Burnham v. Todd
| Decision Date | 19 January 1944 |
| Docket Number | No. 10787.,10787. |
| Citation | 139 F.2d 338 |
| Parties | BURNHAM et al. v. TODD. |
| Court | U.S. Court of Appeals — Fifth Circuit |
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J. Cleo Thompson, of Dallas, Tex., and H. P. Smead, of Longview, Tex., for appellants.
H. S. Lattimore, H. C. Ray, and Earnest E. Sanders, all of Fort Worth, Tex., for appellee.
Before SIBLEY, HOLMES, and WALLER, Circuit Judges.
An involuntary proceeding in bankruptcy was instituted in the District Court for the Northern District of Texas against Harry W. Elliott. There was never an adjudication. Elliott in his answer invoked the then recently enacted Section 74 of the Bankruptcy Act, 11 U.S.C.A. § 202, and sought a composition and extension of his debts. On May 3, 1933, the court appointed Walter A. Todd custodian under Section 74, sub. b, with full authority to operate and carry on the business of the estate, which included active gas and oil wells in the East Texas oil field. A composition was agreed on and approved by which Todd's operation of the business as custodian was to continue for three years, and the debts were to be paid in that time from the operations and sales of property. It becoming evident that this would not be accomplished, a creditor petitioned the court to liquidate the estate under the provisions of Section 74, sub. l. After a hearing, on June 15, 1936, the court ordered a liquidation and appointed Todd as trustee of the estate, and ordered him to take over all the property and assets of the debtor formerly held by him as custodian; and to proceed to sell off the assets. No adjudication as a bankrupt was prayed or made. By March 25, 1937, liquidation had proceeded to the point where only four oil leases remained, and $101,000 was estimated as in sight to pay expenses of administration and $7,500 still due general creditors. The remaining fund was proposed to be divided among certain "certificate holders" to whom Elliott had sold interests in his oil properties. The court approved that disposition, and on May 14, 1937, entered an order that to reduce oil payments and royalties standing against these leases, "the said properties shall remain in the custody of the bankruptcy court and be operated by Walter A. Todd, Trustee, at a salary of $250 per month until the further orders of this Court". On July 14, 1939, an order was made that a notice be published requiring the filing of all claims by Oct. 1, 1939. The next thing appearing in the record before us is the filing on Sept. 7, 1940, of the proceeding which resulted in this appeal.
Entitling his petition in the bankruptcy case, and addressing it to the judge, Walter A. Todd, trustee in bankruptcy, alleged due authority from the bankruptcy court, and complained of G. H. Burnham and J. H. Johnston, individually and as a partnership known as Burnham and Johnston, residing in Gregg County, Texas, in that between Jan. 1, 1934, and July 1, 1934, they had, without Todd's or the court's knowledge or authority secretly taken from an oil lease in Gregg County then in the custody of the court in bankruptcy and operated by Todd, oil in excess of 55,000 barrels, the highest price for the grade and quantity being $1.15 per barrel, which sum with interest they are bound and liable to pay. It was also alleged that the proceeding was not sooner filed because Todd had no notice of the taking until a few months previous to the filing of the petition, and it had been filed promptly on the conclusion of an investigation then made. The prayer was that G. H. Burnham and J. H. Johnston "show cause, if any they have, why they should not be compelled to pay summarily to your petitioner as trustee of the above estate in bankruptcy, the said sum of money, to-wit, compensation for the oil so taken with interest thereon * * * and ordered summarily to restore to your petitioner as trustee in bankruptcy the value of the oil so taken with interest as aforesaid".
