Emerson v. Castor

• Decision Date: 12 October 1916
• Docket Number: 2829.
• Citation: 236 F. 29
• Parties: EMERSON et al. v. CASTOR et al. In re CATARACT RUBBER CO.
• Court: U.S. Court of Appeals — Sixth Circuit

236 F. 29

EMERSON et al. v. CASTOR et al.

In re CATARACT RUBBER CO.

No. 2829.

United States Court of Appeals, Sixth Circuit.

October 12, 1916

The Cataract Rubber Company was incorporated under the laws of the state of New York, and its principal place of business was in the state of Rhode Island. The company maintained and operated a plant for the manufacture of rubber tires in the city of Wooster, Wayne county, Ohio. October 24, 1914, in the common pleas court of that county, and at the suit of I. C Emery, a receiver was appointed and ordered to take possession of the company's assets then in Wayne county. Two days later, proceedings in involuntary bankruptcy were commenced against the company in the District Court of Rhode Island, and Robert S. Emerson was on the same day appointed as receiver in bankruptcy; and on November 7th the company was adjudged bankrupt. On the 18th of that month, and upon petition of creditors who were also petitioners in the involuntary petition in bankruptcy, Robert S. Emerson was appointed by the court below as ancillary receiver of the bankrupt 'in and for the Northern district of Ohio, with all of the rights and powers to carry into force and effect the orders of the original court of jurisdiction. ' December 7th following, Robert S. Emerson was elected trustee in bankruptcy at Providence, R.I. Three days later the receiver, appointed as stated in the Wayne common pleas court, reported to that court that he had sold the rubber company's assets, and later in the month (December 31st) filed his final report in that court, showing the net balance of cash assets in his hands to be $1,259.74. On the same day the common pleas court approved and confirmed the report, and also entered an order, reciting that the federal District Court of the Northern District of Ohio had 'made an order for the (common pleas) court and the receiver in this case to pay over to said Robert Emerson, receiver and now trustee of the Cataract Rubber Company, bankrupt, the balance of the money and assets in his hands,' and directing its (the common pleas') own receiver to 'pay over to said Robert Emerson, receiver and now trustee of the Cataract Rubber Company, said balance in his hands. * * * ' On the 20th of January following, the court below modified in two particulars its previous order appointing Emerson as ancillary receiver: (1) Investing the ancillary receiver with the 'right and power to carry into force and effect the orders of this court which may be entered herein'; and (2) directing the ancillary receiver to 'report and account to this court for all property' of the bankrupt coming into his (the ancillary receiver's) 'possession in the Northern district of Ohio,' and to 'hold the same subject to the further order of this court'-- to which exception was reserved. On the same day, the court below entered an order, reciting that it was 'made to appear to the court that residents of the Northern district of Ohio hold labor claims against the bankrupt herein, and that there is doubt as to whether or not said claims are a lien upon the property of said bankrupt,' and appointing a special master to take testimony as to the character and amount of the claims, the times the services were rendered and the claims became payable, and to report findings with the testimony taken. March 26th, the ancillary receiver reported to the court below that the state receiver had paid, though without naming the date, 'to the trustee in bankruptcy,' the balance, before stated, remaining in the state receiver's hands, 'which the said trustee in bankruptcy now holds subject to the orders of the bankruptcy court.'

The special master filed his report in the court below, stating there were nine creditors who were asking preferences under section 11138, Ohio Gen. Code, for services rendered in different capacities as employes of the bankrupt during stated periods prior to the bankruptcy and at the plant in Wooster; the sums so earned by each claimant; and his allowance to each in accordance with the section mentioned of the Ohio Code and the fifth clause of section 64b of the Bankruptcy Act. Emerson reserved exceptions to this report in his capacities both as ancillary receiver and trustee. The total recovery so allowed exceeded the sum paid over by the state receiver, and counsel agree that this fund is in the hands of the District Court clerk. The court below approved the report, and entered an order, directing payment to be made to the claimants pro rata, according to the allowances made to them, respectively, out of the balance remaining in the fund in question after payment of the costs and the special master's fee. Emerson, as trustee and as ancillary receiver, and the Manhasset Manufacturing Company a petitioning creditor, appeal from this order.

