In re McMahon

• Decision Date: 12 October 1906
• Docket Number: 1,530.
• Citation: 147 F. 684
• Parties: In re McMAHON.
• Court: U.S. Court of Appeals — Sixth Circuit

147 F. 684

In re McMAHON.

No. 1,530.

United States Court of Appeals, Sixth Circuit.

October 12, 1906

F. L Rosemond, for appellant.

R. T Scott, for respondent.

Before LURTON and SEVERENS, Circuit Judges, and COCHRAN, District judge.

LURTON Circuit Judge.

The matter arose thus: Benjamin F. Enos, trustee in bankruptcy of the estate of Charles pl. Campbell, filed a petition in the bankrupt court, in which he stated: That he was in possession of a certain tract of land as trustee for the bankrupt. That within four months prior to the bankruptcy of the said Campbell he, the bankrupt, had made a trust deed conveying the said land to Charles S. McMahon as trustee for certain purposes therein named. Upon the ground that the trust conveyance was made within four months prior to the filing of the petition in bankruptcy the trustee denied the validity of the lien otherwise created thereunder, and sought an order to sell the property free from any lien or charge in behalf of those secured thereby. This petition also averred that many of the creditors therein secured had other security for their debts; Campbell being only a surety. The prayer of the bill or petition was that the trust deed be set aside, or, if held good, that 'the trustee be required to first exhaust the property of the principal debtors before going upon that of the bankrupt surety. ' That Charles S. McMahon, 'as trustee, be given due notice of the pendency and prayer of this petition and be required to set up any claim which he may have in said premises, within a short day fixed by the court,' and that the petitioner be ordered and directed to sell the premises free from any lien or incumbrance, 'and for such other or further relief as is proper. ' A subpoena was issued by order of the court and said McMahon was commanded to appear on or before August 1, 1905, to answer said petition. This was duly served July 22, 1905. McMahon appeared specially to object to the jurisdiction of the court, and this he did by motion to quash the subpoena, and then by demurrer, by answer, and by every other known and unknown method of protesting against jurisdiction; The court ruled that, having possession of the property, it had jurisdiction to determine the validity of all claims to it or liens against it, and that if such adverse claimants did not choose to come in voluntarily and set up their claims they might be brought in by a proceeding such as that started by the bankrupt's trustee. At this stage of the proceedings, and before any decree upon the merits, McMahon filed his petition under the supervisory powers of this court and prayed for a review of the orders and decrees of the bankrupt court sustaining its jurisdiction.

The controlling fact in the matter of the jurisdiction of the bankrupt court is that the actual possession of the premises upon which McMahon asserts an adverse lien was in Enos, the trustee in bankruptcy of Campbell, the bankrupt mortgagor. Section 2 of the Bankrupt Act of July 1, 1898, 30 Stat. 545 c. 541 (U.S. Comp. St. 1901, p. 3420), in express terms, by clause 7, confers jurisdiction upon the District Courts, as courts of bankruptcy, 'to cause the estate of the bankrupt to be collected, reduced to money and distributed, and determine the controversies in relation thereto, except as herein otherwise provided. ' This exception refers to section 23 (30 Stat. 552 (U.S. Comp. St. 1901, p. 3431)), conferring jurisdiction on the Circuit and District Courts of suits brought by bankrupt trustees in respect to 'controversies at law and in equity, as distinguished from proceedings in bankruptcy, between trustees, as such, and adverse claimants concerning the property acquired or claimed by the trustees' and limiting the jurisdiction to such suits as might have been brought or prosecuted by the bankrupt if bankruptcy had not ensued, 'unless by the consent of the proposed defendant. ' By the amendment of February 5, 1903, this jurisdiction is extended to suits for the recovery of property under section 60, subd. b, and section 67, subd. e (30 Stat. 562, 564 (U.S. Comp. St. 1901, pp. 3445, 3449) as amended Feb. 5, 1903, c. 487, Secs. 13, 16, 32 Stat. 799, 800 (U.S. Comp. St. Supp. 1905, pp. 688, 690).

But we are now dealing with the jurisdiction of the District Court which had possession through its trustee of the property of the bankrupt against which the protesting petitioner asserts a mortgage lien. If the District Court having possession of the res did not have jurisdiction to hear and determine claims to or against the res, unless the claimant should consent, what court did? Could the petitioner go into the state court and there assert his lien and then obtain a decree for its enforcement and thus deprive the court of Primary jurisdiction of the res draws to the court jurisdiction of all questions in respect to title or liens, irrespective of citizenship. Krippendorf v. Hyde, 110 U.S. 276, 4 Sup.Ct. 27, 28 L.Ed; 145;

Toledo & Rd. Co. v. Continental Trust Co., 95 F. 497, 36 C.C.A. 155.

