City and County of Denver v. Warner

• Decision Date: 06 August 1948
• Docket Number: No. 3652.,3652.
• Citation: 169 F.2d 508
• Parties: CITY AND COUNTY OF DENVER et al. v. WARNER et al.
• Court: U.S. Court of Appeals — Tenth Circuit

169 F.2d 508 (1948)

CITY AND COUNTY OF DENVER et al. v. WARNER et al.

No. 3652.

Circuit Court of Appeals, Tenth Circuit.

August 6, 1948.

Charles H. Haines, of Denver, Colo. (J. Glenn Donaldson, of Denver, Colo., on the brief), for appellants.

Hyman D. Landy, of Denver, Colo. (Grant, Shafroth & Toll and Ammons & Bromley, all of Denver, Colo., on the brief), for appellees.

Before BRATTON, HUXMAN and MURRAH, Circuit Judges.

MURRAH, Circuit Judge.

This appeal involves the summary jurisdiction of a court of bankruptcy over personal property of the bankrupt in the possession of a third party when the bankruptcy proceedings were instituted. The precise question presented is whether the bankruptcy court may summarily take possession of the property, pending determination of its jurisdiction to adjudicate the tax claim of the third party. The question is presented on a rather complicated state of facts.

On September 24, 1947, Carothers & Clark, Inc. filed its voluntary petition in bankruptcy in the United States District Court of Colorado and on the same date was adjudged a bankrupt. Seven days previously, on September 17, the City and County of Denver took possession of certain personal property of the bankrupt under a distraint for delinquent taxes. The personal property was located in a building belonging to the bankrupt and the City and County padlocked the building and posted notice of sale. On application of the appointed receiver the Referee enjoined the sale of the property and ordered the City and County to show cause why the distraint warrant should not be released. In response to the show cause order the City and County, through its acting Manager of Revenue, alleged that the "personal property" held by it under distraint warrant, as recited in the order to show cause, was held for general taxes on the property and for taxes on "other personal property of the bankrupt"; that the property was seized on September 17 and held prior to the filing of the petition in bankruptcy. The respondents objected to the determination of the validity of their lien and the right of possession, or to trying any question execpt the question whether they were holding the property at and prior to the time of the filing of the petition in bankruptcy, and whether they had a substantial claim of right to hold the said property. They demanded that all other questions be tried in a plenary action in a court of competent jurisdiction.

After hearing on the order to show cause, and while the Referee had the matter under advisement, he entered an order dated November 6, authorizing the Trustees to forthwith enter into an agreement for the rental of the described building of the bankrupt, together with personal property contained therein. The order then recited that prior to the filing of the petition in bankruptcy and for the purpose of enforcing a lien claimed by the City and County of Denver upon "personal property" of the bankrupt, the City and County had placed a padlock upon the main entrance to the building owned by the bankrupt and placed thereon a notice of levy upon unidentified personal property within the building for taxes alleged to be due and unpaid. After referring to the restraining and show cause order and the response thereto, the order specifically stated that the question of the summary jurisdiction of the court to vacate the distraint warrant or determine the validity of the asserted lien was under advisement and had not been decided; that the trustees' possession of the building in which the attached property, and large quantities of other property not attached were located, was not in controversy, but that the trustees were deprived of any revenue from the building because the City was withholding all the property and assets of the bankrupt estate from the possession of the trustees contrary to law. The order then recited that it seemed necessary and proper that the Trustees be permitted to enter the building and administer the property of the general estate of the bankrupt without interference from the City and County, and that the City and County through its officers had refused the Trustees the right to enter the building or otherwise take possession of the properties. The Referee then ordered the trustees "restored to the possession of the property and to the whole thereof without prejudice however to the right of the City and County of Denver to litigate * * * the question of the legality of the taxes to be collected, if the legality shall at any time be questioned". The Trustees were specifically authorized to use any force necessary to enter the property and "retake possession" and the United States Marshal was designated to aid them. On the same date, and without notice to the City and County, the Marshal executed the Referee's order by breaking the locks on the premises and forcing entry.

