Bear v. Chase

• Decision Date: 06 February 1900
• Docket Number: 317.
• Citation: 99 F. 920
• Parties: BEAR et al. v. CHASE.
• Court: U.S. Court of Appeals — Fourth Circuit

99 F. 920

BEAR et al. v. CHASE.

No. 317.

United States Court of Appeals, Fourth Circuit.

February 6, 1900

This is an application to superintend and revise, in matter of law certain orders made by the district court of the United States for the Eastern district of South Carolina, entered respectively, on the 28th of January and the 10th of June 1899, in the above-entitled involuntary bankruptcy proceeding, then pending in said court.The case is briefly this: The petitioners for revision, J. M. Bear & Co. and others, some 17 creditors in number of the bankrupt, James H Rhodes, in the month of October, 1898, instituted their suits and sued out certain attachments in the court of common pleas, Florence county, S.C., and caused the attachments to be levied on said Rhodes' stock of goods.The judge of the court, by orders of the 14th and 15th days of October, 1898, entered in chambers, directed the stock of goods, thus levied on, to be sold on the 20th of October, 1898, because of their perishable character, and the money arising from the sale to be paid to the clerk of the court to await the future order of the court in the suits.The sale was duly made, and $6,300, the net proceeds arising therefrom, paid to the clerk of the said court.On the 1st day of November, 1898, certain creditors of the said Rhodes, to wit, George Pettigrew and others, some 20 in number, filed their petition in the district court of the United States for the district of South Carolina, praying that he be declared an involuntary bankrupt, alleging his insolvency, together with the necessary averments to give jurisdiction to the court, and particularly averring that the attachment creditors aforesaid had, in contravention of the bankrupt law, and within four months prior to the filing of their said petition, sought to procure a preference in the administration of the estate of the said bankrupt by reason of the issuance and levy of said attachments.Said petitioners further averred that the said Rhodes committed an act of bankruptcy by permitting the attachments to issue against him, and that his object was to give a preference among his creditors through legal proceedings, to wit, the said attachments, and that the same were not vacated or discharged within five days before the sale of said property.The petitioners further averred that the attachments were permitted, sought, and had, orders of sale procured, and sales made, in disregard of notice served upon said attaching creditors, advising them of the fact that a petition in bankruptcy would be filed against the said Rhodes on the 1st day of November, 1898, or as soon thereafter as counsel could be heard.Upon the filing of the petition of involuntary bankruptcy as aforesaid, an order to show cause was entered against the bankrupt, returnable on the 14th of January, 1899, and duly published in a newspaper in the city of Florence.On the 14th of January, an order was entered in said cause, returnable on the 25th of January, requiring the attaching creditors aforesaid to show cause why they should not be restrained from prosecuting their suits in the state court aforesaid.To this latter rule the attaching creditors made answer, insisting, among other things, upon the validity of their attachments; averring that they were procured without any collusion with, and against the consent of, the said Rhodes; that they had no reason to believe at the time he was insolvent; and that said attachments did not constitute acts of bankruptcy on the part of said Rhodes.The cause thereupon came on to be heard on the 28th of January, 1899, in the said district court, when the said James H. Rhodes was duly adjudged an involuntary bankrupt; and upon considering the rule against said attaching creditors, and the answer thereto, an order was entered enjoining and restraining them from further prosecuting the actions commenced by them as aforesaid in the court of common pleas of Florence county, and by subsequent order, entered on the 10th of June, 1899, the order of the 28th of January was modified as follows: 'It appearing that since the order of this court dated 28th January, 1899, a trustee, to wit, Robert C. Chase, has been elected trustee of the bankrupt estate of said Thomas D. Rhodes, and that such trustee has filed his petition in the court of common pleas for Florence county, praying that he be allowed to move to set aside certain attachments in said court in the causes therein (the further prosecution whereof was stayed by said order of 28th January, 1899), and to have the funds and property attached turned over to said trustee, it is, upon consideration thereof, counsel on both sides having been heard, ordered that all the attaching creditors enjoined by this court by its said order of 28th January, 1899, be, and they are hereby, permitted, in said court of common pleas for Florence county, to oppose and resist the petition and application of said trustee, and, upon the final determination thereof, to set up, urge, and prosecute any rights in the state court aforesaid to which he may be entitled; provided that, if the said court of common pleas for Florence county shall hold that it is without jurisdiction to pass upon the merits of the question raised by said trustees in said application, then the order of this court of 28th January, 1899, shall stand in all respects so that the fund now in controversy shall not be distributed until the final determination of the rights involved. ' It is to revise these two latter orders that the petition for revision is presented to the court.

