Lynch v. Roberson

KNAPPEN, Circuit Judge (after stating the facts as above). [1] So far as concerns the method of review, the result is the same whether the case is considered on appeal or on petition to revise. Petitioner has treated the proceeding below as summary in character, and that character may be allowed to determine its nature, in a reviewable sense, as an administrative order in course of bankruptcy. In re Orinoco Corporation (C. C. A. 6) 269 Fed. 344, 346. The appeal is accordingly dismissed. [2] The sole substantial question presented is whether the court below rightly held that the claim of the trustee in bankruptcy to the funds in the hands of the state court receiver can be adjudicated only in a plenary suit. Under this summary petition, the ultimate merits of the controversy can he considered only so far as they aid in determining whether the receiver’s claim of adverse holding is substantial, or whether, on the other hand, it is merely colorable. To hold otherwise would be to defeat the requirement of plenary suit where possession of property is held under adverse claim. In our opinion the order of the District Court dismissing the summary petition must be affirmed, substantially upon the opinion of that court, whose reasoning and conclusions we approve. The court below has found as facts that none of the property in question was scheduled by the bankrupt as its property; that none ever came into the actual possession of the bankruptcy court or of any of its officers; that none was administered by the former trustee; that the state court receiver took possession of the property as part of the property of the Railroad Company, and that since such possession was taken (on February 20, 1912) the property has been continuously in the receiver’s possession and held by him as the property of the Railroad Company, until sold, under order of the state court, for the purposes of administering the assets in the chancery cause; and that the proceeds of the sale are now held by the receiver for the same purpose and subject to the order of the chancery court. [3] The record amply sustains these conclusions, which, unless overcome by other considerations,.compel a holding that the receiver’s claim to the possession of the property was not merely colorable. We find nothing in the opposing considerations advanced by the trustee which overcomes the effect of the situation stated by the trial judge. Of the trustee’s theory, as stated in the opinion of the District Judge, that the Railroad Company is without separate legal corporate existence and holds the property in question merely as agent for the bankrupt, it is perhaps enough to say that the propositions of fact relied upon by the trustee to support his theory are not, so far as unequivocally — 438 — proven, sufficient, as matter of law, to destroy the alleged adverse character of the receiver’s claim — having in mind that the railroad company was in form incorporated, that the power of eminent 'domain was exercised by it in obtaining title to the right of way, the natural inference from the bankrupt’s schedules that it claimed no ownership of the rails, frogs, switches, etc., that while the bankrupt furnished the money to make the purchase from the Nashville, Chicago & St. Louis Railroad Company, it charged the Tennessee River Railroad Company on its books with the advances therefor, that the Railroad Company issued its mortgage bonds on account thereof, which bonds were scheduled by the bankrupt as belonging to it, that although the Nashville, Chicago & St. Louis Railroad Company was listed as a creditor of the bankrupt, and proved its claim in the bankruptcy cause/ its claim was duly established and allowed by the state court in the general creditors’ suit, and that the receiver denies that the Railroad Company was a mere corporate shell or agency of the bankrupt. [4] Even if the organization of the Railroad Company was primarily but an incident and a means to carry out the bankrupt’s purposes, it does not necessarily follow therefrom, as matter of law, that the Railroad Company has not now an independent existence. There was substantial testimony at least tending to show that the Railroad Company had both title to and possession of the property in dispute. While the bankruptcy adjudication put in the custody of the bankruptcy court all the bankrupt’s property, either actually or constructively in its possession, including property held not only by, but for, the bankrupt (In re Orinoco Corporation, supra), it did not, as matter of law, put into the custody of the bankruptcy court anything which the Coal Company then neither owned nor claimed title to. [5] While it is true that nothing done in the state court proceeding necessarily affected the status of the bankrupt estate otherwise existing as against the trustee in bankruptcy, the assertion of jurisdiction by the state court, and its continued possession of the property, at the very least strongly tend to show that the claim of adverse possession made by the receiver is not merely colorable. We find nothing in Re Diamond’s Estate, 259 Fed. 73, 170 C. C. A. 138, supporting the trustee’s contention of jurisdiction in the instant case by summary petition. In that case there was no claim that the property in controversy did not belong to the bankrupt. It had come into the custody of the state court previous to the bankruptcy. The substantial question was whether the state court should retain its jurisdiction, notwithstanding bankruptcy, so far as concerned determination of the compensation, fees, and disbursements of the receiver, or whether the bankruptcy court should pass upon those questions. [0] In the instant case the decree of the state court denying the validity of the mortgage bonds issued by the Railroad Company was clearly not an adjudication of the question before us. Indeed, we do not understand the trustee so to contend. In the final decree of the chancery court the recital, as basis of the dismissal of the petition, is merely that: — 439 — “The court is of opinion that the equities of the petition are fully met and denied by the answer and not sustained by the proof, and the court being further of opinion that the indebtedness sued on, because of the relationship among the parties, was invalid as against the creditors of the Tennessee River Railroad Company, and that the mortgage securing the same was illegally executed and void.” Plainly, we could not reverse the action of the District Court without ourselves determining the merits of the conflicting claims of the parties. The order of the District Court is affirmed. •