Frank v. Vollkommer/Opinion of the Court

Counsel for plaintiffs in error contended below that the state courts had no jurisdictuion because the suit was brought to determine title to property or a fund in the possession of the district court of the United States. The bankruptcy act of July 1,1898, provided that 'suits by the trustee shall only be brought or prosecuted in the courts where the bankrupt, whose estate is being administered by such trustee, might have brought or prosecuted them if proceedings in bankruptcy had not been instituted, unless by consent of the proposed defendant.' 30 Stat. at L. 544, chap. 541, § 23b, U.S.C.omp. Stat. 1901, p. 3431.

In Bardes v. First Nat. Bank, 178 U.S. 524, 44 L. ed. 1175, 20 Sup. Ct. Rep. 1000, we held that the bankruptcy court, except by the consent of the defendant, had no jurisdiction to try and determine a suit brought by a trustee in bankruptcy to recover property alleged to be part of the bankrupt's estate, or to have been transferred by him in fraud of the act, but that such suits must be prosecuted either in the state courts or in the circuit courts of the United States where diversity of citizenship existed. The act of 1898 was amended by the act of February 5, 1903 (32 Stat. at L. 797, chap. 487, U.S.C.omp. Stat. Supp. 1905, p. 682), § 19 of which provided that the act should 'not apply to bankruptcy cases pending when this act takes effect, but such cases shall be adjudicated and disposed of comfortably to the provisions of the said act of July first, eighteen hundred and ninety-eight.'

The present case was commenced in 1902, and, besides, the amendment gave the bankruptcy court concurrent, and not exclusive, jurisdiction.

We give in the margin quotations from the acts of July 1, 1898, and February 5, 1903, the amendments made by the latter act being italicized.

Undoubtedly the state court, in which the trustee brought this suit, was the court 'where the bankrupt, whose estate is being administered by such trustee, might have brought or prosecuted them [suits], if proceedings in bankruptcy had not been instituted,' and its jurisdiction under the applicable general rule must be conceded.

But plaintiffs in error contend that the possession by the bankruptcy court of the proceeds of the sale of the mortgaged chattels deprives the state court of its conceded jurisdiction to set aside the mortgage as fraudulent.

The contention is wholly inadmissible. The mortgaged property consisted of horses, vehicles, harness, etc., and the order of sale of the temporary receiver, agreed to by plaintiffs in error, was evidently in the interest of all parties, and provided for the deposit of the proceeds, not in the general funds of the estate, but as a special fund, to which the lien, if any, of the chattel mortgage was transferred, and clearly contemplated a plenary suit to determine the validity thereof, which, at that time, there being no diversity of citizenship, and no such possession as might lead to a different result, could only be commenced in the state court. The trustee himself commenced it there and obtained the decree, which was in its nature self-executing, and merely set aside the mortgage, and, as incident thereto, declared that the special fund was free from its lien, and, without seeking to interfere with the possession, left it to the bankruptcy court to carry the decree into effect by placing the money in the custody of its officer, the trustee.

No principle of comity was violated and there was no interference with the bankruptcy court. First Nat. Bank v. Chicago Title & T. Co. 198 U.S. 280, 49 L. ed. 1051, 25 Sup. Ct. Rep. 693; Davis v. Friedlander, 104 U.S. 570, 26 L. ed. 818; Eyster v. Gaff, 91 U.S. 521, 23 L. ed. 403; Claflin v. Houseman, 93 U.S. 130, 23 L. ed. 833; Re Platteville Foundry & Mach. Co. 147 Fed. 828; Guaranty Trust Co. v. North Chicago Street R. Co. 65 C. C. A. 65, 130 Fed. 801; Re Spitzer, 66 C. C. A. 35, 130 Fed. 879; Bindseil v. Smith, 61 N. J. Eq. 645, 47 Atl. 456; Skilton v. Codington, 185 N. Y. 80, 77 N. E. 790. In the latter case the court of appeals by Cullen, Ch. J., in sustaining the jurisdiction of the state court, admirably expounds the applicable principles, with a full citatuion of authorities. That was a suit against the trustee, while the present case was brought by the trustee.

The possession of the temporary receiver of the special fund was not, in the circumstances, in any sense sufficient to change the ordinary rule giving the state courts jurisdiction any more than the constructive possession in every case created by adjudication. Mueller v. Nugent, 184 U.S. 1, 46 L. ed. 405, 22 Sup. Ct. Rep. 269; York Mfg. Co. v. Cassell, 201 U.S. 344, 50 L. ed. 782, 26 Sup. Ct. Rep. 481.

It is objected that the trustee had no right to attack the validity of the chattel mortgage because it did not appear that he represented any but simple contract creditors. But the record before us shows that the entire record of the proceedings in the bankruptcy court was in evidence before the trial court, though it was not returned here, so that if it were necessary that the trustee should represent judgment creditors, which we do not decide that it was, it must be presumed that the trial court, in passing upon all the evidence, found that he did. This may explain why the point was not made in the trial court, and it comes too late here.

Judgment affirmed.