Frazier v. Wasserman

• Decision Date: 13 June 1968
• Citation: 69 Cal.Rptr. 510,263 Cal.App.2d 120
• Parties: Donald FRAZIER, as Trustee, etc., Plaintiff and Respondent, v. Clarence WASSERMAN et al., Defendants and Appellants. Civ. 932.
• Court: California Court of Appeals Court of Appeals

Page 510

69 Cal.Rptr. 510

263 Cal.App.2d 120

Donald FRAZIER, as Trustee, etc., Plaintiff and Respondent, v. Clarence WASSERMAN et al., Defendants and Appellants.

Civ. 932.

Court of Appeal, Fifth District, California.

June 13, 1968.

Hearing Denied Aug. 8, 1968.

Thomas A. Wahl, Sacramento, for appellants Charles Cooper and another.

Hibbitt & Tarbell, Sacramento, for appellant Clarence Wasserman.

Gray & Thurn, Sacramento, for respondent.

GARGANO, Associate Justice.

This is a judgment roll appeal. Appellants are former creditors of Leland F. Dempsey who was adjudicated a bankrupt under the federal Bankruptcy Act. Respondent is Dempsey's trustee in bankruptcy. The undisputed facts as stated in the respective briefs and as gathered from the court's finding of fact are substantially as follows. ¹

Leland F. Dempsey was an income beneficiary of a testamentary spendthrift trust known as the Jennie L. Mayer Trust. The trust terminated January 1, 1961; upon termination Dempsey was entitled to receive one-half of the corpus free and clear of all trust restrictions. However, Dempsey did not receive possession of his share of the trust proceeds amounting to $28,671 until February 10, 1961, when the Probate Court of Orange County, the court in which the Jennie L. Mayer Estate was probated, distributed the trust estate.

Meanwhile (during the period between the termination of the trust and the distribution of the trust estate by the probate court) some of Dempsey's creditors filed claims in the probate proceeding against Dempsey's trust interest. And on the day before the trust estate was distributed (on February 9, 1961), two of Dempsey's creditors, Charles Cooper and Bernice Cooper, filed an involuntary petition in bankruptcy against Dempsey in the United States District Court. ² But the probate court, after reciting in its decree of distribution that the Mayer Trust was a spendthrift trust, nevertheless directed the trustee (the Bank of America) to distribute Dempsey's one-half share of the trust proceeds directly to Dempsey.

Subsequently (on April 26, 1961), Dempsey was adjudicated a bankrupt by the bankruptcy court. By that time Dempsey had delivered the proceeds of the trust to his attorney, appellant Thomas Wahl. his attorney, appellant Thomas Wahl. and to the other appellants to discharge the antecedent debts which Dempsey had incurred under certain promissory notes that he had executed during the term of the trust. At the time of the payment all appellants (with the exception of appellant Wasserman) knew the source of payment and that bankruptcy proceedings were pending against Dempsey. Almost two years later (on February 8, 1963), respondent, the bankruptcy trustee, brought this action to recover the money which each appellant received from Dempsey's share of the Mayer Trust proceeds. The lower court granted judgment in favor of respondent, and this appeal followed.

Appellants first attack the judgment of the bankruptcy court. Succinctly, they contend that the judgment of the superior court must be reversed because there was 'a fatal lack of jurisdiction of the Bankruptcy Court over any assets of Leland F. Dempsey.' And, significantly, appellants make this contention without having raised this defense in their pleadings and apparently without having offered any evidence on the issue in the superior court.

It is of course true, as appellants maintain, that the jurisdiction of a lower court of this state to act may be challenged by direct attack for the first time on appeal (King v. Kutner-Goldstein Co., 135 Cal. 65, 67 P. 10). However, appellants do not challenge the jurisdiction of the Superior Court of Sacramento County in this appeal; they collaterally attack the judgment of the bankruptcy court, a court of the United States. It is the rule that if a prior judgment is the basis of relief in a lower court, that judgment must be challenged in the lower court before it may be collaterally attacked on appeal unless it is void on its face. And the challenge in the lower court is even more essential when the invalidity of the judgment is dependent upon extrinsic facts which the lower court did not have the opportunity to consider (Dryer v. Dryer, 231 Cal.App.2d 441, 445, 41 Cal.Rptr. 839).

Appellants do not assert that the judgment of the bankruptcy court is void on its face. They merely assert that respondent's complaint in the superior court discloses that only two persons filed the petition in bankruptcy against Dempsey on February 9, 1961, and hence 'the bankruptcy could not have been effective that day' under section 59 of the Bankruptcy Act. This section provides:

'Three or more creditors who have provable claims not contingent as to liability against a person, amounting in the aggregate to $500 in excess of the value of any securities held by them, or, if all of the creditors of the person are less than twelve in number, then one or more of the creditors whose claim or claims equal that amount, may file a petition to have him adjudged a bankrupt; * * *' (11 U.S.C.A. § 95.)

