Marcell v. Engebretson

• Citation: 74 F.2d 93
• Decision Date: 31 December 1934
• Docket Number: No. 9976,10030.,9976
• Parties: MARCELL et al. v. ENGEBRETSON (two cases).
• Court: U.S. Court of Appeals — Eighth Circuit

74 F.2d 93 (1934)

MARCELL et al. v. ENGEBRETSON (two cases).^*

Nos. 9976, 10030.

Circuit Court of Appeals, Eighth Circuit.

November 22, 1934.

Rehearing Denied December 31, 1934.

Clinton Brome and W. H. Herdman, both of Omaha, Neb. (U. S. G. Cherry and Gale B. Braithwaite, both of Sioux Falls, S. D., on the brief), for appellants.

M. E. Culhane, of Minneapolis, Minn., and Olaf Eidem, of Brookings, S. D. (Frank L. Weaver and William M. Giller, both of Omaha, Neb., on the brief), for appellee.

Before GARDNER and SANBORN, Circuit Judges.

SANBORN, Circuit Judge.

The facts out of which this controversy arises are, in substance, as follows:

In 1921 the United States District Court for the District of Nebraska appointed a receiver for the Brictson Manufacturing Company, a South Dakota corporation doing business in Nebraska. Upon appeal, this court determined that there was no basis for the appointment, and required the lower court to turn back the property taken over by its receiver to the corporation. Brictson Mfg. Co. v. Close et al., 280 F. 297. There were delays in carrying out the mandate (Brictson Mfg. Co. v. Woodrough (C. C. A.) 284 F. 484; Id. (C. C. A.) 289 F. 1020), and, before the receiver had actually turned back the property, the Attorney General of Nebraska, on March 13, 1923, brought a proceeding in quo warranto in a state court of Nebraska against the corporation, asking that it be ousted from the state and dissolved, and that its property be placed in the hands of trustees to be appointed by the court. The state court found that the corporation was "conceived in fraud by one O. A. Brictson, and was at all times from the time of its incorporation, merely a fictitious and fraudulent corporation and enterprise formed for the purpose of enabling its chief promoter, O. A. Brictson, to defraud persons to whom the stock of said defendant company might be sold, out of money and property, and for the further purpose of enabling said Brictson to appropriate said sums so obtained to his own use and benefit"; that the corporation had fraudulently procured its license to sell stock in Nebraska, and was guilty of unlawfully holding and exercising the franchises and privileges of a corporation in the state of Nebraska, and had forfeited all its corporate rights in that state. The decree of the state court, which was entered February 16, 1924, forfeited the rights of the corporation to continue its business and to exercise any of the powers of a corporation in the state of Nebraska, ousted it from the state, and enjoined it from exercising corporate powers therein, and from collecting its debts or dealing with or disposing of any of its property in Nebraska. The decree also provided for the dissolution of the corporation, and appointed trustees "for the creditors and stockholders," "to immediately proceed to collect the debts, property and assets of defendant corporation within the State of Nebraska, and to pay the liabilities of said corporation and to divide the surplus among those lawfully entitled thereto." By the decree, the corporation, its officers and agents, were enjoined from in any way interfering with the trustees. From this decree, the Brictson Manufacturing Company took an appeal to the Supreme Court of Nebraska. That court first held that the decree, in so far as it ordered a dissolution of the corporation and the appointment of trustees, was erroneous (State ex rel. Spillman, Atty. Gen., v. Brictson Mfg. Co., 113 Neb. 781, 205 N. W. 246, 41 A. L. R. 992); but, upon rehearing, it was held that the appointment of the trustees "to collect the debts due the corporation, pay the liabilities of the corporation, and, when properly ordered, pay over the surplus, if any, to those thereto entitled, as provided by section 9298, Comp. St. 1922 of Nebraska," was valid. Id., 114 Neb. 341, 207 N. W. 664, 666, 44 A. L. R. 1172. The date of this decision of the Supreme Court was February 12, 1926.

