Lea v. George M. West Co.

WADDILL, District Judge (after stating the facts as above). The pleadings in this case present two questions for the consideration of the court: First. Whether a general assignment for the benefit of creditors constitutes an act of bankruptcy; and, second, if an act of bankruptcy, what effect the action of the state court appointing a receiver to administer the trust under the deed of assignment should have in the administration of the trust estate,—that is to say, whether the state or bankrupt court should, after the adjudication of bankruptcy, administer the trust estate. [238] The present bankrupt law (section 3) specifies five acts of bankruptcy, viz.: “(1) Conveyed, transferred, concealed, of removed; or permitted to be concealed or removed, any part of liis property with intent to hinder, delay or defraud his creditors, or any of them; or (2) transferred, while insolvent, any portion cf. his property to one or more of his creditors with intent to prefer such creditors over his other creditors; or (3) suffered or permitted, while insolvent, any creditor to obtain a preference through legal proceedings, and not having at least five days before a sale or final disposition of any property affected by such preference vacated or discharged such preference; or (4) made a general assignment for the benefit of his creditors; or (5) admitted in writing his inability to pay his debts and his willingness to be adjudged a bankrupt on that ground.” And the law particularly provides, in involuntary bankruptcy cases, for contesting the first, second, and third grounds of bankruptcy by allowing the bankrupt to disprove his alleged insolvency, and the burden to prove solvency is placed upon him. No provision seems to be made for contesting the fourth and fifth grounds of bankruptcy, for the manifest reason,- it would appear, that the question of insolvency is not one open for dispute where the bankrupt, either in writing admits his inability to pay his debts and consents to be adjudged a bankrupt, or makes a general assignment for the benefit of his creditors. The general assignment itself is inconsistent with solvency, and the answer to the contention that one may assign, and still be solvent, is that to determine that fact involves the administration of the trust, which the law has chosen to impose upon courts of bankruptcy at the instance of creditors, and not upon the bankrupt himself, through agencies chosen by him. To allow the bankrupt to make an assignment, and a creditor secured in the assignment to submit the administration of the trust arising under it to a state court, to defeat the jurisdiction of the bankrupt court, would, in effect, destroy the bankrupt law. Under the law itself, it is quite clear that a general assignment of one’s estate and effects to trustees constitutes an act of bankruptcy, and the current of authority, both English and American, is to the same effect. A general assignment of an insolvent debtor to an assignee or trustee of his own choosing is itself an act of bankruptcy and voidable, because it defeats the rights of creditors to the choice of a trustee, and the trustee,. under such assignment, can hold nothing as against the trustee in bankruptcy, where proceedings are taken to avoid the assignment. Under the act of 1867, the supreme court of the United States in Boese v. King, 108 U. S. 385, 2 Sup. Ct. 769, in considering this question, said: “It is equally clear, we think, that the assignment by Locke of his entire property, to be disposed of as prescribed by the statute of New Jersey, and therefore independently of the bankrupt court, constituted itself an act of bankruptcy, for which, upon the petition of a creditor filed within the proper time, Locke could have been adjudged a bankrupt, and the property wrested from his assignee for administration in the bankruptcy court.” In re Burt 1 Dill. 439, 440, Fed. Cas. No. 2,210; Hobson v. Alarkson, Fed. Cas. No. 6,555; In re Smith, Id. 12,974; Black, Bankr. p. 20, and cases there cited; Bump, Bankr. (11th Ed.) p. 252, and cases there cited. Coming to the consideration of what action should be taken by this court, where the state court has entered upon the administration of the [239] trust estate by reason of the general assignment of the bankrupt, while every reasonable effort should be exerted to avoid even an apparent conflict of jurisdiction between state and federal courts, this case is apparently free from difficulty, as it will not be seriously maintained that the act of bankruptcy itself can be made the basis of dispossessing the bankrupt court of its jurisdiction. The constitution of the United States authorizes congress, in it$ wisdom, to enact bankruptcy legislation, and when such action is taken it is the supreme law of Che land on the subject, tinder the recent act, the district courts of the United States alone are made courts of bankruptcy within the states, and are vested with such jurisdiction at law and in equity as will enable them to exercise original jurisdiction in bankruptcy proceedings. There are many matters in which the state and federal courts can proceed in harmony under the bankruptcy act, and which the bankrupt court should leave to the determination of the state court, and, as far as possible, it will be the policy of this court to do so; but, in a ease like the present one, I do not see how the two courts can proceed harmoniously. The litigation in each court involves the administration of the entire estate of the bankrupt; one court or the other must proceed. If the assignment is in itself an act of bankruptcy, and the makers thereof have been adjudged bankrupts, then this court has to proceed, and therefore must be possessed of the bankrupt’s estate; for otherwise the anomalous condition would exist of one court dealing with the bankrupt and his creditors, and another court administering his estal.e. The power of the bankrupt court in the premises is plenary, and under section 711, Rev. St. U. S., its jurisdiction in bankruptcy cases is superior to, and not concurrent with, the state courts. And by section 720, Id., and section 11 of the bankruptcy law, it is specially authorized to issue injunctions against the parties and stay proceedings in state courts when necessary for the exercise of its jurisdiction. Indeed, in these cases the question is more one of discretion than jurisdiction. Authorities to support this view are abundant. In re Clark, 9 Blatchf. 372, Fed. Cas. No. 2,801; In re Merchants’ Ins. Co., 3 Biss. 162, Fed. Cas. No. 9,441; In re Miller, 6 Biss, 30, Fed. Cas. No. 9,551; Watson v. Bank, 2 Hughes, 200, Fed. Cas. No. 17,279; In re Whipple, 6 Biss. 516, Fed. Cas. No. 17,512; Black, Bankr. pp. 10, 20; Ex parte Christy, 3 How. 292. My conclusion is that the assignment constitutes an act of bankruptcy, and that the parties should be enjoined from further proceeding in the state court. As an appeal is desired in this case, a decree may be entered adjudicating the bankruptcy, and enjoining any disposition of the fund in the state court; but, under the circumstances of this case, the present administration of the estate in the state court will not be interrupted pending the appeal, which can be quickly taken and disposed of.