Shea v. Lewis

• Citation: 206 F. 877
• Decision Date: 26 May 1913
• Docket Number: 125.,3,761
• Parties: SHEA et al. v. LEWIS et al. (two cases).
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

206 F. 877

SHEA et al. v. LEWIS et al. (two cases).

Nos. 3,761, 125.

United States Court of Appeals, Eighth Circuit.

May 26, 1913

Appellant and petitioner Andrew J. Shea became the owner of a federal homestead consisting of 130.05 acres of land in St. Louis county, Minn., under patent issued by the United States August 17, 1908. Prior thereto he had been engaged in litigation over this tract with one Walter Douglas. He retained as his attorneys the objecting creditors, Washburn &amp Wilson, and had become indebted to them for fees and moneys advanced.

Concurrently with the issuance of his patent from the United States, Shea occupied and claimed 80 acres of this same tract as a homestead under the laws of the state of Minnesota. The uncontradicted testimony is that in September, 1908, through the intervention of his brother, Shea conveyed these lands to his wife. The deeds, however, were not recorded, and were lost. April 26, 1909, through the intervention of his son, he again conveyed these lands, comprising his federal and state homesteads, to his wife. This conveyance is of record.

Subsequently Mrs. Shea, by deed, in which her husband joined, conveyed these lands to a corporation known as the Cedar Island Lake Iron Company, receiving therefor ultimately 100,000 shares of the stock of said company and a note for $30,000. Thereafter $10,000 was paid to her on this note, and later she recovered judgment against the company for the balance, amounting to $20,332.83. This judgment still stands in her name, has not been assigned or otherwise disposed of, and no part thereof has been paid. The 100,000 shares of stock in the above-named corporation also stand in her name, and the certificates have been and are in the possession of H. W. Dietrich, of Superior, Wis., as her agent.

Appellants and petitioners claim, and submit evidence tending to prove that with the money received from the payment on the note of the corporation as aforesaid Mrs. Shea purchased five horses together with some equipment therefor; also a 10-acre tract of land in St. Louis county, Minn., receiving a deed in her name, which was duly recorded; that some of this money was used for living expenses, and about $2,000 remained in her possession at the time this litigation arose. Mrs. Shea had also purchased a residence in the city of Duluth, which is now occupied as a homestead. This, however, was paid for with money received from the sale of timber cut from the original homestead lands, and is not now in controversy. The horses and their equipment were kept on this homestead in Duluth.

August 9, 1911, Shea was duly adjudged a voluntary bankrupt by the District Court for the District of Minnesota. August 21 1911, appellee and respondent Lewis was chosen trustee. All the indebtedness of the bankrupt accrued prior to the issuance of the federal patent. September 9, 1911, on motion of said trustee, the referee made an order requiring said bankrupt and his wife to show cause why they should not be required to turn over, deliver, transfer, convey, and assign to the said trustee the following property: 1. The judgment for $20,332.83, standing in the name of Abbie A. Shea. 2. The 100,000 shares of stock issued in the name of Abbie A. Shea, and being in the custody for her of H. W. Dietrich of Superior, Wis. 3. The sum of $2,000 disclosed by Mrs. Shea, upon examination, as being in her possession. 4. The 10 acres of land in St. Louis county, Minn., the conveyance for which was taken and then stood in the name of Mrs. Shea. 5. The five horses charged to be in the possession of the bankrupt and Mrs. Shea on their homestead in Duluth. 6. The sum of $3,000 shown to have been in the possession of the bankrupt in currency a few days prior to the filing of the petition in bankruptcy. 7. An item of $700 not here in controversy.

The bankrupt filed answer in opposition to this order, and Mrs. Shea filed a separate answer making specific adverse claim of ownership and possession of all the property above described, alleging the conveyance to her of both federal and state homesteads free and clear of the debts of the bankrupt, that all said property was bought with the proceeds of said lands after said conveyance, while claimant owned the same of her own right, and that all said property then formed a part of her separate estate. She further challenged the jurisdiction of the bankruptcy court to try the issues in this summary way. This objection was overruled, and, upon hearing, the referee ordered the bankrupt and his wife to deliver to said trustee all the property described in said order to show cause, less statutory exemptions, and that claimant Abbie A. Shea make all conveyances and assignments essential thereto. Upon review of this order in the District Court the same was approved and confirmed, except as to the item of $700. There the objection to the summary jurisdiction of the bankruptcy court was renewed. The bankrupt and his wife bring the case to this court on appeal and petition to revise.

H. W. Dietrich, of West Superior, Wis. (John B. Arnold, of Duluth, Minn., on the brief), for appellants and petitioners.

E. M. Morgan, of Minneapolis, Minn. (Washburn, Bailey & Mitchell and Wilson, Morgan & Morgan, all of Duluth, Minn., on the brief), for appellees and respondents.

