Bray v. United States Fidelity & Guaranty Co.

BOYD, District Judge (after stating the facts as above). The facts in this case are given at length and in detail to the end that the entire controversy between the parties may lie clearly presented, and thus enable us to more readily determine such question of law as may he necessary to dispose of the appeal. Although there are many propositions discussed by counsel, we think the only question to be decided in order to dispose of the case here is that of jurisdiction, and it is our opinion that the Circuit Court did not have jurisdiction to entertain complainant's bill. If otherwise complainant had the right to assert a lien upon the property of the bankrupt contract company, such right could not be availed of by a suit in the Circuit Court, the object of which was to reach and determine priorities in the distribution of assets in the custody of the bankrupt court. Practically 1lie effect of complainant’s suit in the Circuit Court is to stay proceedings in the matter of tlie Rvansville Contract Company, bankrupt, in the District Court, and to undertake to determine priorities or preferences in an estate in the custody and control of the latter court. This the Circuit Court is not empowered to do, for the jurisdiction of tlie District Courts in bankruptcy in this respect is original and exclusive. [698] Complainant’s counsel insist that, as the fund sought to be subjected to the complainant’s lien is within the territorial limits of the district, jurisdiction of the Circuit Court therefore attaches; but this fund which constitutes the res in this case is the estate of the bankrupt in the hands of the trustees, and in our opinion property or funds in custodia legis under the orders and decrees of a court of competent jurisdiction cannot be made the basis of jurisdiction in another court in an effort to establish liens upon such fund or property or otherwise deal with it. The District Court sitting in bankruptcy having this entire fund in custody and having complete jurisdiction to administer it, the Circuit Court has no power by its decree or order to interfere with it, nor is this want of power supplied by the order of the District Court permitting complainant’s bill to be filed, for, if the Circuit Court was without jurisdiction, the District Court is not authorized tn confer it. The bankruptcy act provides (Act July 1, 1898, c. 541, § 2, 30 Stat. 545, 546 [U. S. Comp. St. 1901, pp. 3420, 3421]), that: “The District Courts of the United States * * * are hereby made courts of bankruptcy, and are hereby invested, within their respective territorial limits as. now established, or as they may be hereafter changed, with such jurisdiction at law and in equity as will enable them to exercise original jurisdiction in bankruptcy proceedings, in vacation, in chambers and during their respective terms, as they are now or may be hereafter held.” And, among the powers specifically mentioned, to— “allow claims, disallow claims, reconsider allowed or disallowed, and to allow or disallow them against bankrupt estates.” And in the section conferring specific power on the bankruptcy court it is enacted: “Nothing in this section contained shall be construed to deprive a court of bankruptcy of any power it would possess were certain specific powers not herein enumerated.” Mr. Loveland in his work on Bankruptcy (2d Ed.) p.' 70, commenting on this last clause, says: “It was evidently the intention of Congress to establish a complete system of bankruptcy proceedings, and to confer on the courts of bankruptcy, constituted by the act, special jurisdiction over the whole subject and extending to all matters, acts and things to be done under and in virtue of bankruptcy.” In view of the provisions of the bankrupt act and the decisions which are many relating to its construction, the conclusion is irresistible that it is the province of the bankrupt court to administer the funds held by it in a proceeding in bankruptcy, and, as was said by this court in New River Coal Land Company v. Ruffner Bros. (C. C. A.) 165 Fed. 881: “The powers of the District Court in bankruptcy are ample to administer an estate with due regard to priorities or vested liens, and to protect all interests in such estate, whether they be legal or equitable.” What was said by this court in that case is substantially a reiteration of the law as laid down by the Supreme Court of the United [699] States in Whitney v. Wenman, 198 U. S. 539-552, 25 Sup. Ct. 778-781, 49 L. Ed. 1157. It is not necessary to consider any other of the various questions presented by the assignments of error and argued by counsel. Our opinion being that the Circuit Court was without jurisdiction, the demurrers to the bill should have been sustained. The refusal to do this was error, and it was also error to grant the injunction. The decree of the Circuit Court is therefore reversed, and the case will be remanded to the end that the injunction granted may be dissolved •and complainant’s bill dismissed. Reversed.