Silberberg v. Ray Chain Stores

• Decision Date: 04 December 1931
• Citation: 54 F.2d 650
• Parties: SILBERBERG v. RAY CHAIN STORES, Inc.
• Court: U.S. District Court — District of New Jersey

54 F.2d 650 (1931)

SILBERBERG v. RAY CHAIN STORES, Inc.

District Court, D. New Jersey.

December 4, 1931.

John Milton, of Jersey City, N. J., for equity receivers.

William Harris, of Newark, N. J., for trustee in bankruptcy.

FAKE, District Judge.

Facts.

On the 29th day of December, 1930, a complaint was filed in the above-entitled cause alleging the insolvency of the defendant corporation and praying the appointment of receivers, whereupon temporary receivers were appointed who subsequently, on the 12th day of January, 1931, were made permanent. These receivers proceeded with the performance of their duties, retained counsel, and gave liberally of their time to the business, requiring the exercise of a high degree of skill and intelligence. While the receivers were thus employed, and on the 2d day of April, 1931, upwards of three months after their appointment, an involuntary petition in bankruptcy was filed against the defendant corporation, and proceedings subsequently had thereunder resulted in an adjudication on May 4, 1931, and on the 29th day of said month trustees were duly appointed and qualified.

On the 23d day of September, 1931, a petition was filed herein praying, among other things, that allowances be made by this court for the equity receivers and for their counsel.

Query.

Is the equity court vested with power to fix the amounts and cause to be paid the allowances as prayed for; it appearing that bankruptcy has intervened within four months of the institution of the equity proceedings under which the receivers were appointed?

In approaching a solution of the problem thus raised, it will be well at the outset to examine into the question of the title to the property. It is obvious that, if the title and exclusive jurisdiction over the same be vested in one court, no other court may deal with the whole or any part thereof.

The latest rulings of the United States Supreme Court bearing on the subject of title as here under consideration are found in the decision of Mr. Justice Roberts in Isaacs v. Hobbs Tie & Timber Co. (February 24, 1931) 282 U. S. 734, 51 S. Ct. 270, 271, 75 L. Ed. 645, and in Straton v. New (April 20, 1931) 283 U. S. 318, 51 S. Ct. 465, 466, 75 L. Ed. 1060. In the Isaacs Case he said: "Upon adjudication, title to the bankrupt's property vests in the trustee with actual or constructive possession, and is placed in the custody of the bankruptcy court. Mueller v. Nugent, 184 U. S. 1, 14, 22 S. Ct. 269, 46 L. Ed. 405. The title and right to possession of all property owned and possessed by the bankrupt vests in the trustee as of the date of the filing of the petition in bankruptcy, no matter whether situated within or without the district in which the court sits. Robertson v. Howard, 229 U. S. 254, 259, 260, 33 S. Ct. 854, 57 L. Ed. 1174; Wells v. Sharp (C. C. A.) 208 F. 393; Galbraith v. Robson-Hilliard Grocery Co. (C. C. A.) 216 F. 842. It follows that the bankruptcy court has exclusive jurisdiction to deal with the property of the bankrupt estate. It may order a sale of real estate lying outside the district. Robertson v. Howard, supra; In re Wilka (D. C.) 131 F. 1004. When this jurisdiction has attached, the court's possession cannot be affected by actions brought in other courts. White v. Schloerb, 178 U. S. 542, 20 S. Ct. 1007, 44 L. Ed. 1183; Murphy v. Hofman, 211 U. S. 562, 29 S. Ct. 154, 53 L. Ed. 327; Dayton v. Stanard, 241 U. S. 588, 36 S. Ct. 695, 60 L. Ed. 1190. This is but an application of the well-recognized rule that, when a court of competent jurisdiction takes possession of property through its officers, this withdraws the property from the jurisdiction of all other courts which, though of concurrent jurisdiction, may not disturb that possession, and that the court originally acquiring jurisdiction is competent to hear and determine all questions respecting title, possession, and control of the property. Murphy v. Hofman, supra; Wabash R. R. Co. v. Adelbert College, 208 U. S. 38, 28 S. Ct. 182, 52 L. Ed. 379; Harkin v. Brundage, 276 U. S. 36, 48 S. Ct. 268, 72 L. Ed. 457. Thus, while valid liens existing at the time of the commencement of a bankruptcy proceeding are preserved, it is solely within the power of a court of bankruptcy to ascertain their validity and amount and to decree the method of their liquidation. Ex parte City Bank of New Orleans, 3 How. 292, 11 L. Ed. 603; Houston v. City Bank of New Orleans, 6 How. 486, 12 L. Ed. 526; Ray v. Norseworthy, 23 Wall. 128, 23 L. Ed. 116; In re Wilka, supra; Nisbet v. Federal Title & Trust Co. (C. C. A.) 229 F. 644. The exercise of this function necessarily forbids interference with it. * * *"

