In re Snow Camp Logging Company, 14388.

• Decision Date: 30 October 1958
• Docket Number: No. 14388.,14388.
• Citation: 168 F. Supp. 420
• Parties: In the Matter of SNOW CAMP LOGGING COMPANY, a copartnership composed of Clarence Vander Jack, Clarence C. Vander Jack, and Horace Mecklem, Jr., and Jeanne V. Mecklem, Clarence Vander Jack, Clarence C. Vander Jack and Horace Mecklem, Jr., and Jeanne V. Mecklem, individually, Bankrupts.
• Court: U.S. District Court — Northern District of California

168 F. Supp. 420

In the Matter of SNOW CAMP LOGGING COMPANY, a copartnership composed of Clarence Vander Jack, Clarence C. Vander Jack, and Horace Mecklem, Jr., and Jeanne V. Mecklem, Clarence Vander Jack, Clarence C. Vander Jack and Horace Mecklem, Jr., and Jeanne V. Mecklem, individually, Bankrupts.

No. 14388.

United States District Court N. D. California, N. D.

October 30, 1958.

Huber & Goodwin, Eureka, Cal., L. W. Wrixon, Charles M. Stark and Paul W. McComish, San Francisco, Cal., for petitioners S. A. Peters and Timber Inc. of California, a corporation.

Max H. Margolis, San Francisco, Cal., Frederick L. Hilger, Eureka, Cal., for trustee.

HALBERT, District Judge.

In this proceeding S. A. Peters and Timber Incorporated of California (hereinafter referred to as petitioners) seek the review of an order of the referee in bankruptcy (Bankruptcy Act, § 2, sub. a(10), 11 U.S.C.A. § 11, sub. a(10) arising out of the administration of the estate of Snow Camp Logging Company, a bankrupt partnership, which said order embodies a joint judgment against petitioners.

Petitioners entered these proceedings by filing proof of an unliquidated claim in which was alleged the breach of a contract for the supply of logs entered into between S. A. Peters (and subsequently assigned to Timber Incorporated of California) and the bankrupt. This was opposed by the trustee, who petitioned the referee for an order disallowing the claim (Bankruptcy Act, § 57, sub. d, 11 U.S.C.A. § 93, sub. d). In addition, the trustee sought affirmative relief alleging a breach of that same contract on the part of petitioners. The referee issued an order directing petitioners to show cause why the trustee's request for affirmative relief should not be granted.

Before the date set for the hearing on the order to show cause, petitioners appeared specially to object to the jurisdiction of the bankruptcy court on the ground that there was then pending in the Superior Court of the State of California, in and for the County of Humboldt, an action entitled Snow Camp Logging Co., a corporation, plaintiff, v. S. A. Peters and Timber Incorporated of California, defendants, and that the subject matter of said action was the same as that embodied in the trustee's petition for affirmative relief. This objection was overruled by the referee.

Petitioners then filed a motion for permission to withdraw their claim, again alleging the pendency of the state action, and also alleging that the bankrupt had no interest in the contract as it had been assigned to Snow Camp Logging Company, a corporation, which was not bankrupt. This motion, too, was overruled. Petitioners then made their return to the order to show cause, together with a plea in abatement reiterating their former objections.

The matter came on regularly and was heard by the referee. After a notice of decision and the submission by both parties of suggested findings of fact and conclusions of law, an order, judgment and decree was issued by the referee in which it was ordered that the trustee of the estate of Snow Camp Logging Company, a partnership, have judgment; and that such judgment be entered in his favor and against S. A. Peters and Timber Incorporated of California, in the amount of $674,627.47.

In their petition for review, petitioners have taken wholesale objection to the factual findings of the referee, as well as his conclusions of law. As most of these objections were not pressed in petitioners' memoranda, they will not be considered in detail except insofar as they impinge upon the larger issues presented (Humphreys Gold Corp. v. Lewis, 9 Cir., 90 F.2d 896).

I.

Petitioners first contend that the contract upon which their claim was founded, and upon which the judgment was based, was not an asset of the bankrupt's estate. This issue was first raised in petitioners' Motion for Withdrawal of claim. In that motion petitioners asserted that it was alleged in the complaint in the state action that Snow Camp Logging Company, a corporation, was the assignee of the contract. In their memoranda here petitioners also point to the trustee's statement (in his petition for an order disallowing the claim) that the contract had been assigned to the corporation without consideration and, therefore, was an asset of the partnership. There is nothing about these statements which required the referee to accept them as determinative of this issue.

