Lovell v. Latham & Co.

• Decision Date: 23 January 1914
• Docket Number: 279.
• Court: U.S. District Court — Southern District of Alabama
• Parties: LOVELL et al. v. LATHAM & CO. et al.

211 F. 374

LOVELL et al. v. LATHAM & CO. et al.

No. 279.

United States District Court, S.D. Alabama.

January 23, 1914

Percy Benners & Burr, of Birmingham, Ala., and Rich & Hamilton, of Mobile, Ala., for trustee in bankruptcy.

Howe Fenner, Spencer & Cocke, of New Orleans, La., for Latham &amp Co.

W. B Spencer, of New Orleans, La., for American Surety Co.

Stevens & Lyons, of Mobile, Ala., and Briesen & Knauth, of New York City, for Knauth, Nachod & Kuhne.

TOULMIN District Judge.

This suit is one in which the trustee in bankruptcy, representing all creditors of the bankrupt estate, seeks to recover property, or a fund representing said property, which it is alleged and claimed was preferentially transferred to the defendants Latham & Co. by the bankrupts, Knight, Yancey & Co., in payment of an indebtedness to said Latham & Co. The suit seeks to avoid the alleged preferential transfer, and to recover the said fund to be administered by the bankrupt court for the benefit of all creditors of the bankrupts.

A preference is voidable by the trustee, and he may recover the property or its value. There is no authority in any other person to maintain the required action. Any other rule, even were the statute not clear on this point, would lead to confusion. Collier on Bankruptcy (9th Ed.) pp. 824, 827; Belding-Hall Mfg. Co. v. Mercer & Ferdon Lumber Co., 175 F. 335, 99 C.C.A. 123; In re Rothschild, 5 Am.Bankr.Rep. 587, 154 F. 194, 83 C.C.A. 288.

It is only through the instrumentality of the trustee that creditors can recover, and subject to the payment of their claims, the property which the bankrupt fraudulently transferred prior to the adjudication in bankruptcy. Creditors can have no remedy which will reach property fraudulently conveyed, except through the trustee. All such property, by the express words of the Bankrupt Act, vest in the trustee by virtue of the adjudication and of his appointment. Glenny v. Langdon, 98 U.S. 20, 25 L.Ed. 43; Trimble v. Woodhead, 102 U.S. 647, 26 L.Ed. 290; Collier on Bankruptcy, supra.

If the delivery by the bankrupts of the cotton to Latham & Co. was a preference, the trustee only can maintain a suit to avoid it. He may not assign or transfer to another this right of avoidance. Bryan v. Madden, 15 Am.Bankr.Rep. 388, 109 A.D. 876, 96 N.Y.Supp. 465; Collier on Bankcy. (9th Ed.) 824; Belding-Hall Mfg. Co. v. Mercer & Ferdon Lumber Co., 175 F. 335, 99 C.C.A. 123.

The issue in this case is whether the bankrupts made a preferential transfer to the defendants Latham & Co. of certain cotton as claimed and alleged in the complaint. If the plaintiff establishes his said claim he would be entitled to recover the cotton or its value. If he fails to establish said alleged transfer he would not be entitled to recover said cotton or its value. If such failure had any effect on the title to the cotton, it would be to make it good in Latham & Co., they having acquired the same by the said transfer of Knight, Yancey & Co., the bankrupts.

The cross-complainants in this suit are not in fact named as defendants in the bill of complaint, or in the subpoena, and no relief is prayed against them, and no service has been had upon them. They are not parties to the original bill, and cannot rightly file or be parties complainant to a cross-bill thereon. United States Gypsum Co. v. Hoxie (C.C.) 172 F. 504.

It is a rule of equity pleading prevailing in the federal courts that one who is not a party to a suit cannot file or join in a cross-bill, or other pleading to the merits until he becomes a party to the suit by some recognized mode of equity procedure. United States Gypsum Co. v. Hoxie (C.C.) 172 F. 504; Ewing v. Seaboard Air Line Ry. (C.C.) 175 F. 517; United States v. Reese (C. C.) 166 F. 347.

The cross-complainants came into the case by invitation, contained in the prayer of the bill to unknown persons who might have, or claim to have, any right or interest in the subject-matter of the suit. Whereupon the cross-complainants came into court and asked permission to file a cross-bill. The granting or refusing permission to file a cross-bill is largely in the discretion of the court. Huff v. Bidwell, 151 F. 563, 566, 81 C.C.A. 43. The court, in the exercise of its discretion, granted permission to file the cross-bill, being at the time ignorant of its subject-matter and what its real purpose and allegations were. Subsequently, on motion of complainant and the defendants Latham & Co. to strike out said cross-bill, after argument thereon and examination of the cross-bill, the court was of opinion that it had improvidently granted permission to file it, and sustained the motion to strike. On appeal, the Circuit Court of Appeals (Knauth, Nachod & Kuhne v. Lovell, 200 F. 403, 118 C.C.A. 555) held that this court erred in summarily striking out the cross-bill and reversed the case for further proceedings. It now comes up on demurrers to the cross-bill and on motion to dismiss it for want of equity and on various other grounds set out in the demurrers and motion.

A cause of action is a matter for which an action may be brought. It is the matter of the complaint or which a given action is in fact grounded, whether or not legally maintainable. The cause of action in this case is the alleged preferential transfer of certain cotton by Knight, Yancey & Co., bankrupts, to Latham & Co. On that cause of action the trustee in bankruptcy has the authority to maintain the required action to avoid the preference, to set aside the transfer, and to recover the cotton or its value. This court is, by the original suit, called upon by the trustee to ascertain and establish his right or title to certain cotton as against adverse claimants Latham & Co., who are made defendants to the suit, and not to any and all persons who may voluntarily come into the case and assert a claim to said cotton. The cross-complainants come into this case by a cross-bill, and seek to impress a trust in their favor upon various properties and certain cotton in the hands of the trustee in bankruptcy. Any such claim is not germane or pertinent to the original cause of action in the case, and cannot exert any influence in the trial and determination of the issue in it. If the issue made by the original bill can be completely disposed of without deciding upon any claim the cross-complainants may have, or be supposed to have, against Latham & Co., defendants to the original bill, or upon the cotton transferred to said Latham & Co. by the bankrupts, as alleged, then the cross-bill filed in this cause is not auxiliary or dependent upon the original suit. Hogg v. Hoag, 154 F. 1003, 83 C.C.A. 677.

The cross-bill prays that the bankrupts be adjudged and decreed to have received the sum of $98,000 from the cross-complainants, and to have held the same as their money and property. But the able counsel for cross-complainants, in his brief and argument, as I understood it, stated that they presented no personal demand against the bankrupts. The cross-bill has no prayer for relief against the trustee, the complainant in this suit, further than to seek a discovery from him as to many matters which, in my opinion, are not involved in this suit and have no connection with it, so far as the complainant is concerned. In fact the counsel stated that the cross-bill is confined to an effort to impress a trust in favor of the cross-complainants upon various and certain property in the hands of the trustee in bankruptcy, but which he admits in his brief was beyond the power of this court in this cause. The cross-bill also seeks and prays that the transfer...