BABBITT v. DUTCHER(1910)
The Randolph-Macon Coal Company was a Missouri corporation, and was duly adjudicated a bankrupt March 26, 1907, in proceedings instituted in the district court of the United States, in and for the eastern division of the eastern judicial district of Missouri. Byron F. Babbitt was duly appointed trustee in bankruptcy for the corporation May 10, 1907, and duly qualified by giving bond on that day.
He thereafter made demand upon the president of the company for the delivery to him of the corporate records and stock books of the bankrupt company, which were kept in the office maintained by the company in New York city. This request was refused by letter of the president of the company, dated September 24, 1907, in which he says that he is advised 'that such records and stock books are not documents relating to the property of the bankrupt, and therefore you, as trustee in bankruptcy, are not entitled to their possession.'
Thereupon the trustee made application to the district court in and for the southern district of New York, by peti- [216 U.S. 102, 103] tion, for an order directing James T. Gardiner, the president, and Howard Dutcher, the secretary, of the company, or either of them, to deliver to him the stock-certificate book, the corporation minute book, and the stock register of said company, together with all other records and documents belonging to said company, in their possession or under their control. Gardiner and Dutcher were within the jurisdiction of the district court for the southern district of New York, and the books and papers referred to were within their custody there, and the trustee alleged that the stock- certificate book, the corporation minute book, and the stock register book were necessary to the trustee in his administration and settlement of the affairs of the company.
Thereafter a hearing was had on the petition, the order to show cause, and return thereto, and the district judge (Holt, J.) indorsed on the petition: 'I am obliged to deny this motion on the authority of Re Von Hartz, 74 C. C. A. 58, 142 Fed. 726,' and ordered that the motion be denied on the ground that the court was without jurisdiction to entertain the proceeding or to grant the relief prayed for, and the district judge also certified that the order denying the motion and refusing to grant the relief was based solely on the ground that the court was without jurisdiction 'to entertain proceedings instituted by a trustee in bankruptcy duly appointed in a bankruptcy proceeding pending in another district, to compel the officers of the bankrupt to deliver to such trustee the documents in their possession relating to the business of the bankrupt.'
This appeal was then allowed and duly proscuted.
Messrs. William B. Hornblower and Morgan M. Mann for appellant. [216 U.S. 102, 104] Mr. Henry W. Taft for appellees.
Mr. Chief Justice Fuller delivered the opinion of the court:
Subdivision 1 of 70 of the bankruptcy act of 1898 (30 Stat. at L. 565, chap. 541, U. S. Comp. Stat. 1901, p. 3451) provides that the trustee of the estate of a bankrupt shall be vested by operation of law, as of the date of the adjudication, with the title of the bankrupt (a 1) to all 'documents relating to his property,' and subdivision 13 of 1 of the act provides that "documents' shall include any book, deed, or instrument in writing.'
Appellees, as officers of the bankrupt company, asserted no adverse claim, but denied that the corporate records and stock books were 'documents relating to the property of the bankrupt,' and asserted that therefore the trustee in bankruptcy was not entitled to their possession.
We have no doubt that the books and records in question passed, on adjudication, to the trustee, and belong in the custody of the bankruptcy court, and, there being no adverse holding, that the bankruptcy court had power, upon a petition and rule to show cause, to compel their delivery to the trustee. Bryan v. Bernheimer, 181 U.S. 188 , 45 L. ed. 814, 21 Sup. Ct. Rep. 557; Mueller v. Nugent, 184 U.S. 1 , 46 L. ed. 405, 22 Sup. Ct. Rep. 269; Louisville Trust Co. v. Comingor, 184 U.S. 18 , 46 L. ed. 413, 22 Sup. Ct. Rep. 293; First Nat. Bank v. Chicago Title & T. Co. 198 U.S. 280 , 49 L. ed. 1051, 25 Sup. Ct. Rep. 693; Whitney v. Wenman, 198 U.S. 539 , 49 L. ed. 1157, 25 Sup. Ct. Rep. 778.
This brings us to the real question in the case, and upon which the decision was rendered; namely, whether the district [216 U.S. 102, 106] court of the United States in and for the southern district of New York had jurisdiction to entertain this particular proceeding and grant the relief prayed for.
