Re Wood and Hendersons/Dissent Josiah Brewer

Mr. Justice Brewer, with whom Mr. Justice Peckham and Mr. Justice Moody concur, dissenting:

I am constrained to dissent in this case, and will state my reasons therefor. The facts are sufficiently given in the opinion of the court. The petitioners were lawyers, living at Hot Springs, Arkansas. They had never been within the state of Colorado, or appeared in the district court except to file their petition for review, and the only service upon them was made in Arkansas by the delivery of a copy of the application and an order to show cause. The district court of Colorado, the court in which the bankruptcy proceedings were had, confirming the report of the referee, adjudged that, of the money paid to the petitioners employed by the bankrupt in anticipation of proceedings in bankruptcy, to render services therein, the sum of $800 was a reasonable compensation for such services, and ordered that the trustee proceed to recover the excess from petitioners. Justification for this order is found in this paragraph of the bankruptcy act:

'Sec. 60d. If a debtor shall, directly or indirectly, in contemplation of the filing of a petition by or against him, pay money or transfer property to an attorney and counselor at law, solicitor in equity, or proctor in admiralty, for services to be rendered, the transaction shall be re-examined by the court on petition of the trustee or any creditor, and shall only be held valid to the extent of a reasonable amount, to be determined by the court, and the excess may be recovered by the trustee for the benefit of the estate.' 30 Stat. at L. 544, 562, chap. 541, U.S.C.omp. Stat. 1901, pp. 3418, 3446.

It is said that this was an administrative, and not a judicial, proceeding. There possibilities are suggested by the section. One is that the bankruptcy court, after an examination, may find that there is reason to believe that the attorneys have been paid an excessive sum, and direct the trustee to proceed by action in any court acquiring jurisdiction of the persons of the attorneys to recover what, by that court, shall be adjudged excessive. This would be a strictly administrative proceeding, and if that were the conclusion of the court I should have nothing to say in the way of dissent. Another is that the bankruptcy court both adjudicates the amount of the excess-the amount which has been wrongfully paid to the attorneys, and be which, in effect, they have been preferred to the prejudice of creditors of the bankrupt-and also awards process for the collection of that excess. This is not suggested in the opinion of the court, which, in effect, holds the third possibility,-to wit, that the bankruptcy court can adjudicate the amount of the wrongful prepayment, leaving the recovery of that amount to be accomplished by action in a court acquiring jurisdiction of the person in the ordinary way of legal proceedings. Such a construction is inconsistent with the whole history of the jurisdiction of district and circuit courts since the foundation of the government, and is, indeed, against the construction placed on other provisions of the present bankruptcy law.

By article 6 of the Amendments to the Constitution, criminal prosecutions are limited to 'the state and district wherein the crime shall have been committed, which district shall have been previously ascertained by law.' By this, so far as criminal cases are concerned, a state locality of jurisdiction is established beyond the power of Congress to disturb. We need not stop to inquire whether Congress can invest the district court of a single district or state with a jurisdiction in civil cases operative through the whole length and breadth of the country, but has it done so?

The original judiciary act, passed in 1789 (1 Stat. at. L. 73, 79, chap. 20), provides, in respect to circuit courts, that 'no civil suit shall be brought before either of said courts against an inhabitant of the United States by any original process in any other district than that whereof he is an inhabitant, or in which he shall be found at the time of serving the writ.' See also, with respect to the jurisdiction of district courts, Rev. Stat. § 563, U.S.C.omp. Stat. 1901, p. 455; and, with respect to that of circuit courts, Rev. Stat. § 629, U.S.C.omp. Stat. 1901, p. 503.

Construing the judiciary act of 1789, it was said in Toland v. Sprague, 12 Pet. 300, 328, 9 L. ed. 1093, 1104: 'The judiciary act has divided the United States into judicial districts. Within these districts a circuit court is required to be holden. The circuit court of each district sits within and for that district, and is bounded by its local limits. Whatever may be the extent of their jurisdiction over the subject-matter of suits, in respect to persons and property, it can only be exercised within the limits of the district. Congress might have authorized civil process from any circuit court, to have run into any state of the Union. It has not done so. It has not in terms authorized any original civil process to run into any other district; with the single exception of subpoenas for witnesses, within a limited distance.'

