Golden Hill Distilling Co. v. Logue

Decision Date30 June 1917
Docket Number2995.
Citation243 F. 342
PartiesGOLDEN HILL DISTILLING CO. v. LOGUE.
CourtU.S. Court of Appeals — Sixth Circuit

Shortly before judgment was taken and a levy made, as stated in the opinion, a receiver was appointed under the mortgage on the bankrupt's stock and fixtures, and a few days later the receiver was discharged on a motion in support of which affidavits were introduced tending to show that Hornstein was not insolvent, but that his assets were considerably in excess of his liabilities.

Hornstein conducted a saloon in Cleveland. The Distilling Company was his chief creditor, having control of a chattel mortgage which covered all his tangible assets, and having, also, an unsecured debt of about $1,200, represented by a cognovit note. Its manager, Bayer, was generally familiar with Hornstein's affairs. Hornstein's only asset, not covered by the chattel mortgage, was his license, which had a transfer value of $2,500. After certain proceedings, which need not be recounted, the Distilling Company took judgment on the cognovit note and caused the tangible property to be seized on the chattel mortgage and a levy to be made by the sheriff upon Hornstein's interest in the license. The sheriff thereupon advertised this interest for sale. After the notice had been running about two weeks, Hornstein's wife was appointed his guardian, upon the ground of his mental incompetency, and she thereupon filed, in the court where the judgment had been rendered, a motion to set it aside, and obtained a preliminary injunction against the sale. Her claim was that the debt had been paid. Upon this claim, there was a hearing upon the merits. The court decided that no part of the debt was successfully impeached, and denied the motion and dissolved the injunction. Thereupon and on the same day, the sheriff sold the license to a third person, and paid over to the Distilling Company the $1,200. On the next day, a petition in bankruptcy was filed and the remainder of the license price was eventually turned over by the sheriff to the trustee in bankruptcy. The trustee filed in the bankruptcy court, a petition against the Distilling Company, asking the recovery of this $1,200 as a preference and asking, also, a judgment for the value of goods returned by Hornstein to the Distilling Company shortly before the collapse, alleging that this return of goods was a preference. Upon the petition, summons was issued, the Distilling Company answered and the issue was tried before the District Judge (a jury having been duly waived), and he made findings of fact and law and entered judgment for the trustee for both amounts sued for. The Distilling Company brings error.

Frank C. Scott, of Cleveland, Ohio, for plaintiff in error.

C. F. Taplin, of Cleveland, Ohio, for defendant in error.

Before WARRINGTON, KNAPPEN, and DENISON, Circuit Judges.

DENISON Circuit Judge (after stating the facts as above).

The Distilling Company claims that the court below had no jurisdiction of the issue presented by the petition and answer, because there was neither the requisite amount in controversy nor the requisite diverse citizenship to give jurisdiction to a United States District Court. This claim depends, primarily, upon the construction to be given the language of section 60b of the Bankruptcy Act, as that act was amended in 1903 and in 1910. After defining a voidable preference and giving the trustee the right to recover, the section since 1903 has said:

'And for the purpose of such recovery any court of bankruptcy, as hereinbefore defined, and any state court which would have had jurisdiction if bankruptcy had not intervened, shall have concurrent jurisdiction.'

The construction which the Distilling Company urges is not inconsistent with the precise language used. This construction is that the phrase 'which would have had jurisdiction,' etc., applies to and modifies both the preceding 'any court of bankruptcy' and the preceding 'any state court.' Clause 8 of section 1 defines 'courts of bankruptcy,' and the construction urged would, therefore, be to the effect that any United States District Court or the Supreme Court of the District of Columbia or the United States courts of Alaska or any state court could entertain a suit to recover a preference, provided such court would have had jurisdiction of the same controversy before bankruptcy. Very early after the passage of the act, it was held (Bardes v. Bank, 178 U.S. 524, 20 Sup.Ct. 1000, 44 L.Ed. 1175) that by the effect of section 23b, jurisdiction of a suit under section 60b was restricted (unless it was enlarged by consent) to those courts where the suit might have been brought if proceedings in bankruptcy had not been instituted. It is common knowledge that the effect of this holding was distinctly to interfere with that uniformity of administration which was one of the objects of the Bankruptcy Act, and it has been thought that the amendment of 1903 to section 60b was for the purpose of giving that breadth of remedy which Bardes v. Bank had denied. When sections 23b and 60b are construed together as if they were one, the substantial effect of the amendment was to insert the words 'in any court of bankruptcy or' before the words 'in courts where the bankrupt * * * might have brought or prosecuted. ' There remained, however, an apparent inconsistency. Section 60b, as amended in 1903 and as thus construed, says that such a suit might be brought in any court of bankruptcy, while section 23b, declaring generally the jurisdiction, continued to say that it was limited to the courts where the suits could have been brought if there had been no bankruptcy. In 1910, this inconsistency was removed by an amendment of section 23b which expressly excepts from the generally limiting language of the section the suits authorized by section 60b. The same inconsistency as to section 70e (Comp. St. 1916, Sec. 9654) was removed in the same way, at the same time.

