Hull v. Burr

SHELBY, Circuit Judge, having made the foregoing statement of the case, delivered the opinion of the court. I. The sole question to be decided is whether or not the District Court had jurisdiction of the case presented by the petition of the trustee. The question must, of course, be answered by an examination of the relevant parts of the bankruptcy act of 1898. Act July 1, 3898, c. 543, 30 Stat. 544 [U. S. Comp. St. 1901, p. 3418]. The second section of the act makes tlie District Courts of the United States courts of bankruptcy and confers on them jurisdiction. Clauses 3 and 7 of the section are relied on as conferring jurisdiction in this case. — 948 — By‘ those subdivisions jurisdiction is conferred to “(3) appoint receivers or the marshals, upon application of párties in interest, in case the courts shall find it absolutely necessary for the preservation of estates to take charge of the property of' bankrupts after the filing of the petition and until it is dismissed, or the trustee is qualified * * * ”; and to “(7) cause the estates of bankrupts to' be collected, reduced to money and distributed, and determine controversies in relation thereto, except as herein otherwise provided.” The jurisdiction conferred by the seventh clause is limited by the words “except as herein otherwise provided.” These words refer to section 23 of the act, which relates to the jurisdiction of the United States and state courts. We here insert that section, placing in italics the amendment of 1903: “Sec. 23. (a) The United States Circuit Courts shall have jurisdiction of all controversies at. law and in equity, as distinguished from proceedings in bankruptcy, between trustees as such and adverse claimants concerning the property acquired or claimed by the trustees, in the same manner and to the same extent only as though bankruptcy proceedings had not been instituted and such controversies had been between the bankrupts and such adverse claimants. “(b) Suits by the trustee shall only be brought or prosecuted in the courts where the bankrupt, whose estate is being administered by such trustee, might have brought or prosecuted them if proceedings in bankruptcy had not been instituted, unless by consent of the proposed defendant, except suits for the recovery of property under section sixty, subdivision b, Midi section sixty-seven, subdivision e.” 30 Stat. 557, c. 541 [U. S. Comp. St. 1901, p. 3431], amended by Act Feb. 5, 1903, c. 487, § 8, 32 Stat. 797 [U. S. Comp. St. Supp. 1905, p. 686]. Disregarding the amendment for the present, this section, as originally written, confers jurisdiction on the Circuit, not on the District, Courts of all controversies at law and in equity, as distinguished from proceedings in bankruptcy, between trustees and adverse claimants of the bankrupt’s property. But this jurisdiction is conferred to the same extent only as the bankruptcy proceedings had not been instituted and such controversies had been between the bankrupt and the adverse claimant. The trustee can sue, in such cases, only in the courts where the bankrupt could have sued if proceedings in bankruptcy had not been instituted. The petitioner who sued in the District Court in the case' at bar sued as the trustee in bankruptcy of a Massachusetts corporation. The parts of the act quoted, if we construe the petition as presenting a controversy at law or in equity, as distinguished from a proceeding in bankruptcy, confers jurisdiction on such United States Circuit Courts and state court as would have had jurisdiction of .such a suit by the corporation if there had been no bankruptcy proceeding. But the statute does not confer jurisdiction in such cases on a United States District Court, not even when it is the court of adjudication. Bardes v. Hawarden Bank, 178 U. S. 524, 20 Sup. Ct. 1000, 44 L. Ed. 1175. The opinion of the Supreme Court in Bardes-v. Hawarden Bank, construing the act as it stood before the amendment, seems to us conclusive of the proposition that the court of bankruptcy did not have jurisdiction of the case made by the petition, if the petition presents a controversy at law or in equity within the meaning of section 23 of the act. — 949 — Does the amendment of 1903 affect the case at bar? The amendment makes exceptions to the limitation on the jurisdiction of the District Courts, and thereby extends their jurisdiction; but the extension does not include cases like that presented by the petition of the trustee. The amendment confers jurisdiction on the District Courts in “suits for the recovery of property under section sixty, subdivision b, and section sixty-seven, subdivision e.” Turning to section 60, we find that subdivision “a” defines a preference, and that subdivision “b” provides that the trustee may sue the person receiving a preference and recover the property or its value. Under the amendment, suit for that purpose may be brought in “any court of bankruptcy.” The case at bar involves no question of preference. Examining section 67, subd. “e,” we find that it relates to fraudulent conveyances by the bankrupt and conveyances made within four months prior to the time of filing the petition in bankruptcy. The amendment confers jurisdiction on any court of bankruptcy of suits to recover properly so conveyed. The petition of the trustee in the case at bar contains no charge of fraud, and the deed and contracts in question were executed more than four months before the beginning of the bankruptcy proceedings. It follows that the amendment quoted has no application to this case. The case, when viewed as a controversy at law or in equity, not being affected by the amendment, must be governed by the principles announced in Bardes v. Hawarden Bank, supra, which denies the jurisdiction of the District Court. 