382 U.S. 323 (1966), 28, Katchen v. Landy

Docket Nº:No. 28
Citation:382 U.S. 323, 86 S.Ct. 467, 15 L.Ed.2d 391
Party Name:Katchen v. Landy
Case Date:January 17, 1966
Court:United States Supreme Court
 
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382 U.S. 323 (1966)

86 S.Ct. 467, 15 L.Ed.2d 391

Katchen

v.

Landy

No. 28

United States Supreme Court

Jan. 17, 1966

Argued November 8, 1965

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

Syllabus

Petitioner, a corporate officer, was an accommodation maker on notes of the corporation to two banks. After the corporation suffered a serious fire, its funds and collections were placed in a trust account under petitioner's control. Petitioner made payments on the notes from this account within four months of the bankruptcy of the corporation. Two claims were filed by petitioner in the bankruptcy proceeding, one for rent due him and one for a payment on one of the notes from his personal funds. The trustee asserted that the payments from the trust fund to the banks were voidable preferences and demanded judgment for the amount of the preferences. The referee overruled petitioner's objection to his summary jurisdiction and rendered judgment for the trustee on the preferences. The District Court sustained the referee, and the Court of Appeals affirmed the judgment for the amount of the preferences.

Held: A bankruptcy court has summary jurisdiction to order the surrender of voidable preferences asserted and proved by the trustee in response to a claim filed by the creditor who received the preferences. Pp. 327-340.

(a) While the Bankruptcy Act does not expressly confer summary jurisdiction to order claimants to surrender preferences, the scope of summary proceedings is determined by consideration of the structure and purpose of the Act as a whole and the particular provisions of the Act in question. P. 328.

(b) Summary disposition is one of the means chosen by the Congress to effectuate its purpose of securing prompt settlement of bankrupt estates. Pp. 328-329.

(c) The basically important power granted by § 2a(2) of the Act to "allow," "disallow" and "reconsider" claims is to be exercised in summary proceedings and not by the slower and more expensive process of a plenary suit. Pp. 329-330.

(d) The trustee's objections under § 57g of the Act, which forbids allowance of a claim to a creditor who has received preferences

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"void or voidable under this title" without surrender of the preferences, is part of the allowance process, and is subject to summary adjudication by a bankruptcy court. Pp. 330-331.

(e) Section 60 of the Act, which deals with preferences and their voidability and confers concurrent jurisdiction on state courts and federal bankruptcy courts to entertain plenary suits to recover preferences, applies only "where plenary suits are necessary," and thus contemplates nonplenary recovery proceedings. P. 331.

(f) Since summary jurisdiction is available to determine the issue of preference absent a demand for surrender of the preference, it is also available to order return of the preference. This follows because a bankruptcy court, in passing on a trustee's § 57g objection, must determine the amount of preference, if any, so as to ascertain whether the claimant, should he return the preference, has satisfied the condition imposed by § 57g on allowance of the claim. Pp. 333-334.

(g) When a bankruptcy court has dealt with the preference issue under its equity power, nothing remains for adjudication in a plenary suit, as the normal rules of res judicata and collateral estoppel apply. P. 334

(h) Although petitioner might be entitled to a jury trial on the preference issue if he presented no claim in the bankruptcy proceeding and awaited plenary suit by the trustee, he is not so entitled when the issue arises as part of the processing of claims in bankruptcy proceedings, triable in equity. Pp. 336-337.

(i) The doctrine of Beacon Theatres v. Westover, 359 U.S. 500, and Dairy Queen v. Wood, 369 U.S. 469, that

where both legal and equitable issues are presented in a single case, "only under the most imperative circumstances . . . can the right to a jury trial of legal issues be lost through prior determination of equitable claims,"

is not applicable here where there is a specific statutory scheme providing for the prompt trial of disputed claims without a jury. Pp. 338-340.

336 F.2d 535, affirmed.

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WHITE, J., lead opinion

MR. JUSTICE WHITE delivered the opinion of the Court.

The disputed issue here is whether a bankruptcy court has summary jurisdiction to order the surrender of voidable preferences asserted and proved by the trustee in response to a claim filed by the creditor who received the preferences. The Court of Appeals held that the bankruptcy court had such summary jurisdiction. 336 F.2d 535. We affirm.

