Crosby v. Mills

• Decision Date: 06 August 1969
• Docket Number: No. 149-68.,149-68.
• Citation: 413 F.2d 1273
• Parties: Charles D. CROSBY, Plaintiff-Appellant, v. Walter Bevan MILLS; Bonnie Roberts Mills; George W. Sperlak; The West Aspen Company, a Colorado corporation; Kingcrest Corporation, a Colorado corporation; Bennett King; Paul B. Rodden; and Rodden, Cooper, Woods and Mitchell, a partnership, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

413 F.2d 1273 (1969)

Charles D. CROSBY, Plaintiff-Appellant, v. Walter Bevan MILLS; Bonnie Roberts Mills; George W. Sperlak; The West Aspen Company, a Colorado corporation; Kingcrest Corporation, a Colorado corporation; Bennett King; Paul B. Rodden; and Rodden, Cooper, Woods and Mitchell, a partnership, Defendants-Appellees.

No. 149-68.

United States Court of Appeals Tenth Circuit.

August 6, 1969.

Lynch, MacIntosh & Lynch, and Daniel F. Lynch, Denver, Colo., submitted on brief for plaintiff-appellant.

Rodden, Cooper, Woods & Mitchell, Denver, Colo., submitted on brief for defendants-appellees.

Before LEWIS, BREITENSTEIN and HOLLOWAY, Circuit Judges.

BREITENSTEIN, Circuit Judge.

Plaintiff-appellant Crosby brought an independent action against defendants-appellees Mills and others to have certain orders of the referee, in bankruptcy proceedings brought under Chapter XII of the Bankruptcy Act, 11 U.S.C. §§ 801-926, by Mills, declared void. There is no diversity of citizenship. The trial court held that the action was an impermissible collateral attack against the orders of the referee and that it had no jurisdiction.

Mills filed the Chapter XII proceedings on December 13, 1965. The first meeting of the creditors was held January 14, 1966. On that day an order was entered that Mills file the bond required by 11 U.S.C. § 826 for the protection of creditors. No bond was filed within the time fixed. On an application of Crosby and after hearing, the referee, on March 14, 1966, held that a certain deed passed title to Crosby as an absolute conveyance and not as a security transaction. Thereafter Crosby moved to dismiss the bankruptcy proceedings on the ground that Mills had not filed the required bond. On July 18, 1966, the referee held that dismissal under 11 U.S.C. § 827 was discretionary and refused to dismiss. There was no review of this order.

After a hearing, the referee, on September 7, 1966, held that Mills had an equitable interest in the real estate covered by the mentioned deed. Time was given for a modified plan. On October 21, 1966, the referee determined the value of the equitable interest. Mills petitioned the district court for review of the March 14 order and Crosby petitioned for review of the September 7 and October 21 orders. The district court upheld the referee. No appeal was taken from the decision of the district court.

Two other orders of the referee must be mentioned. One, dated April 17, 1967, authorized the sale of corporate stock, and the other, dated August 3, 1967, directed the trustee to make a correction deed. No review was sought of either of these orders.

On August 4, 1967, the referee, pursuant to 11 U.S.C. § 827, dismissed the bankruptcy proceedings because of the failure to file the bond required by the January 14, 1966, order. The referee held that to remand the debtors to the state courts "would afford the best opportunity to pay their creditors" and that "the interest of the creditors would best be served by an immediate dismissal of the proceedings." No review was had of this order.

The complaint in the instant action was filed on April 10, 1968. It attacks the August 4 order of dismissal, the April 17 order relating to the corporate stock, and the August 3 order for deed correction. Federal jurisdiction is asserted under 28 U.S.C. § 1334 which gives federal district courts original jurisdiction "of all matters and proceedings in bankruptcy." The district court held that the action was a collateral attack on the orders of the referee and that § 1334 did not confer jurisdiction.

Although the answer to the jurisdictional question is not free from doubt, we believe that the district court had jurisdiction. Section 1334 covers matters and proceedings in bankruptcy. The orders under attack were entered in such proceedings. Crosby seeks relief from those orders under Rule 60(b), F. R.Civ.P. That rule is not inconsistent with the provisions of the Act and is within the purview of General Order 37. We believe that the better practice would be to assert Rule 60(b) claims by an application directed to the referee but we are unwilling to say that the failure to follow such procedure is fatal to jurisdiction. When an independent action is brought to obtain Rule 60(b) relief in the federal court that rendered the initial judgment, there is ancillary jurisdiction over the action despite absence of a federal question or diversity of citizenship. Martina Theatre Corporation v. Schine Chain Theatres, Inc., 2 Cir., 278 F.2d 798, 800, note 1. See also Pacific Railroad of Missouri v. Missouri Pacific Railway Company, 111 U.S. 505, 522, 4 S.Ct. 583, 28 L.Ed. 498. Here relief is sought from orders of the referee in a bankruptcy proceeding initiated in the District of Colorado. We are of the opinion that the district court had ancillary jurisdiction under § 1334.

The briefs of the parties both attack and defend the sufficiency of the complaint. Because of the dismissal on jurisdictional grounds, the district court did not consider or decide these issues. The desirability of prompt disposition of bankruptcy matters impels us to recognize, rather than ignore, the arguments presented.

Some general principles should first be noted. The Bankruptcy Act sets up an orderly procedure for review of referees' orders by the district court, 11 U. S.C. § 67(c), and by the court of appeals, 11 U.S.C. § 47(a). Section 39(c) of the Act, 11 U.S.C. § 67(c), provides that unless a petition for review is filed as there authorized, "the order of the referee shall become final." This finality has been recognized by the courts. See Standard Brass Corporation v. Farmers National Bank of Belvidere, 7 Cir., 388 F.2d 86, 90, and In the Matter of Sunningdale Country Club, 6 Cir., 351 F.2d 139, 142.

Rule 60(b) says that motions thereunder shall be filed within a reasonable time and, in certain situations, not more than one year after the entry of the judgment or order. The rule permits an independent action and prescribes no time limitations for such action. In the absence of a controlling statute, the only time limitation is the equitable doctrine of laches. 7 Moore's Federal Practice 630. Laches is an important consideration in bankruptcy proceedings because the chief purpose of the bankruptcy laws is "to secure a prompt and effectual administration and settlement of the estate of all bankrupts within a limited period." Katchen v. Landy, 382 U.S. 323, 328, 86 S.Ct. 467, 472, 15 L.Ed.2d 391, quoting Ex parte Christy, 3 How. (44 U.S.) 292, 312, 11 L.Ed. 603.

The district court sitting in bankruptcy had jurisdiction over the parties and power to decide the issues presented. Its determinations, although open to direct review, may not be assailed collaterally. Chicot County Drainage District v. Baxter State Bank, 308 U.S. 371, 376, 60 S.Ct. 317, 84 L.Ed. 329; see also Securities and Exchange Commission v. United States Realty & Improvement Co., 310 U.S. 434, 446, 60 S. Ct. 1044, 84 L.Ed. 1293. An independent action attacking orders of the referee may not be substituted for the review by timely petition which the Act authorizes. We believe that this position is sound whether the independent action seeking Rule 60(b) relief is considered as a direct or as a collateral attack. Cf. 7 Moore's Federal Practice ¶ 60.41a at 804-805 and Restatement, Judgments § 112, at 526-537. Resort to an independent action may be had "only under unusual and exceptional circumstances." 3 Barron and Holtzoff, Federal Practice and...