Before HOOK and SMITH, Circuit Judges, and VAN VALKENBURGH, District judge.

VAN VALKENBURGH, District Judge (after stating the facts as above).

The errors mainly relied upon as stated in the brief are: First that the referee was without jurisdiction in summary proceedings to try the right and title of claimant Abbie A. Shea to the real and personal property she is ordered to turn over to the trustee, and in that connection: (a) That under the federal homestead laws there can be no fraudulent conveyance of a federal homestead as to creditors whose claims accrued prior to the issuance of patent, and, as all claims filed are of such character, claimant, by the conveyance of bankrupt's federal homestead, took good title thereto and to the proceeds of any sale thereof, including all the property she is ordered to turn over to the trustee; (b) that under the homestead laws of Minnesota there can be no fraudulent conveyance of a state homestead exemption of 80 acres, and that, by the conveyance of bankrupt's state homestead, claimant Abbie A. Shea acquired a good title, as well as to the proceeds of any sale thereof by her, including all the property she is ordered to turn over to the trustee, except 5,000 shares of stock in Cedar Island Lake Iron Company. Second, that in law there is no evidence to warrant the order directing the bankrupt to pay to the trustee $3,000, or any other sum.

Out of abundance of caution appellants and petitioners present this case on appeal and by petition to revise. In the view we take, it is unnecessary to determine whether appeal will lie. It is conclusively established that where, in a case like this, the District Court erroneously retains jurisdiction to adjudicate the merits, its action can be corrected on review. In re Gill and In re Farmers' & Manufacturers' Bank of Rich Hill, 190 F. 726, 111 C.C.A. 454; In re McMahon, 147 F. 684, 77 C.C.A. 668; Mueller v. Nugent, 184 U.S. 1-15, 22 Sup.Ct. 269, 46 L.Ed. 405; Schweer v. Brown, 195 U.S. 171, 25 Sup.Ct. 15, 49 L.Ed. 144; First National Bank v. Title & Trust Co., 198 U.S. 280, 25 Sup.Ct. 693, 49 L.Ed. 1051.

We shall consider first the specification of error involving the summary jurisdiction of the District Court.

1. The rule applicable to situations such as that presented by the case at bar has been authoritatively established by numerous decisions of the Supreme Court and has been exhaustively discussed and specifically stated by this court. In re Rathman, 183 F. 913, 106 C.C.A. 253, Speaking for this court, Judge Sanborn said:

'The jurisdiction of the bankruptcy court to determine in a summary proceeding adverse claims created before the filing of the petition in bankruptcy to liens upon and titles to property claimed by the trustee as that of the bankrupt is conditioned and limited by its actual possession thereof.'

'The test of the summary jurisdiction is that the court of bankruptcy, through the act of its officers, such as referees, receivers, or trustees, has taken possession of the res as the property of the bankrupt.'

'The declaration in Mueller v. Nugent, 184 U.S. 1-14, 22 Sup.Ct. 269, 275 (46 L.Ed. 405), that the filing of the petition * * * 'is a caveat to all the world and in effect an attachment and injunction,' has been so limited by subsequent decisions of the Supreme Court that it has no application to those holding substantial claims antedating the filing, to liens upon or titles to property claimed as that of the bankrupt. In the absence of proper proceedings to make such claimants parties to the bankruptcy proceeding, they are strangers thereto, and their claims are unaffected thereby.'

In such cases a plenary suit must be brought either at law or in equity by the trustee, in which the adverse claim of title can be tried and adjudicated. Bardes v. Hawarden Bank, 178 U.S. 524-532, 20 Sup.Ct. 1000, 44 L.Ed. 1175; Louisville Trust Co. v. Comingor, 184 U.S. 18, 22 Sup.Ct. 293, 46 L.Ed. 413; First National Bank v. Title & Trust Co., 198 U.S. 280, 25 Sup.Ct. 693, 49 L.Ed. 1051; Murphy v. John Hofman Co., 211 U.S. 562-570, 29 Sup.Ct. 154, 53 L.Ed. 327; Babbitt v. Dutcher, 216 U.S. 102-113, 30 Sup.Ct. 372, 54 L.Ed. 402, 17 Ann.Cas. 969; Johnston v. Spencer, 195 F. 215, 115 C.C.A. 167; Cooney v. Collins, 176 F. 189, 99 C.C.A. 543; In re McMahon, 147 F. 684, 685, 77 C.C.A. 668; In re Michie (D.C.) 116 F. 749.

The bankruptcy court has jurisdiction to draw to itself, and to determine by summary...