Piedmont Coal Co. v. Hustead

• Decision Date: 02 November 1923
• Docket Number: 8790.,3011
• Citation: 294 F. 247
• Parties: PIEDMONT COAL CO. et al. v. HUSTEAD et al. [1] In re THOMPSON.
• Court: U.S. Court of Appeals — Third Circuit

294 F. 247

PIEDMONT COAL CO. et al. v. HUSTEAD et al. ^[1]

In re THOMPSON.

Nos. 3011, 8790.

United States Court of Appeals, Third Circuit.

November 2, 1923

Rehearing Denied December 31, 1923.

Buffington Circuit Judge, dissenting.

Frank W. Nesbitt, of Wheeling, W. Va., and Wm. E. Hague, Wm. M Robinson, Wm. A. Seifert, and Reed, Smith, Shaw & McClay, all of Pittsburgh, Pa. (George Wharton Pepper, of Philadelphia Pa., of counsel), for appellants.

Roy G. Bostwick and Earl F. Reed, both of Pittsburgh, Pa., and Jay T. McCamic and McCamic & Clarke, all of Wheeling, W.Va. (Charles McCamic and Jas. Morgan Clarke, both of Wheeling, W. Va., of counsel), for appellees.

R. E. Umbel, of Uniontown, W. Va., Waitman H. Conaway, of Fairmont, W. Va., and Weil, Christy & Weil, of Pittsburgh, Pa. (A. Leo. Weil, of Pittsburgh, Pa., of counsel), for trustees in bankruptcy.

Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.

WOOLLEY Circuit Judge.

This is one of many actions growing out of the bankruptcy of Josiah Van Kirk Thompson which have occupied the courts in Pennsylvania and West Virginia for years. It was instituted by the Piedmont Coal Company and the Ayrshire Corporation, purchasers of the bankrupt's land at trustee's sale, to restrain further prosecution of two suits previously brought against the bankrupt in the state courts of West Virginia and to enjoin the enforcement of their liens. On final hearing the District Court entered the decree here appealed from, ordering that the preliminary injunction theretofore granted be dissolved and the petition upon which the injunction was issued dismissed.

We should be content to affirm the decree on the opinion of the District Court were it not for the evident belief of counsel that the decision involves grave error and works great injustice. We shall therefore subject the case to the test of an opinion written in another way. In doing so we shall state only the main facts of this long story and then only in connection with our discussion, availing ourselves of the statement of the case made in sufficient detail by the learned trial judge in his opinion reported at 288 F. 385.

On the argument, here and evidently in the District Court, there was elaborate discussion concerning rights, legal and equitable, of a variety of parties--trustees in bankruptcy, purchasers at bankruptcy sales, creditors, suitors in state actions, assignees, sureties, subrogees. We believe that much of the resultant confusion will be dispelled when it is realized that the Piedmont Company, plaintiff in this action, must prevail, if at all, on its own right to the remedy it seeks. This is the starting point, and the point from which, looking backward, we shall view the case in all its aspects.

The two suits against Josiah Van Kirk Thompson, the enforcement of whose liens the Piedmont Company seeks to enjoin, were instituted in West Virginia courts in 1915, one by the National Bank of West Virginia, wherein several thousand acres of coal lands were attached, and the other by Beeson H. Brown, wherein several hundred acres were attached. J. M. Hustead was surety for Thompson on the obligations on which both suits were brought. In each suit lis pendens was filed giving notice to purchasers under the law of West Virginia. In 1916, decrees in rem for named amount were entered. Clearly, by these proceedings the courts of West Virginia acquired full jurisdiction and control of the properties attached. These properties were in custodia legis in every sense and if nothing else had happened the plaintiffs certainly could have prosecuted their decrees to execution and sale. But two things happened: One, Thompson in September, 1917, was adjudged a bankrupt; the other, shortly thereafter all attaching creditors in West Virginia were enjoined from further prosecuting their suits. The validity of that injunction, though challenged, has not been determined. It was effective, however, in staying action on these and many other attachments beyond the period when, two years later, all the bankrupt's properties were sold by his trustees. With that injunction we have no present concern except to observe that, having held the hands of the plaintiffs in the state courts, it drove them to action in the bankruptcy court. That action, however, was negative, and was taken only when the bankruptcy court had under consideration the sale, free of liens, of the lands attached in their two suits.

