Local Loan Co v. Hunt

Decision Date30 April 1934
Docket NumberNo. 783,783
Citation54 S.Ct. 695,78 L.Ed. 1230,292 U.S. 234,93 A.L.R. 195
PartiesLOCAL LOAN CO. v. HUNT
CourtU.S. Supreme Court

Messrs. Federic Burnham and David F. Rosenthal, both of Chicago, Ill., for petitioner.

[Argument of Counsel from pages 235-237 intentionally omitted] Messrs. Lloyd A. Faxon and Harry F. Wiggins, both of Chicago, Ill., for respondent.

Mr. Justice SUTHERLAND delivered the opinion of the Court.

On September 17, 1930, respondent borrowed from petitioner the sum of $300, and assecurity for its payment executed an assignment of a portion of his wages thereafter to be earned. On March 3, 1931, respondent filed a voluntary petition in bankruptcy in a federal District Court in Illinois, including in his schedule of liabilities the foregoing loan, which constituted a provable claim against the estate. Respondent was adjudicated a bankrupt; and, on October 10, 1932, an order was entered discharging him from all provable debts and claims. On October 18, 1932, petitioner brought an action in the municipal court of Chicago against respondent's employer to enforce the assignment in respect of wages earned after the adjudication. Thereupon, respondent commenced this proceeding in the court which had adjudicated his bankruptcy and ordered his discharge, praying that petitioner be enjoined from further prosecuting said action or attempting to enforce its claim therein made against respondent under the wage assignment. The bankruptcy court, upon consideration, entered a decree in accordance with the prayer; and this decree on appeal was affirmed by the court below (In re Hunt (C.C.A.) 67 F.(2d) 998), following its decision in Re Skorcz (C.C.A.) 67 F.(2d) 187.

Challenging this decree, petitioner contends that the bankruptcy court was without jurisdiction to entertain a proceeding to enjoin the prosecution of the action in the municipal court; that, assuming such jurisdiction, the rule is that an assignment of future wages constitutes an enforceable lien; but that, in any event, the highest court of the state of Illinois has so decided, and by that decision this court is bound.

First. The pleading by which respondent invoked the jurisdiction of the bankruptcy court in the present case is in substance and effect a supplemental and ancillary bill in equity, in aid of and to effectuate the adjudication and order made by the same court. That a federal court of equity has jurisdiction of a bill ancillary to an original case or proceeding in the same court, whether at law or in equity, to secure or preserve the fruits and advantages of a judgment or decree rendered therein, is well settled. Root v. Woolworth, 150 U.S. 401, 410—412, 14 S.Ct. 136, 37 L.Ed. 1123; Julian v. Central Trust Co., 193 U.S. 93, 112 114, 24 S.Ct. 399, 48 L.Ed. 629; Riverdale Cotton Mills v. Manufacturing Co., 198 U.S. 188, 194 et seq., 25 S.Ct. 629, 49 L.Ed. 1008; Freeman v. Howe, 24 How. 450, 460, 16 L.Ed. 749. And this, irrespective of whether the court would have jurisdiction if the proceeding were an original one. The proceeding being ancillary and dependent, the jurisdiction of the court follows that of the original cause, and may be maintained without regard to the citizenship of the parties or the amount involved, and notwithstanding the provisions of section 265 of the Judicial Code (Rev. St. § 720), U.S.C., title 28, § 379 (28 USCA § 379).1 Julian v. Central Trust Co., supra, 112 of 193 U.S., 24 S.Ct. 399; Dietzsch v. Huidekoper, 103 U.S. 494, 497, 26 L.Ed. 497; Root v. Woolworth, supra, 413 of 150 U.S., 14 S.Ct. 136; McDonald v. Seligman (C.C.) 81 F. 753; St. Louis, I.M. & S.R. Co. v. Bellamy (D.C.) 211 F. 172, 175—177; Brun v. Mann (C.C.A.) 151 F. 145, 150, 12 L.R.A.(N.S.) 154.