2. The only other part of the act that might be referred to in this connection is section 70, subd. “e.” We quote it here, placing the part of it added by the amendment of 1903 in italics: “(e) The trustee may avoid any transfer by the bankrupt of Ills property which any creditor of such bankrupt might have avoided, and may recover the property so transferred, or its value, from the person to whom it was transferred, unless he was a bona fide holder for value prior to the date of the adjudication. Such property may be recovered or its value collected from whoever may have received it, except a bona fide bolder for value. For the, purpose of such recovery any court of bankruptcy, as hereinbefore defined, and any state court which would have had. jurisdiction if bankruptcy had, not intervened, shall have concurrenl jurisdiction.” 30 Stat. 500, c. 511 [U. S. Comp. St. 1901, p. 3452], amended by Vet Feb. 5, 1903, c. 487, § 10, 32 Stat. 800 (U. S. Comp. St. Supp. 1905. p. 090]. Such jurisdiction as is conferred by this language relates to suits by the trustee to “avoid any transfer by the bankrupt of his property which any creditor of such bankrupt might have avoided.” The petition of the trustee in the instant case does not seek to avoid a transfer. It does not allege that the deed to Hull was made under circumstances that made it voidable at the suit of his creditors. In fact, it is.not alleged in the petition that the corporation owed any debts at the date of its transfer to Hull. No charge of fraud against creditors is made. On the contrary, it is alleged that the deed to Hull was based on a large consideration, not less than $25,000. A careful consideration o[ the trustee’s petition convinces us that it was not intended as a suit under section 70c, and that subdivision has not been cited by learned counsel for the trustee as conferring jurisdiction. But there is another reason why section 70e cannot be relied on as — 950 — giving the court below jurisdiction in this case. Subdivision “b” of section 23 provides that trustees shall sue only in the courts where the bankrupt might have brought suit, if proceedings in bankruptcy had not been instituted, “unless by consent of the proposed defendant.” This limitation is general in its terms, embracing all suits. Congress, by the amendment of 1903, excepted from this limitation certain suits which may now be brought in the bankruptcy courts without the consent of the defendant. The suits excepted are “suits for the recovery of property, under section 60, subd. “b,” and section 67, subd. “e.” The statute requiring “the consent of the. proposed defendant” stands as enacted, with no other exception tiran the one named. If the exception had included suits for the recovery of property under section 70, subd. “e,” then, clearly, suits under that subdivision could have been brought by the trustee in a court of bankruptcy without the consent of the defendant. It is stated by Collier, in his work on Bankruptcy ([5th Ed.] p. 266), that the amendment was at first so written, but that the Senate Judiciary Committee struck out “and section 70 subdivision e.” The act, as it was passed by Congress, leaves suits under that subdivision still subject to the provision of section 23b, requiring the consent of the proposed defendant. Construing section 70e in connection with section 23b, it appears that the former conferred jurisdiction on courts of bankruptcy of suits to avoid transfers of his property made by tire bankrupt which any' creditor of the bankrupt might have avoided, but that, although jurisdiction of the subject-matter is conferred, it can only be exercised over the persons of the defendants by their consent. The reasons for this conclusion are clearly and ably stated by Judge Adams, in Gregory v. Atkinson (D. C.) 127 Fed. 183, 185. Even if the trustee’s petition was construed as presenting a case under section 70, subd. “e,” the court of bankruptcy would not have jurisdiction without the consent of-the defendant. 