Bass v. Hutchins

• Decision Date: 16 October 1969
• Docket Number: No. 25817.,25817.
• Citation: 417 F.2d 692
• Parties: R. A. BASS and Miracle Marine Sales Company, Inc., Appellants, v. Lemuel C. HUTCHINS, Trustee in Bankruptcy of Miracle Marine Sales Company, Bankrupt, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

417 F.2d 692 (1969)

R. A. BASS and Miracle Marine Sales Company, Inc., Appellants, v. Lemuel C. HUTCHINS, Trustee in Bankruptcy of Miracle Marine Sales Company, Bankrupt, Appellee.

No. 25817.

United States Court of Appeals Fifth Circuit.

October 16, 1969.

George M. Leppert, G. Wray Gill, Sr., New Orleans, La., for appellants.

M. W. Parse, Jr., Houston, Tex., for appellee; Fulbright, Crooker, Freeman, Bates & Jaworski, Houston, Tex., of counsel.

Before COLEMAN and GOLDBERG, Circuit Judges, and SKELTON, Judge of the Court of Claims.^*

GOLDBERG, Circuit Judge:

We here deal with the question of bankruptcy jurisdiction over a corporation which was anything but sedentary and the legal propriety of a turnover order directed against its peripatetic president. This bankruptcy proceeding was initiated on April 6, 1967, by the filing of an involuntary petition by Union Texas Petroleum Company (Union Texas) against Miracle Marine Sales Company, Inc. (Miracle Marine). The district court referred the matter to the Referee on April 25, 1967, and Miracle Marine was adjudged a bankrupt by default on April 27, 1967. Miracle Marine then filed a farrago of motions, including a motion to dismiss for want of jurisdiction, out of which there survives for our appellate consideration the question of whether the adjudicating court had jurisdiction over the subject matter. The contention is made that there is no evidence that Miracle Marine had its principal place of business in the Eastern District of Texas for the greater part of the six months preceding the filing of the petition. There was evidence of a Missouri incorporation and a permit to do business in Texas with a registered office in Greenville in the Eastern District of Texas. There was testimony about a ramshackle filling station at Myra Junction in the Eastern District of Texas and evidence concerning accounts in banks in many parts of that district. All of the bankrupt's motions were overruled and a trustee was appointed. Thereafter, Union Texas filed a petition for a turnover order to be directed to R. A. Bass, the president of Miracle Marine.

On July 3, 1967, Union Petroleum of Texas and the trustee sought to question Bass about Miracle Marine's activities in the Eastern District of Texas. Bass, however, refused to answer most of the questions on Fifth Amendment grounds, as he had by that time been indicted for mail fraud on facts arising out of the transactions about which he was being questioned. Bass also refused to produce the books and records relating to Miracle Marine's business. The basic turnover facts are as follows: During June, July, August, and September, 1966, funds of Miracle Marine, aggregating in excess of $250,000.00, were appropriated by Bass. Neither Bass nor anyone representing the bankrupt offered any rhyme or reason for the withdrawal of the $250,000.00 by Bass, and a turnover order for $250,000.00 directed against Bass was entered by the Referee.

On this appeal Miracle Marine and Bass seek to post-mortem the jurisdiction of the district court. They contend that for the period prior to the filing of the bankruptcy petition Miracle Marine did not have its residence, domicile or principal place of business within the court's territorial jurisdiction "for a longer portion of the preceding six months than in any other jurisdiction."¹ On this ground alone they seek to dismiss the proceeding.

Appellants' argument is premised upon the assumption that § 2(a) (1) of the Bankruptcy Act, 11 U.S.C.A. § 11(a) (1), is a jurisdictional fiat rather than a mere latitudinal venue provision. The effect of the statute, argues Bass, is that it is absolutely jurisdictional with no play for the venue concept whatsoever. This argument is an old wives' tale of pre-1952 vintage. It is now clear that the cases cited in its support² have been soured by the 1952 amendments to the Bankruptcy Act³ and must be deemed no longer controlling.

