In re Wisconsin Builders Supply Co.

• Decision Date: 04 February 1957
• Docket Number: No. 11706.,11706.
• Citation: 239 F.2d 649
• Parties: In the Matter of WISCONSIN BUILDERS SUPPLY CO., Bankrupt. Paul L. MOSKOWITZ, Receiver of Wisconsin Builders Supply Co., Appellant, v. George D. PRENTICE, Jr., Trustee of Wisconsin Builders Supply Co., Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

239 F.2d 649 (1956)

In the Matter of WISCONSIN BUILDERS SUPPLY CO., Bankrupt.

Paul L. MOSKOWITZ, Receiver of Wisconsin Builders Supply Co., Appellant, v. George D. PRENTICE, Jr., Trustee of Wisconsin Builders Supply Co., Appellee.

No. 11706.

United States Court of Appeals Seventh Circuit.

November 27, 1956.

Rehearing Denied February 4, 1957.

Arthur Magidson, Emil Hersh, Milwaukee, Wis., Frank K. Levin, Frederick Hersh, Alvin R. Meyer, Milwaukee, Wis., of counsel, for appellant.

Robert D. Jones, Milwaukee, Wis., Patrick T. Sheedy, Milwaukee, Wis., of counsel, for appellee.

Before FINNEGAN, SWAIM and SCHNACKENBERG, Circuit Judges.

SWAIM, Circuit Judge.

Chapter 128 of the Wisconsin Statutes (1951), regulates general assignments for the benefit of creditors and also contains provisions relating to involuntary proceedings against insolvent debtors. This appeal raises the question of whether the voluntary provisions of that chapter which relate to general assignments conflict with the National Bankruptcy Act, 11 U.S.C.A. § 1 et seq., and are therefore suspended while the federal law is operative.

On October 26, 1951, the Wisconsin Builders Supply Co. executed a general assignment for the benefit of its creditors to Paul L. Moskowitz, as assignee. The assignment was filed, pursuant to Chapter 128, in the Circuit Court for Milwaukee County on October 29, 1951, and Moskowitz was duly appointed receiver for the debtor and its assets. On June 6, 1952, the debtor filed a voluntary petition in the United States District Court for the Eastern District of Wisconsin praying that it be adjudged a bankrupt. An order of adjudication was duly entered on the same date. On July 14, 1952, the trustee in bankruptcy filed a petition with the referee requesting a turn over order to require Moskowitz, as state court receiver, to turn over all the assets of the bankrupt to the trustee in bankruptcy. At the hearing before the referee the receiver filed a special appearance on the ground that the District Court did not have jurisdiction. The referee found that Chapter 128 of the Wisconsin Statutes established a system of liquidation which possessed all of the characteristics of a bankruptcy law and therefore was in conflict with the National Bankruptcy Act; that the appointment of the receiver under this statute was void; and that the turn over order should issue. The District Court affirmed the order of the referee. In re Wisconsin Builders Supply Co., 136 F. Supp. 439.

The Constitution of the United States gives Congress the power "to establish * * * uniform Laws on the subject of Bankruptcies throughout the United States." U.S. Constitution, Art. I, § 8, cl. 4. This clause did not obligate Congress to pass a federal bankruptcy law and during nearly two-thirds of the life of this nation we had no such act. Nor did this clause of the Constitution deny the power of the states to pass bankruptcy or insolvency laws. Sturges v. Crowninshield, 4 Wheat. 122, 4 L.Ed. 529. However, when Congress has exercised its constitutional power by enacting bankruptcy legislation the power of Congress is paramount and state laws in competition with the subject matter covered by Congress are superseded. Sturges v. Crowninshield, supra; Ogden v. Saunders, 12 Wheat. 213, 6 L.Ed. 606; Straton v. New, 283 U.S. 318, 51 S.Ct. 465, 75 L.Ed. 1060. The problem of permissible state legislation in respect to general assignments, such as we have before us, is admittedly difficult and requires a consideration of the scope of the Bankruptcy Act and of Chapter 128 of the Wisconsin Statutes.

Section 3 of the Bankruptcy Act, 11 U.S.C.A. § 21, sub. a(4), makes a general assignment for the benefit of creditors an act of bankruptcy. It is clear that general assignments may be regulated by state statutes and supervised by state courts either exercising powers specifically conferred by statute or their traditional equity powers. Pobreslo v. Joseph M. Boyd Co., 287 U.S. 518, 53 S.Ct. 262, 77 L.Ed. 469; Johnson v. Star, 287 U.S. 527, 53 S.Ct. 265, 77 L.Ed. 473; Boese v. King, 108 U.S. 379, 2 S. Ct. 765, 27 L.Ed. 760; Mayer v. Hellman, 91 U.S. 496, 23 L.Ed. 377. Of course, it is possible that state legislation may go so far as to change the general assignment into a state insolvency system in conflict with or covering the same subject matter as the Bankruptcy Act and where that occurs such legislation is held to be superseded by the paramount federal law. See International Shoe Co. v. Pinkus, 278 U.S. 261, 49 S.Ct. 108, 73 L. Ed. 318, where the Supreme Court held such an Arkansas statute suspended.

