LOVELL v. ISIDORE NEWMAN & SON(1913)
[227 U.S. 412, 414] Messrs. W. A. Blount, H. Generes Dufour, and Walker Percy for plaintiff in error.
Messrs. John W. Griffin and Everett P. Wheeler for defendants in error.
Mr. Justice Day delivered the opinion of the court:
This case is submitted upon motion to dismiss or affirm. The action was brought by William S. Lovell, trustee of Knight, Yancey, & Company, against Isidore Newman & Son and others, in the United States circuit court for the eastern district of Louisiana, to recover stipulated damages in the sum of $98,500 on a certain bond. issues were joined and the case was tried and a judgment rendered in favor of the defendants. 188 Fed. 534. On writ of error, the circuit court of appeals affirmed that judgment. 113 C. C. A. 39, 192 Fed. 753.
A writ of certiorari to the judgment of the circuit court of appeals was prayed and denied. (December 23, 1912.)
The question of jurisdiction presented is, Was the judgment of the circuit court of appeals final, or is it subject to review by writ of error in this court? As the present suit was upon a bond, and concerns the right of the trustee to recover thereon, it presents a controversy arising in a bankruptcy proceeding, the finality of which in the circuit court of appeals depends upon the application of the circuit court of appeals act to the case. Hewit v. Berlin Mach. Works, 194 U.S. 296 , 48 L. ed. 986, 24 Sup. Ct. Rep. 690; Coder v. Arts, 213 U.S. 223, 233 , 53 S. L. ed. 772, 777, 29 Sup. Ct. Rep. 436, 16 Ann. Cas. 1008; Knapp v. Milwaukee Trust Co. 216 U.S. 545, 553 , 54 S. L. ed. 610, 613, 30 Sup. Ct. Rep. 412; Tefft, W. & Co. v. Munsuri, 222 U.S. 114, 118 , 56 S. L. ed. 118, 119, 32 Sup. Ct. Rep. 67. If the jurisdiction in the present case rests alone upon diverse citizenship, then, under the circuit court of appeals act, the judgment of the circuit court of appeals is final; if, as contended by the plaintiff in error, the peti- [227 U.S. 412, 415] tion in the case discloses, as a ground of jurisdiction in addition to that of diverse citizenship, that the case arises under the laws of the United States, then the judgment of the circuit court of appeals is not final, and the case can come here from that court. And it is well settled that this question must be decided, not because of questions which may have arisen or which might arise in the subsequent progress of the case, but upon the grounds of jurisdiction asserted in the petition. Macfadden v. United Staes, 213 U.S. 288 , 53 L. ed. 801, 29 Sup. Ct. Rep. 490.
Turning, then, to the petition for the assertion of the cause of action upon which this suit was brought, we find from its averments that Knight, Yancey, & Company, partners, doing business in Decatur, Alabama, were adjudicated bankrupts by the district court of the United States for the northern district of Alabama on the 20th of April, 1910; that Lovell, the trustee in bankruptcy, is a citizen of the state of Alabama, and also that the members of the partnership and each of them are citizens of other states than Louisiana. It appears in the petition that on the 3d of May, 1910, C. E. Frost and Lovell, who were then receivers in bankruptcy of Knight, Yancey, & Company, filed, as such receivers, in the United States district court for the eastern district of Louisiana, their petition, which is attached to and made part of the petition in this case, setting forth that certain cotton was in the possession of the master of the Steamer Ingelfingen at the port of New Orleans, and would, unless reatrained, be shipped beyond the jurisdiction of the court; that certain persons in Italy held spurious bills of lading upon which they would seek to obtain possession of such cotton; that the original bills of lading had been destroyed or made away with, and were not in the hands of bona fide holders; that therefore the legal title to the cotton was in the petitioners, and that any attempt to ship the cotton to a foreign country would result in depriving the [227 U.S. 412, 416] bankrupt estate of that asset, and would subject it to the claims of foreign creditors, and would constitute an unlawful preference within the meaning and intendment of the bankruptcy act in favor of the foreign holders of the spurious bills of lading; and they prayed for an injunction, or that, in the alternative, the court would order the United States marshal to seize and take possession of the cotton, and prayed for an order upon the master of the Steamer Ingelfingen, its owners and agents, to show cause, if any they could, why the relief prayed for should not be granted. A restraining order was issued by the district court, the master of the Ingelfingen appeared, excepted to the petition, alleging that the receivers had no right