In re Parker

• Decision Date: 28 December 1921
• Docket Number: 3043.
• Citation: 283 F. 404
• Parties: In re PARKER et al. v. HARTMAN et al. PARKER et al.
• Court: U.S. Court of Appeals — Seventh Circuit

283 F. 404

In re PARKER et al.

PARKER et al. v. HARTMAN et al.

No. 3043.

United States Court of Appeals, Seventh Circuit.

December 28, 1921

On August 3, 1921, respondents (hereinafter called plaintiffs) filed in the District Court for the Northern District of Illinois a complaint to have petitioners (hereinafter called defendants) adjudged bankrupts. This complaint was superseded by the following amended complaint, filed on August 9, 1921:

'The petition of Wm. Hartman, Sarah Smith, and Alex. C Friedman, all of the county of Cook, in said district respectfully shows:

'That Harrison Parker, N. A. Hawkenson, and John Coe, co-partners trading as an alleged common law trust under the name of the Co-Operative Society of America, have for the greater portion of six months next preceding the date of the filing of this petition had their principal place of business at Chicago, in the county of Cook, state and district aforesaid, and owe debts to the amount of one thousand ($1,000) dollars; that your petitioners are creditors of said Harrison Parker, N. A. Hawkenson, and John Coe, co-partners trading as an alleged common law trust under the name of the Co-Operative Society of America, having provable claims amounting in the aggregate in excess of securities

held by them in the sum of five hundred ($500.00) dollars; that the nature and amount of your petitioners' claim are as follows:

'William Hartman is the holder of a certain certificate No. 5857, class A, in the amount of five hundred ($500) dollars, secured by a junior mortgage on real estate in Muskegon county, Michigan, the security for said indebtedness of five hundred ($500) dollars being of absolutely no value whatsoever; that said certificate is part of an issue of four hundred thousand (400,000) beneficial certificates of an expressed value of twenty-five ($25) dollars each, and being in the aggregate the sum of ten million ($10,000,000) dollars; that the security under said junior mortgage is of the value of less than twenty thousand ($20,000) dollars, and your petitioners charge that there is no equity whatever in said land available for your petitioners, and that your petitioners were induced to purchase said certificates by fraudulent and false representations, among which false and fraudulent representations were that the alleged bankrupt was a going, prosperous organization making a profit, when in truth and in fact said alleged bankrupt was then insolvent, losing money very rapidly, and paying dividends out of its capital to its certificate holders.

'Your petitioner Wm. Hartman further shows that he was informed that the said Harrison Parker, N. A. Hawkenson, and John Coe, were to receive four and one-half (4 1/2) per cent. of the net profits derived from the operation of the business of the said Co-Operative Society of America, when in fact the said Harrison Parker, N. A. Hawkenson, and John Coe have withdrawn large sums of money, as your petitioner is informed, approximately thirty-five thousand ($35,000) dollars per year, when the said Co-Operative Society of America had been losing large sums of money monthly in the operation and conduct of said business.'

Then, after describing the claims of Smith and Friedman in the same way, the complaint proceeds:

'Your petitioners further represent that the said Harrison Parker, N. A. Hawkenson and John Coe, co-partners trading as an alleged common-law trust under the name of Co-Operative Society of America, are insolvent, and that within four (4) months next preceding the date of this petition the said Harrison Parker, N. A. Hawkenson and John Coe, co-partners trading as an alleged common law trust under the name of Co-Operative Society of America, committed an act of bankruptcy, in that they did heretofore, to wit, in the month of July, 1921, convey, transfer, conceal, and remove the sums of approximately twenty-five hundred ($2,500) dollars in cash by turning the same over to the said Harrison Parker with intent to hinder, delay, and defraud their creditors, said payment of said twenty-five hundred ($2,500) dollars to the said Harrison Parker having been made without any consideration.

'Wherefore your petitioners pray that service of this petition, together with a subpoena, may be made upon the said Harrison Parker, N. A. Hawkenson, and John Coe, co-partners trading as an alleged common-law trust under the name of Co-Operative Society of America, as provided in the acts of Congress relating to bankruptcy, and that they may be adjudicated to be bankrupts within the purview of said acts.'

On August 20, 1921, defendants filed their answer denying all of the allegations of the complaint and challenging the jurisdiction of the bankruptcy court on the following affirmative allegations in substance: that on February 20, 1919, Edith S. Parker, as grantor, conveyed certain property to defendants as trustees of an express trust under the common law; that said instrument gave to defendants as such trustees the legal title to all the property, and full power and discretion to manage and dispose of the same for 21 years, at the end of which time they were to account to all owners of beneficial interests in the trust estate; that the instrument contained the agreement of the grantor and of the trustees that strangers to the trust might become parties thereto by contributing money or property to the trust estate, and thereupon the trustees should issue to them certificates of beneficial interests entitling them to be fellow beneficiaries with the original grantor, subject to all the limitations of the instrument; that the only dealings defendants ever had with plaintiffs was to receive from plaintiffs contributions to the trust estate and to issue to them certificates of beneficial interests; and that plaintiffs, when they made their contributions, had full knowledge of the limitations of the trust agreement and of the nature and extent of the trust estate. Plaintiffs did not test the sufficiency of the affirmative defense by motion to strike out under equity rule 33 (198 F. xxvii, 115 C.C.A. xxvii), and such new matter stood denied under equity rule 31 (198 F. xxvii, 115 C.C.A. xxvii). Defendants, on September 6, 1921, moved that the amended complaint be dismissed on the grounds that on its face it failed to show that defendants were subject to the bankruptcy statute and that plaintiffs had provable claims and that any act of bankruptcy had been committed by defendants. This motion was overruled on September 9, 1921, and the cause was referred to a special master to take testimony and make findings of fact and conclusions of law. On September 17, 1921, defendants' motion to set aside the order of reference was overruled.

By this petition to review and revise, defendants question the action of the District Court in holding the complaint sufficient and also in ordering a reference to a special master.

Plaintiffs challenge our jurisdiction to entertain this petition to review and revise.

Harris F. Williams, of Chicago, Ill., for petitioners.

David K. Tone, of Chicago, Ill., for respondents.

Before BAKER, ALSCHULER, and PAGE, Circuit Judges.

BAKER Circuit Judge (after stating the facts as above).

I. Jurisdiction of This Court.-- If a defendant is confronted with a complaint to have him adjudged a bankrupt, he may believe that the allegations of fact are false and his counsel may feel sure that the complaint fails to state a cause of action. In the District Court his counsel, formerly by demurrer and now by motion (but, because there are so many kinds of motions, it may be more convenient to call a motion that challenges the legal sufficiency of a pleading a demurrer), may present his views, and, if they accord with the views of the District Judge, the case is there at an end unless the plaintiffs can produce a sufficient complaint but, if the demurrer is overruled, the defendant must answer, and may be subjected to a long and expensive trial with respect to the truth of the allegations before an adjudication is had. And if the defendant is adjudicated a bankrupt, his counsel on appeal under section 25a of the Bankruptcy Act (Comp. St. Sec. 9609) may again urge his contention that the complaint fails to state a cause of action. But must he await the...