Bardes v. Hawarden Bank, 178 U.S. 524, 20 Sup.Ct. 1000, 44 L.Ed. 1175, is not an authority against the jurisdiction exercised in the case at bar. In that case the bankrupt court did not have possession of the goods in question. They were in the custody and control of an adverse claimant. What is said in Bardes v. Hawarden Bank about the absence of intention of Congress to give under section 2, cls. 6 and 7, jurisdiction to the District Court to entertain independent actions and suits to determine the title to property or liens thereon, refers to property not held by the bankrupt or some one for him at the date of adjudication. And so it was announced by Justice Day, in speaking for the court in Whitney v. Wenman, 198 U.S. 539-555, 25 Sup.Ct. 778, 49 L.Ed. 1157, where it is said:

'This case, Bardes v. Bank, did not determine the right of the District Court to entertain jurisdiction of a proceeding having in view the adjudication of rights or liens upon property which came into the possession of the bankrupt court as that of the bankrupt, the right to proceed concerning which would seem to be broadly conferred in the section of the bankrupt act above quoted.'

This reference is to section 2, subd. 7.

The question was squarely presented in Whitney v. Wenman, cited above. The trustee in bankruptcy had filed what is styled in the statement of the case 'a bill in equity' in the District Court, against third persons claiming liens upon certain packages of silks and other dry-goods. The trustee's petition averred that the bankrupt had never lost possession, and that his title and possession had passed to the trustee in bankruptcy. It was then averred that there had been some effort to warehouse the goods and that a transfer of the warehouse receipts as a security for money borrowed had been made to certain of the defendants. But it was averred that the whole transaction was colorable; that in fact the bankrupt had remained in possession and was in possession when the adjudication had occurred; that a receiver, appointed to hold the bankrupt estate until a trustee could be selected, had, without authority of law or of the court, wrongfully surrendered possession of the goods in controversy; and that they had been sold by the warehouse company before the appointment of the petitioner as trustee. The defendants to the 'bill' were the warehouse company and the persons who held the warehouse receipts by assignment of the bankrupt. The defendants demurred to the jurisdiction. The demurrer was sustained and the bill dismissed for want of jurisdiction. The appeal was direct to the Supreme Court as a case turning upon the jurisdiction of the District Court. The decree was reversed.

After reviewing Bardes v. Bank, cited above, White v. Schloerb, 148 U.S. 542, 20 Sup.Ct. 1007, 44 L.Ed. 1183, Bryan v. Bernheimer, 181 U.S. 188, 21 Sup.Ct. 557, 45 L.Ed. 814, and Mueller v. Nugent, 184 U.S. 1, 22 Sup.Ct. 269, 46 L.Ed. 405, Justice Day, for the court, said:

'We think the result of these cases is, in view of the broad powers conferred in section 2 of the bankrupt act, authorizing the bankrupt court to cause the estate of the bankrupt to be collected, reduced to money, and distributed, and to determine controversies in relation thereto, and bring in and substitute additional parties when necessary for the complete determination of a matter in controversy, that when the property had become subject to the jurisdiction of the bankruptcy court as that of the bankrupt, whether held by him or for him, jurisdiction exists to determine the controversies in relation to the disposition of the same and the extent and character of liens thereon or rights therein. This conclusion accords with a number of well-considered cases in the federal courts. In re Whitener, 105 F. 180, 44 C.C.A. 434; In re Antiago Screen Door Co., 123 F. 249, 59 C.C.A. 248; In re Kellogg, 121 F. 333, 57 C.C.A. 547. In the case of the First National Bank v. Chicago Title & Trust Company (decided May 8th of this term) 198 U.S. 280, 25 Sup.Ct. 693, 49 L.Ed. 1051, in holding that the jurisdiction of the District Court did not obtain, it was pointed out that the court had found that it was not in possession of the property. Nor can we perceive that it makes any difference that the jurisdiction is not sought to be asserted in a summary proceedings, but resort is had to an action in the nature of a plenary suit, wherein the parties can be fully heard after the due course of equitable procedure.'

Referring to First National Bank v. The Chicago Title & Trust Co., 198 U.S. 280, 25 Sup.Ct. 693, 49 L.Ed. 1051, the learned justice observed that in that case 'it was pointed out that the District Court had found it was not in possession...