Le Master v. Spencer

• Decision Date: 18 January 1913
• Docket Number: 3,532.
• Citation: 203 F. 210
• Parties: LE MASTER v. SPENCER.
• Court: U.S. Court of Appeals — Eighth Circuit

203 F. 210

LE MASTER v. SPENCER.

No. 3,532.

United States Court of Appeals, Eighth Circuit.

January 18, 1913

Thomas M. Morrow, of Denver, Colo., for appellant.

Edward C. Stimson, of Denver, Colo. (James A. Marsh and Page M Brereton, both of Denver, Colo., on the brief), for appellee.

Before ADAMS and SMITH, Circuit Judges, and REED, District Judge.

SMITH Circuit Judge.

The D F. Le Master Brokerage Company claims to have been established in 1903. It was incorporated in January or February, 1908. It carried on business at Denver. E. L. Le Master was president, Mrs. Clara Josephine Le Master was vice president, and David F. Le Master was secretary and treasurer, and these three constituted the board of directors. Early in the spring of 1910 Edward L. Le Master being sick, tendered his resignation as president, but no action was taken upon it. David F. Le Master and Clara Josephine Le Master were husband and wife, and thereafter had sole charge of the business.

David F. Le Master was general manager. Upon the letter head of the company it was stated that their capital stock was $20,000 that they were merchandise brokers, and made a specialty of fruits and produce. On June 6, 1910, they wrote the Mulvane Mill & Elevator that they believed themselves worth $30,000. August 24, 1910, David F. Le Master was arrested by the sheriff of the city and county of Denver under a warrant issued by the clerk of the state district court charged with larceny and obtaining money by means of the confidence game. Upon being taken to the jail, he was told to place what property he had upon the desk. He then deposited six silver dollars, four quarters, one nickel, and three pennies, three diamond rings, one ring having a red setting, a diamond stud and horseshoe scarf pin set with diamonds, a gold watch, a pair of diamond set cuff buttons, and a pair of gold plated cuff buttons. Upon being asked if that was all he said, 'Just wait a minute, let's talk this over. ' Upon being informed he would be searched, he went behind the desk, opened his trousers, and, after some difficulty, extracted from within them a wallet containing eight one hundred dollar bills, two fifty-dollar bills, and forty-five ten-dollar bills. He also turned over to the sheriff a Port Arthur Route railroad ticket, one receipt from Will A. Collins for 'Pride of the Valley Flour,' one duebill from A. M. Earhart, and other property not necessary to mention. He stated to the officers that all the property belonged to his wife. The same day the Phillipsburg Mill & Elevator Company, the Buhlar Mill & Elevator Company, and the Haven Milling Company prepared a petition in involuntary bankruptcy against the D. F. Le Master Brokerage Company, alleging that the Brokerage Company owed the Phillipsburg Mill & Elevator Company for flour $1,715, the Buhlar Mill & Elevator Company for flour $1,747.20, the Haven Milling Company for flour $1,128. This petition was filed August 25th, and was accompanied with an application also executed on the 24th by all three of the petitioners for a special warrant to the marshal.

Clause 3 of section 2 of the Bankruptcy Act provides that the courts of bankruptcy are hereby vested with jurisdiction to '(3) appoint receivers or the marshals, upon application of parties in interest, in case the court should find it absolutely necessary, for the preservation of estates, to take charge of the property of bankrupts after the filing of the petition and until it is dismissed or the trustee is qualified.'

The following appears in section 3, subdiv. 'e':

'(e) Whenever a petition is filed by any person for the purpose of having another adjudged a bankrupt, and an application is made to take charge of and hold the property of the alleged bankrupt, or any part of the same, prior to the adjudication and pending a hearing on the petition, the petitioner or applicant shall file in the same court a bond with at least two good and sufficient sureties who shall reside within the jurisdiction of said court, to be approved by the court or a judge thereof, in such sum as the court shall direct, conditioned for the payment, in case such petition is dismissed, to the respondent, his or her personal representatives, all costs, expenses, and damages occasioned by such seizure, taking, and detention of the property of the alleged bankrupt.'