While the general conditions of jurisdiction of the Federal courts were in some respect changed by the act of August 13, 1888 (25 Stat. at L. 433, chap. 866, U.S.C.omp. Stat. 1901, p. 508) the change does not affect the present question.

Before the district court of Colorado could, in ordinary matters, acquire jurisdiction over the person of one not found within its territorial limits, there must be a voluntary appearance of the defendant. He cannot, in an ordinary ligitation, be brought into that court by service of process outside the limits of the court's jurisdiction. It has been held that the circuit court of one state has no jurisdiction in matters such as the sale of real property beyond the limits of the state. Boyce v. Grundy, 9 Pet. 275, 9 L. ed. 127; Mississippi & M. R. Co. v. Ward, 2 Black, 485, 17 L. ed. 311; Northern Indiana R. Co. v. Michigan C. R. Co. 15 How. 233, 14 L. ed. 674. It is true that, when suit is brought to enforce any legal or equitable claim against real or personal property within the district where the suit is brought, one who is not an inhabitant of nor found within the district, and does not voluntarily appear thereto, can be brought into court by personal service outside the limits of the district or by publication, as the court may direct; but any adjudication made in that suit, as regards such absent defendant, without appearance, affects only his property within the district. Rev. Stat. § 738. So, where suit is brought to foreclose a mortgage or trust deed on property situate in several states, the settled practice is for proceedings of foreclosure to be commenced in one court, called the court of primary jurisdiction, and then, in order to establish and maintain judicial control over the property in the other states, obtain ancillary administration in those states; although, if the defendant, the owner of the property, is brought into the court of primary jurisdiction, that court may act upon him and compel him to do with the property that which ought to be done. But, in all these cases, either the person or the property is within the territorial jurisdiction of the court.

When an individual, not an inhabitant of the state or district, and not found therein, is sought to be charged by reason only of his indebtedness to a defendant duly served, jurisdiction is not acquired by mere service of notice outside the state, for the fact of indebtedness does not bring him within the jurisdiction of the court. While, for some purposes, the situs of a debt may accompany the creditor, yet that situs is not sufficient to give to a court jurisdiction of a personal action against the debtor; that must be maintained in the state where the debtor is found.

Now the recovery of an amount due or of property belonging to an individual or an estate is ordinarily by a common-law action. That the claimant is an estate and in the hands of a trustee or receiver does not change the nature of the proceeding. Suppose one of our large railroad properties is in the hands of receivers,-can it be tolerated that the amount of the indebtedness by any individual to that estate can be determined absolutely by the court without a jury? If this be so, what becomes of the protection given by article 7 of the Amendments to the Constitution, that, 'in suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved?' Even if an action has to be brought to obtain the process of execution in the state where the alleged debtor resides, of what significance is it if the amount which is to be recovered is already settled, not by a jury, but by a court, acting independently, and in a prior proceeding? If the benefit of a trial by jury can in that way be taken away, it will take but little ingenuity on the part of lawmakers to provide for the total destruction of the right of trial by jury,-a right which has been considered of priceless benefit in all English-speaking nations, and the protection of which is imbedded in the national as well as state Constitutions.

How appropriate, in this connection, is the language of Mr. Justice Brandley, delivering the opinion of the court in Boyd v. United States, 116 U.S. 616, 635, 29 L. ed. 746, 752, 6 Sup. Ct. Rep. 524, 535, where, speaking of an attack upon another constitutional provision, he says:

'Illegitimate and unconsitutional practices get their first footing in that way; namely, by silent approaches and slight deviations from legal modes of procedure. This can only be obviated by adhering to the rule that constitutional provisions for the security of person and property should be liberally construed. A close and literal construction deprives them of half their efficacy, and leads to gradual depreciation of the right, as if it consisted more in sound than in substance. It is the duty of courts to be watchful for the constitutional rights of the citizens, and against any stealthy encroachments thereon. Their motto should be obsta principiis.'