Since 1952 the courts and the applicable authorities have consistently held that § 2(a) (1) of the Bankruptcy Act, notwithstanding its language and location in the Act, is a true venue provision and is not jurisdiction confining or defining. In re Bankers Trust, 7 Cir. 1968, 403 F.2d 16; In re Eatherton, 8 Cir. 1959, 271 F.2d 199; In re Martinez, 10 Cir. 1957, 241 F.2d 345; Saper v. Long, S.D. N.Y. 1955, 131 F.Supp. 795; In re Fada Radio and Electronic Co., S.D.N.Y.1955, 132 F.Supp. 89; 1 Collier on Bankruptcy § 2.14 (14th ed.). Remington has observed in his treatise on bankruptcy that "The 1952 changes in § 32 of the Bankruptcy Act * * * have tended to increase the feeling that the statutory provisions as to institution of bankruptcy proceedings in the district court where the alleged bankrupt has his residence, domicile, or place of business relate to proper venue rather than to jurisdiction to entertain the proceedings." 1 Remington on Bankruptcy § 40 (5th ed. Supp. 1958). The Eighth Circuit has been even more emphatic in the view that § 2(a) (1) of the Act must be viewed as a venue provision. In the case of In re Eatherton, supra, we find the following discussion by Judge Matthes:

"* * * Reason and logic dictate that in enacting the amendments to § 32, Congress implicitly viewed the provisions of § 2, sub. a(1) as relating to venue rather than jurisdiction. Otherwise, how could there be `wrong venue\' for § 32, sub. b to remedy? Furthermore, if one of the alternative requirements of § 2, sub. a(1) must be present in order to empower the court to entertain a bankruptcy proceeding, the absence thereof would leave the court no alternative but to dismiss the proceeding, as was done here. Such a result cannot be squared with the permissive language of § 32, sub. b, that the judge, in a wrong venue situation, `may, in the interest of justice, upon timely and sufficient objection to venue being made, transfer the case to any other court of bankruptcy in which it could have been brought.\' (Emphasis added.) Obviously, in a § 32, sub. b situation, the court is vested with discretion, in the interest of justice and upon timely and sufficient objection to venue being made, to either transfer the case to a court where it could have been brought, or to retain the proceeding." 271 F.2d at 203.

The Eighth Circuit's conclusion that § 2(a) (1) imposes discretionary venue and not jurisdictional limitations on the district courts sitting in bankruptcy is convincingly sustained by Judge Matthes' subsequent discussion of the relevant legislative history behind the 1952 amendments to § 32, sub. b. See House Report No. 2320 on S. 2234, 82nd Cong., 2d Sess. 1952. Without attempting to reproduce that history here, it is enough to say that we are in full agreement with the Eighth Circuit's judgment of the Congressional purpose behind the 1952 Amendments:

"* * * Congress intended with certainty, that the residence, domicile or place of business requirements of § 2, sub. a(1) go solely to venue, and that § 32, sub. b was designed to clothe a court of bankruptcy with the same authority in a wrong venue situation, as that possessed by the United States District Courts with respect to other litigation in which venue is laid in the wrong division or district with this significant exception. Under Title 28, § 1406, U.S.C.A., a district court, in which a case is filed laying venue in the wrong division or district, `shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought.\' (Emphasis added.) As noted, under § 32, sub. b the court may transfer. It is not empowered to dismiss. Being thus vested with discretion, it seems clear that to hold that the court can dismiss an otherwise proper and meritorious petition, would completely frustrate congressional intent and design." 271 F.2d at 203-204.

The foregoing discussion would seem to make further extended commentary on § 2(a) (1) unnecessary. As clearly indicated by In re Eatherton, supra, § 2(a) (1) does not rise to jurisdictional stature. Such treatment is in accord not only with other provisions of the Act, and with Congressional intent as already noted, but is best suited to the mobility, national dimensions and multi-operational nature of modern business enterprises. We cannot but recognize that under modern business conditions a corporation's major assets and the location of its creditors and debtors are not always conveniently situated at the corporation's formal domicile or at its principal place of business. Given these circumstances we are and ought to be reluctant to find a vise-like jurisdictional grip by a single judicial district over enterprises that may be nation-wide and that may need to be placed under the shelter of the Bankruptcy Act. We therefore conclude that precedent, Congressional intent, and a much desired judicial flexibility all point to the relaxed venue as opposed to the strict jurisdictional interpretation of § 2(a) (1) of the Act. Under this view the district judge may in his discretion transfer the case to another district if the interests of the parties so require. See § 32, sub. b. On the other hand, he may, if he chooses, retain the proceeding in the district where the petition is filed. In neither circumstance is he empowered to dismiss the action as appellants request. See In re Eatherton, supra, 271 F.2d at 204.

Here, where the court's decision was to retain the proceeding, a failure to comply with the terms of § 2(a) (1) cannot operate to deprive the district court of power to adjudicate issues otherwise properly before it. At most, the circumstances upon which appellants rely raise a question of venue. In the present case appellants did not request a change of venue as required by the Act,⁴ and there is absolutely no indication that the facts were of such an extraordinary nature that the district court ought to have transferred the case on its own motion. See Concession Consultants, Inc. v....