In the Straton Case he said this: "The purpose of the Bankruptcy Act (11 USCA) passed pursuant to the power of Congress to establish a uniform system of bankruptcy throughout the United States, is to place the property of the bankrupt, wherever found, under the control of the court, for equal distribution among the creditors. The filing of the petition is an assertion of jurisdiction with a view to the determination of the status of the bankrupt and a settlement and distribution of his estate. This jurisdiction is exclusive within the field defined by the law, and is so far in rem that the estate is regarded as in custodia legis from the filing of the petition. Acme Harvester Co. v. Beekman Lumber Co., 222 U. S. 300, 32 S. Ct. 96, 56 L. Ed. 208. It follows that liens cannot thereafter be obtained nor proceedings be had in other courts to reach the property, the district court having acquired the exclusive right to administer all property in the bankrupt's possession. Lazarus v. Prentice, 234 U. S. 263, 34 S. Ct. 851, 58 L. Ed. 1305; White v. Schloerb, 178 U. S. 542, 20 S. Ct. 1007, 44 L. Ed. 1183; Murphy v. John Hofman Co., 211 U. S. 562, 29 S. Ct. 154, 53 L. Ed. 327; U. S. F. & G. Co. v. Bray, 225 U. S. 205, 32 S. Ct. 620, 56 L. Ed. 1055; Hebert v. Crawford, 228 U. S. 204, 33 S. Ct. 484, 57 L. Ed. 800.

From these rulings and the cases cited to support them, no other conclusion can be reached than that upon the filing of the petition in this cause the title to the bankrupt's estate, wherever found, vested exclusively in custodia legis in the bankruptcy court. This then leads to an inquiry as to the extent of the operation of the General Corporation Act of New Jersey in vesting title in the equity receivers on their appointment in proceedings here under that act.

It is argued that, by virtue of section 68 of the General Corporation Act, Revision of 1896 (P. L. 1896, p. 299, 2 Comp. St. 1910, p. 1644, § 68), as supplemented and amended, title vests in the equity receiver, and, as the statute declares "the corporation shall be divested of the title" and by reason thereof, the bankruptcy court takes neither the actual nor the constructive possession upon bankruptcy supervening within four months of the filing of the complaint in equity. Such in effect has heretofore been the ruling in the New Jersey Court of Chancery, so far as a portion of the estate required for the fixing and paying out of fees and allowances to receivers and counsel is concerned. In Cudahy v. N. J. Dairy Products Co., 90 N. J. Eq. 541, 107 A. 147, an action in equity in New Jersey, Vice Chancellor Lane, referring to a receiver where bankruptcy had intervened, ruled that: "The receiver may not, without the consent of this court, either submit to the jurisdiction of the bankruptcy court to fix his compensation, or turn over to the trustee in bankruptcy or to any other officer of the bankruptcy court, or of any court, any of the assets within his control. If the receiver does not move, then the trustee in bankruptcy may apply to this court to compel the receiver to file his account and may ask this court for an order fixing the compensation of the receiver, * * * " citing Singer v. National Bedstead Co., 65 N. J. Eq. 290, 55 A. 868, and Kennedy v. American Tanning Co., 81 N. J. Eq. 109, 85 A. 812. The learned Vice Chancellor cites In re Watts & Sachs, 190 U. S. 1, 23 S. Ct. 718, 727, 47 L. Ed. 933, as authority for the procedure thus laid down.

In a study of the Watts Case, supra, we find Chief Justice Fuller ruling that the bankruptcy proceedings "operated to suspend the further administration of the insolvent's estate" in the equity court, but it remains for that court "to transfer the assets, settle the accounts of its receiver and close its connection with the matter. Errors, if any, committed in so doing could be rectified in due course and in the designated way." Again in the same opinion he speaks of "surrender of the assets and the winding up of the accounts" by the receivers. It should be noted in considering the Watts Case that the rules of procedure therein discussed by the Chief Justice were not thought pertinent by Mr. Justice Harlan in his concurring opinion, or at least he confined his concurrence to the evidence bearing upon the alleged contempt which was the gist of that action. The Watts Case is cited by Mr. Justice Brandeis in Lion Bonding Co. v. Karatz, 262 U. S. 640, at page 642, 43 S. Ct. 641, 642, 67 L. Ed. 1151, as his authority in saying: "Even where the court which appoints a receiver had jurisdiction at the time, but loses it, as...