory counterclaim, but had no occasion to decide whether the filing of a-, claim gave the court jurisdiction of am unrelated and permissive counterclaim.. See: Continental Casualty Co. v. White, supra. The Ninth Circuit has upheld the-jurisdiction of the bankruptcy court over a counterclaim, but agreed with the Seventh Circuit that the filing of a claim did' not give consent to summary jurisdiction of a counterclaim not arising from the; same transaction on which the claim-was based. See: Peters v. Lines, 275 F.2d 919.

The most recent case involving the precise point is from the Second Circuit-where, apparently on authority of InterState, supra, it sustained summary jurisdiction of a counterclaim for the surrender of a preference without stating whether the counterclaim arose out of the same transaction. Judge Kaufman,, speaking for that Court, reasoned that-the filing of a claim in the bankruptcy-court is analogous to the commencement-of an action within the bankruptcy proceedings; that the Trustee’s counterclaim was in the nature of an answer for affirmative relief by way of the surrender of a preference; and, that the-claimant is deemed to have impliedly consented to the jurisdiction of the court toward complete relief. See: Nortex Trading Corporation v. Newfield, 311 F.2d 163. And see also: In the Matter of Farrell Publishing Corporation, Bankrupt, D.C., 130 F.Supp. 449; and Collier On Bankruptcy, Vol. 2, §§ 23.08[5], 23.-08[6].¹

Upon reconsideration of InterState, in the light of subsequent decisions and commentary, we have decided to adhere to its pronouncements. But, we decline to extend the summary jurisdiction of the court by implied consent to counterclaims which do not involve a preference, setoff, voidable lien, or a fraudulent transfer, and which are wholly unrelated to the creditor’s claim. Claims of this nature are not within the Heferee’s summary jurisdiction, and a ■claimant does not consent to the exercise of the bankruptcy court’s plenary jurisdiction by filing his claim in the bankruptcy proceedings. See: Collier On .Bankruptcy, Vol. 2, § 23.15.

The appellants also deny that the counterclaims are based upon a preference, on the ground that the Trustee failed to sustain the burden of proving that the bankrupt was insolvent when the transfers giving rise to the preference claim were made. But, there can be no doubt that appellants knew, or had reason to believe, that the corporation of which they were the progenitors and central figures was insolvent when they •caused it to make payments to the bank, ■on notes on which appellant-Louis Kátch>en was an accommodation maker. The proof here fully meets the test set forth :in Moran Brothers, Inc. v. Yinger, 10 Cir., 323 F.2d 699.

The judgment of the bankruptcy court 'is affirmed on all the counterclaims except the Trustee’s counterclaim for the purchase price of the subscription stock.

1 . Professor James William Moore, Editor-In-Chief of the 14th Edition of Collier On Bankruptcy, treated Inter-State in a comprehensive article entitled RES JUDICATA AND COLLATERAL ESTOP-PEL IN BANKRUPTCY, 68 Yale L.J. 1, 32. Professor Moore agrees with the majority of the court in Inter-State on two grounds: (1) Under the doctrine of Alexander v. Hillman, 296 U.S. 222, 56 S.Ct. 204, 80 L.Ed. 192, “equity once invoked will achieve complete relief.” See also: Taylor v. Producers Pipe & Supply Co., 10 Cir., 114 F.2d 785. (2) On the theory that a “sound construction of the Bankruptcy Act warrants complete adjudication.” Id., p. 38. He also reasoned with the majority in Inter-State that “as an incident of its power to disallow claims, the bankruptcy court * * * has jurisdiction to determine a § 57 (g) issue raised by the Trustee, and by the same reasoning, to entertain a counterclaim recognized by § 68, authorized by Rule 13, and based upon the § 57 (g) issue. * * * ”

And see: Case Notes, 60 Mich.L.Rev. 96; 69 Harvard L.Rev. 377.’