Finneran v. Burton

• Decision Date: 05 July 1923
• Docket Number: 234,6294.
• Citation: 291 F. 37
• Parties: FINNERAN v. BURTON (two cases). [a1] In re BLUE BIRD APPLIANCE CO.
• Court: U.S. Court of Appeals — Eighth Circuit

291 F. 37

FINNERAN v. BURTON (two cases). ^[a1]

In re BLUE BIRD APPLIANCE CO.

Nos. 234, 6294.

United States Court of Appeals, Eighth Circuit.

July 5, 1923

Luther Ely Smith and Elmer E. Pearcy, both of St. Louis, Mo., for petitioner appellant.

Alva C Trueblood, of St. Louis, Mo. (Wilson & Trueblood, and George O. Durham, all of St. Louis, Mo., on the brief), for respondent appellee.

Before LEWIS and KENYON, Circuit Judges, and TRIEBER, District Judge.

KENYON Circuit Judge.

This case is before us on appeal and also on petition to revise. As the questions involved are solely legal ones, we consider the same on petition to revise.

Petitioner was appointed temporary receiver of the Blue Bird Appliance Company by the circuit court of the city of St. Louis, June 19, 1920, in a suit filed by receivers of the Blue Bird Manufacturing Company against the Blue Bird Appliance Company. Plaintiff qualified later as permanent receiver, and took charge of the assets of the Appliance Company, and acted as receiver from August 20, 1920, until November 24, 1920. October 18, 1920, certain creditors of the Appliance Company filed involuntary petition in bankruptcy against said company in the United States District Court for the Eastern District of Missouri. The Appliance Company on November 16, 1920 filed its consent to be adjudged a bankrupt, and consent also that a receiver in bankruptcy should be appointed. In October and November, 1920, applications were made to the St. Louis Court of Appeals for a writ of prohibition against the presiding judge in division No. 2 of the circuit court of the city of St. Louis, to prohibit him from proceeding with the receivership case in the state court on the ground that the court was without jurisdiction. November 24, 1920, the St Louis Court of Appeals sustained said application, and held that said state court was without jurisdiction, for the reason that plaintiffs in the case in the state court had failed to exhaust their corporate remedies by not holding an election for directors before applying to a court of equity for relief. This case is reported in 207 Mo.App. 149, 226 S.W. 329, entitled State ex rel. George T. Priest Relator, v. John W. Calhoun, Judge, Respondent. May 16, 1921, the Appliance Company was adjudged a bankrupt. September 30, 1921, William J. Burton, who had acted as receiver in bankruptcy theretofore, was appointed trustee in bankruptcy. May 10, 1922, petitioner filed with the referee a claim for allowance for compensation to himself and for attorney fees while in charge of the company as receiver in the state court, alleging that said services were beneficial to the estate. The referee denied the claim, which action of the referee was sustained by the District Court.

The question as to whether the District Court erred in not allowing said claim in the sum of approximately $15,000 is thus presented on the petition to revise. It is petitioner's theory that the services rendered, both by him and his counsel, were of benefit to the estate, and consequently should be allowed by the bankruptcy court. He cites many cases in support of this position. It is without question that the proceedings in the state court under which petitioner was appointed receiver were without jurisdiction, and under the decision heretofore cited of 207 Mo.App. 149, 226 S.W. 329, were void ab initio. This question is therefore squarely presented: Where a receiver has been appointed by a court in an involuntary proceeding, in which there was no jurisdiction or authority for the court so to act, and the receiver has proceeded to care for the property, and his care has benefited the estate, is he entitled to compensation for his services out of the property or funds of the bankrupt? The leading case cited and apparently relied on by petitioner is Randolph v. Scruggs, 190 U.S. 533, 23 Sup.Ct. 710, 47 L.Ed. 1165. In that case, however, the assignment was not illegal. The assignee was acting lawfully in what he did before the proceedings in bankruptcy were commenced. The other cases cited by petitioner are not similar to the case at bar. They embrace a situation where legally appointed assignees or receivers claim compensation in subsequent bankruptcy proceedings for beneficial services, or where the owner of the property has assented either expressly or impliedly to the proceedings, so as to charge the property with an equitable lien for beneficial services. It must always be kept in mind that the situation here is one in which there was no voluntary act on the part of the Appliance Company, its officers or directors, from which it could be claimed that they had voluntarily agreed to the receivership in the state court. In the brief of petitioner they state that on the 18th day of June, 1920, the day before petitioner was appointed receiver, all of the officers, directors, and managers of the Appliance Company resigned and left the state of Missouri, except one director, who resigned, but did not leave the state. So the record shows that there were no officers and directors who could be charged with voluntarily doing anything to bring about the receivership in the state court.

Under these circumstances, coupled with the uncontroverted fact that the proceedings in the state court were without jurisdiction, there is no right on the part of the receiver or his attorneys to have compensation out of the property of the Appliance Company. In Hawes et al. v. First Nat. Bank of Madison et al., 229 F. 51, 59, 143 C.C.A. 645, 653, this court said:

'In the case at bar, the court, being without jurisdiction, has no property with which to pay any one, and hence is not ruled by Atlantic Trust Co. v. Chapman, 208 U.S. 360, 28 Sup.Ct. 406, 52 L.Ed. 528, 13 Ann.Cas. 1155. Courts may not seize property without jurisdiction, and then claim jurisdiction over the property because it is in the possession of the court.'

This doctrine was approved in the late case of Brictson Mfg. Co. v. Woodrough (C.C.A.) 284 F. 484. In another case in this court, Fryer et al. v. Weakley, 261 F. 509, it was held that, where the receiver was appointed without jurisdiction, the case should be remanded to the District Court, with directions to cause all the moneys and property and all the proceeds of the property seized or collected by the receiver to be paid over and delivered to defendants. The court said (page 514), 'The court, being without jurisdiction, has no property to pay them,' and refers with approval to the decision announced by Judge Carland in the Hawes Case.

In the case of Bramble v. Brett, 230 F. 385, 388, 144 C.C.A. 527, 530 (this circuit), the court had before it the question of allowance to the assignee or trustee who had protected the property prior to the proceedings in bankruptcy, and the court said:

'An assignee or trustee, who has in good faith protected and preserved property to the benefit of the estate of a bankrupt under an assignment or trust deed valid while he was acting under it, is entitled to payment of his legitimate expenses, and to compensation for his services and for the services of his attorney out of the proceeds of the property he has preserved, which subsequently comes to

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