A. A. Stearns, of Cleveland, Ohio, for appellants.

A. D. Metz, of Wooster, Ohio, for appellees.

Before WARRINGTON and KNAPPEN, Circuit Judges, and SESSIONS, District judge.

WARRINGTON Circuit Judge (after stating the facts as above).

The ultimate question concerns the distribution of the fund pointed out in the statement. The appellants contend that the fund should be turned over to the court of primary jurisdiction, the District Court of Rhode Island, sitting in bankruptcy, for purposes of distribution among all the creditors of the bankrupt estate. The appellees, who are the nine labor claimants, insist that the court below, sitting in bankruptcy and as the ancillary tribunal, is empowered to pass upon the questions of priority and to provide for applying the fund accordingly.

Before the issue thus made can be considered, it will be necessary to pass upon a preliminary matter. The appellees have presented a motion to dismiss the appeal. The grounds of the motion in substance are: (a) That 'no claim allowed or judgment or decree rendered' exceeds $300, and so the appeal cannot be sustained under section 25a, cl. 3, of the Bankruptcy Act; and (b) that such a case as this is not open to appeal under any other provision of that act. The theory of the first ground is that the final action of the court below was the rendition of 'a judgment allowing * * * a debt or claim' in favor of the claimants, respectively, for sums less than 'five hundred dollars,' and that since the claims as allowed are separate and distinct in ownership, the appeal must fail for lack of the requisite amount in any of them. This is a misconception of the case. Neither the fact that the appellees severally rendered the services as to which priority was determined, nor the value of such services, is in any instance in dispute. The testimony taken before the special master shows that the value of the services rendered, respectively, by two of the appellees was in excess of the minimum sum, $500, named in clause 3 of section 25a; and those two amounts were each reduced to $300, because of the limitation contained in section 11138, Ohio Gen. Code, on which the appellees mainly rely. The positions taken by the appellees were that under that section of the Ohio statute each was entitled to receive out of the bankrupt fund in preference to other creditors 'the full amount of wages due for' his 'labor, not exceeding three hundred dollars'; in other words, they sought to have the fund distributed and applied in payment of acknowledged claims, at least in sums not exceeding in any instance the amount prescribed by the state statute. It is, moreover, to be observed that when the bankruptcy proceedings were commenced against the Cataract Company and the adjudication took place in the District Court of Rhode Island, possession of the property which is represented by the fund in question was in the receiver appointed in the common pleas court of Wayne county, Ohio; that this receivership was created at the suit of one of the present appellees for the benefit of himself and the other creditors of the Cataract Company; that it became necessary to institute a proceeding in the court below, as an ancillary tribunal, to gain possession of this property and ultimately of the fund; and consequently that neither the property nor the fund ever passed into the hands of Emerson as trustee in bankruptcy in virtue alone of the adjudication. The practical effect, then, of the action taken by the present appellees in the court below was to assert priorities, indeed liens, against the fund. Plainly, the action was not to secure a judgment allowing a debt or claim within the meaning of clause 3, Sec. 25a; and hence the motion to dismiss must depend upon the other ground offered in its support.

Section 24a invests the Circuit Courts of Appeals with 'appellate jurisdiction of controversies arising in bankruptcy proceedings from the courts of bankruptcy from which they have appellate jurisdiction in other cases. ' The jurisdiction so given is not in terms affected by the amount involved. In re Rouse, Hazard & Co., 91 F. 96, 98 33 C.C.A. 356 (C.C.A. 7). It is to be inferred from the record that the action taken by the appellees in the court below was, in practical intent and purpose, an intervention in bankruptcy proceedings which gave rise to a controversy within the meaning of section 24a. There were nine claimants asserting priorities, or, in effect, as we have seen, liens, against a particular fund which, we repeat, was not derived through direct operation of the adjudication in bankruptcy. Such action naturally invoked the equity jurisdiction of the court; and the court below, sitting in bankruptcy, ordered the fund to be applied in partial satisfaction of these admittedly earned labor claims. No formal pleadings, it is true, were presented by either side to show the theory of the parties, either as respects recovery or defense. It is to be...