The legislation before us, Wis.Stat. c. 128 (1951), became law in 1937 when the previous Chapter 128, Wis.Stat. c. 128 (1935), was repealed. Wis.Laws 1937, c. 431, § 1. In Re Voluntary Assignment of Tarnowski, 191 Wis. 279, 210 N.W. 836, 49 A.L.R. 686, the Wisconsin Supreme Court upheld the validity of the earlier act, although it declared a discharge provision susperseded by the Bankruptcy Act. The same statute was again considered by the Wisconsin court in Pobreslo v. Joseph M. Boyd Co., 210 Wis. 20, 242 N.W. 725; see also Hazelwood v. Olinger Building Department Stores, 205 Wis. 85, 236 N.W. 591; and the court affirmed its position that the provisions of Chapter 128 were not in conflict with the federal act. This finding was upheld by the United States Supreme Court in Pobreslo v. Joseph M. Boyd Co., 287 U.S. 518, 53 S.Ct. 262, 77 L.Ed. 469. The receiver urges that the present Chapter 128 is substantially a re-enactment of the provisions of the earlier act with the exception of the involuntary provisions and, since the previous law was upheld in the Pobreslo case, the present law is equally valid.

Before considering the provisions of Chapter 128 we shall first consider the argument of the receiver that since Chapter 128 does not contain a discharge provision it lacks one of the essential features of bankruptcy legislation. While much language in the cases indicates that a discharge provision is suspended and that great importance should be attached to this element in deciding whether state legislation is suspended, e. g., Pobreslo v. Boyd Co., 287 U.S. 518, 525-526, 53 S.Ct. 262, 77 L.Ed. 469; International Shoe Co. v. Pinkus, 278 U.S. 261, 265-266, 49 S.Ct. 108, 73 L.Ed. 318; Stellwagen v. Clum, 245 U.S. 605, 615-616, 38 S.Ct. 215, 62 L.Ed. 507; Boese v. King, 108 U.S. 379, 385, 2 S.Ct. 765, 27 L.Ed. 760, it is clear that the presence or absence of such a provision is not the sole test to be applied in this determination. See Stellwagen v. Clum, 245 U.S. at page 616, 38 S.Ct. at page 218. The lower federal courts have frequently held that discharge is not an essential element of bankruptcy law and that state legislation may be suspended notwithstanding the absence of such a provision. First Nat. Bank in Albuquerque v. Robinson, 10 Cir., 107 F.2d 50; Hammond v. Lyon Realty Co., 4 Cir., 59 F.2d 592; In re Schwartz Bros., D.C., 58 F.Supp. 761; In re Weedman Stave Co., D.C., 199 F. 948; In re Salmon & Salmon, D.C., 143 F. 395; In re F. A. Hall Co., D.C., 121 F. 992; In re Smith, D.C., 92 F. 135. Some of the emphasis on discharge as the criterion of a bankruptcy act is misguided. Historically, discharge has not been an inherent characteristic of bankruptcy legislation in the United States. In fact the present Federal Bankruptcy Act is the first to permit discharge without some consent of the creditors of the insolvent. Further, as regards a corporate debtor such as we have here, discharge is frequently of no importance when it is noted that a general assignment or the appointment of a receiver is often a prelude to dissolution of the corporate entity.

If, as it appears, the presence or absence of a discharge provision is not the sole criterion of the invalidity or validity, respectively, of state legislation in the field presently covered by federal law, it is necessary to determine the element or elements which do control such a determination. In International Shoe Co. v. Pinkus, 278 U.S. 261, at page 265, 49 S.Ct. 108, at page 110, Mr. Justice Butler, speaking for a majority of the Court, said:

"The national purpose to establish uniformity necessarily excludes state regulation. It is apparent, without comparison in detail of the provisions of the Bankruptcy Act with those of the Arkansas statute, that intolerable inconsistencies and confusion would result if that insolvency law be given effect while the national act is in force. Congress did not intend to give insolvent debtors seeking discharge, or their creditors seeking to collect claims, choice between the relief provided by the Bankruptcy Act and that specified in state insolvency laws. States may not pass or enforce laws to interfere with or complement the Bankruptcy Act or to provide additional or auxiliary regulations."

This rather sweeping language does not mean that the Bankruptcy Act prevents a state from legislating with regard to the debtor-creditor relationship. In subsequent cases the Supreme Court, speaking through Mr. Justice Butler, held that state statutes regulating general assignments were not in conflict with the Bankruptcy Act. Pobreslo v. Joseph M. Boyd Co., 287 U.S. 518, 53 S.Ct. 262, 77 L.Ed. 469, involving Wisconsin law, Wis.Stat. c. 128 (1929); Johnson v. Star, 287 U.S. 527, 53 S.Ct. 265, 77 L.Ed. 473, involving Texas law, Tex.Rev.Civil Stat. tit. 12 (1925), Vernon's Ann.Civ.St. arts. 261-274; and see the earlier cases, Stellwagen v. Clum, 245 U.S. 605, 38 S.Ct. 215, 62 L.Ed. 507; Boese v. King, 108 U.S. 379, 2 S.Ct. 765, 27 L.Ed. 760; Mayer v. Hellman, 91 U.S. 496, 23 L.Ed. 377. The making of a general assignment for the benefit of creditors and the procuring, permitting or voluntarily suffering the appointment of a receiver or trustee to take charge of debtor's property are acts of bankruptcy, 11 U.S.C.A. § 21(a) (4) and (5), which permit a requisite number of creditors to transfer the...