A warrant was issued and the property seized in the custody of the sheriff. September 12, 1910, the D. F. Le Master Brokerage Company was adjudged a bankrupt, and Fermor J. Spencer was subsequently duly appointed and qualified as trustee. On October 10th David F. Le Master filed a petition alleging that none of said money, goods, or chattels, except the railroad ticket, belonged to or was the property of the D. F. Le Master Brokerage Company; that the same were his and never had at any time been owned by the D. F. Le Master Brokerage Company; and that such company had never had at any time any right, title, or interest in or to any of said property, and asked an order that said property be turned over to him, but he did not specially question the jurisdiction of the court. October 21, 1910, Fermor J. Spencer, trustee, filed his answer, alleging that said property belonged to said D. F. Le Master Brokerage Company, and that he was now entitled to the same as held by the marshal.

The case was heard October 21, 1910, four witnesses being examined for the claimant and three for the trustee, and on October 26th the court held that all the money, the horseshoe scarf pin, the diamond cuff buttons, one gentleman's solitaire diamond tooth setting ring, one receipt from Will A. Collins for 'Pride of the Valley Flour,' one duebill from A. M. Earhart, and the Port Arthur Route railroad ticket, were the property of the bankrupt, and ordered the marshal to turn them over to the trustee, and directed the balance of the property turned over to David F. Le Master, and he appeals.

Le Master testified that about the 1st of August he received $246 and some cents from F. W. Woodrow, a student of a business college at Ashland, Or., which had been owed to him since in February, 1910; that early in August he received $579.15 from Walt James, who had been owing him for nearly five years; that at the same time Warrior Grayson and Alfred Brown paid him $516.50 upon a note they had been owing for better than four years. He could not tell where they lived, except he thought they were farmers living near Muskogee. The cash book showed a payment to him in July, 1910, of $3,900 for alleged back salary and two payments of over $1,000 inside of 30 days for alleged traveling expenses, one of the payments on an impossible date-- June 31st. He testified he purchased the diamond horseshoe and diamond cuff buttons with his own money for $62.50 of a jeweler on the north side of Larimer street between Seventeenth and Eighteenth streets during the summer of 1910, but could not give the name of the man he purchased of, and that he purchased the diamond ring about the 1st of July, 1910, of a Jew at Raton, N.M., and paid $115 for it, but could not give his name. He testified before Judge Harrison that there might be about a couple of hundred dollars of the money taken from him that belonged to the D. F. Le Master Brokerage Company, but claims he subsequently found out otherwise. Real estate carried on the books of the D. F. Le Master Brokerage Company at about $27,000, and which must have constituted most of the $30,000 referred to in the letter to the Mulvane Mill & Elevator, was sold on July 16, 1910, for $1,800. He further testified that the corporation first banked at the Colorado National and changed to the Federal State Savings Bank in December, 1909, but that he ceased putting all money into the bank in May and from that time on kept the money in his personal custody in the safe in the office. It must be borne in mind that money and other property in his personal custody as secretary, treasurer, and general manager of the D. F. Le Master Brokerage Company passed to the trustee upon his appointment. It is claimed by appellant that the bankruptcy court has no jurisdiction over a suit involving the title to property in possession of a third party holding the same adversely to the bankrupt, and that the trustee must be remitted to bring a separate suit for its recovery. This involves two questions: First. Did the federal court have jurisdiction without his consent? Second. Did he consent?

Section 23, subdiv. 'b,' Bankr. Act July 1, 1898, c. 541, 30 Stat. 552 (U.S. Comp. St. 1901, p. 3431), as amended by Act June 25, 1910, c. 412, 36 Stat. 840 (U.S. Comp. St. Supp. 1911, p. 1499), provides:

'Suits by the trustee shall only be brought or prosecuted in the courts where the bankrupt, whose estate is being administered by such trustee, might have brought or prosecuted them if proceedings in bankruptcy had not been instituted, unless by consent of the proposed defendant, except suits for the recovery of property under section sixty, subdivision 'b,' and section sixty-seven, subdivision 'e."

The third clause of the second section of the Bankruptcy Act of 1867 expressly gave to the Circuit and District Courts jurisdiction of such suits by or against the trustee (Eyster v. Gaff et al., 91 U.S. 521, 23 L.Ed. 403) and the conferring of such exclusive jurisdiction upon the federal courts in the excepted cases in subdivision b of section 23 of the present law is valid (In re Wood and Henderson, 210 U.S. 246, 28 Sup.Ct. 621, 52 L.Ed. 1046). It is therefore not beyond the power of Congress to give the federal court jurisdiction of such suits, but the Supreme Court has held that, in fact, no such general jurisdiction was given to the District Court by the present bankruptcy law,...