or capacity to institute suit and that the court was without jurisdiction, and afterwards filed an answer in which he set up that the partnership had sold cotton to various Italian purchasers under contracts in the usual mercantile course, that is, it had shipped the cotton to Italy to its order, upon through bills of lading, and drafts for the price of the cotton, with the bills of lading attached, had been discounted, the Italian purchasers finally taking up the drafts and securing the cotton covered by the bills of lading; that in February, 1910, the partnership discounted, and the Italian purchasers subsequently paid, certain drafts with bills of lading attached, alleged in the petition to be forged, covering 1,400 bales of cotton bearing certain marks, and they acquired the bills of lading in the regular course of business, prior to the filing of the petition in bankruptcy, for value and in ignorance of the forgery; that in March and April of that year the partnership shipped the cotton called for by the bills of lading, the cotton bearing the same marks and the bills of lading being substantially identical with the alleged forged bills of lading, and being the bills of lading alleged in the petition to have been made away with, and that 89 bales of the cotton were previously exported and the 1,311 remain- [227 U.S. 412, 417] ing bales were on board the Ingelfingen. The master further alleged that the cotton was the property of the Italian purchasers, and rightfully in his possession as bailee, and that the bankrupt estate had no interest in the cotton; that if the bills of lading in the hands of the purchasers were spurious, they were forged by the partnership, and that the cotton was shipped under genuine bills of lading which were not now outstanding, but of which the alleged forged bills of lading were duplicates; that the partnership was paid for the cotton, which was apportioned to cover the bills of lading held by the purchasers in good faith and at a time when the partnership was not known to be insolvent; that the purchasers and their agents were ignorant of the forgery or that the shipment was other than in regular course, and that no preference was given them. The master also alleged that the partnership had for some time been following this practice, and that the purchasers had been securing their cotton under forged bills of lading, of which practice they were ignorant until after the filing of the petition in bankruptcy. The master further alleged that he was the bailee under regular bills of lading, and bound to deliver to the true owners, for whom he was obliged to protect the cotton for which he had issued receipt, and was entitled to earn his freight, for which and other charges he had a lien on the cotton, and that the charges would be increased by further delay. He denied the inadequacy of a remedy at law. The agent of the steamer also appeared and adopted the answer of the master of the Ingelfingen as its own. The court, upon a hearing, ordered a temporary injunction upon the receivers giving bond in the sum of $10,000, and thereupon, the bond having been given and the temporary injunction awarded, the bond now in suit was executed and delivered, running to the receivers and such trustee as might be elected or appointed, which after reciting the order of injunction, provided: [227 U.S. 412, 418] 'Whereas, it was further provided in said order or injunction that said cotton might be removed out of said jurisdiction upon the filing by the respondents in said proceeding, or either of them, of a bond for the value of said cotton, which has been fixed by agreement for purposes of bonding at the sum above mentioned.
From this recital it is apparent that the proceeding in the United States district court for the eastern district of Louisiana was ancillary to the original proceeding in the court of bankruptcy in Alabama, where the adjudication was had. It was long in doubt whether, under the act of 1898 [30 Stat. at L. 544, chap. 541, U. S. Comp. Stat. 1901, p. 3418], such ancillary proceeding would lie in another district court, but the matter was settled in favor of such jurisdiction in aid of the original jurisdiction by the decisions of this court in Babbitt v. Dutcher, 216 U.S. 102 , 54 L. ed. 402, 30 Sup. Ct. Rep. 372, 17 Ann. Cas. 969, and in Re Elkus, 216 U.S. 115 , 54 L. ed. 407, 30 Sup. Ct. Rep. 377. Later, after this ancillary suit was brought, the Congress removed all doubt concerning the matter by passing an act of June 25, [227 U.S. 412, 419] 1910 (36 Stat. at L. 838, chap. 412, U. S. Comp. Stat. Supp. 1911, p. 1493 ), expressly conferring such ancillary jurisdiction in aid of the jurisdiction of the bankruptcy court which had appointed the receiver or trustee.