This contemplated action by the bankruptcy court grew out of a proposition made by the Piedmont Company to the trustees in June, 1919, to purchase at private sale the property of the bankrupt free and clear of taxes, attachments and other liens. The offer was accepted by the trustees and referred to the referee. While pending there the National Bank and Brown appeared specially, filed proofs of claim for the full amounts due on their West Virginia decrees, Pickens v. Roy, 187 U.S. 177, 23 Sup.Ct. 78, 47 L.Ed. 128, and objected to the sale of the bankrupt's lands free of their liens on the ground that as the state courts of West Virginia had more than four months prior to bankruptcy acquired complete jurisdiction and control over the property of the bankrupt thereby attached, they were not divested of their jurisdiction by the bankruptcy of the debtor nor was their jurisdiction capable of being stayed or arrested by the injunctive process of the District Court in which bankruptcy proceedings were pending. Metcalf v. Barker, 187 U.S. 165, 23 Sup.Ct. 67, 47 L.Ed. 122; Pickens v. Roy, 187 U.S. 177, 23 Sup.Ct. 78, 47 L.Ed. 128. In other words, the plaintiffs in the state suits chose to stand on the security of the liens which the state courts had given them. On the authorities cited we have no doubt they had a right to do so. As many other creditors whose West Virginia attachments had been stayed by the injunction then pending were taking the same position, the trustees and other parties who were endeavoring to carry into effect the proposition of the Piedmont Company--one admittedly favorable to the general administration of the estate-- grew apprehensive and after long negotiations acquired the consent of all West Virginia attachment creditors (except the two here named) to a sale of lands covered by their liens free and discharged therefrom. Their consent was obtained on a promise to pay 90 per cent. of their claims. Whereupon a decree was entered, in effect a consent decree, approving the sale of the bankrupt's lands to the Piedmont Company free and discharged of liens with a provision for the liens to follow the purchase money. This decree of confirmation provided that in the schedule of distribution the decrees of Brown and the Bank should be excepted unless later they should elect to accept the dividend of 90 per cent. agreed upon by the other creditors. Later the sale was made and completed on the payment of the purchase money by the Piedmont Company and the delivery of deeds by the trustees.

It is to be noted that this was a sale of real property ostensibly free and discharged of all liens. Keeping in mind that the Piedmont Company, to obtain the remedy it seeks, must stand on its own rights, we stop here to inquire whether in the sale of lands by the bankruptcy court the purchaser acquired the lands free of the liens of the decrees of Brown and the Bank. The Piedmont Company says it did, advancing the proposition that a bankruptcy court has jurisdiction to sell the property of a bankrupt free and discharged of liens and to transfer the same to the fund realized from the sale. There can be no doubt about this general proposition of law when the property is within the jurisdiction of the bankruptcy court. The cases sustaining it are too numerous to require citation. But possession is the test of jurisdiction. The case of Murphy v. John Hofman Company, 211 U.S. 562, 29 Sup.Ct. 154, 53 L.Ed. 327, is a late authority for the old rule, applicable to all courts--neither excepting nor favoring courts of bankruptcy-- that 'where a court of competent jurisdiction has taken property into its possession, through its officers, the property is thereby withdrawn from the jurisdiction of all other courts. * * * The jurisdiction in such cases arises out of the possession of the property and is exclusive of the jurisdiction of all other courts, although otherwise the controversy would be cognizable in them. Wabash Railroad v. Adelbert College, 208 U.S. 38, 54, 53 L.Ed. 279, 386, 28 Sup.Ct. 182. ' Accordingly, it was held that 'where property was in the possession of the bankrupt at the time of the appointment of a receiver, * * * the bankruptcy court had jurisdiction to determine the title to it as against an adverse claimant.'

But the power of a court of bankruptcy to sell, free of liens property which has come into its control by reason of title and possession derived by the trustee from the bankrupt does not extend to property whose possession and control has been acquired by another court more than four months before bankruptcy. Here the principle of Metcalf v. Barker and Pickens v. Roy enters. And when a state court has thus acquired possession of property by seizure, its jurisdiction, on authority of Murphy v. John Hofman Company, is exclusive of the jurisdiction of all other courts including courts of bankruptcy and it may proceed thereon to final disposition. If this were not so and if the proposition here made that all property of the bankrupt may be sold free of liens, whether in process of enforcement by other courts or not, then the jurisdiction of the court of bankruptcy would be paramount to that of all courts and there would be neither occasion nor reason for the law announced in Metcalf v. Barker, Pickens v. Roy, Murphy v. John Hofman...