Herman v. Cullerton

HUNT, Circuit Judge (after stating the facts as above). The general principle that from the time of filing the petition in bankruptcy the estate is in custodia legis and within the exclusive jurisdiction of the bankruptcy court (Acme Harvester Co. v. Beckman Lumber Co., 222 U. S. 300, 32 S. Ct. 96, 56 L. Ed. 208) is in no way inconsistent with the exorcise of jurisdiction by a state court in a case instituted therein, where tho subject-matter is within the jurisdiction of the state court (Remington on Bankruptcy, §§ 2131, 2182). Here, by consent, the brokers, admitting that they had funds belonging to one or the other of the original litigants, paid the fund into the state court, there to be the subject of litigation. To determine the right to this fund Herman could proceed with his action in the state court, and the trustee, with leave of the bankruptcy court, by appearing and asserting a defense on the merits, acted in his efforts to preserve the fund as an asset of the estate of tho bankrupt. Heath v. Shaffer (D. C.) 93 F. 647; Linstroth Co. v. Ballew, 149 F. 960, 79 C. C. A. 470, 8 L. R. A. (N. S.) 1204; Remington on Bankruptcy, § 2047. The findings made by the state court do not appear, but, as there was no limitation put upon the defense that the trustee might interpose, we deduce from the pleadings filed in the state court that it was adjudged that Herman was an undisclosed principal stepping over the head of McNulty, his agent, who had acted as principal, and that as against Logan & Bryan and the trustee in bankruptcy representing general creditors, Herman had a right to the fund then actually on deposit with the state court. Thus the trustee’s right to the fund on deposit was litigated, and he is bound by the judgment. In re Roberts, 213 F. 905. The case before us is distinguishable from In re Stringer, 230 F. 177, cited by appellant. There a claimant presented to the District Court in bankruptcy a claim founded upon a judgment obtained in the state court, wherein the trustee in bankruptcy was substituted for the brokers who held the collateral against the bankrupt. When the claim was brought into litigation in tho state court, the brokers, who wore there defendants, and held the collateral, and applied it to the payment of their own loan, refused to turn over the balance to the trustee on the ground that they wished to interplead tho bankrupt estate as a defendant to the action in the state court. They admitted possession of the amount claimed by the plaintiff, which was the properly of the bankrupt. The United States court in bankruptcy on application of the trustee held that the property should be turned over to the tiustee, but he was authorized to intervene in the suit in the state court to dispose of that litigation and to fix the amount of the claim. The result was that the surplus accounted for by the brokers (which in this case is the money deposited by Logan & Bryan' in the state court) was turned over to the trustee, which surplus was found by the state court to have been derived in part from the property of the plaintiff, who, in the federal court, sought its return. In the bankruptcy court the tiustee re [756] sisted the application on behalf of all others claiming through him, and the court held that the judgment holder stood in the position of a claimant against the estate in the hands of the trustee in bankruptcy, whose claim could not be disputed, “except by those claimants of equal rank in the bankruptcy proceeding,”, and that the trustee had not right to bind one claimant, or set of claimants, as against another, by litigation on behalf of the brokers the validity of their claim as against the bankrupt, and that the jurisdiction of the state court, in deciding the validity of the claim of the judgment holder, did not affect the right of the bankruptcy court to pass upon all claims presented to it with respect to property in the control of its officers. That ruling, though logical, is inapplicable to a case like ours, where the brokers have never admitted that the fund belonged to the bankrupt, and where the fund never has been in the hands of the trustee and by consent was paid into and held by the state court, there to be held while the plaintiff and the trustee litigated the question whether the trustee, as against the plaintiff, had any right to the fund deposited. We cannot see how the trustee can now avoid the eonelusiveness of the adjudication upon the merits. Eyster v. Gaff, 91 U. S. 521, 23 L. Ed. 403; Winchester v. Heiskell, 119 U. S. 450, 7 S. Ct. 281, 30 L. Ed. 462; In re Van Alstyne (D. C.) 100 F. 929; Handlan v. Walker, 200 F. 566, 119 C. C. A. 46; In re Neely, 113 F. 210, 51 C. C. A. 167; American Trust & Savings Bank v. Ruppe, 237 F. 581, 150 C. C. A. 463; Black on Bankruptcy, § 199. The order of the District Court must be set aside, and the case is remanded, with directions to proceed in accordance with the views herein expressed.