Hecht, Reed & Co. v. Springstead

Day, J. i. jmusnicSonoirludgmptcy. — At the threshold of this case lies the question of the jurisdiction of a State court to entertain the cause of action set forth in the cross-petition. Upon the question of the jurisdiction of a State court over actions and suits in which a bankrupt or his assignee is a party there has been much conflict of authority. In Claflin v. Houseman, 93 U. S., 130, the question was definitely settled in favor of such jurisdiction, under the bankrupt act of March 2, 1867. Section 4972 of the Revised Statutes of the United States provides: “The jurisdiction conferred upon the District Courts as courts of bankruptcy, shall extend — First, to all cases and controversies arising between the bankrupt and any creditor or creditors who shall claim any debt or demand under the bankruptcy; second, to the collection of all the assets of-the bankrupt; third, to the ascertainment and liquidation of the liens and other specific claims thereon; fourth, to the adjustment of the various priorities and conflicting interests of all [509] parties; fifth, to the marshaling and disposition of the different funds and assets so as,to secure the rights of all parties and due distribution of the assets among all creditors; sixth, to all acts, matters, and things to be done under and in virtue of the bankruptcy, until the final distribution and settlement of the estate of the bankrupt, and the close of the proceedings in bankruptcy.” Section 711 of the Eevised Statutes of the United States is as follows: “The jurisdiction vested in the courts of theUnited States in the cases and proceedings hereinafter mentioned shall be exclusive of the courts of the several States — First, * * * * *; second, * * * * * *; third, * * * * * *. fourt]h * * * * * -* * * * * *; sixth, of all matters and proceedings in bankruptcy.” Eeferring to this latter provision, it is said in Claflin v. Houseman, supra; “The Eevised Statutes, whether inadvertently or not, have made the jurisdiction of the United States courts exclusive in all matters and proceedings in bankruptcy. Section 711. Whether this regulation will or will not affect the cognizance of plenary actions and suits, it is not necessary now to determine.” In Frost v. Hotchkiss, 14 N. B. R., 443, Barnard, J., announcing the opinion of the Supreme Court of New York, in an action by an assignee in bankruptcy to recover property alleged to have been conveyed by the bankrupt, in fraud of creditors, says: “I think the Eevised Statutes of the United States take away the jurisdiction of the State court in this action, although passed after the action was commenced.” Chapter 390, United States Statutes of 1874, an act to-amend and supplement the bankrupt act of 1867, provides, in section 2: “That section 1 of said act be, and it is hereby, amended by adding thereto the following words : ‘Provided, that the court having charge of the estate of any bankrupt may direct that any of the legal assets or debts of the bank [510] rupt, as contradistinguished from equitable demands, shall, when such debt does not exceed five hundred dollars, be collected in the courts of the State where such bankrupt resides having jurisdiction of claims of such nature and amount.’” In Olcott v. Maclean, 10 Hun., 277, the Supreme Court of New York held that under this last statute the United States District Court is vested with exclusive jurisdiction over all actions brought by an assignee to recover property alleged to have been transferred by the bankrupt in violation of section 5128 of the United States Revised Statutes, when the value of such property is greater than five hundred dollars. In Goodrich v. Wilson, 119 Mass., 429, it was held that the jurisdiction of a State court over an action by an assignee in bankruptcy, against a person to whom a bankrupt lias made a fraudulent preference, is not excluded by the United States Statutes of 1874, chapter 390, § 2, above quoted, and that the effect of that statute “is not to confer or take away jurisdiction of the State courts, but simply to allow the Federal courts of original jurisdiction to decline to entertain an action at common law to which the assignee is a party, in which the debt demanded is less than the amount which determines the jurisdiction of those courts in other cases.” In Wente v. Young, 17 N. B. R., 90, the Supreme Court of New York held that section 711 of the United States Revised Statutes does not extend to actions brought by assignees to collect the assets of bankrupts. In this case, also, the construction placed upon section 2, chapter 390, United States Statutes of 1874, in Goodrich v. Wilson, supra, was adopted. In Kidder v. Honabin, 18 N. B. R., 146, the Court of Appeals of New York held that the amendment of 1874 to section 1 of the bankrupt act of 1867 does not confer or take awáy jurisdiction of the state courts, and that a suit brought by an assignee in bankruptcy to collect a debt due to the bankrupt is not a matter or proceeding within the meaning of section 711 of the Revised Statutes. [511] These are all of the decisions to which our attention has been directed by counsel upon this subject. It will be observed that the case of Kidder v. Honabin, supra, is the only one of a court of last resort which places construction upon section 711 of the Revised Statutes. The case of Goodrich v. Wilson, 119 Mass., 429, simply construes section 2, chapter 890, United States Statutes of 1874. It may be conceded that a suit brought by an assignee simply to collect a debt due to the bankrupt does not come within the provisions of section 711 of-the Revised Statutes. Such a debt exists under the State laws, independently of any provision of the bankrupt law. In this case, however, as well said by the referee, “the judgment was authorized and valid by the laws of the State, and it is only under and by virtue of the bankruptcy that the judgment may be disturbed; but for the bankrupt act and the bankruptcy the judgment is effective and valid.” As the action in the cross-petition is brought not to' collect a debt due the bankrupt, but to set aside a judgment, valid under the laws of the State, and invalid only because. of the bankrupt law, we think the action pertains to a matter and proceeding in bankruptcy, and that, under section 711 of the Revised Statutes, the jurisdiction of the Federal courts is exclusive. This determination renders unnecessary, if not improper, a consideration of the other questions involved in the appeal. Aeeirmed.