Re James Wood

• Decision Date: 18 May 1908
• Docket Number: No. 167,167
• Parties: RE JAMES B. WOOD and Jethro P. Henderson, Petitioners
• Court: U.S. Supreme Court

210 U.S. 246

28 S.Ct. 621

52 L.Ed. 1046

RE JAMES B. WOOD and Jethro P. Henderson, Petitioners.

No. 167.

Submitted March 6, 1908.

Decided may 18, 1908.

Messrs. W. Scott Bicksler, Edmon G. Bennett, and George L. Nye for petitioners.

Mr. Harvey Riddell for respondent.

Mr. Justice Day delivered the opinion of the court:

This case is here upon certificate from the circuit court of appeals for the eighth circuit.

The facts certified are: R. H. Williams had been adjudicated a bankrupt on January 13, 1904, in the district court of the United States for Colorado. On the 17th of May, 1905, it appears that the trustee in bankruptcy (following § 60d) petitioned the court, representing that the bankrupt, in contemplation of filing the petition in bankruptcy, did pay to certain counsel, the petitioners in this case, at Hot Springs, Arkansas, $5,000 in cash, and transfer to them a certificate of deposit for $3,000, and a certificate of deposit for $1,795; that said money and property were transferred to said conusel, Wood and Henderson, by said Williams, in contemplation of the filing of a petition in bankruptcy against him, within four months of the filing thereof, for legal services to be rendered thereafter by said Wood and Henderson. They were thereupon ordered to appear at the office of the referee, in the city of Colorado Springs in the state of Colorado, on June 20, 1905, and show cause, if any they had, why an order should not be made determining and adjudicating the reasonable value of the services rendered by the said attorneys for the said bankrupt, and that, in default of their appearance, the referee would proceed to hear and determine the matter on the evidence presented. It was ordered that a copy of the citation, together with a copy of the petition, be served on Wood and Henderson at Hot Springs, Arkansas, at least twenty days before the day set for the hearing. On the first day of August, 1905, the referee in bankruptcy, holding a court of bankruptcy, made the following order:

'It appearing to the court from the evidence that a copy of this application, together with a copy of the order to show cause, issued thereon, returnable on the 20th day of June, A. D. 1905, was duly served on said J. B. Wood and Jethro R. Henderson on the 26th day of May, 1905; and that the said J. B. Wood and J. P. Henderson, not having appeared on the said 20th day of June, 1905, herein, or shown to this court any cause why this court should not proceed to re-examine the said transaction. And if further appearing to this court that the matter of the said hearing has been duly continued from the said 20th day of June until this 1st day of August, 1905, and that due notice of such continuance has been served upon the said J. B. Wood and Jethro P. Henderson, and that the said J. B. Wood and Jethro P. Henderson are fully advised that this hearing would be duly had on this day; and the said J. B. Wood and Jethro P. Henderson, not having shown cause against the said application, and the court having heard the evidence on the part of the said trustee, in support of the said application, and the arguments of counsel thereon, and the court being fully advised as to all matters of law and fact arising herein, the court doth find and adjudge that the said R. H. Williams, in contemplation of the filing of a petition in bankruptcy against him, did, on the 5th day of Decmber, 1902, transfer to said J. B. Wood and Jethro P. Henderson, attorneys at law, for services to be rendered, the sum of $5,000, lawful money of the United States, and one certificate of deposit for the sum of $3,000, issued by the Security Bank of Hot Springs, Arkansas, to the said R. H. Williams, and one certificate of deposit issued by the Arkansas National Bank of Hot Springs, Arkansas, to R. H. Williams for the sum of $1,795, the said two certificates of deposits having since been collected by the said J. B. Wood and Jethro P. Henderson. And the court doth find, on re-examination of the said transaction, that the sum of $800 is reasonable compensation for the services rendered the said bankrupt under the terms of the transaction by which said money and property were transferred to the said J. B. Wood and Jethro P. Henderson, and doth find and adjudge that the said transaction is valid to that extent only, which the court determines and adjudges to be the reasonable value for said services.'