The present action was brought upon the bond in the United States circuit court, and was taken by writ of error to the circuit court of appeals, and the appellate jurisdiction to review that court is the one now in question. Section 23 of the bankruptcy act must be consulted to determine the jurisdiction of the circuit court. That section provides:
That section gives jurisdiction to the circuit courts of the United States of controversies at law or in equity, as distinguished from bankruptcy proceedings, between the trustee and adverse claimants in the same manner and to the same extent as though bankruptcy proceedings had not been instituted. It is also provided that suits by the trustee can only be brought in courts where the bankrupt might have brought them, if proceedings in bankruptcy [227 U.S. 412, 420] had not been instituted, unless by consent of the proposed defendant. Later, when Congress enlarged the jurisdiction of the district court by the act of February 5, 1903, exception was made in favor of certain suits for the recovery of property in fraud of the act, but this did not affect suits of the present character. The cases in this court which have considered this section have determined that it was not intended to increase the jurisdiction of the United States circuit courts in bankruptcy matters, but rather to limit it to such suits and controversies as are within the jurisdiction given such courts by the acts creating them; that is, controversies in law and in equity with adverse claimants, where the amount involved is in excess of $2,000, where diverse citizenship exists (the citizenship test being, because of the bankruptcy act, that of the bankrupt, and not that of the trustee), or there is a cause of action arising under the Constitution or laws of the United States. Bush v. Elliott, 202 U.S. 477 , 50 L. ed. 1114, 26 Sup. Ct. Rep. 668; 1 Loveland, Bankr. 4th ed. 74 et seq.; 1 Remington, Bankr. 1686
The present suit, so far as the ground of diverse citizenship is concerned, conforms to the requirement of the bankruptcy act as construed in Bush v. Elliott, supra, for the citizenship of the bankrupts is other than that of Louisiana, and the amount in controversy exceeds the sum of $ 2,000. But it is contended that the petition also discloses a ground of jurisdiction other than diverse citizenship, and upon the solution of that question the present jurisdiction depends. This court had recent occasion to summarize the principles upon which such jurisdiction rests in Shulthis v. McDougal, 225 U.S. 561 , 56 L. ed. 1205, 32 Sup. Ct. Rep. 704, and we can do no better than to recur to that summary for a statement of the principles which must control in deciding the present case (p. 569):
Does it, then, appear in the petition in the present case, in addition to averments of diverse citizenship, that the petitioner has asserted a ground of jurisdiction which 'really and substantially involves a dispute or controversy respecting the validity, construction, or effect of a law of the United States, and upon which his right to recover depends?' Such a cause of action was not asserted simply because the action was brought by an assignee in bankruptcy. Mr. Justice Gray, speaking for the court, said, in Bardes v. First Nat. Bank, 178 U.S. 524, 536 , 44 S. L. ed. 1175, 1181, 20 Sup. Ct. Rep. 1000:
This was also held in Spencer v. Duplan Silk Co. 191 U.S. 526 , 48 L. ed. 287, 24 Sup. Ct. Rep. 174, in which the assignee brought an action in the state court in trover for the conversion of goods alleged to belong to the estate. Diversity of citizenship was shown, and upon that ground the case was removed to the circuit court of the United States. It went to the circuit court of appeals, and it was then contended that it might be reviewed here, but the writ of error was dismissed for lack of jurisdiction, Mr. Chief Justice Fuller saying (p. 530):
That case has frequently been cited approvingly since. Warder v. Loomis, 197 U.S. 619 , 49 L. ed. 909, 25 Sup. Ct. Rep. 799; Watkins v. American Nat. Bank, 199 U.S. 599 , 50 L. ed. 327, 26 Sup. Ct. Rep. 746; Mobile Transp. Co. v. Mobile, 199 U.S. 604 , 50 L. ed. 330, 26 Sup. Ct. Rep. 751; Montana Catholic Missions v. Missoula County, 200 U.S. 118, 126 , 50 S. L. ed. 398, 402, 26 Sup. Ct. Rep. 197; Empire State-Idaho Min. & Developing Co. v. Bunker Hill & S. Min. & Concentrating Co. 200 U.S. 613 , 50 L. ed. 620, 26 Sup. Ct. Rep. 754; Russell v. Russell, 200 U.S. 613 , 50 L. ed. 620, 26 Sup. Ct. Rep. 755; Bush v. Elliott, 202 U.S. 477 , 50 L. ed. 1114, 26 Sup. Ct. Rep. 668; Warder v. Cotton, 207 U.S. 582 , 52 L. ed. 350, 28 Sup. Ct. Rep. 259; Shulthis v. McDougal, 225 U.S. 561 , 56 L. ed. 1205, 32 Sup. Ct. Rep. 704.
