In re Louis Neuburger, Inc.

• Decision Date: 10 June 1916
• Citation: 233 F. 701
• Parties: In re LOUIS NEUBURGER, Inc.
• Court: U.S. District Court — Southern District of New York

233 F. 701

In re LOUIS NEUBURGER, Inc.

United States District Court, S.D. New York.

June 10, 1916

Harry S. Hechheimer, of Baltimore, Md., for trustee.

Walter B. Milkman, of Brooklyn, N.Y., assignee, pro se.

AUGUSTUS N. HAND, District Judge. After a general assignment a petition in bankruptcy was filed, and this matter proceeded to an adjudication. After the adjudication, which was known to the assignee, a sale was had by the order of the County Court of Bronx County, before the election of a trustee. Thereafter, and before the election of the trustee, the assignee filed his account in the County Court, which was settled and approved by that court after notice to creditors. The referee in bankruptcy thereafter ordered the assignee to account in this court. The assignee seeks to have this order of the referee reviewed and vacated.

It is my opinion that, according to correct legal principles, the assets of the bankrupt became vested by the adjudication in the trustee, his title to relate back to that time, and the assignee thereafter was a mere custodian without title. He could not lawfully sell the assets, the County Court had no jurisdiction over them, and all his acts in relation to them other than mere custody in anticipation of turning them over to a trustee, when appointed, were null and void. As this court had sole jurisdiction of the assets, the assignee was bound to account here, and any accounting which he might be obliged to render to the County Court was subject to such distribution of the assets as this court, which had plenary jurisdiction, might order. This is perfectly consistent with his obligations to the County Court, for its orders would be subordinate to the orders of this court, in which all rights of distribution became vested by the adjudication. This is what the referee decided in a well-considered opinion, and no other result is consonant with general principles and the jurisdiction in bankruptcy granted by the Constitution of the United States to the federal courts.

These general principles, however, which would seem to be based on reason, the assignee insists have been modified by decisions of the Supreme Court. He says that it was optional with him whether to account in the state court or this court, and that, as he had filed his accounts in the County Court before the trustee in bankruptcy was elected, though after adjudication, he was at liberty to proceed to have them settled in the County Court as he did, and its decree was final and binding everywhere. The trustee appeared in the County Court and filed an affidavit and submitted a brief objecting to the jurisdiction; but the accounts were passed by that court as filed.

The decisions of the Supreme Court are in fact quite contrary to the position taken by the assignee. In the case of Bryan v. Bernheimer, 181 U.S. 188, 21 Sup.Ct. 557, 45 L.Ed 814, a general assignment was followed in nine days by a petition in bankruptcy. Between the filing of the petition and the date of adjudication the assignee sold the property of the estate. The court held that the purchaser had a title subordinate to that of the bankrupt's estate, and that the equities between him and the creditors should be determined by the District Court. The court did not decide whether the District Court ought to have summarily passed on the question involved, if the purchaser had not submitted to the jurisdiction of the latter, but held unequivocally that the general assignment became void after the adjudication in bankruptcy and the purchaser took no title. It is for that principle that I cite the case.

Mr Justice Holmes, in the case of Randolph v. Scruggs, 190 U.S. 533, 23 Sup.Ct. 710, 47 L.Ed. 1165, said as to general assignments made within four months of the filing of the petition:

'If, by declaring the assignment an act of bankruptcy, the statute means that the conveyance shall not be effectual against the bankruptcy proceedings, as is agreed, the natural and simple construction is that it means that the deed shall be avoided as a whole when the trustee takes the goods. The cases which we have cited, and others under insolvent and bankruptcy laws, evidently take that view. It follows that the appellants can assert no preference by way of lien under the deed.'

The opinion goes on to say in substance that the right of an assignee to compensation and recoupment does not depend upon the state law or arise out of the assignment, but is based upon an equitable right to claim such recoupment and compensation as may be reasonable for his efforts in preserving the...