It was thereupon ordered and adjudged that the transaction was valid as to the sum of $800, found to be the reasonable value of the services, and the trustee was ordered to proceed to recover the excess, being the sum of $8,995, from the said Wood and Henderson. Thereupon, and after this order, Wood and Henderson appeared before the referee for the sole purpose of challenging his jurisdiction to make the foregoing order, upon the ground that neither the parties nor the subject-matter was within the jurisdiction of the district court of Colorado. Thereafter the case was certified to the district court, and in that court Wood and Henderson renewed their objection to the jurisdiction of the district court, and that court affirmed the ruling of the referee; thereupon Wood and Henderson filed their petition in the circuit court of appeals for a review of the order of the district court, and challenged the jurisdiction of that court and the referee to make the order aforesaid, because they were citizens and residents of Arkansas; that the service of the notice of proceedings was made upon them at Hot Springs, in that state; that they had not appeared or submitted to the jurisdiction of the district court except to raise the jurisdictional questions; that the subject-matter of the proceedings was certain transactions which took place wholly within the state of Arkansas. Thereupon the circuit court of appeals certified three questions to this court, as follows:

'1. Has a district court of the United States, sitting in bankruptcy, in which the proceedings in bankruptcy are pending, or its referee, jurisdiction under § 60d of the bankrupt act to re-examine, on petition of the trustee in bankruptcy, the validity of the payment of money or the transfer of property by the bankrupt, made in contemplation of the filing of a petition by or against him in bankruptcy, to an attorney or counselor at law, for services to be rendered to him by such attorney or counselor, and to ascertain and adjudge the extent of the reasonable amount to be allowed for such services, and to direct that the excess may be recovered by the trustee for the benefit of the estate, in the instance where such attorney or counselor, at the time of receiving such payment or property and at the time of the proceedings in question, was a nonresident of the state or of the district in which the bankrupt court instituting such inquiry is located, and where the money or property was so paid to, and is held by, such attorney or counselor outside of the district in which such court of bankruptcy sits, and the order to show cause, citation, or notice of the proposed hearing is served upon him without, and not within, the district in which such court of bankruptcy sits?

'2. If a district court sitting in bankruptcy has this jurisdiction, may it exercise it by means of an order and citation to show cause duly served on the attorney or counselor outside of the district of the court of bankruptcy, such attorney or counselor being nonresident of the district in which the proceedings in bankruptcy are pending?

'3. May a plenary suit instituted by the trustee in bankruptcy against such attorney or counselor in the district court where the estate in bankrutcy is being administered be maintained upon service of process upon the attorney or counselor, who is a nonresident of the district, outside of that district?'

An answer to these questions involves the construction of § 60d of the bankruptcy act of 1898, which reads:

'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 the 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. 562, chap. 541, U. S. Comp. Stat. 1901, p. 3446.]

This section does not undertake to provide for a plenary suit, but for an examination and order in the course of the administration of the estate, with a view to permitting only a reasonable amount thereof to be deducted from it because of payments of money or transfers of property to attorneys or counselors in contemplation of bankruptcy proceedings. There is no provision for the enforcement of this section in another court of bankruptcy, where the bankrupt may be parsonally served with process in a plenary suit; such court is not given authority to re-examine the transaction. No other court has authority to determine the reasonable amount for which the transaction can stand. Swartz v. Frank, 183 Mo. 439, 82 S. W. 60.

Section 60d added a feature to the bankruptcy act not found in former acts regulating practice and procedure in bankruptcy; therefore adjudications upon other provisions of the bankruptcy act, or concerning the judiciary act giving jurisdiction to the courts of the United States, have no binding effect in the construction of this section.

This is not a case of preference, where part of the estate is transferred to a creditor so as to give to him more of the estate than to others of the same class, under § 60 of the bankruptcy act, nor is it a case of fraudulent conveyance under § 67. It is a transfer in consideration of future services, to be reduced if found unreasonable in amount. In Furth v. Stahl, 205 Pa. 439,...