The trustee, for his recovery upon the bond, did not rely upon any right specially conferred upon him under the Federal statute which was the subject of controversy, and therefore a ground of jurisdiction. He sued to recover upon the bond solely because of his claim that the 1,311 bales of cotton were at the time of the bankruptcy proceeding, the property of Knight, Yancey, & Company. He alleged in the petition that:
And in the amended petition he again averred: [227 U.S. 412, 424] 'Your petitioner further avers that the statements in said petition contained with reference to said bills of lading are not true in point of fact, and that the bills of lading for all of said cotton described in the original petition herein, and in the petition in said suit No. 14,129, were in the possession and under the control of the receivers of Knight, Yancey, & Company, bankrupt, and have since come into the possession and are now under the control of your petitioner as trustee of Knight, Yancey , & Company, bankrupt, and your petitioner reiterates that the title to all of the cotton described in said original petition was in said Knight, Yancey, & Company, bankrupt, and is in said bankrupt estate and in your petitioner as the trustee in bankruptcy of Knight, Yancey, & Company, bankrupt.'
And the circuit court, in determining the character of the action, said:
It therefore appears that the action, as outlined in the petition, made the plaintiff's right to recover depend upon the ownership of the property by the bankrupt as its own before the bankruptcy proceeding. The investigation of this question involved only matters of general law, and did not depend upon any right conferred by the banpruptcy act upon the trustee.
The cases cited by the plaintiff to the effect that actions upon marshal's bonds, etc., under statutes of the United States, gives jurisdiction to the circuit court because they arise under the laws of the United States, are not in point; no more are cases in which this court has held that the decision of a state court might be reviewed when the construction of the bankruptcy act, claimed by a party in interest as a Federal right, has been denied. The bond here was not required by any law of the United States. It was permitted to be given that the property might be removed upon the steamer upon which it was about to be carried abroad. Under the allegations of his complaint the trustee could recover if he could show that the bankrupt owned this property before the bankruptcy proceedings. It is said that this bond could not be recovered upon unless the trustee could show that the property was such as had passed to the trustee, and was liable to execution at the suit of his creditors. But there is nothing in the petition to show any lien upon the property, or any averments which would have prevented its being made the subject of levy by creditors if it was owned by the bankrupt. The fact that such matters might have been brought up by the defendants, or that questions may arise in the subsequent progress of the action which involve laws of [227 U.S. 412, 426] the United States, it has frequently been held, does not give jurisdiction. The petition must assert grounds of recovery which involve a controversy concerning such laws.
It is also asserted that this case shows not only diversity of citizenship, giving jurisdiction to the circuit court under 23 of the bankruptcy act, but the bond itself gives consent that the suit may be brought in the circuit court, and that this is an independent ground of jurisdiction. But in this case diversity of citizenship between the bankrupt and the defendants existed, and no consent was required to enable the plaintiff to sue in the circuit court. Furthermore, the consent provided for in 23b certainly was not intended to enlarge the jurisdiction of the circuit courts of the United States so as to give them a jurisdiction which they would not have because of diverse citizenship and a requisite amount in controversy, or by reason of a cause of action arising under the Constitution or laws of the United States. 1 Remington, Bankr. 1686. Bush v. Elliott, 202 U.S. 477 , 50 L. ed. 1114, 26 Sup. Ct. Rep. 668.
We reach the conclusion that the jurisdiction of the Circuit Court asserted in the petition in this case rested alone upon diverse citizenship, and therefore, under the Circuit Court of Appeals act, the case is one of those made final in the Circuit Court of Appeals.
Writ of error dismissed.