3. But it may be that the trustee’s petition is subject to another construction. It is alleged that the bankrupt was, at the date of the bánkruptcy proceedings, in possession of the real estate in question, and that the petitioner by operation of law became vested with the. title to all the property belonging to the bankrupt corporation, and came into legal possession thereof; and that the defendant, Joseph Hull, after the petitioner’s possession and right accrued, took wrongful possession of the property and refused to surrender it. If the' petition be construed to be a summary proceeding to obtain the possession of the property — a “proceeding- in ’bankruptcy” — and not a controversy at law or in equity, the question is: Would the District Court then have jurisdiction? Many cases have been cited that bear more or less on this question, and it may be conceded that, placing such construction on the trustee’s petition, the District Court of the United States for the Northern District of Florida would have had jurisdiction, if it had been the court of adjudication. But the petition shows that the corporation was adjudicated a bankrupt by a United States District Court in the state of Massachusetts, which has ' charge of the bankrupt’s estate and of its collection, distribution, and settlement. Cases cited by counsel that discuss the jurisdiction of — 951 — the court of adjudication that has charge of the collection, distribution, and settlement of the bankrupt’s estate, arc not responsive to the question raised by this case, and cases construing the bankruptcy acts of 186? and 1841 are not controlling, because each of those acts contained a provision conferring on the Circuit and District Courts of the United States concurrent jurisdiction of suits at law and in equity between the assignee in bankruptcy and an adverse claimant of the property of the bankrupt. The act of 1898 contains no such provision. Courts of bankruptcy are created by statute, and they have no jurisdiction except that conferred by statute, either expressly or by implication. The second section of the bankruptcy act of 1898 makes the District Courts courts of bankruptcy, and creates their jurisdiction. There are 19 subdivisions of the section enumerating the powers conferred. The subdivisions 3 and 7, especially relied on by the learned counsel, have already been quoted. The section vests courts of bankruptcy with the jurisdiction described in its 19 subdivisions “within their respective territorial limits as now established, or as may hereafter be changed.” There are many cases construing the present statute, so well known that it is useless to cite them, holding that the court which adjudges a person a bankrupt has the power and jurisdiction in summary proceedings to take possession by receivers or marshals of the property of the bankrupt situate and being within the territorial jurisdiction of the court. The circumstances under which this power will be exercised or refused by the court of adjudication need not be discussed here. The question here relates, not to the jurisdiction of a bankruptcy court which has adjudicated a person a bankrupt, but to the jurisdiction of a court of another district which is called on to exercise summary jurisdiction in aid of another court of bankruptcy which made the adjudication and has charge of the bankrupt’s estate. We find no provision of the act which expressly or impliedly makes provision for summary proceedings or for auxiliary or ancillary proceedings in another court of bankruptcy in aid.of the bankruptcy court that made the adjudication and has charge of the bankrupt’s estate. Congress, of course, could have adopted a scheme by which every District Court would be charged with the collection or administration of the bankrupt’s property in aid of or ancillary to the jurisdiction of the court of adjudication, but we find in the act no hint of such intention. On the contrary, the act limits the jurisdiction of the bankruptcy courts, including even the one of adjudication, by providing that suits by the trustee — with the exceptions we have noted — shall onfy be brought or prosecuted in the courts where the bankrupt whose estate is being administered by such trustee might have brought or prosecuted them if proceedings in bankruptcy had not been instituted. We are of opinion that the District Court erred in overruling the plea to the jurisdiction. The trustee is vested by the act with all the rights and title of the bankrupt, as well as with the rights of the bankrupt’s creditors, and, when he seeks to enforce rights or to recover property in another district outside of the territorial jurisdiction of the court which appointed him, he stands in the position of those whose rights he has — 952 — acquired, and can resort only to the same courts, state or federal, and is confined to the same remedies. In re Williams (D. C.) 120 Fed. 38; In re Williams (D. C.) 123 Fed. 321; In re Von Hartz, 142 Fed. 726, 74 C. C. A. 58; In re Granite City Bank, 137 Fed. 818, 822, 70 C. C. A. 316. This general rule is, of course, subject to the exceptions made by the amendment of 1903, which has been quoted in this opinion and shown not to be applicable to this case. The petition for revision is allowed, the decree of the court of bankruptcy is reversed, and the petition of the trustee is dismissed.