In Ex parte Martin, Fed. Cas. No. 9,149, decided in 1842, Mr. Justice Story, sitting on circuit, held that the equity jurisdiction of the district courts, under the bankruptcy act of 1841 (5 Stat. at L. 440, chap. 9), was not confined to cases originally arising and pending in the particular court where the relief was sought, and where a creditor living in Massachusetts commenced suits in several states other than Pennsylvania, where proceedings were pending against the bankrupt for an adjudication, that an injunction would issue against the Massachusetts creditor, enjoining him from proceeding in the suits. Mr. Justice Story said:
Section 1 of the bankruptcy act of 1867 (14 Stat. at L. 517, chap. 176), and 2 of the bankruptcy act of 1898, are substantially identical as to the jurisdiction of the district courts sitting as courts of bankruptcy, as will appear from the following comparison:
Section 1 of the Bankruptcy Act of 1867
That the several district courts of the United States be, and they hereby are, constituted courts of bankruptcy, and they shall have original jurisdiction in their respective districts in all matters and proceedings in bankruptcy, and they are hereby authorized to hear and adjudicate upon the same according to the provisions of this act . . . .
And the jurisdiction hereby conferred shall extend. . . .
To the collection of all the assets of the bankrupt . . . and to all acts, matters, and things to be done under and in virtue of the bankruptcy, until the final distribution and settlement of the estate of the bankrupt, and the close of the proceedings in bankruptcy.
Section 2 of the Bankruptcy Act of 1898.
That the courts of bankruptcy as hereinbefore definied, viz., the district courts of the United States in the several states, the supreme court of the District of Columbia, the district courts of the several territories, and the United States courts in the Indian territory and the district of Alaska, 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 [216 U.S. 102, 108] held, 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; . . . (15) make such orders, issue such process, and enter such judgments in addition to those specifically provided for as may be necessary for the enforcement of the provisions of this act; . . .
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.
In Sherman v. Bingham, 3 Cliff. 552, Fed. Cas. No. 12,762, Mr. Justice Clifford, sitting on circuit, and construing the act of 1867, reversed the judgment of the district court, which held that an assignee in bankruptcy of a person declared a bankrupt in one district court could not maintain an action to recover moneys paid the defendants, residents of another district, in the district court of such district. And Mr. Justice Clifford said:
In Lathrop v. Drake, 91 U.S. 516 , 23 L. ed. 414, the question of the ancillary jurisdiction of the district court under the act of 1867 was considered, and the decision in Sherman v. Bingham approved. Mr. Justice Bradley, delivering the opinion, said:
The same question was considered in Goodall v. Tuttle, 3 Biss. 219, Fed. Cas. No. 5,833, which arose under the act of 1867, and the same conclusion reached, as also in M'Gehee v. Hentz, Fed. Cas. No. 8,794, and Re Tifft, Fed. Cas. No. 14,034. On the authority of these decisions it must be and is conceded that, under the bankruptcy acts of 1841 and 1867, ancillary jurisdiction, both in summary proceedings and in plenary suits, existed in all district courts within their respective districts; and the question really is whether the provisions of the act of 1898 are to the contrary, or, as appellee's counsel puts it, show an intention on the part of Congress to restrict such jurisdiction so as to cut off the inferences drawn from the language of the earlier acts.
But neither the act of 1867, nor the act of 1898, expressly confers or expressly negatives ancillary jurisdiction in courts other than the court of adjudication. The provisions as to summary jurisdiction in the two acts are substantially identical, and it appears to us should receive the same construction. [216 U.S. 102, 112] Re Benedict, 140 Fed. 55; Re Peiser, 115 Fed. 199; Re Sutter Bros. 131 Fed. 654; Re John L. Nelson & Bro. Co. 149 Fed. 590.
