Rothschild v. Hasbrouck

• Decision Date: 31 December 1894
• Docket Number: 2,324.
• Citation: 65 F. 283
• Parties: ROTHSCHILD et al. v. HASBROUCK et al.
• Court: U.S. District Court — Southern District of Iowa

65 F. 283

ROTHSCHILD et al. v. HASBROUCK et al.

No. 2,324.

United States Circuit Court, S.D. Iowa, Central Division.

December 31, 1894

Cummins & Wright, for plaintiffs.

Park &amp Odell, for defendants.

WOOLSON District Judge.

The bill herein avers that plaintiffs duly recovered judgment in this court, by action at law, against defendant Hasbrouck and that in said action defendant M. O. Barnes was duly garnished as a debtor of said Hasbrouck; that said Barnes filed his answer as such garnishee, showing in his possession, realized from sale of goods, etc., owned by said Hasbrouck, an amount exceeding plaintiffs' said judgment that in October, 1893, Hasbrouck, then a merchant at Humeston, Iowa, with intent to delay and defraud his creditors, and as parts of one and the same transaction, and knowing himself to be insolvent, and with intent to give unlawful preference to three certain creditors (who are made parties defendant to this bill), executed three certain chattel mortgages on his stock of good to said creditors, and immediately thereafter, and also as part of said transaction, executed to defendant Barnes a pretended deed of assignment of all his property for the benefit of his creditors, said mortgagees then knowing of said unlawful and fraudulent intent on the part of said Hasbrouck, and participating therein; that said conveyances are fraudulent and void under the statutes of the state of Iowa. Decree is asked declaring said conveyances void, and directing said Barnes to pay out of the said funds in his hands an amount sufficient to discharge plaintiffs' said judgment. Defendant Barnes files his pleas in abatement, averring (1) that in October, 1894, defendant Hasbrouck executed to said Barnes a general assignment for the benefit of his creditors, under the laws of the state of Iowa; that said Barnes at once duly qualified as such assignee, and filed with the district court of Wayne county, Iowa, his bond and inventory, duly gave notice thereof to all creditors, including plaintiffs, and, under the order and direction of said Wayne county court, disposed of said property, and filed in said court a list of all creditors who had filed their claims, and now has in his hands the funds remaining after paying preferred creditors and expenses, subject to the order and direction of said Wayne district court; that said court obtained and has jurisdiction over said defendant as such assignee, and over the said funds in his hands, and said proceedings are pending and undisposed of in said Wayne district court. (2) For further plea, said defendant states that at an action at law pending in this court, and undisposed of, wherein plaintiffs herein are plaintiffs and said Hasbrouck is defendant, this defendant was garnished as a supposed debtor of said Hasbrouck, and there answered setting up the above-stated facts with reference to said assignment and this defendant's proceedings thereunder, and the pendency thereof in said Wayne district court; and thereupon, and before filing this bill of complaint, plaintiffs herein filed their reply to said answer of this defendant as aforesaid, controverting the same, and asking therein the same relief they herein ask, and same is yet pending in said action.