Appellants' contention is devoid of merit. Section 59 of the Bankruptcy Act also allows one creditor, whose claim amounts to at least $500, to file an involuntary petition against the debtor if all of the debtor's creditors are less than 12 in number. Thus, appellants ask this court to assume, as a matter of law, that Dempsey had at least 12 creditors when the petition was filed against him, contrary to the rule articulated in Dryer v. Dryer, supra. And, significantly, they ask this court to make this assumption despite the presumption of Evidence Code section 666 in favor of the validity of the bankruptcy court's judgment. Under this section, when any act of a court of the United States is under collateral attack it is presumed that the court acted in lawful exercise of its jurisdiction.

In any event, there is no contention that the bankruptcy court lacked jurisdiction in the fundamental sense, e.g., over the person of the bankrupt and the subject matter of the action. And lack of jurisdiction in the fundamental sense is essential to a collateral attack on a judgment (Pacific Mut. Life Ins. Co. of Cal. v. McConnell, 44 Cal.2d 715, 725, 285 P.2d 636). Consequently, when the bankruptcy court adjudicated Dempsey a bankrupt it also determined its own jurisdiction, and this determination is Res judicata in subsequent collateral proceedings (Stoll v. Gottlieb, 305 U.S. 165, 59 S.Ct. 134, 83 L.Ed. 104; Chicot County Drainage Dist. v. Baxter State Bank, 308 U.S. 371, 60 S.Ct. 317, 84 L.Ed. 329; Houston v. Pomeroy, 227 Or. 499, 362 P.2d 708, 710, 1 Collier, Bankruptcy 14 ed. (1956) § 2.05, p. 486).

In Stoll the United States Supreme Court held that when jurisdiction over the subject matter was raised and decided in the bankruptcy court it could not be collaterally attacked in the state court.

In Chicot the appellants successfully attacked the jurisdiction of the bankruptcy court in the federal district court on the grounds that the bankruptcy court's determination of jurisdiction had been based on a now void statute so that its determination could not be Res judicata in a later federal district court proceeding. The United States Supreme Court reversed on the ground that the appellants had not attacked the validity of the statute in the bankruptcy proceeding.

In Houston the Supreme Court of Oregon categorized the power of the bankruptcy court to determine its own jurisdiction as follows:

"* * * Moreover, any determination concerning its own jurisdiction, even though erroneous, is Res judicata in a subsequent collateral proceeding. These principles apply even if the question of jurisdiction was not raised; and they apply to orders of the referee as well as those of the judge." (362 P.2d at 710.)

Appellants next contend the decree of distribution of the Probate Court of Orange County, distributing the proceeds of the Mayer Trust directly to Dempsey, is Res judicata and defeats respondent's present claim. They argue that when the probate court distributed one-half of the corpus of the Mayer Trust directly to Dempsey, notwithstanding the claims of Dempsey's creditors which had been filed in the probate proceedings, it decided that Dempsey acquired his share of the trust corpus free and clear of his antecedent debts.

This contention is also without substantial merit. The probate court did not have jurisdiction to resolve any controversy between Dempsey and his creditors in a probate proceeding involving the Estate of Jennie L. Mayer (Estate of Stone, 170 Cal.App.2d 533, 339 P.2d 220; Wilson v. Superior Court, 101 Cal.App.2d 592, 225 P.2d 1002). In any event, for the doctrine of Res judicata to apply it must appear that (1) the issue decided on the merits in the prior proceeding is identical with the one presented in the subsequent litigation, and (2) the party against whom the doctrine is invoked was also a party (or in privity with a party) to the prior proceeding (Dillard v. McKnight, 34 Cal.2d 209, 209 P.2d 387, 11 A.L.R.2d 835). Manifestly, respondent was not a party to the probate proceeding nor was he in privity with any of the creditors who filed claims in that proceeding. Furthermore, respondent's right to claim title to the trust property, as the trustee in bankruptcy of Dempsey's estate under the Bankruptcy Act, was not presented to or considered by the probate court. Clearly, the claim which an individual creditor may have to a debtor's interest in a spendthrift trust after termination but prior to distribution of the corpus by a probate court is not the same as the claim which a trustee in bankruptcy would have against the same property under the Bankruptcy Act.

The remaining question, therefore, is whether Dempsey acquired his share of the Mayer Trust proceeds, after the trust terminated, free and clear of the...