Fidelity Trust Co. v. Gaskell

• Decision Date: 06 April 1912
• Docket Number: 3,572.
• Citation: 195 F. 865
• Parties: FIDELITY TRUST CO. v. GASKELL.
• Court: U.S. Court of Appeals — Eighth Circuit

195 F. 865

FIDELITY TRUST CO. v. GASKELL.

No. 3,572.

United States Court of Appeals, Eighth Circuit.

April 6, 1912

(Syllabus by the Court.)

The Circuit Court of Appeals has jurisdiction to review the decision of a District Court exercising ancillary jurisdiction in bankruptcy that it has no jurisdiction to determine whether the proceeds of goods it seizes and sells as the property of the bankrupt are the property of the bankrupt estate or the property of adverse claimants.

It is only when the jurisdiction of the trial court as a federal court is in issue that the Supreme Court has exclusive jurisdiction to entertain a writ of error or an appeal under the first clause of section 5 of the Act of March 3, 1891, c 517, 26 Stat. 826, 827 (U.S. Comp. St. 1901, p. 549) creating the Circuit Courts of Appeals.

Whenever its jurisdiction is conditioned, not by its power as a court of the United States, but (1) by its general authority as a judicial tribunal, (2) by the general principles of jurisprudence and the established rules of practice regarding the disposition of the claims of interveners and other parties in equity and ancillary proceedings, or (3) by the principles and rules which govern the proceedings of courts of concurrent jurisdiction between themselves, its decision is reviewable by the Circuit Courts of Appeals.

District Courts exercising ancillary jurisdiction in bankruptcy are vested with the power and charged with the duty to hear and adjudge the adverse claims of parties who pray their determination of such claims to the title to, or to legal or equitable liens upon, the specific property they seize as the property of the bankrupt, and, according to their adjudications, to send the property, or its proceeds, to the court of primary jurisdiction, or to apply them to the satisfaction of such claims.

The petitioners in bankruptcy and officers appointed in the District Court of the Western District of New York invoked the ancillary jurisdiction of the District Court of the Western District of Missouri. That court appointed a receiver, seized and sold a stock of goods as the property of the bankrupts when the creditor, a corporation, of another 'person,' a partnership, intervened, alleged that the property seized was the only property of that partnership which was, and had been for years, indebted to it in the sum of $15,000, and prayed that the proceeds of this property which was seized in Kansas City be applied to the payment of its claim and to the payment of the claims of other creditors of that partnership similarly situated.

Held the District Court of the Western District of Missouri had the jurisdiction, and it was its duty, to hear and adjudge this claim and to dispose of the proceeds of the property it seized within its territorial limits according to its adjudication thereof.

Under Bankr. Act July 1, 1898, c. 541, 30 Stat. 544 (U.S. Comp. St. 1901, p. 3418), a partnership is a distinct entity separate from the partners who compose it and from other partnerships composed in part of the same members.

Justin D. Bowersock (Frank Hagerman and Lister M. Hall, on the brief), for appellant.

John M. Cleary and C. W. McKay, for appellee.

Before SANBORN and SMITH, Circuit Judges, and WILLIAM H. MUNGER, District Judge.

SANBORN Circuit Judge.

Has a United States District Court, which in the exercise of its ancillary jurisdiction has seized and converted into money the property of a third 'person,' a partnership, as the property of a 'person,' another partnership, against which proceedings in bankruptcy have been commenced in the court of original jurisdiction, the jurisdiction to restore the proceeds of the property which are still in its possession to a creditor of the true owner, the partnership, against which no proceedings in bankruptcy have been commenced, which is equitably entitled to them? This is the chief question which this appeal presents.