It is clear to us that, at least since the amendment of 1910, there is no room to doubt the jurisdiction of the United States District Court in a controversy such as this. We have repeatedly affirmed judgments of the same character. Both in Bank v. Chicago Co., 198 U.S. 280, 25 Sup.Ct. 693, 49 L.Ed. 1051, and in Bush v. Elliott, 202 U.S. 477, 26 Sup.Ct. 668, 50 L.Ed. 1114, the court was considering cases which arose before the amendment of 1903.

The Distilling Company next urges that the receipt by a plaintiff in execution of the amount of his judgment paid over to him by the sheriff from the proceeds of an execution sale, does not constitute a preference which is recoverable under section 60b. The argument is both that the judgment against Hornstein, after the exhaustion of the unsuccessful efforts made in his behalf, could no longer be said to have been 'procured or suffered' by him, and that it is the intent of the section to legislate only against unsatisfied judgments without disturbing the status of the creditor who has, by execution sale, realized his judgment before bankruptcy petition filed. These two matters are sufficiently related to justify considering them together. We find no authoritative construction of the section in either particular, and we must determine its intent as best we may without such aid.

We find the subject of preference, resulting from legal proceedings, treated of by more or less similar language in at least three sections. Section 3, cl. (3), defining acts of bankruptcy, sections 60a and 60b, defining preferences and the right to recover them, and section 67c, providing for the dissolution of liens obtained in legal proceedings, all relate to the general purpose of securing equality among creditors and as against an effort of a creditor to collect by law on his own account. All three must be read together, and yet, it is quite impossible to bring them into detailed harmony. The preference, which is an act of bankruptcy, is only an execution levy or analogous lien which has been 'suffered or permitted' to come into existence and which is allowed to continue until five days before the execution sale (Citizens' Bank v. Ravenna Bank, 234 U.S. 360, 34 Sup.Ct. 806, 58 L.Ed. 1352); the judgments regulated by section 60 are those which the bankrupt 'procured or suffered' to be entered against him; and the liens reached by section 67c are invalid only if the lien was 'sought and permitted' with the intent to work a forbidden preference. In Wilson v. City Bank, 84 U.S. (17 Wall.) 473, 21 L.Ed. 723, the court had to determine the validity, under the act of 1867 (14 Stat. 517, c. 176), of an execution lien existing in that form upon the property of the debtor at the time the petition in bankruptcy was filed, but it was necessary to consider both the provisions which defined an act of bankruptcy and those which permitted the recovery of a preference. The conclusions of the court were:

'(1) That something more than passive nonresistance of an insolvent debtor to regular judicial proceedings, in which a judgment and levy on his property are obtained, when the debt is due and he is without just defense to the action, is necessary to show a preference of a creditor, or
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  • Lowenstein v. Reikes
    • United States
    • U.S. Court of Appeals — Second Circuit
    • 7 Diciembre 1931
    ...Ed. 507; Collett v. Adams, 249 U. S. 545, 39 S. Ct. 372, 63 L. Ed. 764; Brent v. Simpson, 238 F. 285 (C. C. A. 5); Golden Hill Distilling Co. v. Logue, 243 F. 342 (C. C. A. 6). Prior to these amendments, in Bardes v. Hawarden Bank, 178 U. S. 524, 20 S. Ct. 1000, 44 L. Ed. 1175, the court he......
  • Wheeler v. Johnson
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    • U.S. Court of Appeals — Eighth Circuit
    • 4 Mayo 1928
    ...re Bailey (D. C.) 144 F. 214, 217; Pirie v. Chicago Title, etc., Co., 182 U. S. 438, 21 S. Ct. 906, 45 L. Ed. 1171; Golden Hill, etc., Co. v. Logue (C. C. A.) 243 F. 342, 347; Remington on Bankruptcy, § 1733 (3d Ed.). Of course, such a proviso in a state statute cannot override express prov......
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    ... ... that it 'would effect a preference.' Golden Hill ... Distilling Co. v. Logue, 243 F. 342, 347, 156 C.C.A ... 122; ... ...
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