In re Rochford

• Decision Date: 14 July 1903
• Docket Number: 33.
• Citation: 124 F. 182
• Parties: In re ROCHFORD et al.
• Court: U.S. Court of Appeals — Eighth Circuit

124 F. 182

In re ROCHFORD et al.

No. 33.

United States Court of Appeals, Eighth Circuit.

July 14, 1903

Syllabus by the Court.

The District Court sitting in bankruptcy has no jurisdiction over a controversy between trustees in bankruptcy and an adverse claimant relating to the title or possession of property in the custody of the latter, in the absence of his consent, but such an issue is a controversy at law or in meaning of section 23 of the bankrupt act of July, 1898, c. 541, 30 Stat. 552, 553 (U.S. Comp. St. 1901, p. 3431).

The District Court has jurisdiction of such a controversy in a case in which it finds it absolutely necessary for the preservation of the estate to take the possession of the property from the adverse claimant by means of its receiver or the marshal, under clause 3 of section 2 (Act July 1 1898, c. 541, 30 Stat. 545, 546 (U.S. Comp. St. 1901, p 3421)), and such a seizure and the determination of the issue thus raised between the trustee and the adverse claimant is a proceeding in bankruptcy as distinguished from a controversy at law or in equity, within the true interpretation of section 23 of the act (30 Stat. 552, 553 (U.S. Comp. St. 1901, p. 3431)).

The District Court sitting in bankruptcy has jurisdiction to determine, after a reasonable notice to the claimants to present their claims to it, the claims of all parties to property and to the proceeds of property which its officers have lawfully reduced to their possession in the course of the administration of the estate of the bankrupt, and controversies between trustees in bankruptcy and adverse claimants to property which has in that way reached the custody of the District Court are not controversies at law or in equity, as distinguished from proceedings in bankruptcy within the proper construction of section 23 of the bankrupt act of July 1, 1898, c. 541, 30 Stat. 552, 553 (U.S. Comp St. 1901, p. 3431).

A referee in bankruptcy has jurisdiction to draw to himself by summary process or notice, and in the first instance to determine, the question of the validity of the claim of a third party to a lien upon, or an interest in, property or the proceeds of property lawfully in the custody of a trustee in bankruptcy.

The administration and distribution of the property of bankrupts is a proceeding in equity, and when authorized by act of Congress it becomes a branch of equity jurisprudence.

Joe Kirby, for petitioners.

Park Davis, W. H. Lyon, J. H. Gates, and F. B. Dodge, for respondents.

Petition for Review of Decision of the District Court of the United States for the District of South Dakota, in Bankruptcy.

Before SANBORN, THAYER, and VAN DEVANTER, Circuit Judges.

SANBORN Circuit Judge.

This is a petition for a review of a decision of the District Court of South Dakota sitting in bankruptcy which confirmed the order of a referee that disallowed the claim of a mortgagee to a lien upon property in the custody of the trustee in bankruptcy. It presents this single question: Has a referee in bankruptcy jurisdiction to draw to himself by summary process or notice and to determine the question of the validity of the claim of a third party to a lien upon or an interest in property or the proceeds of property lawfully in the possession of the trustee in bankruptcy?

The property which is the subject of this controversy was a stock of goods situated in the state of South Dakota. The petitioner G. E. Rochford, a citizen of Iowa, had a chattel mortgage upon it made by the Redburn Grocery Company, a corporation, on August 5, 1902. The Redburn Grocery Company had obtained the property about July 16, 1902, from Walter B. Redburn and George W. Redburn, copartners as W. B. Redburn & Son, who were subsequently adjudged to be bankrupts. On August 16, 1902, a creditors' petition for an adjudication of the bankruptcy of the copartnership and its members was filed in the court below. This petition contained averments that the sale of the property from the partnership to the corporation was made with intent to defraud the creditors of W. B. Redburn & Son, and that it constituted an act of bankruptcy. On September 3, 1902, the partnership and its members were adjudged bankrupts on this petition. Meanwhile, and on August 18, 1902, the court appointed H. G. Smith receiver of the property of the bankrupts, and ordered him to take possession of the stock of goods covered by the chattel mortgage. He obeyed the order. Then the sheriff of the county in which the goods were situated by direction of the petitioner Joe Kirby, who was the attorney for the petitioner Rochford, seized the property under the chattel mortgage. The District Court then issued an order to the petitioner Kirby and to the sheriff to show cause why they should not be directed to surrender possession of the property to the receiver. Rochford and Kirby, without any objection to the jurisdiction of the court below, submitted to it the question of their right to the possession of the mortgaged property, and the court decided and ordered that the possession belonged and should be surrendered to the receiver. This order was obeyed, and thenceforth the receiver and his successor, the trustee, held the custody of the property and proceeds. On November 24, 1902, after notice to the creditors and parties in interest and without challenge of the jurisdiction of the court by any one, an order was made that the trustee, who had succeeded the receiver, should sell the mortgaged property free of all liens and charges, and on November 29, 1902, the trustee made a sale of the property under this order. On November 28, 1902, the referee made an order that the petitioner Rochford should assert and propound to him any right, title, claim, or interest which he had in the mortgaged goods, and that he and his attorney, Kirby, were enjoined from threatening any intending purchaser of the property with their adverse claim to them. This order was served upon Rochford and Kirby, and it came on for a hearing on December 20, 1902. Kirby appeared generally for himself and specially for Rochford, on whose behalf he objected to the jurisdiction of the court, and Rochford presented no claim to any right to, lien upon, or interest in the mortgaged property or its proceeds. The referee disregarded the objections to his jurisdiction, and adjudged that the chattel mortgage to Rochford was void as against the creditors of the bankrupts, and that neither he nor Kirby had any title or interest in, or lien upon, the stock of goods or its proceeds. This judgment was considered and sustained by the District Court on a petition for review, and it is now presented to this court for reconsideration.

It will be noticed from this brief statement of the facts which condition the question at issue (1) that the receiver and the trustee obtained possession of the mortgaged property under an order of the District Court which was the result of a hearing in which the question of the right of possession was submitted to it for decision by the mortgagee, Rochford, and by all the other parties in interest, without objection to its jurisdiction; and (2) that the trustee sold the property free from all liens and claims under an order issued, after notice to all parties in interest, under like circumstances.

The subsequent order of December 24, 1902, that the chattel mortgage is void in the face of creditors, was first made by the referee, but it was confirmed by the District Court, and it is assailed here, not upon the ground that the referee was without jurisdiction while the court had the requisite power but upon the theory that the court had no authority to hear and adjudge the question determined by it in a summary way upon an order to show cause or a notice, and that the only method by which the mortgage could be avoided and the proceeds of the property relieved of the claim of the mortgagee was by a suit in equity in some court which could obtain jurisdiction of the parties by the service of a regular subpoena or summons. Moreover, if the District Court had jurisdiction to require the mortgagee, by a notice or an order to show cause, to present his claim before it, or to be barred of any lien upon, or right to share in, the proceeds of the property in its possession, the referee had like power in this particular instance; for neither the bankruptcy act nor the general orders in bankruptcy require such a proceeding to be had before the judge or the court. General Orders in Bankruptcy, xii, 1. 89 F....