In re Swofford Bros. Dry Goods Co.

• Decision Date: 28 July 1910
• Citation: 180 F. 549
• Court: U.S. District Court — Western District of Missouri
• Parties: In re SWOFFORD BROS. DRY GOODS CO.

180 F. 549

In re SWOFFORD BROS. DRY GOODS CO.

United States District Court, W.D. Missouri, Western Division.

July 28, 1910

[Copyrighted Material Omitted]

Edwin A. Krauthoff, for complainant.

Silvers & Silvers, for defendant.

VAN VALKENBURGH, District Judge.

On the 9th day of October, 1909, a petition in bankruptcy was filed in this court against the above-named bankrupt, and on the 28th day of October, 1909, an adjudication in bankruptcy was entered. Thereafter a trustee was appointed by the creditors who duly qualified and assumed charge of the assets of the bankrupt estate. This estate was largely involved, and in January, 1910, it developed that the unsecured claims against the bankrupt amounted approximately to $500,000, and that upon the assets applicable thereto the trustee had been able to realize in money approximately $125,000, and also had on hand some remnants of the stock of goods, the fixtures located in the store building, some accounts, bills receivable, equities in personal property pledged as collateral security, and some real estate and other claims of doubtful value. Among the latter were claims against one J J. Swofford, the petitioner herein, who was the president and actively in control of the company up to the time the bankruptcy petition was filed.

On or about the 6th day of January, 1910, the petitioner Swofford filed in the bankruptcy case a proposition to buy all the remaining assets of the company in consideration of a payment to the trustee in bankruptcy of a sum of money sufficient, in addition to the cash then on hand and any cash that might be realized from the assets of the estate in bankruptcy, to pay each general creditor of the estate a dividend of 37 1/2 per cent. upon the face of his claim as it might be provable and allowed. A further consideration moving to the applicant was expressed as follows:

'It being the intent of this application that by a decree of this court, and by such conveyances and receipts as the court may direct the trustee to make, any and all liability claimed to be due and owing the estate in bankruptcy or the trustee in bankruptcy or otherwise by your petitioner be receipted in full, and that the trustee in bankruptcy shall convey to your petitioner all the property of the bankrupt corporation of whatever kind or character or wherever situate.'

The court ordered this application referred to the referee for hearing and disposition, with directions to notify each creditor of the bankrupt corporation of the terms of the offer. This was accordingly done, and, there being no objection on the part of the creditors, the court through its referee ordered that the proposition be accepted. The order made, after reciting the details of the payments to be made by Swofford, contained this provision:

'Upon the foregoing being accomplished, the title to all the property of the estate in bankruptcy of whatever kind or character or wherever situate shall be vested in J. J. Swofford, and all liabilities claimed to be due and owing the estate in bankruptcy or the trustee in bankruptcy by J. J. Swofford shall be deemed receipted and canceled in full, and the trustee is directed by such assignments, conveyances, and deliveries as the court shall direct the trustee to make to convey the absolute title to the assets hereinbefore mentioned to J. J. Swofford and deliver the same to him.'

The year within which claims may be presented does not expire until on or about October 28, 1910. The greater part of the assets were accordingly delivered to Swofford, who in turn paid to the trustee an amount of money sufficient to pay 37 1/2 cents on the dollar upon each claim ascertained and allowed; the trustee reserving a substantial part of the assets to secure such future payments as might become due from Swofford on account of possible claims yet to be allowed. It will be observed, therefore, that the bankruptcy proceeding is still open and pending and can in no event be reported for closing until after October of this year.