The City and County petitioned for review of the Referee's order, alleging that under an agreement with the bankrupt it had stored the personal property levied upon in the described building and padlocked all entrances to which only the Manager of Revenue held the key at the time of the filing of the petition in bankruptcy; that the Manager of Revenue was in possession of the building as a tenant at will and of all the personal property therein under a claim of lien for taxes. After reiterating its objections to the summary jurisdiction of the court it asked to be restored to possession of all the property as of the date of the filing of the petition in bankruptcy.

Thereafter the Referee certified to the court the following questions:

"Whether agents of a municipality claiming taxes due from a bankrupt can take possession of practically all of the personal assets of a bankrupt estate contained in a building owned by the bankrupt, within four months before bankruptcy and while the bankrupt was insolvent, and proceed to collect its tax by a levy made within that time, to the exclusion of the right of the Trustees to administer the estate of the bankrupt for the benefit of the creditors, including the municipality.

"Whether upon refusal of the agents of the municipality to surrender the possession to the Trustees, and upon their forcibly holding the same against the Trustees, the Bankruptcy Court has the right to make a summary order directing the United States Marshal to take possession of the property and deliver it to the Trustees, where the order made did not involve any question other than an administrative question, and expressly excluded any question that might arise under Section 64 sub. a (4) of the Bankruptcy Act 11 U.S.C.A. § 104, sub. a(4) as to the amount or validity of the tax, that question not being involved."

In an explanatory statement of the questions involved, the Referee summarized the pleadings before him and pointed out that the question involved in the show cause order had not been decided but was the subject of discussion in briefs filed. He stated that his order of November 6 was made for the sole purpose of permitting the Trustees to administer the estate without prejudice to the rights of the City and County to claim priority for taxes — a question apparently reserved in the show cause proceedings. The Referee stated that the order was necessary because the City and County, while not attempting to sell the property for the tax claim, was attempting to hold it forcibly against the possession of the Trustees, and demanding that the tax be paid before possession would be surrendered to the Trustees. The court affirmed the order of the Referee and this appeal is taken from that order.

At the outset it seems important to understand that we are not concerned on appeal with the summary jurisdiction of the bankruptcy court to adjudicate the amount, validity or priority of any tax owing to the City and County or the lien thereon for the payment of the same. Rather, the scope of our appeal is confined to the narrow question whether the bankruptcy court had summary jurisdiction to take possession of personal property owned by the bankrupt but in the possession of a third party who by agreement with the bankrupt had stored it in a building owned by the bankrupt when the bankruptcy proceedings were instituted.

Upon adjudication in bankruptcy all of the property of the bankrupt, both real and personal, wherever located is drawn to the jurisdiction of the Bankruptcy Court. Fish v. East, 10 Cir., 114 F.2d 177, 192. The trustee succeeds to the title of all the bankrupt's property or his rights therein, as of the date of the filing of the petition in bankruptcy. See Section 70 sub. a of the Bankruptcy Act, 52 Stat. 879, 11 U.S.C.A. § 110 sub. a; Collier on Bankruptcy, 14th Ed. Vol. 4, Section 70.04, p. 943. And, the Bankruptcy Court becomes vested with exclusive jurisdiction of all the property in either the actual or constructive possession of the bankrupt Mueller v. Nugent, 184 U.S. 1, 22 S.Ct. 269, 46 L.Ed. 405; Acme Harvester Co. v. Beekman Lum. Co., 222 U.S. 300, 32 S.Ct. 96, 56 L.Ed. 208; Fairbanks Shovel Co. v. Wills, 240 U.S. 642, 36 S.Ct. 466, 60 L.Ed. 841; Isaacs v. Hobbs Tie & T. Co., 282 U.S. 734, 51 S.Ct. 270, 75 L.Ed. 645; Ex parte Baldwin, 291 U.S. 610, 54 S.Ct. 551, 78 L.Ed. 1020; City of Long Beach v. Metcalf, 9 Cir., 103 F.2d 483; Harris v. Brundage, 305 U.S. 160, 59 S.Ct. 131, 83 L.Ed. 100. It is authorized to collect the property, reduce it to money, distribute it, and determine controversies in relation thereto. See Section 2...