Sinsheimer v. Simonson

SEVEREXS, Circuit Judge, having made the foregoing statement. delivered the opinion of the court. We have made a somewhat detailed statement of the course of proceedings in the case, in order to show the relation of the petitioner thereto; for it was upon the ground of the petitioner’s implied consent to the mode adopted that the district judge justified it. We have only to review the orders of the referee in holding insufficient the responses made by this petitioner to the referee’s orders to show cause why he should not be required to pay over the sums of $3,398.90 and $3,000, respectively, to the trustee, and his recommendation that the respondent' be dealt with for his contempt in not complying therewith, and the judge’s order continuing the same. The two principal questions presented are: First, whether the petitioner was precluded from objecting to the form of procedure; and, second, if he was, whether it was properly pursued. It is contended in behalf of the trustee that Comingor was made a party to the petition for adjudication, and that, having thus been brought in, he continued to be subject to the orders of the court without other process. But it appears that no special relief was prayed against him, and it is manifest that the only legitimate object in making him a party was to enable him to contest the adjudication, the result of which might be to prejudice his rights as assignee. The bankruptcy act contains no specific provision authorizing such joinder of a third person in the petition for adjudication. But the circuit court of appeals for the Second circuit held in Re Meyer, 98 Fed. 976, 39 C. C. A. 368, that the assignee was entitled to intervene for the protection of his interest; but, if that be so, it would not follow that he might be made a party by the petitioner. The object of the petition is not: to finally litigate and determine adverse claims,—certainly not to predetermine those questions which in due course remain to he determined in the usual course of administration in case the bankruptcy is adjudged. If the assignee for the [904] benefit' of creditors is a proper party to the preliminary proceeding, it can only be for the purpose of contesting one of the facts which would give his adversary ground for hostile proceeding, namely, the bankruptcy of the party proceeded against, and the consequent investment of the bankrupts’ title in the trustee. The only issue ; presented by the petition is whether the respondent is in such plight or has committed such an act as subjects him to the operation of the bankrupt law, and all inquiry into other questions is pro liac vice only. Smith v. Belford, 106 Fed. 658, a case recently decided by this court. It’would be an anomalous result if the creditor, by naming the assignee as a party to the petition for an adjudication, and praying a subpoena for him, could thereby bring him into the case for the purposes of all future inquiries and determinations to be, made in the progress of the case. Such practice would be a clever device for defeating the right of the assignee to have his title ascertained, and determined by the proper court, and in a customary mode of proceeding. We are of opinion that the act cannot be construed as making the petitioning creditor able to thus subvert the rights of an adversary, and that Comingor was not, by reason of his having been made a party to the original petition in bankruptcy, precluded from his right to object to having the question of his obligation to pay the moneys specified in the order to show cause determined in that summary way. The character of the proceedings, as shown by the record, lacked the usual characteristics of a judicial proceeding. There was no petition by the trustee or other party stating any facts or presenting any issue, and it. is not shown to have been made on the motion of any one. The inference reasonably to be drawn is that the referee, perceiving these items in Comingor’s statement of account, and thinking they were probably objectionable, ex mero motu made the orders to show cause why Comingor should not be required to pay them, notwithstanding' his claim to have appropriated the money in payment of his own fees, or in payment for the services of his attorneys. It is -fair to say, as we did in Smith v. Belford, that these proceedings took place when the bankruptcy courts were — many of them — acting upon an interpretation of the law in respect to the use of summary proceedings which has since been determined by the supreme court, in the case of Bardes v. Bank, 178 U. S. 524, 20 Sup. Ct. 1000, 44 L. Ed. 1175, to be wholly inadmissible. But the district judge puts his conclusion upon the ground that the petitioner had acquiesced in the course pursued, by making response to the orders asking- to be relieved in the premises, and going into proof before the referee, and making stipulations concerning the proofs on the reference. If his objection, which he subsequently made and now insists upon, does not so far concern the jurisdiction of the court as to rendero it not susceptible of waiver, we should think there was some ground for that conclusion. It may well be doubted whether such a proceeding is due process of law in such circumstances. Comingor had been ousted of his trust, and the question was that of his obligation to pay certain moneys alleged to be in his hands, belonging to the trustee. By the remedy pursued he was [905] deprived of Ms rigM to a trial by jury. The determination by the referee upon the facts would not be subject to appeal or writ of-error. The judgment would not be enforced by execution, but by; process for contempt. The proceeding, when employed for such; a purpose, is in the nature of a civil remedy for the recovery of money. Quite generally, if not universally, state statutes founded-on public policy forbid imprisonment as a remedy to compel the-satisfaction of debts or other obligations not founded. on willful wrong, and this policy may not be countervailed by the consent of parties to a proceeding which results in defeating it. And such statutes are given effect in the courts of the United States by Rev.. St. §§ 990, 991. Manufacturing Co. v. Fox (C. C.) 20 Fed. 409, per Wallace, Circuit Judge; Low v. Durfee (C. C.) 5 Led. 256, per Lowell, Circuit Judge. And see, upon this subject, Ex parte Hooson, L. B. 8 Ch. App. 231. The question of remedies is involved in that of jurisdiction. The remedy must have some reasonable fitness to the relief sought. Thus in an action of assumpsit the defendant could not he condemned for a trespass, nor in an action of ejectment could a judgment for money be recovered, nor could a proceeding for a mandamus be employed for tbe mere recovery of a debt. In an action at law one cannot obtain merely equitable relief, nor could a bill in equity be maintained on a purely legal cause of action. Kor, would the appearance of the defendant and his contestation of the suit without objection to the jurisdiction authorize such judgment as in these instances is mentioned. And if, in any such case, the judgment or decree he not wholly void, it is -at least subject to correction by appeal or