National Automatic Tool Co. v. Goldie

• Decision Date: 11 February 1939
• Docket Number: No. 3637.,3637.
• Court: U.S. District Court — District of Minnesota
• Parties: NATIONAL AUTOMATIC TOOL CO. v. GOLDIE (COX, Garnishee).

27 F. Supp. 399

NATIONAL AUTOMATIC TOOL CO. v. GOLDIE (COX, Garnishee).

No. 3637.

District Court, D. Minnesota, Fourth Division.

February 11, 1939.

H. Z. Mendow, of Minneapolis, Minn., for petitioners.

M. E. Culhane, of Minneapolis, Minn., for plaintiff.

JOYCE, District Judge.

This matter comes before the court in the above entitled proceedings on the motion of Louis Shapiro, C. B. Cooper and Hennepin Transfer Company, for an order releasing and discharging the above entitled garnishee defendant and releasing and discharging the garnishment proceedings in the above matter.

It appears that the Calhoun Beach Club Holding Company is in bankruptcy in the Fourth Division of this court and that Harold W. Cox is the trustee of said bankrupt estate. That Harry S. Goldie, principal defendant herein, has heretofore filed certain claims against the Calhoun Beach Club Holding Company, bankrupt, which have been the subject of assignment by him to the petitioners above named, which assignment was to all money, property and dividends coming to him in said bankruptcy proceeding.

Heretofore and on the 16th day of June, 1936, the plaintiff in the within action obtained ex parte from the Honorable Gunnar H. Nordbye, a Judge of this court, in the bankruptcy proceeding aforesaid, an order permitting the plaintiff herein to garnishee and serve garnishee summons upon Harold W. Cox as trustee of the estate of the above mentioned bankrupt Holding Company and directing him to make disclosure as provided by law — all in connection with the above entitled action. It further appears that the plaintiff holds a judgment against the principal defendant Harry S. Goldie in the amount of $15,000 with interest recovered in the above entitled proceeding and filed by the Clerk of this court on the 4th day of November, 1938.

The plaintiff herein contends that the assignment above mentioned and filed in the bankruptcy court was made after the indebtedness described in plaintiff's complaint arose and was made without consideration and "for the purpose of hindering, delaying and defrauding the creditors of the above named defendant and especially the above named plaintiff". The petitioners seek the discharge of the garnishment upon the grounds that the garnishee is a trustee in bankruptcy and that the funds held by him are in custodia legis and not subject to garnishment; that no dividend has as yet been declared and that no money was due defendant at the time of the garnishment; and allege knowledge of the assignment in the plaintiff and his attorney.

The proceeding involves the application of the statutes of Minnesota and decisions of the Minnesota Supreme Court. Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487. The Minnesota statutes applicable, namely, Sections 9356, 9366 and 9375, Mason's Minnesota Statutes 1927, among other things provide that garnishment may be resorted to in an action for the recovery of money, as well as for the making of a claimant to property garnisheed a party to the garnishment proceeding, and that if it becomes necessary in the progress of the proceeding the court may appoint a receiver to care for the fund, or the same may be brought into court.

In Watson v. Goldstein, 176 Minn. 18, 222 N.W. 509, 511, which had to do with Section 8226 of the Minnesota statutes relative to the attaching of real estate, the Supreme Court in part expressed itself in regard to garnishment as follows: "Here we have to do with personal property, and counsel for respondent assert that a garnishment is an attachment within this statute. We think not. True, it is in the nature of an attachment, but in garnishment proceedings the plaintiff never gets more than an inchoate lien, which may be protected by proceeding to judgment. He may get a definite right. It is not a levy in the usual sense. It differs from an attachment in that usually there is no actual seizure of the property and no specific lien is acquired thereon. It is a judicial warning to the garnishee not to pay or restore property to the defendant, and, if he does, he may subject himself to judgment."

I do not believe that the question as to whether or not a dividend has been declared has any influence on the question as to the maintenance of the garnishment proceeding; nor that the declaration of a dividend has effect on property in custodia legis. If no dividend is ever declared, the garnishment of course is a futility. If one should be declared in favor of the defendant or his assignees, its disposition will be determined in the light of the court's finding as to the integrity of the assignment in this proceeding. No stay or delay in the bankruptcy matter will necessarily follow as a result of such procedure.

Duxbury v. Shanahan, 84 Minn. 353, 87 N.W. 944, 945, supports the position that the garnishment proceeding might be maintained although no dividend had been declared and the court may in the progress of the proceeding, if the situation warrants, order a stay pending final action on the dividend in the bankruptcy court. The court said: "The proper practice was to stay all proceedings until there had been a determination in the regular, orderly way in the probate court, or, upon appeal, in the court which acquires and exercises final jurisdiction, and finally construes and declares the legal effect of the will in question."

See also National Surety Co. v. Hurley, 130 Minn. 392, 153 N.W. 740, L.R.A.1918F, 440.

It is elementary that the District Court of the United States sitting in bankruptcy and the District Court of the United States sitting in law or equity are separate and independent courts. In this Circuit see Hanna v. Brictson Mfg. Co., 8 Cir., 62 F. 2d 139, and Naylor v. Cantley, 8 Cir., 96 F. 2d 761.

There seems to be no question but that the court having custody of the res may authorize the commencement of suit in another court as well as limit the extent to which another court's jurisdiction may go. In re Kelley, D.C., 297 F. 676.

In People's Bank v. Calhoun, 102 U.S. 256, 261, 26 L.Ed. 101, the Supreme Court of the United States said: "It was for the court having such possession to determine how far it would permit any other court to interfere with that possession, and what effect it would give to the attempt of another court to seize the property so under its control."

See also Bankers Mortgage Co. v. McComb, 10 Cir., 60 F.2d 218.

In Re Chakos, 36 F.2d 776, 777, the district court for the Western District of Wisconsin said: "It is the established rule in the federal court that funds in custodia legis are not as a matter of right subject to either attachment or garnishment," and gave as a reason for this rule that a right to garnishee or attach funds in custodia legis would cause endless embarrassment and interference with the administration of estates and the court's administration of its functions. The court further stated: "But the precise question here involved is not whether such right exists,...