Leroux v. Hudson

The facts of this case, so far as they are material, are as follows: On the fourteenth of March, 1878, proceedings in involuntary bankruptcy were instituted in the district court of the United States for the eastern district of Michigan, against Samuel Schott and Philip Feibish, composing the firm of Schott & Feibish. On the same day a warrant was issued by the court to the marshal, under section 5024 of the Revised Statutes, commanding him 'to take possession, provisionally, of all the property and effects of the debtors.' The petitioning creditors gave a bond of indemnity to the marshal, under order No. 13 of the general orders in bankruptcy, and required him to seize, under the warrant, as the property of the debtors, certain goods in the hands of Joseph P. Leroux and Max Schott, composing the firm of Leroux & Co., then in the store of the latter at Bay City, Bay county, Michigan, which goods, the creditors alleged, had been transferred to J. Leroux & Co. by Samuel Schott and Feibish, in violation of the bankruptcy law. The seizure was made on the twenty-ninth of March by the marshal, Salmon S. Matthews, assisted by his deputies, Myron Bunnell and Horace Becker. An adjudication of bankruptcy was made against Samuel Schott and Feibish on the thirteenth of April. On the twenty-second of April, J. Leroux & Co. commenced an action of trespass in the circuit court for Bay county, Michigan, against Matthews, Bunnell, and Becker, to recover $25,000 damages for the acts of the defendants on the twenty-ninth of March, in breaking and entering the store at Bay City and injuring the same, and taking therefrom and carrying away goods of the value of $25,000, the property of the plaintiffs, and converting the same to their own use, and preventing the plaintiffs, for three days, from carrying on their lawful business in the store. On the sixth of May, Joseph L. Hudson was appointed assignee in bankruptcy of Samuel Schott and Feibish, and became duly vested with that office. Thereupon the marshal delivered the goods to the assignee, and the latter took possession of them as part of the estate of the bankrupts. The defendants in the trespass suit appeared therein by attorney, and demanded a trial, and served a notice of defense, setting up the issuing of the provisional warrant, the seizure of the goods thereunder, the fact that they were the goods of Samuel Schott and Feibish, the adjudication in bankruptcy, the appointment of an assignee, and the fact that the goods had been turned over by the marshal to the assignee, and were held by him as a part of the estate of the bankrupts. At a term of the state circuit court, in September following, on application of the defendants, the trial of the suit was postponed to the next term, on affidavit of the illness and absence of an important witness.

In October, 1878, Hudson, (the assignee,) Matthews, (the marshal,) and Bunnell and Becker, filed a bill in equity, in the circuit court of the United States for the eastern district of Michigan, against Leroux and Max Schott, setting forth the substance of the above facts, and alleging that the goods had been sold by the assignee under the order of the bankruptcy court; that he was holding the proceeds to be applied as a part of the estate of the bankrupts, if the title should be found to be in the assignee, or he should be entitled to the said assets as assignee, and to distribute the same as part of the estate; and that he had the proceeds in hand awaiting the determination of that question. The bill also alleged that the goods were transferred by the bankrupts, when insolvent, to Leroux and Max Schott, with a view to prevent them from coming to the assignee in bankruptcy, and a large part of them within three months before the filing of the petition in bankruptcy, and when Leroux and Max Schott knew that the transfer was made with a view to prevent the goods from going to the assignee, and to prevent them from being distributed under the bankruptcy act, to defeat its object, and to injure and delay its operation and evade its provisions; that the transfers of the goods were therefore void, and the title to them became vested in the assignee; that he claimed that by reason of the suit in the state court he was unable to proceed with the settlement of the estate of the bankrupts; that the funds so received by him for the goods must be kept until the question in reference to their title should be determined; and that the question in regard to the fraud on the bankruptcy act, so attempted, could not be litigated and determined in the state court. The bill then set forth various matters intended to show the existence of such fraud, and prayed that Leroux and Max Schott be enjoined from further prosecuting their suit, or any other suit in a state court, for damages in regard to the goods seized by the marshal, and that if they should claim any interest therein they should proceed to establish their claim in the circuit court of the United States or in the district court in bankruptcy. It also prayed that any sale or transfer of the goods from the bankrupts to Leroux and Max Schott be set aside and decreed to be in violation of the bankruptcy act, and that the goods be becreed to be a part of the estate of the bankrupts, and that the title of the assignee to the goods, or the funds arising therefrom, be quieted and decreed to be perfected in him.

In November following, on notice and after a hearing, the court granted a preliminary injunction in accordance with the prayer of the bill. Each of the defendants demurred separately to the bill for want of jurisdiction and want of equity. The demurrers were overruled, on a hearing. Each of the defendants then answered separately. The answers maintained the right of the defendants to proceed with the suit in the state court, and averred that they owned the goods at the time of the seizure, and denied the equity of the bill. Proofs were taken in the cause on both sides. At the close of the plaintiffs' proofs, the defendants entered on the record a protest against the jurisdiction of the court, with a statement that, by bringing the suit in the state court, they had not sought, in any manner, to interfere with the goods seized, but had waived the question of interference with the goods. A decree was entered adjudging that the goods were, at the time of their seizure, a part of the estate of the bankrupts; that the title thereto vested in the assignee; that the sale or transfer of them to the defendants was in violation of the bankruptcy act, and be set aside; that the title of the assignee to the goods and their proceeds be quieted and declared to be perfect; and that the defendants be perpetually enjoined according to the prayer of the bill. From this decree the defendants have appealed.

Don M. Dickinson, for appellants.

[Argument of Counsel from pages 472-473 intentionally omitted]

W. F. Cogswell, for appellees.

MR. Justice Blatchford