writ of error in that suit. In the case of Mar; shall v. Knox, 16 Wall. 551, 21 L. Ed. 481, —a case cited in that-of Bardes v. Bank,—the assignee of the bankrupt claimed as assets certain property in the hands of a sheriff taken on a writ of provisional seizure for rent due the lessor of the bankrupt. The as» signee obtained from the bankruptcy court a rule upon the sheriff and the lessor to show cause why they should not deliver up the property to the assignee, alleging that it was necessary to enable the court to administer the claims of creditors. The lessor, without objecting, so far as appears, to the jurisdiction of the court, contested this rule, stating his own rights and proceedings, and claimed possession of the property through the sheriff for the purpose of selling the same to raise the amount due for rent. But the rule was made absolute without further proof. He prayed an appeal, which was not allowed. Thereupon he filed a bill in equity in the circuit court, under the second section of the bankruptcy act of 1867, to enjoin the assignee from taking. possession of the property under the order of the bankruptcy court, and for a decree that they should not molest him in his proceedings to collect the rent. He was denied the relief he sought by the circuit court, and he thereupon appealed to the supreme court. Mr. Justice Bradley, in delivering the opinion of the court, after reciting the facts, stated the question to he whether the bankruptcy court had any authority to make the rule to show cause above mentioned, and, as bearing [906] upon that inquiry, whether such a rule could he characterized as due process of law. After discussing the provisions of the act in reference to remedies and the prejudice to defendants of summary proceedings, he said: “We think it could not have been the intention of congress thus to deprive parties claiming property, of which they were in possession, of the usual processes of the law in defense of their rights.” And he stated the conclusion of the court in the following language: “The court is of opinion, therefore, that the district court proceeded without jurisdiction in compelling the lessor and the sheriff, under a rule to show cause, to deliver up possession of the goods in question to the assignees. It results that the bill in this case was properly filed as an original bill,” etc. The decree of the circuit court was reversed, with directions to grant the equivalent of the relief prayed. We have stated this case thus fully because it shows that the question involved is one of jurisdiction, and that the party complaining of its exercise is not precluded from his objection by having contested a rule to show cause made by the bankruptcy court. It should be observed in this connection that the consent mentioned in section 23b means consent to the tribunal in which the controversy is to be carried on, and not to the mode of procedure, which is regulated by general principles of law unless other provision is made. Under the second section of the act of 1867 the circuit court was given a somewhat similar power of superintendence, though by different methods, over the proceedings in the bankruptcy court, to be exercised “upon bill, petition, or other proper process,” to that conferred upon the circuit courts of appeals by section 24b of the act of 1898. We are therefore inclined to think that this petitioner was not precluded from his right to raise the objection to the mode of proceeding at the time he did, which was before the making of the final order, and that the court erred in refusing to entertain it. His contestation of the order and his prayer for relief were substantially the same as those of the respondent in the rule to show cause in the case of Marshall v. Knox, above cited. And we think he was no more subject to the control or jurisdiction of the court for the purposes of the proceeding than was the respondent to the rule in that case. But, however this may be, we think, upon any view of the lawfulness of the method of procedure adopted, the referee, and the court in confirming his order, erred in holding that the responses to the orders to show cause were insufficient. The action of the referee assumes that the facts were as stated by the respondent. These were that, as to the item of $3,398.90, the respondent had retained those moneys as his commission as assignee, in reliance upon the belief that he was entitled to that amount on final settlement; that he had used the money, relying upon its being his, until he had none of it left; that he is a man of no means, having neither money nor property of any kind; that he is unable, after endeavoring tb borrow or raise money, to pay the same into court. With respect to the $3,000 paid to the Sachs, his attorneys, it was paid while they were acting as counsel for him, before the bankruptcy proceedings [907] were commenced, for their professional services rendered to him as assignee. And with respect to the ability of ilie respondent to pay the money the same' facts exist as with respect to his ability to. pay the other sum. The referee was of the opinion that the respondent was not entitled to any compensation whatever, and that iie had no legal right to pay fees to his counsel without an allowance therefor by the state court, and that therefore lie “must he deemed to have the funds in liis possession.” The court ordered a reference for a further report in regard to the question whether the respondent was entitled to any compensation for his services as assignee, and whether the counsel were entitled to any. But no question was referred touching the fact that the respondent had retained and spent the money he claimed to he due him for his compensation, or the fact that he had paid the sum mentioned to his counsel, or the ability, of the respondent to refund the moneys. The confirmation by the court affirmed the insufficiency of these facts to excuse the respondent from paying over the money, and Hie court thereupon ordered him to pay it before a day named. With these adjudications behind him, there was nothing to follow hut imprisonment, from which there could he no prospect of relief hut by reiteration of the same facts, which would he unavailing. But it is well- settled that a showing made by a respondent that he is unable to do an act required of him upon an order to show cause is a sufficient answer. It matters not, for the purpose of such a proceeding, that the inability to do the thing required may he in consequence of his own fault, arising from a mere misconception of his rights, or committed before the court took jurisdiction of the matter. The court caniiot compel an impossibility. Hendryx v. Fitzpatrick (C. C.) 19 Fed. 810, 814, per Lowell and Kelson, judges; In re Chiles, 22 Wall. 157, 168, 22 L. Ed. 819; Loveland, Bankr. § 239; Kane v. Haywood, 66 N. C. 1. Other remedies may exist for punishing the petitioner, if there is ground for it, or for establishing a civil liability, if the necessary facts exist. The result is that the orders of the referee adjudging the responses of the petitioner insufficient, and (he order of the court confirming the same, must be set aside.