After the entry of the decree of ouster by the state court, and its affirmance by the Supreme Court, a controversy immediately arose in the United States District Court for the District of Nebraska as to whether that court, by virtue of the mandate from this court, requiring it to turn back the property in the hands of its receiver to the Brictson Manufacturing Company, was required so to do, or whether it should recognize the trustees appointed by the state court as the successors of the corporation. The United States District Court held that, in view of the state court's decree, the trustees must be recognized as having succeeded to the rights of the corporation, and that the receiver must account to them for the property in his hands, and filed its order to that effect on November 3, 1926. This court, upon appeal, affirmed the order of the lower court Brictson Mfg. Co. v. Close et al., 25 F.(2d) 794, holding that the federal court had no alternative other than to abide by the decision of the state court. We said page 802 of 25 F.(2d): "As long as the judgment of the state court in the quo warranto proceeding stands, the Brictson Manufacturing Company could not in Nebraska receive said property. Trustees appointed by the state court in the quo warranto proceeding are the successors in interest and stand in the place of the Brictson Manufacturing Company, and are entitled under the decision of the Nebraska Supreme Court to take over the assets in Nebraska of the Brictson Manufacturing Company." Our decision was rendered April 2, 1928. This was a final determination that the property in the hands of the federal receiver, subject to deductions for necessary expenditures made by him for the preservation of the property, belonged to the trustees of the state court to be administered by them under its direction. The property, however, was not actually delivered by the receiver to the trustees until September 9, 1929.

In the meantime and on August 9, 1929, an involuntary petition in bankruptcy had been filed against the Brictson Manufacturing Company in the United States District Court for the District of South Dakota, and on August 21, 1929, it was adjudged a bankrupt, and thereafter Martin Engebretson was appointed trustee in bankruptcy. Engebretson claimed to be entitled to the property in Nebraska, upon the theory that it was in the constructive possession of the bankrupt at the time the involuntary petition was filed. The Nebraska trustees resisted this claim. After several abortive attempts to secure possession of the property, the trustee in bankruptcy, on January 30, 1933, filed in the bankruptcy proceedings a petition for an order directing the Nebraska trustees to show cause why the court of bankruptcy should not adjudge and decree that they had no right, title, or interest in any of the assets of the Brictson Manufacturing Company, and why they should not turn over to the petitioner all assets of the bankrupt which they had received after the filing of the petition in involuntary bankruptcy, and be restrained and enjoined from in any manner interfering with the trustee in bankruptcy or the administration in bankruptcy of the bankrupt's estate. Upon the filing of this petition the court of bankruptcy issued such an order to show cause, which order was served upon the trustees in the state of Nebraska. The trustees, in making their return to the order, appeared specially, objected to the jurisdiction of the court over their persons, and asserted that, being adverse claimants, the court of bankruptcy was without power, in a summary proceeding, to determine the question of title or right to possession of the property in question, without their consent. The court of bankruptcy, after having overruled the special appearance, entered an order adjudging that the trustee in bankruptcy was the owner and entitled to the possession of the property, and authorizing him to take all necessary and proper measures to secure its possession. From this order these appeals were taken, and, out of abundance of caution, the allowance of one appeal was secured from this court, and the allowance of the other from the court of bankruptcy.

Being a "controversy arising in a bankruptcy proceeding," the appeal was properly taken under section 24a of the Bankruptcy Act (11 USCA § 47 (a). In re Schulte-United, Inc. (C. C. A. 8) 59 F.(2d) 553, 559; Central Republic Bank & Trust Co. et al. v. Caldwell et al. (C. C. A. 8) 58 F.(2d) 721, 723. Hence the appeal allowed by this court will be dismissed.

The court below was very careful to treat the summary proceeding as a proceeding strictly in rem. It regarded the property in suit as a part of the bankrupt's estate at the time of bankruptcy, and went no further than to determine that the trustee in bankruptcy was entitled to it.

While, at the time the involuntary petition in bankruptcy was filed, the actual physical custody of the property involved in this proceeding was in the United States District Court for the District of Nebraska, through its receiver, it must be kept in mind that that court had on November 3, 1926, recognized the right of the trustees appointed by the state court to the possession of the property, and had long before determined that the receiver had no right to hold it. Hence, in practical effect, the receiver had become a mere custodian of the property for those who were entitled to it — namely, the trustees appointed by the state court — and had been such custodian ever since the trustees had been made the successors of the corporation on February 16, 1924. His possession was, to all practical intents and purposes, their possession.

"The title to property in the hands of a receiver is not in him, but in those for whose benefit he holds it. Nor in a legal sense is the property in his possession. It is in the possession of the court, by him as its officer." Thompson v. Phenix Ins. Co., 136 U. S. 287, 297, 10 S. Ct. 1019, 1023, 34 L. Ed. 408; Wiswall v. Sampson, 14...