Under Bankr. Act July 1, 1898, c. 541, 30 Stat. 544 (U.S. Comp. St. 1901, p. 3418), a partnership is a distinct entity, a person, separate from the partners who compose it and from all other partnerships. It owns its property apart from the individual property of its members and apart from the property of every other partnership of which any of its members happen to be members, and it owes its debts apart from the individual debts of its members, and from the debts of other partnerships of which any of its members are members. It may be adjudged a bankrupt, although the partners who compose it are not so adjudicated. Its members may be adjudged bankrupts, but where one or more, but not all, of them are not so adjudged, the partnership property may not be administered in bankruptcy without the consent of the partner or partners not adjudged bankrupt. Section 5h. A receiver or trustee of a partnership adjudged a bankrupt is not the receiver or trustee of the property of another unadjudicated partnership in which the members of the bankrupt partnership were also members, and he has no more right to seize or to administer such property than he has to take and distribute the property of any other stranger. In re Bertenshaw, 157 F. 363, 366, 367, 368, 85 C.C.A. 61, 64, 65, 66, 17 L.R.A. (N.S.) 886, 13 Ann. Cas. 986.

The stock of goods in controversy in this case was located in Kansas City, Mo. It was the property of a partnership, which, for the sake of brevity, will be called the Beeson firm. It was seized and sold by the United States District Court for the Western District of Missouri as the property of the partnership which, for brevity, will be called the Simon firm, and that court was about to remit its proceeds to the trustee in bankruptcy of the property of the latter firm appointed by the referee in bankruptcy of the United States District Court for the Western District of New York when the Fidelity Trust Company, the appellant, filed an intervening petition in which it alleged these to be the facts. About October 8, 1910, an involuntary petition in bankruptcy was filed in the United States District Court for the Western District of New York against Michael C. Simon, individually, and M. C. Simon, as surviving partner of the firm of Ely Meyer, who died in May, 1910, and M. C. Simon, and that court appointed receivers of the estates of Simon as such surviving partner and as an individual. On October 13, 1910, upon an affidavit of the attorney for the petitioning creditors that their petition had been filed in the New York court, that such receivers had been appointed by that court, that Simon as surviving partner and individually owned a stock of merchandise situated in Kansas City, and that it was for the best interest of the estate that a receiver should be appointed to carry on the mercantile business with this stock, the United States District Court for the Western District of Missouri appointed the appellee, Lon H. Gaskell, ancillary receiver of the estate of Simon as such surviving partner and as an individual, authorized him to conduct a mercantile business with the property of the alleged bankrupt, and required him to report to that court. Ely Meyer and M. C. Simon, prior to the death of Meyer, were copartners in the Simon firm which had its principal offices and was engaged in the clothing business at Rochester, N.Y., but Joe Beeson was not a member of that partnership. At the same time Meyer, Simon, and Joe Beeson were partners in the Beeson firm, which was conducting a clothing business in Kansas City, under the personal direction and management of Beeson, who was a resident of that city. The Beeson firm was a partnership separate from and independent of the Simon firm, and it owned the stock of goods at Kansas City which the receiver seized and sold. It had held out and represented to the appellant, the Fidelity Trust Company, that its stock of goods at Kansas City and its business were and would be separate from and independent of the assets and debts of the Simon firm, available to satisfy its obligations and exempt from the debts of the Simon firm. In reliance upon these facts and representations, the intervener loaned to the Beeson firm $15,000 in March, 1906, and took its promissory notes therefor. It now holds the notes of that firm for this identical indebtedness, and they have not been paid. The only property of the Beeson firm is the proceeds of the sale of this stock of goods which the receiver, Gaskell, seized and sold as the property of the Simon firm, under the orders of the court below, and the intervener was deprived of its remedy at law by that seizure and the continuing possession of the property and its proceeds by the court below and its receiver. In view of these facts, the intervener, the Fidelity Trust Company, prayed that the court below would retain and distribute the proceeds of the sale of the property of its debtor to it and to the other creditors of the Beeson firm, and that it would refuse to deliver them over to the trustees of the property of the Simon firm until the debts of the Beeson firm had first been paid, and that it have such other and further relief as in equity and good conscience it was entitled to receive.

None of the averments of this petition were denied by answer or otherwise, so that, in the consideration and decision of the issues now presented to this court, all the allegations of this petition must be taken to be true. Instead of challenging the averments of this petition, the receiver pleaded to the jurisdiction of the court below, and his plea was that the United States District Court of the Western District of Missouri had no jurisdiction to determine whether or not the goods it had seized and sold and their proceeds were the property of the Simon firm, and hence of the alleged...