292 U.S. 234 (1934), 783, Local Loan Co. v. Hunt

Docket NºNo. 783
Citation292 U.S. 234, 54 S.Ct. 695, 78 L.Ed. 1230
Party NameLocal Loan Co. v. Hunt
Case DateApril 30, 1934
CourtUnited States Supreme Court

Page 234

292 U.S. 234 (1934)

54 S.Ct. 695, 78 L.Ed. 1230

Local Loan Co.

v.

Hunt

No. 783

United States Supreme Court

April 30, 1934

Argued April 4, 5, 1934

CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Syllabus

1. A court of bankruptcy has jurisdiction by ancillary proceedings to enforce an order of discharge by enjoining the prosecution of suits brought against the debtor. P. 239.

2. Such a proceeding being ancillary and dependent, the jurisdiction of the court follows that of the original cause, and may be maintained without regard to the citizenship of the parties or the amount involved, and notwithstanding the provisions of § 265 of the Judicial Code; R.S., § 720; 28 U.S.C. § 379. P. 239.

3. Where the legal remedy of setting up a discharge as a defense in an action involving the rights of the bankrupt under it would entail not only his intervention in a state court of first instance, but also, because of previous decisions of the State Supreme Court, a succession of appeals, causing disproportionate trouble, embarrassment, expense, and possible loss to the bankrupt, held that the remedy was inadequate, and that the equitable jurisdiction of the court of bankruptcy by way of all ancillary suit for injunction was properly engaged. P. 241.

4. An assignment of future earned wages to secure a loan held not a lien within the meaning of § 67(d) of the Bankruptcy Act. P. 242.

5. That such an assignment, even if a lien under the state law, should survive the discharge of the debt in bankruptcy would be contrary to the policy of the Bankruptcy Act to free the debtor, and so it must be held, where the suit is ancillary in the bankruptcy court to enforce the discharge, though the decisions of the state court be to the contrary. P. 244.

67 F.2d 998 affirmed.

Page 235

Certiorari, 291 U.S. 657, to review the affirmance of a decree by a court of bankruptcy enjoining prosecution of a suit in a state court.

Page 238

SUTHERLAND, J., lead opinion

MR. JUSTICE SUTHERLAND delivered the opinion of the Court.

On September 17, 1930, respondent borrowed from petitioner the sum of $300, and as security for its payment executed an assignment of a portion of his wages thereafter to be earned. On March 3, 1931, respondent filed a voluntary petition in bankruptcy in a federal District Court in Illinois, including in his schedule of liabilities the foregoing loan, which constituted a provable claim against the estate. Respondent was adjudicated a bankrupt; and, on October 10, 1932, an order was entered discharging him from all provable debts and claims. On October 18, 1932, petitioner brought an action in the municipal court of Chicago against respondent's employer to enforce the assignment in respect of wages earned after the adjudication. Thereupon, respondent commenced this proceeding in the court which had adjudicated his bankruptcy and ordered his discharge, praying that petitioner be enjoined from further prosecuting said action or attempting to enforce its claim therein made against respondent under the wage assignment. The bankruptcy court, upon consideration, entered a decree in accordance with the prayer, and this decree on appeal was affirmed by the court below, 67 F.2d 998, following its decision in In Re Skorcz, 67 F.2d 187.

Challenging this decree, petitioner contends that the bankruptcy court was without jurisdiction to entertain

Page 239

a proceeding to enjoin the prosecution of the action in the municipal court; that, assuming such jurisdiction, the [54 S.Ct. 697] rule is that an assignment of future wages constitutes an enforceable lien; but that, in any event, the highest court of the State of Illinois has so decided, and by that decision this Court is bound.

First. The pleading by which respondent invoked the jurisdiction of the bankruptcy court in the present case is, in substance and effect, a supplemental and ancillary bill in equity, in aid of and to effectuate the adjudication and order made by the same court. That a federal court of equity has jurisdiction of a bill ancillary to an original case or proceeding in the same court, whether at law or in equity, to secure or preserve the fruits and advantages of a judgment or decree rendered therein, is well settled. Root v. Woolworth, 150 U.S. 401, 410-412; Julian v. Central Trust Co., 193 U.S. 93, 112-114; Riverdale Cotton Mills v. Manufacturing Co., 198 U.S. 188, 194 et seq.; Freeman v. Howe, 24 How. 450, 460. And this irrespective of whether the court would have jurisdiction if the proceeding were an original one. The proceeding being ancillary and dependent, the jurisdiction of the court follows that of the original cause, and may be maintained without regard to the citizenship of the parties or the amount involved, and notwithstanding the provisions of § 265 of the Judicial Code (R.S. § 720), U.S.C. Title 28, § 379.1 Julian v. Central Trust Co., supra, 112; Dietzsch v. Huidekoper, 103 U.S. 494, 497; Root v. Woolworth, supra, 413; McDonald v. Seligman, 81 F. 753; St. Louis, I.M. & S. Ry. Co. v. Bellamy, 211 F. 172, 175-177; Brun v. Mann, 151 F. 145, 150.

Page 240

These principles apply to proceedings in bankruptcy. In re Swofford Bros. Dry Goods Co., 180 F. 549, 554; Sims v. Jamison, 67 F.2d 409, 410; Pell v. McCabe, 256 F. 512, 515, 516; Seaboard Small Loan Corp. v. Ottinger, 50 F.2d 856, 859. Petitioner relies upon a number of decisions where other federal courts sitting in bankruptcy have declined to entertain suits similar in character to the present one, on the ground that the effect of a discharge in bankruptcy is a matter to be determined by any court in which the discharge may be pleaded. See, for example, Hellman v. Goldstone, 161 F. 913; In re Marshall Paper Co., 102 F. 872, 874; In re Weisberg, 253 F. 833, 835; In re Havens, 272 F. 975. To the extent that these cases conflict with the view just expressed, they are clearly not in harmony with the general rule in equity announced by this Court. And we find nothing, either in the nature of the bankruptcy court or in the terms of the Bankruptcy Act, which necessitates the application of what would amount to a special rule on this subject in respect of bankruptcy proceedings. Courts of bankruptcy are constituted by §§ 1 and 2 of the Bankruptcy Act, amended by Act May 27, 1926 (U.S.C. Title 11, §§ 1 and 11), and are invested "with such jurisdiction at law and in equity as will enable them to exercise original jurisdiction in bankruptcy proceedings," etc. The words "at law" were probably inserted to meet clause (4) of § 2, which empowers such courts to arraign, try, and punish certain designated persons for violations of the act. Bardes v. Hawarden Bank, 178 U.S. 524, 534-536. But otherwise, courts of bankruptcy are essentially courts of equity, and their proceedings inherently proceedings in equity. Bardes v. Hawarden Bank, supra, 535; In re Rochford, 124 F. 182, 187; In re Siegel-Hillman Dry Goods Co., 111 F. 980, 983; Swarts v. Siegel, 117 F. 13, 16; Dodge v. Norlin, 133 F. 363, 368, 369; In...

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