Lewinson v. Hobart Service Trust Co. of Passaic, NJ

• Decision Date: 22 April 1931
• Citation: 49 F.2d 356
• Parties: LEWINSON v. HOBART SERVICE TRUST CO. OF PASSAIC, N. J. In re ADA DRESS CO., Inc.
• Court: U.S. District Court — District of New Jersey

49 F.2d 356 (1931)

LEWINSON v. HOBART SERVICE TRUST CO. OF PASSAIC, N. J In re ADA DRESS CO., Inc.

District Court, D. New Jersey.

April 22, 1931.

Bilder & Bilder, of Newark, N. J., for complainant.

Israel B. Greene, of Newark, N. J., for defendant.

FAKE, District Judge.

The issue here arises on a motion to strike out the complaint upon the ground that the cause of action as set forth therein is not cognizable in a federal court of equity.

At the trial, the complainant abandoned all of the allegations in the complaint, except those contained in counts 2, 4, and 5, thus limiting the issues to allegations charging a preferential payment either in violation of a New York statute in the event that the payment was made in that state, or in violation of a New Jersey statute if the payment was made in that state, and in any event, in violation of the federal Bankruptcy Act (11 USCA).

Motions were made to strike out counts 2 and 4 based upon the state statutes, but for present purposes it is not necessary to pass upon these motions, since a disposition of the motion directed to the equity jurisdiction of this court may dispose of the entire case.

The relief sought under the complaint is the recovery of the sum of $9,979.14, by the trustee in bankruptcy, on the theory that the said sum was paid by the bankrupt to the defendant on the eve of bankruptcy, defendant having cause to believe that by said payment a preference was intended.

It is contended by counsel for the defendant that the United States District Courts sitting in equity have no jurisdiction to set aside and turn over to the trustee moneys preferentially paid as alleged in the complaint, the issue being cognizable solely at law.

In considering the question thus raised, no decision has been found directly in point by the Judges of our Circuit Court of Appeals, nor by the United States Supreme Court. However, the First, Second, Fourth, and Seventh Circuit Courts of Appeal have held that federal courts of equity are clothed with jurisdiction to set aside and decree the turnover of money paid by way of preference in violation of the terms of the Bankruptcy Act (section 60 11 USCA § 96). See Reed v. Guaranty Security Co. (D. C.) 291 F. 580, and cases therein cited, for the rulings in the First Circuit; Parker v. Black, 151 F. 18, for the Second Circuit; Cox v. Wall (D. C.) 99 F. 546 affirmed 101 F. 403, for the Fourth Circuit; Off v. Hakes, 142 F. 364, for the Seventh Circuit.

It should be noted that the opinion in Parker v. Black, supra, contains the following language: "Upon this point we think we should follow the decisions made by two different Circuit Courts of Appeal upon a state of facts practically identical with those of the present case, notwithstanding we should have been of a different opinion if the question had been originally presented to us." And again, the same court seven years later in Parker v. Sherman, 212 F. 917, says this: "The case is on all fours with * * * Parker v. Black, 151 F. 18, 80 C. C. A. 484, where, in order that uniformity in bankruptcy practice in the several circuits might be secured, we followed the decisions of two other Circuit Courts of Appeals, although inclined, had it been a new question, to take a different view."

Rulings directly opposed to those contained in the foregoing citations are found in the Sixth and Eighth Circuit Courts of Appeal. See Warmath v. O'Daniel, 159 F. 87, 16 L. R. A. (N. S.) 414, for the ruling in the Sixth Circuit, and First State Bank of Milliken v. Spencer, 219 F. 503, for the ruling in the Eighth Circuit. To the like effect are the rulings by two United States District Court Judges sitting in Pennsylvania, which state is in this (the Third) Circuit, see Sessler v. Nemcof, 183 F. 656, and Rosenthal v. Heller, 266 F. 563.

The lines of departure which mark the sharp conflict in judicial approach between the two groups of cases above cited are explained with such logic and so convincingly are they adhered to by some of the judges, that the question is fraught with much difficulty and cannot be finally settled until it reaches the court of last resort.

Attention is directed to section 267 of the Judicial Code (28 USCA § 384) which provides: "Suits in equity shall not be sustained in any court of the United States in any case where a plain, adequate, and complete remedy may be had at law." In passing upon this provision in Buzard v. Houston, 119 U. S. 347, 7 S. Ct. 249, 251, 30 L. Ed. 451, Mr. Justice Gray said: "The effect of the provision * * * as often stated by this court, is that `whenever a court of law is competent to take cognizance of a right, and has power to proceed to a judgment which affords a plain, adequate, and complete remedy, without the aid of a court of equity, the plaintiff must proceed at law, because the defendant has a constitutional right to a trial by jury.'" In N. Y. Guaranty Co. v. Memphis Water Co., 107 U. S. 205, 2 S. Ct. 279, 286, 27 L. Ed. 484, Mr. Justice Bradley said of it: "This enactment certainly means something; and, if only declaratory of what was always the law, it must, at least, have been intended to emphasize the rule, and to impress it upon the attention of the courts."

If this court has jurisdiction in the instant case, that jurisdiction must be traced to an origin in the English courts of equity prior to the year 1789 when the above section of our Judicial Code first took effect, State of Pennsylvania v. Wheeling Bridge, 13 How. 518, 563, 14 L. Ed. 249, or find its origin here in the Constitution or an act of Congress. In the absence of anything directly in point, either in the Constitution or in acts of Congress, our inquiry is confined to an investigation of English sources.

As early as the year 1542, we find what has been said to be the first English Bankruptcy Act. Stat. 34-35 Henry VIII, chap. 4, superseded by Stat. 13 Eliz. c. 7, in the year 1570. The latter forms the basis upon which our modern bankruptcy acts have been modeled, and it is noted that the language of 13 Eliz. c. 5 bears marked similarity to the language of our Bankruptcy Act to-day, in so far as preferential payments in contemplation of bankruptcy are concerned. See "The Case of Bankrupts," Trin. 31 Eliz. (1584), Smith v. Miller, 1 Coke's Reps. 481, and cases there collected.

In view of the history of the experiences with bankruptcy acts in England from 1542 down to the year 1789, it is pertinent and indeed of major importance to ascertain how the English courts were treating with the subject of preferential payments at the time of our severance from the mother country, having particular regard...