The first defense made was that Burnham and Johnston were citizens of Texas residing in Gregg and Smith Counties, and not in the Northern District of Texas; and that the suit was one for damages for a conversion and ought to be a plenary one in the home district of one of them. Although the mention in the petition of the highest value of the oil as the measure of the reparation due smacks of damages for conversion, the petition as a whole is evidently a summary one for the restoration to the court's administrator of property wrongfully taken from its custody. The petition makes no allegation as to the title to the oil, but alleges only that it was from an oil lease which was in the custody of the bankruptcy court and which the petitioner was operating under the court's orders. The prayer is for a summary restoration of the value of the oil. It is common knowledge, and the evident assumption of the petition, that oil at the wells is soon mingled with other oil and disposed of, so that identification and restoration of the oil itself would after the lapse of years be impossible. When property taken from the custody of the court is put beyond the possibility of return, the taker can be required to make reparation by paying its value instead. In re Day, 34 Wis. 638; 53 C.J., Receivers, § 134; In re Denson, D.C., 195 F. 854; May v. Henderson, 268 U.S. 111, at page 119, 45 S.Ct. 456, 69 L.Ed. 870. The object of such a proceeding is not to try the title to the property, or to adjudicate any interest in it, but to maintain the integrity of the court's custody and its right to administer it. Even when a claimant invokes orderly judicial process to seize property which was in the possession of a voluntary bankrupt when he filed his petition and was adjudicated, the bankruptcy court can by summary proceedings compel its return. White v. Schloerb, 178 U.S. 542, 20 S.Ct. 1007, 44 L.Ed. 1183. And property never in the court's actual custody, but held by another for the bankrupt, is subject to the court's summary proceeding, when the possessor has no colorable adverse claim to it. Mueller v. Nugent, 184 U.S. 1, 22 S.Ct. 269, 46 L.Ed. 405. The oil here was in the actual custody of the court, and Johnston and Burnham make no claim of right to it; they only say they did not take it. If they now had it, without question they might be required summarily to turn it over. Since they have done away with it, with equal certainty they may be required to substitute it with money.
Section 23 of the Bankruptcy Act, as amended by the Chandler Act in 1938, 11 U.S.C.A. § 46, which fixes the venue of "suits by the receiver and the trustee" as that in which the bankrupt might have sued, refers to plenary suits, in which contested rights are to be finally settled. It has no reference to proceedings like this where the court is asserting its own right to administer, touching which the bankrupt could never have sued anywhere.
Dismissal of the petition was further sought on the ground that Todd had no standing to sue, especially because the ultimate right to the estate had been decreed to be in the certificate holders. Section 74, sub. m, 11 U.S.C.A. 202, sub. m, provides: "In proceedings under this section * * * the title, powers, and duties of its (the court's) officers * * * and the rights and liabilities * * * of all persons with respect to the property of the debtors * * * shall be the same as if a voluntary petition for adjudication had been filed and a decree of adjudication had been entered on the day when the debtor's petition or answer was filed." It therefore makes no difference that no adjudication was made. At the time the oil was taken Todd was a custodian with power to conduct the business, the equivalent of a receiver having such powers in an ordinary bankruptcy. He then had no title to the estate, but was the representative of the court and the parties to the case. When he became trustee, he became invested with title, just as trustees in bankruptcy are under Section 70, 11 U.S.C.A. § 110. He has never been removed or discharged as such. The fact that he has been put on a salary, and that it has been determined who shall receive the residue of the estate on its final distribution, does not alter his relation to the property or the court. He brought this petition by direction of the court, and it asserts a right of the court. A receiver, who has no title, might equally have brought it. Todd has standing in court.
Burnham and Johnston answered denying they had taken any oil, and demanded a jury trial. The court appointed a master. They moved to revoke the appointment and were overruled. This not being a suit at law for damages for a conversion of property, there was no right to a jury trial. It is a dependent proceeding in the bankruptcy cause, an exercise of the equitable powers of the court, just as in the case of an ordinary receivership. Difficult and perhaps complicated enquiry appeared likely. The court could appoint a master without violating Rule of Civil Procedure 53(b), 28 U.S.C.A. following section 723c. The reference was not general, but to "determine the amount of oil, if any, run from the McNeely lease, operated by the Trustee in Gregg County, Texas, to the respondents Johnston and Burnham * * * and the value thereof." Over a thousand pages of evidence were reported, which the judge personally examined, and he overruled the objections made to the report and adopted it in his final decree. We find no procedural error therein.
The appellants specify as error the master's refusal to consider, though he transmitted it in his report of the evidence, an affidavit of an expert witness, Weaver, that in his opinion certain oil tickets were not...
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