1. The first point raised by the pleading of said Barnes is as to whether property in the possession of an assignee under a general assignment for the benefit of creditors is, in the state of Iowa, in custodia legis, so that this court cannot act with reference thereto, or as to the validity of said assignment. It is conceded that, if said property is thus in possession of an officer of the state court,-- has been drawn within the dominion of said court,-- this court ought not to disturb, and would be powerless if it attempted to disturb, the possession of such property. This proposition received extended consideration, and most clear and forcible presentation and application, in Senior v. Pierce, 31 F. 625, in an opinion written by Judge Love, and concurred in by Judges Brewer and Shiras. If an assignee, carrying into operation within this state a general assignment for the benefit of creditors, is, within the recognized definition of the term as used in this respect, an 'officer' of the court wherein he files his bond, and to whom he makes his reports, then the property in his hands as such assignee is beyond the power of this court, because the same is within the dominion of, and undisposed of by, the state court; and, as to the funds in the hands of such garnishee, it would seem that the plea must be sustained. The question as to whether such an assignee, in whatever state he may be acting, is an officer of that court which has supervision of his acts, has not met with uniformity of answer. To a considerable degree, this contrariety of views may be explained by the differing provisions of statutory enactment in the different states regarding the relation which such assignee sustains to the court to whom his reports are made, and whose direction he follows in the performance of his duties. That receivers appointed by the direct order of the court, and executors and administrators receiving their appointment from the court, are officers of the courts whose appointments they bear, so far as regards the question now under consideration, has passed beyond the point of doubt, and is settled by the decision of all the courts to which counsel have called our attention. But the assignee, in Iowa, does not receive his appointment from the court; and while, under the statutes of this state, he is subject to the orders of the state court, and may even be removed by that court for causes provided in the state statutes, yet his appointment is wholly the voluntary act of the assignor. The debtor cannot be compelled to make the assignment. Nor can the state court, by any order or decree, obtain control over or possession of the debtor's property, and place it in the hands of such assignee. On the principle that the deed of assignment creates a trust for the creditors of the insolvent debtor, and that the assignee is the trustee thereof, it is claimed that courts of chancery may rightfully assume and exercise that supervisory control and direction which said courts possess over trusts generally, except as to any matters wherein the statutes of the state have declared the manner of the performance by the assignee in the execution of his duties. In Adler v. Ecker, 2 Fed. 126, Judge Nelson has considered the question now under consideration; and in a subsequent case (Lapp v. Van Norman, 19 F. 406) the same learned judge gave further examination to the question, and reached the same conclusion,-- that the actual possession by the assignee, under such general assignment, of property of his assignor, is not custodia legis. The first decision was rendered before the enactment of the Minnesota statute as to insolvency proceedings, while the later case was subsequent to such enactment. In Lapp v. Van Norman, he says:

It is claimed that the property in the possession of the assignee is in custodia legis, and not subject to seizure by writ of attachment. I do not agree to this. The statute of Minnesota (March, 1881) did not validate all assignments purporting to be made in pursuance thereof, and forbid a judicial investigation; and while I concede that an attachment would not hold the property to satisfy a judgment against defendants unless the assignment is fraudulent and void against the plaintiffs, yet, under the law, the property is not in custodia legis, so as to exempt it from seizure. This instrument is the source of title in the assignee, and its execution is the voluntary act of the debtors, and not a proceeding instituted by law against them.

Lehman v. Rosengarten, 23 F. 642, arose in the Eastern district of Michigan, and was decided by Judge Brown, now a justice of the supreme court of the United States. The plea in abatement squarely presented the question we are now considering, and was heard on demurrer to such plea. The opinion presents an elaborate analysis of the statute of Michigan, which shows that statute to be in the main identical with the statute obtaining in this state. And the conclusion is reached that property in the hands of such assignee is not in custodia legis. Counsel for defendant have cited the court to but one federal decision which is claimed to hold to the contrary,-- the case of Cleveland Rolling-Mill Co. v. Joliet Enterprise Co., 53 F. 683. But it should be noticed that, while the court denied the power of the federal court to interfere with the property described in the bill, the opinion of Judge Gresham expressly states that the sheriff of the Illinois state court had levied on such property under various writs in his hands. The bill sought to restrain the sheriff from selling under his levies, and that the assignee, under state law, be required to deliver to the receiver to be appointed by the federal court, etc. So that, while the opinion indicates the view of the court on the point now under consideration, the decision is abundantly sustained on the other grounds stated, and is not a decision as to this point. Morris v. Lindauer, 4 C.C.A. 162, 54 F. 23, is another case arising in Michigan. The bill was filed to set aside a mortgage given to secure certain creditors by an insolvent, who soon thereafter executed a general assignment for the benefit of creditors. The bill attacks the mortgage as fraudulent, and that it and the assignment constituted one transaction. Judge Severens, in the course of his opinion, deals with the general point now under consideration, and specially refers to the extended discussion of the principles involved, as they are considered in Ball v. Tompkins, 41 F. 486. He concludes in harmony...