A specific finding of the referee on this point (Referee's Findings of Fact No. 19 reads: "That at the time of the filing of the petition in bankruptcy herein said bankrupts owned the rights and property in and to said writing, * * *") is attacked on the ground that there is not one scintilla of evidence, either oral or documentary, to support that determination. This attack is without foundation. The only record before this Court is the transcript of the proceedings had to determine which party breached the contract, and the extent of the damages. The issue of ownership was decided adversely to petitioners before that time. Lacking a coherent statement of facts by either party, it is impossible to determine the exact course of events which surrounded the referee's conclusion that the contract did, in fact, constitute an asset of the bankrupt's estate. A detailed consideration of the reasoning which might have prompted this conclusion would serve no purpose. It is sufficient to point out that there are a number of possible bases, both procedural (E.g.: issue not properly presented. Federal Rules of Civil Procedure, rules 25, 12(h) and 19(b), 28 U.S.C.A.) and substantive (E.g.: corporate assignee not sufficiently separated from the bankrupt. In re Gillespie Tire Co., D.C., 54 F.Supp. 336). In any event, such a general attack as that of petitioners is legally insufficient (See: Coffman v. Cobra Mfg. Co., 9 Cir., 214 F.2d 489; Gramil Weaving Corp. v. Raindeer Fabrics, Inc., 2 Cir., 185 F.2d 537; and Humphreys Gold Corp. v. Lewis, supra) to challenge the referee's factual determination concerning the result of the alleged assignment (In re Steinberg, D.C., 138 F.Supp. 462).

II.

It is further urged by petitioners that the general rules of comity were violated by the referee when he proceeded to hear the issues raised by the claim, and the trustee's motion in opposition thereto. It appears that the action in the state court, between Snow Camp Logging Co., a corporation, and petitioners, had been instituted prior to the adjudication of bankruptcy of the partnership. In that suit petitioners had made answer, coupled with a cross complaint, and after the appointment of a trustee, the trustee's attorneys had been substituted for those of the corporation. While a trial date had been set, a hearing on the merits had not begun.

The memoranda filed in this proceeding contain elaborate discussions of the principles of comity, but they do not consider the crucial question, viz., whether a breach of comity is reversible error. There is, however, no need to approach that problem as the issue was not properly raised here. The petition for review did not allege error in that respect (Bankruptcy Act, § 39, sub. c., 11 U.S. C.A. § 67, sub. c), and thus that point cannot be considered by this Court in this proceeding (In re Moskowitz, D.C., 63 F.Supp. 1000; and In re Musgrave, D.C., 27 F.Supp. 341).

III.

The petition for review does allege as error the action of the referee in restraining petitioners' attorneys, at the trustee's request, from proceeding in the state action. Petitioners' briefs seem to question not the power of the referee (See: Bankruptcy Act, §§ 2, sub. a(15), 1(9), and 38(6), 11 U.S.C.A. §§ 11, sub. a(15), 1(9), 66(6)), but rather the propriety of such action. In support of their position, petitioners rely exclusively on Brehme v. Watson, 9 Cir., 67 F.2d 359. The applicability of that case is not clear. It certainly falls far short of being persuasive authority in this proceeding. In that case a creditor attached the property of one Brehme in an attempt to force Brehme into involuntary bankruptcy. When Brehme sought to contest the attachment in the state court, the creditor appeared before the bankruptcy court, as a petitioning creditor, and obtained a restraining order which enjoined Brehme from defending in the state court the suit upon which the attachment was based. In reversing the bankruptcy court and dissolving the restraining order, the Court of Appeals for the Ninth Circuit held that "Appellee's the creditor's effort through the medium of suits brought by him, to precipitate appellant into bankruptcy and thereafter by restraining order prevent him from presenting his defenses to these suits was an unfair and oppressive use of legal process which should not be permitted." (Brehme v. Watson, supra, 67 F.2d at page 362).

The only principle of the Brehme case which has any relation to the instant appeal is that such an injunction, issued by a court of bankruptcy, may be directly appealed. This fact points to the rule which is determinative of the issue here. The question of the referee's jurisdiction to grant the restraining order was first raised by this proceeding for a review. No prior review of the order was sought or obtained within the time within which such review might have been taken (Bankruptcy Act, § 39, sub. c). The referee's restraining order is, therefore, conclusive as to petitioners.

IV.

It is further contended by petitioners that the referee was without authority or power to summarily adjudicate the issues raised by their claim, and by the trustee's counterclaim for affirmative relief. It is conceded by the trustee that the bankruptcy court does not have summary jurisdiction over a controversy respecting property or a chose in action held adversely to the bankrupt estate, without the consent of the adverse claimant (Bankruptcy Act, § 23, sub. a, 11 U.S.C.A. § 46, sub. a, and City and County of Denver v. Warner, 10 Cir., 169 F. 2d...