The corporate bankrupt began business on April 21, 1960, and borrowed $50,000 from two local banks. Petitioner, then an officer of the company, was an accommodation maker on the two corporate notes delivered to the banks. After the corporate bankrupt in this case suffered a disastrous fire, its funds and collections were placed in a "trust account" under the sole control of petitioner. From this account petitioner made two payments on one of the company notes on which he was an accommodation maker and one payment on the other. Bankruptcy followed within four months of these payments. Petitioner filed two claims in the proceeding, one for rent due him from the bankrupt and one for a payment on one of the notes made from his personal funds. The trustee responded with a petition asserting that the payments from the trust fund to the banks were voidable preferences and demanding judgment for the amount of the preferences, along with the amount of an unpaid stock subscription owed to the corporation by petitioner. Petitioner's objection to the summary jurisdiction of the referee was overruled, and judgment was rendered for the trustee on both the preferences and the stock subscription. Petitioner's claims were to be allowed only when and if the judgment was satisfied. The District Court sustained the referee. A divided Court of Appeals, sitting en banc, after reconsidering Inter-State National Bank of Kansas City v. Luther, 221 F.2d

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382 (C.A.10th Cir. 1955), cert. dismissed under Rule 60, 350 U.S. 944, adhered to its pronouncements in that case, affirmed the judgment for the amount of the voidable preferences but reversed the judgment for the amount of the stock subscription. The trustee did not seek review here of the adverse decision on the stock subscription. We granted certiorari on the creditor's petition because of the diversity of views among the Courts of Appeals on the issue involved1 and the importance of the question in [86 S.Ct. 471] the administration of the bankruptcy laws. 380 U.S. 971.

The crux of the dispute here concerns the mode of procedure for trying out the preference issue. The bankruptcy

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courts are expressly invested by statute with original jurisdiction to conduct proceedings under the Bankruptcy Act.2 These courts are essentially courts of equity, Local Loan Co. v. Hunt, 292 U.S. 234, 240; Pepper v. Litton, 308 U.S. 295, 304, and they characteristically proceed in summary fashion to deal with the assets of the bankrupt they are administering. The bankruptcy courts "have summary jurisdiction to adjudicate controversies relating to property over which they have actual or constructive possession." Thompson v. Magnolia Petroleum Co., 309 U.S. 478, 481; Cline v. Kaplan, 323 U.S. 97, 98-99; May v. Henderson, 268 U.S. 111, 115-116; Taubel-Scott-Kitzmiller Co. v. Fox, 264 U.S. 426, 432-434. They also deal in a summary way with

matters of an administrative character, including questions between the bankrupt and his creditors, which are presented in the ordinary course of the administration of the bankrupt's estate.

Taylor v. Voss, 271 U.S. 176, 181; United States Fidelity & Guaranty Co. v. Bray, 225 U.S. 205, 218. This is elementary bankruptcy law which petitioner does not dispute.

But petitioner points out that, if a creditor who has received a preference does not file a claim in the bankruptcy proceeding and holds the property he received under a substantial adverse claim, so that the property may not be deemed within the actual or constructive possession of the bankruptcy court, the trustee may recover the preference only by a plenary action under § 60 of the Act, 11 U.S.C. § 96 (1964 ed.), see Taubel-Scott-

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Kitzmiller Co. v. Fox, 264 U.S. 426; and, in a plenary action in the federal courts, the creditor could demand [86 S.Ct. 472] a jury trial, Schoenthal v. Irving Trust Co., 287 U.S. 92, 94-95; Adams v. Champion, 294 U.S. 231, 234; compare Buffum v. Peter Barceloux Co., 289 U.S. 227, 235-236. Petitioner contends the situation is the same when the creditor files a claim and the trustee not only objects to allowance of the claim, but also demands surrender of the preference. This is so, petitioner argues, because the Bankruptcy Act does not confer summary jurisdiction on a bankruptcy court to order preferences surrendered, and because, if it does, petitioner's rights under the Seventh Amendment of the Constitution are violated. We agree with neither contention.

With respect to the statutory question, it must be conceded that the Bankruptcy Act does not, in express terms, confer summary jurisdiction to order claimants to surrender preferences. But Congress has often left the exact scope of summary proceedings in bankruptcy undefined, and this Court has elsewhere recognized that, in the absence of congressional definition, this is a matter to be determined by decisions of this Court after due consideration of the structure and purpose of the Bankruptcy Act as a whole, as well as the particular provisions of the Act brought in question. Taubel-Scott-Kitzmiller Co....

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