Woodruff v. Cheeves

McCORMICK, Circuit Judge, after stating the case, delivered the opinion of the court. It appears from the record brought up by the petition for review in this case that the bankruptcy proceedings were ripe for the application by the bankrupt to obtain bis discharge. More than 30 days and less than 12 months before the presentation of his application for a discharge he had been adjudicated a bankrupt, and a trustee had been appointed. There is no suggestion that any of the proper schedules have not been made up and filed. It affirmatively appears that the trustee had reported, agreeably to the statute and the general orders, the property set off to the bankrupt exempt from seizure in satisfaction of his debts under the law of the state of his domicile, and that no objection to that report had been made within 20 days, or ever, by any of the creditors or other person interested in the estate. The application thus being timely, and in proper-form, it was the duty of the judge to hear the same, and investigate the merits thereof, and discharge the applicant, unless such proofs and pleas made in opposition thereto by par-ties in interest who had been given sufficient time and a reasonable opportunity to be heard made known to the court that he had (1) committed an offense punishable by imprisonment, as provided in the act of July 1, 1898; or (2) had, with fraudulent intent to conceal his true financial condition, and in contemplation of bankruptcy, destroyed, concealed, or failed to keep books of account or records from which his true condition might be ascertained. Section 14b. Nothing of this kind was at605 t(impted to be shown, and what was shown assumes that these statutory objections did not exist. A very candid and able statement of tiie relations of the appearing creditors to the bankrupt and bis estate was submitted to the court, wldch the court received, considered, and treated as the institution of a plenary proceeding in equity. In re Woodruff (D. C.) 96 Fed. 317. It showed substantially that, with reference to the term "secured creditors,” as used in the bankrupt act, the complainants are unsecured creditors, who, as such, had proved their claims, which, while they were evidenced by instruments in wilting waiving the homestead and exemption rights, constituted no lien on the property of the debtor, and could be availed of only by putting the same in judgment, and seizing the property under final process issuing thereon; that, such judgments not having been obtained and process issued and levied before the adjudication of bankruptcy, if the bankrupt should now be discharged in the terms of the statute the complainants would be remediless,' — if, in fact, they were not already remediless, — unless tin; district court, in the exercise of the equity jurisdiction conferred by the bankruptcy act, was able to grant them relief, and cause the exempt property held by the debtor to be taken by the trustee and administered for the benefit of the complainants and others, if any, holding like claims. The bill of complaint does not aver, or by implication suggest, (hat the bankrupt is not a person of that class in whose favor the organic and statutory law of the state of his domicile exempts from seizure for the satisfaction of his debts property, real or personal, or both, to the amount in value of §1,600; nor does it aver, or by implication suggest, that the property set apart to him by the trustee, and duly reported to the court, was of greater value than the amount thus limited by law. On the contrary, it assumes, by necessary implication, at least, that tin; applicant for discharge does belong to the class for whose benefit the laws allow the exemption, and that the property set apart by the trustee does not exceed in value; the limit of the allowance. It is not shown that there are not other creditors whose debts are evidenced by writing, making the same waiver as is made in the complainants’ contracts, or that there; are not also other creditors whose claims are not of the class of those held by the complainants. The purpose and prayer of the bill is that the property so set apart, and now held by the bankrupt as his by reason of the exemption laws of his state, shall be recovered from bis possession, and taken into the possession of the trustee, to be administered by the district court as a court of bankruptcy or as a court of equity, for the benefit of not all the creditors of the bankrupt, but of such only as hold claims against him with written evidence of his waiver of his homestead and exemption rights, as far as he is permitted to waive them, under the constitution and statutes of his state. The distinguished and able counsel who appeared for the complainants, both in the preparation of his pleading in the lower court and in the oral argument and printed briefs which he submitted to this court, was evidently in doubt as to the cajiacity in which his application was to be received by the district; court. The opening words of the very learned opinion [606] of the judge of the district court in Ee Woodruff, supra, are: “These are plenary proceedings in equity.” Towards the close of his opinion we find this language: “Fortunately, the court of bankruptcy is given jurisdiction to do everything necessary to the administration and distribution of the bankrupt estates;” citing Bankr. Act 1898, cl. 2, § 2. If the bill is addressed to the court of bankruptcy to invoke its powers of administering the estates of bankrupts, it encounters the provision that: “This act shall not affect the allowance to bankrupts of the exemptions which are prescribed by the state laws in force at the time of the filing of the petition in the state wherein they have had their domicile for the six months, or the greater portion thereof, immediately preceding the filing of the petition.” Section 6. And this other provision: “The trustee of the estate of a bankrupt * * * and his successor or successors * * * shall, in their turn, be vested by operation of law with the title of the bankrupt as of the date he was adjudged a bankrupt, except