These principles apply to proceedings in bankruptcy. In re Swofford Bros. Dry Goods Co. (D.C.) 180 F. 549, 554; Sims v. Jamison (C.C.A.) 67 F.(2d) 409, 410; Pell v. McCabe (C.C.A.) 256 F. 512, 515, 516; Seaboard Small Loan Corporation v. Ottinger (C.C.A.) 50 F.(2d) 856, 859, 77 A.L.R. 956. Petitioner relies upon a number of decisions where other federal courts sitting in bankruptcy have declined to entertain suits similar in character to the present one, on the ground that the effect of a discharge in bankruptcy is a matter to be determined by any court in which the discharge may be pleaded. See, for example, Hellman v. Goldstone (C.C.A.) 161 F. 913; In re Marshall Paper Co. (C.C.A.) 102 F. 872, 874; In re Weisberg (D.C.) 253 F. 833, 835; In re Havens (C.C.A.) 272 F. 975. To the extent that these cases conflict with the view just expressed they are clearly not in harmony with the general rule in equity announced by this court. And we find nothing, either in the nature of the bankruptcy court or in the terms of the Bankruptcy Act, which necessitates the application of what would amount to a special rule on this subject in respect of bankruptcy proceedings. Courts of bankruptcy are constituted by sections 1 and 2 of the Bankruptcy Act, amended by Act May 27, 1926 (U.S.C., title 11, §§ 1 and 11 (11 USCA §§ 1, 11)), and are invested 'with such jurisdiction at law and in equity as will enable them to exercise original jurisdiction in bankruptcy proceedings,' etc. The words 'at law' were probably inserted to meet clause (4) of section 2, 11 USCA § 11(4), which empowers such courts to arraign, try, and punish certain designated persons for violations of the act. Bardes v. Hawarden Bank, 178 U.S. 524, 534—536, 20 S.Ct. 1000, 44 L.Ed. 1175. But otherwise courts of bankruptcy are essentially courts of equity, and their proceedings inherently proceedings in equity. Bardes v. Hawarden Bank, supra, 535 of 178 U.S., 20 S.Ct. 1000; In re Rochford (C.C.A.) 124 F. 182, 187; In re Siegel-Hillman Dry Goods Co. (D.C.) 111 F. 980, 983; Swarts v. Siegel (C.C.A.) 117 F. 13, 16; Dodge v. Norlin (C.C.A.) 133 F. 363, 368, 369; In re Swofford Bros. Dry Goods Co., supra, at page 553 of 180 F.; In re Lahongrais (C.C.A.) 5 F.(2d) 899, 901; French v Long (C.C.A.) 42 F.(2d) 45, 47. And, generally, proceedings in bankruptcy are in the nature of proceedings in rem, adjudications of bankruptcy and orders of discharge being, as this court clearly has treated them, in every essential particular decrees in equity determining a status. Hanover National Bank v. Moyses, 186 U.S. 181, 192, 22 S.Ct. 857, 46 L.Ed. 1113; Commercial Bank of Manchester v. Buckner, 20 How. 108, 118, 119, 15 L.Ed. 862.

What has now been said establishes the authority of the bankruptcy court to entertain the present proceeding, determine the effect of the adjudication and order, and enjoin petitioner from its threatened interference therewith. It does not follow, however, that the court was bound to exercise its authority. And it probably would not and should not have done so except under unusual circumstances such as here exist. So far as appears, the municipal court was competent to deal with the case. It is true that respondent was not a party to that litigation; but undoubtedly it was open to him to intervene and submit to that court the question as to the effect upon the subject-matter of the action of the bankruptcy decrees. And it may be conceded that the municipal court was authorized in the law action to afford relief the equivalent of that which respondent now seeks in equity. Nevertheless, other considerations aside, it is clear that the legal remedy thus afforded would be inadequate to meet the requirements of justice. As will be shown in a moment, the sole question at issue is one which the highest court of the state of Illinois had already resolved against respondent's contention. The alternative of invoking the equitable jurisdiction of the bankruptcy court was for respondent to pursue an obviously long and expensive course of litigation, beginning with an intervention in a municipal court and followed by successive appeals through the state intermediate and ultimate Courts of Appeal, before reaching a court whose judgment upon the merits of the question had not been predetermined. The amount in suit is small, and, as pointed out by Judge Parker in Seaboard Small Loan Corporation v. Ottinger, supra, at page 859, of 50 F.(2d), such a remedy is entirely inadequate because of the wholly disproportionate trouble, embarrassment, expense, and possible loss of employment which it involves.

Second. Whether an assignment of future earned wages constitutes a lien within the meaning of section 67d of the Bankruptcy Act,2 is a matter upon which the decisions of the state and federal courts are not in complete accord; although by far the larger number of cases and the greater weight of authority are in the negative. We do not stop to review the state decisions. Among those which deny the existence of the lien are Leitch v. Northern Pacific R. Co., 95 Minn. 35, 38, 103 N.W. 704, 5 Ann.Cas. 63; Levi v. Loevenhart & Co., 138 Ky. 133, 136, 127 S.W. 748, 30 L.R.A.(N.S.) 375, 137 Am.St.Rep. 377; Public Finance Co. v. Rowe, 123 Ohio St. 206, 174 N.E. 738, 74 A.L.R. 900; Hupp v. Union Pac. R. Co., 99 Neb. 654, 157 N.W. 343, L.R.A. 1916E, 247. The only state cases definitely to the contrary which have been called to our attention are certain Illinois cases, mentioned later, and Citizens' Loan Ass'n v. Boston & Maine R.R., 196 Mass. 528, 82 N.E. 696, 14 L.R.A.(N.S.) 1025, 124 Am.St.Rep. 584, 13 Ann.Cas. 365. The lower federal courts which have had occasion to consider the question concur in the view that the lien has no existence or is ineffective as against an adjudication and discharge in bankruptcy. Judge Bellinger, in Re West (D.C.) 128 F. 205, 206, sucsinctly stated the ground of his ruling in accordance with that view as follows:

'The discharge in bankruptcy operated to discharge these obligations as of the date of the adjudication, so that the obligations were discharged before the wages intended as security were in existence. The law does not continue an obligation in order that there may be a lien, but...

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