Again, it is said that an excessive prepayment to an attorney does not come within the technical definition of a preference, as stated in § 60:

'Sec. 60a. A person shall be deemed to have given a preference if, being insolvent, he has, within four months before the filing of the petition, or after the filing of the petition, and before the adjudication, procured or suffered a judgment to be entered against himself in favor of any person, or made a transfer of any of his property, and the effect of the enforcement of such judgment or transfer will be to enable any one of his creditors to obtain a greater percentage of his debt than any other of such creditors of the same class.' [30 Stat. at L. 562, chap. 541, U.S.C.omp. Stat. 1901, p. 3445, as amended, 32 Stat. at L. 799, § 13, chap. 487, U.S.C.omp. Stat. Supp. 1907, p. 1031.]

An attorney rendering services becomes thereby a creditor of the client; and, if he is paid more for the services than they are worth, he has received as creditor more than he is entitled to, and comes within the spirit, if not the letter, of § 60a, which provides that 'a person shall be deemed to have given a preference if, being insolvent, he has, within four months before the filing of the petition. . . made a transfer of any of his property, and the effect of the enforcement of such. . . transfer will be to enable any one of his creditors to obtain a greater percentage of his debt than any other of such creditors of the same class.' The idea of bankruptcy is that the bankrupt is unable to pay his debts in full; and, if the attorney has received payment in full, he has received a greater percentage of his debt than any other creditor.

While § 60d is not in the bankruptcy act of 1867 [14 Stat. at L. 517, chap. 176], obviously it was specially inserted in the present act for the purpose of making clear the liability of counsel receiving payment in advance. It is simply a declaration that an excessive prepayment to counsel employed with a view to bankruptcy proceedings is to be considered, so far as the excess is concerned, a preference, and recoverable by the trustee in bankruptcy. And, unless a contrary intent be clearly manifested, the proceeding to recover that preference should be in the same way and by the same tribunals that have jurisdiction of any other proceeding to recover money or property given by way of preference. It would be giving an unreasonable extension to language to make it not simply a declaration of the right to recover, but also a limitation of the tribunal in which the recovery can be had or the amount due determined,-a limitation not obtaining in respect to any other preference.

In Re Waukesha Water Co. 116 Fed. 1009, it was held by the district court of the eastern district of Wisconsin that the 'bankrupt act 1898 confers no power on a court of bankruptcy to summon before it, by a rule to show cause, third persons who are not parties to the record, and who reside without the district and state, and are there served with the order, and, under the general rules of law governing the Federal courts, in the absence of express authority, such service is ineffectual to confer jurisdiction in personam.' Again, it is suggested that § 60d provides for proceedings in the bankruptcy court,-no vesting of jurisdiction in any other than that court,-and it is said there is no provision for a plenary suit to recover the amount of the excessive prepayment and none for a jury. But, by the bankrupt act of March 2, 1867, the general jurisdiction over bankruptcy proceedings was vested in the court in which they were commenced, and there was no special provision for ancillary proceedings in the courts of other districts, and yet it was decided that those ancillary proceedings might be held; that that seemed to be the necessary result of the general jurisdiction conferred, and to be in harmony with the design and scope of the act. As said by Mr. Justice Bradley, in Lathrop v. Drake, 91 U.S. 516, 518, 23 L. ed. 414, 415:

'Their jurisdiction is confined to their respective districts, it is true; but it extends to all matters and proceedings in bankruptcy without limit. When the act says that they shall have jurisdiction in their respective districts, it means that the jurisdiction is to be exercised in their respective districts. . . . Proceedings ancillary to and in aid of the proceedings in bankruptcy may be necessary in other districts where the principal court cannot exercise jurisdiction; and it may be necessary for the assignee to institute suits in other districts for the recovery of assets of the bankrupt. That the courts of such other districts may exercise jurisdiction in such cases would seem to be the necessary result of the general jurisdiction conferred upon them, and is in harmony with the scope and design of the act.'

For these reasons, thus outlined, I must dissent from the opinion and judgment of the court.