Henry A. M. Smith and P. A. Willcox, for petitioners.

Lord & Burke and Asher D. Cohen, for respondents.

Before SIMONTON, Circuit Judge, and PAUL and WADDILL, District Judges.

WADDILLDistrict Judge, after stating the facts as above, .

The grounds of error assigned in the entry of the said two orders are, briefly, that the injunction should not have been awarded upon a rule to show cause issued in the bankruptcy proceedings, but only on a bill in equity, duly filed and process issued thereon, and also because the said attachments were issued in actions for fraud and obtaining property by false pretenses and false representations on the part of the bankrupt, and that the attachments having been obtained in the court of common pleas of the county of Florence, S.C., a court of general jurisdiction, prior to the adjudication in bankruptcy, that court, and not the district court of the United States, was the proper tribunal to determine the questions affecting the said attachments and the rights of the parties thereunder; that the trustee of the bankrupt should in that court assert his rights, and, having filed his petition therein, it was error in the district court to in any manner restrain said attaching creditors in the prosecution of their claims in said court.

We will take up the several assignments of error specified, and incidentally touch upon the question, quite elaborately argued, as to the jurisdiction of the district court of the United States in dealing with the estate of bankrupts, where the rights of third parties or adverse claimants are involved, though it will not be necessary, in the view we take of this case, to pass upon that question or to discuss it at length.

Counsel insist with great earnestness that a bill in equity should have been filed in this case instead of proceeding by rule to show cause, as was done, and, while it is not said so in words, the inference is irresistible that it was necessary to institute such suit in the state court instead of the district court of the United States.While not admitting the correctness of the position, in any respect, that the bankrupt court is without power to bring before it all persons possessed of the bankrupt's estate, and to reduce such estate to possession and administer the same, but that on the contrary, it is powerless to perform these simple functions and duties, and must rely upon a court of another sovereignty to hold up its hands and enforce its lawful orders and decrees, we think it quite clear in this case that there can be no doubt of the right of the bankrupt court to proceed as it did, and give full and complete relief in the premises.Norton v. Switzer,93 U.S. 355, 23 L.Ed. 903;Lathrop v. Drake,91 U.S. 516, 518, 23 L.Ed. 414;In re Gutwillig ((D.C.)90 F. 481;In re Sievers (D.C.)91 F. 366;In re Brooks (D.C.)91 F. 508;In re Smith (D.C.)92 F. 137;Carter v. Hobbs (D.C.)92 F. 594;Murray v. Beal (D.C.)97 F. 567.It may be conceded that in ordinary proceedings affecting the bankrupt's estate, in which third parties or adverse claimants are interested, the better practice would be either to file a bill in equity or a separate petition in the bankruptcy proceedings, setting up the cause of action in question, on which process should be regularly issued or full opportunity otherwise given to appear.But that has no application in this case, where the alleged ground of bankruptcy is the procuring of and levying the attachments enjoined.In other words, the petition for involuntary bankruptcy is based upon the fact that the attaching creditors have procured liens in contravention of the bankrupt law by their attachments.Their names, the amount of their claims, and what they did are all fully set up in the petition for involuntary bankruptcy, and it is upon the legality or illegality of those acts, and what was subsequently done in and by virtue of said proceeding, that the question of bankruptcy is determined.When the district court, which alone has power, under the constitution and laws of the United States, to adjudicate bankrupts, once determines this question, it is a finality, and no other court, save a federal appellate tribunal, can...