Seegmiller v. Day

• Decision Date: 02 January 1918
• Docket Number: 2478.
• Citation: 249 F. 177
• Parties: SEEGMILLER v. DAY.
• Court: U.S. Court of Appeals — Seventh Circuit

249 F. 177

SEEGMILLER v. DAY.

No. 2478.

United States Court of Appeals, Seventh Circuit.

January 2, 1918

The trustee of the bankrupt corporation filed a plenary bill in equity against appellant and another, alleging they were directors of the corporation, that while the corporation was insolvent these directors declared and paid dividends in reduction of the capital stock of the corporation, a large amount of which dividends are alleged to have been paid to themselves as dividends upon their own stock; appellant being charged with having so secured $8,232.84 of such dividends prior to four months before the bankruptcy, and $1,156 within such four months. They were also charged with being the holders of certain corporate stock for which they had not paid. The relief in the bill demanded of appellant is 'that said pretended dividends be decreed to have been declared in fraud upon the creditors and upon your orator herein, and that the said C. H. Seegmiller be ordered to repay to your orator the $1,156 taken within four months of bankruptcy, and the $8,232.84 taken within one year and a half prior to bankruptcy, and $6,300 as unpaid subscription to the capital stock,' and such other relief as the nature of the case may require and the court deem proper. Detailed answer was filed, wherein it was denied that dividends were paid while the company was insolvent, and as to the alleged unpaid stock subscription it was stated that it was paid through a dividend declared and paid on other of appellant's stock, and that if the subscription was not properly so paid appellant is prepared to surrender the stock.

The cause was heard and decree was entered, in which it was found that the evidence sustained the allegations of the bill; that appellant was a stockholder and director, and that while the corporation was insolvent he declared and paid dividends himself receiving by way of such dividends the sum of $9,046.51; that he was a subscriber to 63 shares, of $100 par value, of the capital stock, for which he had paid nothing and that by reason of the declaration and payment of dividends in reduction of capital stock appellant became liable under section 19, chapter 32, of the Revised Statutes of Illinois, for all of the debts of the corporation then existing or thereafter created while he remained in office as director, and found the total amount of such debts to be $79,853.72. And the court decreed that the trustee recover from appellant the sum of $9,046.51 as dividends thus improperly received by him, and the further sum of $6,300 for his unpaid stock subscription, and the further sum of $64,507.21 to pay the balance of the debts of the corporation for which he became liable as aforesaid under section 19 chapter 32, of the Revised Statutes of Illinois for his having while a director assented to the declaration of and paid dividends, while the corporation was insolvent. There was a further finding that the trustee recover from the defendants jointly and severally $79,853.72 as the total amount of such debts, which includes the amounts severally found due from each of the defendants and decreed to be paid by them.

William Slack, of Chicago, Ill., for appellant. Adams, Follansbee, Hawley & Shorey, of Chicago, Ill. (Mitchell D. Follansbee and Robert W. Schupp, both of Chicago, Ill., of counsel), for appellee.

Before BAKER, ALSCHULER, and EVANS, Circuit Judges.

ALSCHULER Circuit Judge (after stating the facts as above).

No other ground for federal jurisdiction appears than such as arises under the Bankruptcy Act, and it is maintained for appellant that the District Court did not have jurisdiction of the action. Section 23b of the Bankruptcy Act, as amended by Act June 25, 1910, c. 412, Sec. 7, 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; section sixty-seven, subdivision e; and section seventy, subdivision e.'

So much of the recovery in the decree as represents what was wrongfully paid to appellant within four months of the bankruptcy was recoverable by the trustee under section 60b, and such of it as represents what he so received prior to the four months' period was recoverable under section 70e, both of which sections are excepted from the operation of the quoted section. Both section 60b and section 70e provide that in actions brought thereunder the bankruptcy court shall have concurrent jurisdiction with state court.

But as to these items of the recovery, as well as that of the unpaid stock subscription, we are of opinion that, under the circumstances here appearing, that part of section 23b providing for jurisdiction of the bankrupt court through the consent of the proposed defendant is here effective to confer jurisdiction on the federal court. As to these items the bill fully informed appellant, and he filed full and specific answer to these charges, without suggestion of objection on his part to the jurisdiction of the bankruptcy court to hear and determine those issues. The record disclosing no objection to the jurisdiction, but, on the contrary, showing active participation by appellant through full answer upon the merits, appellant's consent to the jurisdiction of the District Court, so far as his consent may have been necessary, thus sufficiently appears.

Respecting that part of the decree against appellant which is predicated upon his alleged liability for the corporation's debts through declaring and paying dividends while the corporation was insolvent, a different question is presented. If,...