in so far as it is to property which is exempt,” etc. Section 70a. It seems clear to us that this language of the statute leaves no room for argument to show that the exempt property constitutes no part of the estate in bankruptcy subject to administration by the trustee or by the court of bankruptcy. If the bill of complaint is addressed to the district court to invoke the exercise by that court of jurisdiction to entertain a plenary proceeding in equity between the parties, some observations which we find in the opinion of the supreme court in the case of Bardes v. Bank, 178 U. S. 524, 20 Sup. Ct. 1000, 44 L. Ed. 1175 (announced since these proceedings were liad in the district court) seem to us to be pertinent to and instructive in the inquiry which now engages us. The warp and woof of the opinion, its reasoning and review of precedents, are so closely woven and finished that its force cannot be fully shown by such detached excerpts as we can make, and we earnestly commend it to the careful scrutiny of all who, in practice, are called upon to construe the iprovisions of the bankrupt law now in force: “Under the act of 1867 * * * the distinction between proceedings in bankruptcy, properly so called, and independent suits at law or in equity between the assignee in bankruptcy and an adverse claimant, was distinctly recognized and emphatically declared. Jurisdiction of such suits was conferred upon the district courts and circuit courts of the United States by the express provision to that effect in section 2 of that act, and was not derived from the other provisions of sections 1 and 2, conferring jurisdiction of proceedings in bankruptcy. * * * The decisions of this court under the earlier bankrupt act of August 19, 1841 (chapter 9), are very few in number, and afford little aid in the decision of the present ease. The one most often cited in favor of maintaining such a suit as this under the existing law is Ex parte Christy (1845) 3 How. 292, 11 L. Ed. 603. But section 8 of the act of 1841 contained the provision (afterwards embodied in section 2 of the act of 1867, .and above quoted) conferring on the circuit courts concurrent jurisdiction with the district courts of suits at law or in equity between assignees in bankruptcy and adverse .claimants of property of the bankrupt. * * * The general-provisions at the beginning and end of this section [section 2, Act July 1, 1898] mention ‘courts of bankruptcy’ and ‘bankruptcy proceedings.’ * * * Proceedings in bankruptcy generally are in the nature of proceedings in equity; and the words ‘at law,’ in the opening sentence, conferring on the courts of bankruptcy ‘such jurisdiction at law and in equity [607] as will enable them to exercise original jurisdiction in bankruptcy proceedings,’ may have been inserted to meet clause 1, authorizing the trial and punishment of offenses the jurisdiction over which must necessarily be at law, and not in equity. The section nowhere mentions civil cases at law, or plenary suits in equity. And no intention to vest the courts of bankruptcy with jurisdiction to entertain such actions and suits can reasonably he inferred from (lie grant of the incidental powers in clause 6 to bring in and substituto additional parties *in proceedings in bankruptcy,’ and, in clause 15, to make orders, issue process, and enter judgments ‘necessary for the enforcement of the provisions of this act.’ The chief reliance of the appellant is upon clause 7. But tills clause, in so far as it speaks of the collection, conversion into money, and distribution of the bankrupt’s estate, is no broader than the corresponding provisions of section 1 of the act of 1867; and in that respect, as well as in respect to the further provision authorizing the court of bankruptcy to ‘determino controversies in relation thereto,’ it is controlled and limited by the concluding words of the clause, ‘except as herein otherwise provided.’ These words, ‘herein otherwise provided,’ evidently refer to section 23 of the act, the general scope and object of which, as indicated by its title, are to define the ‘jurisdiction of United States and state courts’ in the premises. * * * Tlie bankrupt acts of 1867 and 1841, as has been seen, each contained a provision conferring-in the clearest terms on the circuit and district courts of the United Stales concurrent jurisdiction of suits at law or in equity between the assignee in bankruptcy and an adverse claimant of property of the bankrupt. We find it impossible to infer that when congress, in framing the act of 1898, entirely omitted any similar provision, and substituted the restrictive provisions of section 23, it indicated that either of those courts should retain the jurisdiction which it had under the obsolete provision of the earlier acts. On the contrary, congress, by the second clause of section 23 of the present bankrupt act, appears to this court to ixave clearly manifested its intention that controversies not strictly or properly a part of the proceedings in bankruptcy, but independent suits brought by the trastee in bankruptcy, to assert a title to money or property as assets of the bankrupt against strangers to those proceedings, should not come witlxin the. jurisdiction of the district courts of the United States, ‘unless by consent of tbe proposed defendant,’ of which there is ixo pretense in this case.” The parties to the suit we are considering are not strangers to the bankruptcy proceeding, and the case, that far, at least, differs from the case of Bardes v. Bank, — a difference which we do not overlook in announcing that, in our view, the authority and opinion of the supreme court in that case makes it clear to demonstration that the district court should have sustained the demurrers to the complainants’ bill, and have granted the bankrupt his discharge. It follows that the judgment of the district court must he reversed, and this cause remanded to that court, with direction to dismiss the complainants’ bill, at their cost, and to enter an order nunc pro tunc as of the date of August 5, 1899, discharging the bankrupt agreeably to law.