Hogue v. Milodon Engineering, Inc.

• Decision Date: 20 June 1984
• Docket Number: No. 83-1857,83-1857
• Citation: 736 F.2d 989
• Parties: Bankr. L. Rep. P 69,909 Dale C. HOGUE and Carolyn J. Hogue, individually and t/a Edgewood Farm and Dale C. Hogue, individually and t/a Hogue & Company, Appellants, v. MILODON ENGINEERING, INC.; Donald R. Alderson, individually and President of Milodon Engineering, Inc. and Dean Francis Pace, individually and as counsel for Milodon Engineering, Inc., Appellees. In re Dale C. HOGUE and Carolyn J. Hogue, individually and t/a Edgewood Farm and Dale C. Hogue, individually and t/a Hogue & Company, Debtors.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 989

736 F.2d 989

Bankr. L. Rep. P 69,909

Dale C. HOGUE and Carolyn J. Hogue, individually and t/a Edgewood Farm and Dale C. Hogue, individually and t/a Hogue & Company, Appellants, v. MILODON ENGINEERING, INC.; Donald R. Alderson, individually and President of Milodon Engineering, Inc. and Dean Francis Pace, individually and as counsel for Milodon Engineering, Inc Appellees In re Dale C. HOGUE and Carolyn J. Hogue, individually and t/a Edgewood Farm and Dale C. Hogue, individually and t/a Hogue & Company, Debtors.

No. 83-1857.

United States Court of Appeals Fourth Circuit.

Argued March 5, 1984.

Decided June 20, 1984.

Robert M. Musselman, Charlottesville, Va., Roger K. Grillo, Norfolk, Va. (Wanda F. Brown, Robert M. Musselman & Associates, Charlottesville, Va., on brief), for appellants.

Wendall L. Winn, Jr., Charlottesville, Va. (Matthew B. Murray, Richmond & Fishburne, Charlottesville, Va., on brief), for appellees.

Before WINTER, Chief Judge, CHAPMAN, Circuit Judge, and RAMSEY, ^* District Judge.

HARRISON L. WINTER, Chief Judge:

This case requires the determination of whether, under the Bankruptcy Act of 1898, 11 U.S.C. Sec. 1 et seq. (repealed 1979), a bankruptcy court has jurisdiction to enjoin defendants resident outside of its territorial district from prosecuting an action against a debtor discharged in proceedings before it. The district court concluded that it lacked jurisdiction, but we conclude otherwise. We reverse the judgment and remand the case for further proceedings.

I.

Plaintiffs filed petitions under the Bankruptcy Act ¹ and were discharged in Chapter XI proceedings on June 23, 1980, by the Bankruptcy Court for the Western District of Virginia. In entering the order of discharge, the bankruptcy court enjoined all creditors whose debts were discharged "from instituting or continuing any action ... to collect such debts as personal liabilities of the ... creditors." After plaintiffs were granted their discharge, defendant Milodon Engineering, Inc. ("Milodon") filed suit against them in the United States District Court for the Central District of California alleging breach of contract, malpractice, and misrepresentation. Plaintiffs moved the district court in California to dismiss the suit on grounds that the debt had been discharged in the bankruptcy proceedings in Virginia, but the district court for reasons that are not before us declined to do so.

Plaintiffs then brought an action against Milodon in the bankruptcy court in Virginia seeking determination of the dischargeability of the debt asserted by Milodon in the California action and a preliminary injunction to prevent Milodon from prosecuting the California action. Milodon moved the bankruptcy court to dismiss the action on grounds that the bankruptcy court was without in personam jurisdiction over it. The bankruptcy court denied the motion, and Milodon appealed to the district court.

The district court determined that the bankruptcy court was without jurisdiction. It accordingly reversed the bankruptcy court's order enjoining the California proceeding and directed the bankruptcy court to dismiss the adversary proceeding before it.

II.

The jurisdiction of federal bankruptcy courts is determined by federal statute. Wheeling Structural Steel Co. v. Moss, 62 F.2d 37, 39 (4 Cir.1932). The district court based its finding that the bankruptcy court was without in personam jurisdiction over defendants on provisions in the Bankruptcy Act of 1898 that limited the jurisdiction of bankruptcy courts to their territorial limits. ² Those provisions, however, were superseded by the Bankruptcy Rules that became effective on October 1, 1973. The new Bankruptcy Rule 704 provided for service of process anywhere within the United States in connection with designated "adversary proceedings". ³ The Advisory Committee's note accompanying Rule 704 indicated that the Rule's intended effect was to extend the territorial jurisdiction of the bankruptcy courts to the entirety of the United States. ⁴

Milodon argues before us that reliance on Rule 704's provisions to determine whether the bankruptcy court had in personam jurisdiction over it would be misplaced, since valid service of process and personal jurisdiction are two separate concepts. In the abstract that may be true, but for purposes of proceedings arising from federal law, it is largely academic. See 4 Wright & Miller, Federal Practice and Procedure: Civil Secs. 1075, 1127 (1969) (for federal courts acting under federal question jurisdiction, extent of valid process is limited only by congressional authorization and due process clause.) Where Congress has authorized nationwide service of process by federal courts under specific federal statutes, so long as the assertion of jurisdiction over the defendant is compatible with due process, the service of process is sufficient to establish the jurisdiction of the federal court over the person of the defendant. See Terry v. Raymond Int'l, Inc., 658 F.2d 398 (5 Cir.1981), cert. denied, 456 U.S. 928, 102 S.Ct. 1975, 72 L.Ed.2d 443 (1982).

Since we have determined that Congress authorized nationwide service of process in cases like the present one, the only remaining question is whether assertion by the bankruptcy court sitting in Virginia of jurisdiction over defendant, a California corporation, is compatible with the requirements of due process. The propriety of process issuing from federal courts sitting in cases arising under federal law is not tested by the same yardstick as is the constitutional limitation upon service of process issuing from state courts because the issues involved necessarily are often national in character. See Time, Inc. v. Manning, 366 F.2d 690, 694 (5 Cir.1966). Rather, the defendant must look primarily to federal venue requirements for protection from onerous litigation. See Terry, supra, 658 F.2d at 402-03.

Provisions reflecting concern that parties be afforded convenient venue were incorporated in Bankruptcy Rule 782, which provided:

Upon notice and hearing afforded the parties, any adversary proceeding may, in the interest of justice and for the convenience of the parties, be transferred by the court to any other district and shall thereafter continue as if originally filed in such district. An adversary proceeding transferred under this rule shall be referred to a referee by the clerk of the court to which it has been transferred. ⁵

Defendant Milodon, however, never moved the bankruptcy court to transfer the adversary proceeding pursuant to Rule 782 nor did it raise the issue before the district court on appeal. The issue of whether the bankruptcy court should properly have transferred the proceeding thus is not before us. ⁶ We neither decide it nor express any view on how it should be decided were it raised.

III.

We conclude that the bankruptcy court had jurisdiction over the parties to the adversary proceeding and properly denied defendant's motion to dismiss. We accordingly reverse the district court's order and remand for further proceedings not inconsistent with this opinion.

REVERSED AND REMANDED.

* Honorable Norman P. Ramsey, United States District Judge for the District of Maryland, sitting by designation.

1 Plaintiffs filed their petitions on March 6, 1979. The governing statute thus was the Bankruptcy Act of 1898, since the effective date of the Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, 92 Stat. 2549 (1978), was not until ...