Cleveland Insurance Company v. Globe Insurance Company/Dissent Clifford

Mr. JUSTICE CLIFFORD dissenting.

Jurisdiction of the district courts as courts of bankruptcy extends 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. Rev. Stat., sect. 4972; 14 Stat. 518.

Circuit courts for each district of their respective circuits have a general superintendence and jurisdiction of all cases and questions arising in the district court for such district, when sitting as a court of bankruptcy, which may be exercised by the court in term time or in vacation by the circuit justice or by the circuit judge of the circuit; and the provision is that such circuit court, circuit justice, or circuit judge may, in term time or vacation, except when special provision is otherwise made upon bill, petition, or other proper process of the party aggrieved, hear and determine the case as in a court of equity. 14 Stat. 518; Morgan v. Thornhill, 11 Wall. 65.

Apart from those two provisions, the third clause of the second section provides that circuit courts shall also have concurrent jurisdiction with the district courts of all cases at law or in equity which may or shall be brought by the assignee in bankruptcy against any person claiming an adverse interest, or by such person against such assignee, touching any property or rights of property of such bankrupt transferable to or vested in such assignee. Smith v. Mason, 14 Wall. 419; Knight v. Cheney, 5 Nat. Bank. Reg. 305.

Petition in bankruptcy against the defendant company was filed in the District Court by the corporation plaintiffs, and they prayed that the defendant company may be declared bankrupt, and that a warrant may be issued to take possession of their estate. Due proceedings followed, and the District Court sitting without a jury decided that the facts set forth in the petition were not proved, and entered a decree dismissing the petition.

Instead of petitioning the Circuit Court for a revision of the ruling and decision of the District Court, under the first clause of the second section of the Bankrupt Act, as the petitioners should have done, they filed a bill of exceptions as in action at law, and the same was signed and sealed by the district judge as in the trial of an information for a seizure on land under the ninth section of the Judiciary Act.

Application was then made by the original petitioners to the Circuit Court for a writ of error to the District Court, which was granted, and the cause was removed into the Circuit Court just as when an action at law tried before a jury is removed from the court of original jurisdiction into an appellate tribunal pursuant to the common-law bill of exceptions, except that the bill of exceptions contains the court's findings of fact as in common-law cases where a jury is waived.

When the cause was entered and the transcript filed in the Circuit Court, the defendant company appeared and moved to dismiss the writ of error, for the following reasons: 1. Because the proceeding being a petition in involuntary bankruptcy, where the bankrupt did not demand a jury and the hearing had been by the District Court, the case is not removable into the Circuit Court by writ of error, but by petition for review or other proper process under the first clause of the second section of the Bankrupt Act. 2. Because the debt or damage claimed in the petition does not amount to $500. 3. Because the writ of error was not sued out within ten days after the entry of the decision in the District Court.

Hearing was had; and the Circuit Court overruled the motion to dismiss the writ of error, and reversed the decree of the District Court with costs, and ordered that a special mandate be sent down to the District Court directing that court to carry the judgment of the Circuit Court into execution and to adjudge the defendant company bankrupt, as prayed in the petition, and to proceed in the matter according to law. Exceptions were filed by the defendant company, and they sued out the present writ of error and removed the cause into this court.

Since the cause has been entered here, the plaintiff company has filed a motion to dismiss the writ of error upon the ground that no appeal lies to this court from a judgment or decree of the Circuit Court exercising the supervisory jurisdiction conferred upon it by the first clause of the second section of the Bankrupt Act. Morgan v. Thornhill, 11 Wall. 65; Smith v. Mason, 14 id. 419.

Both of these cases affirm that rule beyond all doubt, and the same rule is confirmed by every subsequent case upon the same subject; but the difficulty is, that the Circuit Court did not exercise the supervisory jurisdiction which the first section of the Bankrupt Act conferred. Jurisdiction under that clause of the second section of the act is usually exercised in pursuance of a petition for revision, and it must be exercised in some mode of proceeding which will give the defending party the right to answer the allegations of the pleading, as in a bill of complaint, as is plainly to be inferred from the language of the clause, else the hearing would be a mockery, as it would be practically ex parte.

Circuit courts are not courts of bankruptcy, nor have they power to re-examine or review the rulings, decisions, or judgments of the district courts sitting in bankruptcy, except in the cases and in the manner provided by the Bankrupt Act; nor is it pretended that the Bankrupt Act gives the Circuit Court any power whatever in a case like the present, to re-examine the decision or judgment of the District Court by a writ of error.

Suppose the proceedings in the Circuit Court were in every respect erroneous, leaving the losing party without remedy unless the error can be corrected here, still it is insisted that this court is without the power to grant relief. Cases wrongly brought up, it may be admitted, should, as a general rule, be dismissed by the appellate tribunal; but a necessary exception exists to that rule where the effect of a judgment or decree of dismissal will be to give full operation to an irregular and erroneous judgment or decree of the subordinate court in a case where the judgment or decree of such a court is rendered without jurisdiction, or in violation of some legal or constitutional right of the losing party.

Rules of practice are established to promote the ends of justice, and where it appears that a given rule will have the opposite effect from that which it was intended to accomplish, courts of justice have never hesitated to establish an exception to it. Appellate courts, where there is no defect in bringing up a cause, usually affirm or reverse the judgment or decree of the court below; but cases occasionally arise where the proceedings of the subordinate court are so unusual and irregular that the appellate court can neither reverse nor affirm the merits of the case without doing great injustice, and in such cases the appellate court never hesitates to remand the case f