It is, however, urged that the act of 1898 contains restrictive provisions as to the jurisdiction of both the circuit and district courts which weaken the force of the reasoning of the decisions based upon the general language of the earlier statutes. Subdivision 7 of 2 of the act of 1898 confers power to 'cause the estates of bankrupts to be collected, reduced to money, and distributed, and determine controversies in relation thereto, except as herein otherwise provided.' And it is said that the following provisions of 23 should be regarded as coming within the exception and operating to restrict the jurisdiction:
Section 60, subdivision b, refers to preferences given within four months before the filing of the petition in bankruptcy, and provides that they may be recovered by the trustee, and further: 'And, 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 concurrent jurisdiction.' [216 U.S. 102, 113] Section 67, subdivision e, provides that conveyances in fraud of creditors shall be null and void, and that it shall be the duty of the trustee to sue to recover the property conveyed, and that, '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 concurrent jurisdiction.' [32 Stat. at L. 800, chap. 487, U. S. Comp. Stat. Supp. 1909, pp. 1315, 1316.]
But the general jurisdiction was not restricted by these provisions, though they operated to mitigate the rigor of the rule laid down in the Bardes Case.
There are two classes of cases arising under the act of 1898, and controlled by different principles. The first class is where there is a claim of adverse title to property of the bankrupt, based upon a transfer antedating the bankruptcy. The other class is where there is no claim of adverse title based on any transfer prior to the bankruptcy, but where the property is in the physical possession of a third party or of an agent of the bankrupt, or of an officer of a bankrupt corporation, who refuses to deliver it to the trustee in bankruptcy.
In the former class of cases a plenary suit must be brought, either at law or in equity, by the trustee, in which the adverse claim of title can be tried and adjudicated.
In the latter class it is not necessary to bring a plenary suit, but the bankruptcy court may act summarily, and may make an order in a summary proceeding for the delivery of the property to the trustee, without the formality of a formal litigation.
The former class falls within the ruling in the case of Bardes v. First Nat. Bank, 178 U.S. 524 , 44 L. ed. 1175, 20 Sup. Ct. Rep. Rep. 1000, and in the case of Jaquith v. Rowley, 188 U.S. 620 , 47 L. ed. 620, 23 Sup. Ct. Rep. 369, which hold that such a suit can be brought only in a court which would have had jurisdiction of a suit by the bankrupt against the adverse claimant, except where the defendant consents to be sued elsewhere.
In the latter class of cases a plenary suit is not necessary, but the case falls within the rule laid down in Bryan v. Bernheimer, 181 U.S. 188 , 45 L. ed. 814, 21 Sup. Ct. Rep. 557, and Mueller v. Nugent, 184 U.S. 1 , 46 L. ed. 405, 22 Sup. Ct. Rep. 269 [216 U.S. 102, 114] which held that the bankruptcy court could act summarily. The question was not discussed as to whether a court other than the court of adjudication could exercise this summary jurisdiction.
The precise question before us on the present appeal is whether, in a case in which the original court of bankruptcy could act summarily, another court of bankruptcy, sitting in another district, can do so in aid of the court of original jurisdiction.
Judge Holt, after expressing an opinion upholding ancillary jurisdiction, felt compelled to decide otherwise in this case, on the authority of Re Von Hartz, 74 C. C. A. 58, 142 Fed. 726, decided by the United States circuit court of appeals for the second circuit. It appears from the statement of the case in the opinion of the court in the matter of Von Hartz that the proceeding was a summary application, in which the appellant had been directed to turn over to the trustee in bankruptcy a policy of life insurance upon the life of the bankrupt, which 'had theretofore been assigned by Von Hartz to appellant.' It was not stated in the opinion whether the assignment was prior or subsequent to the proceedings in bankruptcy. If prior thereto, then neither the court where the bankruptcy proceedings were pending nor any other court could grant a summary order disposing of the title of the adverse claimant claiming title to the policy by assignment. That could only be determined in a plenary suit, and would fall within the rule in the Bardes and Jaquith Cases. But if the assignment was subsequent to the bankruptcy proceedings, then it would be a nullity, and would be disregarded by the bankruptcy court, and possession could be given to the trustee by a summary order, as in the Bryan and Mueller Cases.
There is no decision of this court adverse to the ancillary jurisdiction of the district courts, as asked to be exercised in this case.
Upon the whole, we are of opinion that the District Court for the Southern District of New York had jurisdiction of the [216 U.S. 102, 115] petition below and to grant the relief therein prayed for, and therefore we reverse the order of that court denying the petition, and remand the cause for further proceedings in conformity with law.