In re Amy

• Decision Date: 14 January 1920
• Docket Number: 96.
• Parties: In re AMY et al. Petition of McGUIRE.
• Court: U.S. Court of Appeals — Second Circuit

263 F. 8

In re AMY et al. Petition of McGUIRE.

No. 96.

United States Court of Appeals, Second Circuit.

January 14, 1920

James F. McNaboe, of New York City (John Francis Moore, of New York City, of counsel), for trustee.

Beekman Menken & Griscom, of New York City (William C. Armstrong, of New York City, of counsel), for respondent.

Before WARD, HOUGH, and MANTON, Circuit Judges.

MANTON Circuit Judge.

On March 5, 1919, Louis H. Amy and Ernest J. H. Amy individually and as copartners doing business under the name of H. Amy &amp Co. made a general assignment for the benefit of creditors to Edward J. McGuire. On March 19, 1919, a petition in involuntary bankruptcy was filed, and an adjudication was decreed on June 9th following. On May 28, 1919, a replevin action was commenced by George Marcuard de Gonzenbach to recover two certain first mortgage bonds of the Chicago & St. Louis Railway Company, which were seized from the assignee by the sheriff of the county of New York by virtue of a writ of replevin issued. In return for the bonds, the sheriff left with the assignee a surety company bond in a sum equivalent to the value of the bonds. The seized property was given to the attorneys for the plaintiff in the action. Since the adjudication, the petitioner, Edward J. McGuire, has been appointed trustee of the bankrupt's estate. The bonds in question were deposited with the bankrupts in the course of business dealing between the bankrupts and the respondent as collateral for possible overdrawals, to wit, errors which might be committed in the transmission of moneys to Europe. The bankrupts had no right to use them for any other purpose. They did, however, wrongfully hypothecate them to secure a loan of $250,000 from the Chase National Bank. The Chase National Bank liquidated this loan without recourse to these two bonds and delivered the bonds to the assignee. His possession of the bonds was subject to no lien of the bank and was held against the claim of their true owner, the respondent.

The theory upon which the petitioner attempts to support the claim of his right to the bonds appears in the answer interposed by him in the replevin suit in the state court. It is claimed that these bonds, together with other securities, were given to the Chase National Bank. These latter securities were wrongfully sold. The particular securities here involved survived the sale by the Chase National Bank to satisfy the indebtedness to it wholly by chance. The petitioner contends that the two bonds in question should be sold, and the proceeds divided pro rata among all those whose securities were wrongfully hypothecated, insisting that a lien in equity exists, in favor of the owners of the securities which were sold, in the unsold securities which were returned wholly by chance. It is claimed that the rights and interests in these bonds and the equities between the various claimants should be determined by the bankruptcy court, and should not be litigated in the state court. The present application is for an order staying the replevin action in the state court.

The respondent appeared in the District Court 'specially and solely for the purpose of objecting to the jurisdiction of the United States District Court for the Southern District of New York. ' The District Judge denied the application for a stay. He contends that this proceeding will not lie, because the court below lacked jurisdiction; that the appeal from the order below should be direct to the Supreme Court. Appeals which must go directly to the Supreme Court of the United States are those wherein the jurisdiction of the District Court as a federal court is involved. Louisville Trust Co. v. Knott, 191 U.S. 225, 24 Sup.Ct. 119, 48 L.Ed. 159. No such question is presented here. It was the duty of the trustee in bankruptcy to take into custody, for the benefit of creditors, such properties as belong to the bankrupt. Bankruptcy Act, Sec. 70 (Comp. St. Sec. 9654).

Subdivision 7, Sec. 2, of the Bankruptcy Act (Comp. St. Sec. 9586) confers jurisdiction upon a court of bankruptcy to-- 'cause the estates of bankrupts to be collected, reduced to money and distributed, and determine controversies in relation thereto, except as herein otherwise provided.'

Section 23a (Comp. St. Sec. 9607) provides:

'Jurisdiction of the United States and State Courts.-- The United States Circuit Courts shall have jurisdiction of all controversies at law and in equity, as distinguished from proceedings in bankruptcy, between trustees as such and adverse claimants concerning the property acquired or claimed by the trustees, in the same manner and to the same extent only as though bankruptcy proceedings had not been instituted and such controversies had been between the bankrupts and such adverse claimants.'

In the answer of the trustee, he distinctly disclaims ownership in the bonds, and admits that they were deposited with the bankrupts without the authority or assent of the owners for the use made of them, and admits that they were wrongfully used by the bankrupts in the hypothecation with the Chase National Bank.

The interest proclaimed by the trustee is the desire to see the proceeds of the bonds, after a sale, divided pro rata among those who are creditors and who had their bonds wrongfully converted by the bankrupt. The use made of the bonds constituted a felony under section 956 of the Penal Law (Consol....