In this state of the record, one A. Rosier, claiming to be a stockholder of the Swofford Bros. Dry Goods Company, filed in the circuit court of Jackson county, Mo., on the 20th day of May, 1910, his certain petition or bill for an accounting against the bankrupt company and the said J. J. Swofford as its president. This petition contains 23 paragraphs embracing 22 causes of action against Swofford for fraud upon the corporation in the management of its affairs as its president and on account of money and property acquired by him directly or indirectly and lost and wasted by a violation of his duties and an abuse of his powers as such president. Without considering these various causes of action in detail, it will be sufficient to state that the petition states in general that the action is instituted and prosected by the plaintiff on behalf of himself and the other stockholders of said corporation and on behalf of said corporation; that the defendant J. J. Swofford, as president of said corporation, had for a long time been wholly in charge thereof, dominating and controlling its business policy and the conduct of its affairs generally; that plaintiff had requested the trustee in bankruptcy to bring proceedings to redress the wrongs therein complained of; but that said trustee had failed and refused to do so; that the estate in bankruptcy had been fully settled. The first 21 causes of action pray damages against the defendant Swofford for having used the property of the company in various way therein set forth for his own personal advantage and profit at the expense, disadvantage, and loss of said corporation. The twenty-second cause of action embraced in the twenty-third paragraph of the petition will be separately considered.

Thereupon the petitioner J. J. Swofford brings this ancillary or supplemental bill in connection with the bankruptcy proceeding setting up the situation as herein above detailed and praying this court to issue an order restraining the said Rosier from further prosecuting his suit against said Swofford and the bankrupt upon the grounds that the matters therein sought to be litigated have already been settled and adjudicated by the orders and decrees of this court; that the bankruptcy proceeding being still open and unsettled this suit, in effect, impedes the enforcement of the bankruptcy act and interferes with the administration of the estate in bankruptcy; and further that this court owes it to the petitioner herein to protect the title which he as a purchaser acquired at the sale made by this court, and in general to secure to him whatever rights he acquired by virtue of the acceptance of his proposition and the order made in relation thereto.

At the threshold of this discussion we are met by the contention of the defendant Rosier that the District Court, as a court of bankruptcy, has no power to enjoin or stay proceedings in a state court in a case such as this; that its power to interfere is limited to proceedings which impede the enforcement of the bankruptcy act or interfere with the administration of the estate in bankruptcy. It is contended that such is not the effect of the action in the state court. Subdivision 15 of section 2 of the act (Act July 1, 1898, c. 541, 30 Stat. 545 (U.S. Comp. St. 1901, p. 3421)) invests courts of bankruptcy with the power 'to make such orders, issue such process, and enter such judgments in addition to those specifically provided for as may be necessary for the enforcement of the provisions of this act. ' It is said this section may be availed of to compel anything which ought to be done for, or to prevent anything which ought not to be done against the enforcement of the law; provided the court of bankruptcy otherwise has jurisdiction of the person or the subject-matter. For such purposes the court has the plenary powers of a court of equity and can exercise the powers of such a court for the ascertainment and enforcement of the rights and equities of the various parties interested in the estate of the bankrupt company. In re Siegel-Hillman Dry Goods Co. (D.C.) 111 F. 980-983; Dodge v. Norlin, 133 F. 363-368, 66 C.C.A. 425; Bardes v. Hawarden Bank, 178 U.S. 524-535, 20 Sup.Ct. 1000, 44 L.Ed. 1175.

In Re Rochford et al., 124 F. 182-187, 59 C.C.A. 388, 393, the Court of Appeals of this Circuit, speaking through Judge Sanborn, said:

'The administration and distribution of the property of bankrupts is a proceeding in equity, and when authorized by act of Congress it becomes a branch of equity jurisprudence. Property in the custody of a court of equity for administration is always held by it in trust for those to whom it rightfully belongs. The jurisdiction to inquire and determine who the lawful owners of it are, and to that end to call before it all claimants by a reasonable notice or order to present their claims to the court within a reasonable time, or to be barred of any right or interest in the property in its custody, or in its proceeds, is a power inherent in every court of equity, incidental and indispensable to the authority to administer the property in its possession and to distribute its proceeds.'

In this case the estate of the bankrupt was and is undergoing administration in this court. The visible assets were manifestly insufficient to pay more than a comparatively small dividend upon the claims allowed. A proposition was made by the petitioner Swofford to buy the remaining assets which included claims against himself, upon the payment to the trustee of a sum of money sufficient to enable all creditors having provable claims to receive 37 1/2 cents of the face thereof. The court had full power to entertain such a proposition and in its discretion to accept it. This the...