Simpson v. Western Hardware & Metal Co.

• Decision Date: 07 October 1915
• Docket Number: 73-E.
• Citation: 227 F. 304
• Parties: SIMPSON v. WESTERN HARDWARE & METAL CO. In re TACOMA ORNAMENTAL IRON WORKS.
• Court: U.S. District Court — Western District of Washington

227 F. 304

SIMPSON v. WESTERN HARDWARE & METAL CO.

In re TACOMA ORNAMENTAL IRON WORKS.

No. 73-E.

United States District Court, W.D. Washington, Northern Division.

October 7, 1915

W. W Keyes, of Tacoma Wash., for plaintiff.

F. C Kapp, of Seattle, Wash., for defendant.

NETERER District Judge.

This action was brought in the Southern division, and upon motion transferred to this division. Plaintiff, trustee of Tacoma Ornamental Iron Works, a corporation, bankrupt, by complaint in the form of a bill in equity, seeks judgment and equitable relief against the defendant, Western Hardware & Metal Company. Both the bankrupt and the defendant are Washington corporations; the former with its principal place of business in Tacoma, and the latter in Seattle. The complaint contains three causes of action. In the first, plaintiff alleges:

'That on the 7th day of November, 1914, and prior thereto, the said Tacoma Ornamental Iron Works was insolvent, of which insolvent condition the said defendant had full knowledge and upon said date, with the intent to create a preference, the said defendant, through its officers and agents, did enter into a conspiracy with the said Tacoma Ornamental Iron Works, through its officers and agents, by which the said defendant was paid the sum of five hundred twenty-one and 23/100 dollars ($521.23); that said payment of said sum of money above referred to was made with the intent and did create a preference in favor of the said defendant, who was at that time a general creditor of the said Tacoma Ornamental Iron Works. * * * '

The second cause charges:

'That on or about the 6th day of November, 1914, and prior thereto, the said Tacoma Ornamental Iron Works was insolvent, of which insolvent condition the said defendant had full knowledge, and upon said date the said defendant was a general creditor of the said Tacoma Ornamental Iron Works, and for purposes of hindering, delaying, and defrauding other creditors, and with the intent to create a preference, the said officers and agents of the said defendant and the said Tacoma Ornamental Iron Works did enter into a conspiracy by which certain assets, consisting of goods, wares, and merchandise, were turned over to the said defendant at the said time, but upon information and belief alleges the value thereof to be nine hundred ($900.00) dollars, and further alleges that the said defendant should be compelled to forthwith furnish to the said plaintiff a list of said goods, wares, and merchandise so removed and turned over to it.'

Under the third cause it is alleged:

'That on or about the 7th day of November, 1914, the King Lumber Company, a corporation, then engaged in business in the state of Washington, was indebted to the Tacoma Ornamental Iron Works; that the said defendant has notified the said King Lumber Company that it, the said defendant, claims that it, the said defendant, owns the debt due from the said King Lumber Company to the said Tacoma Ornamental Iron Works; that by reason of the said claim so made the said King Lumber Company has refused to pay to the plaintiff herein the amount due from the said King Lumber Company to the Tacoma Ornamental Iron Works and its trustee; that the said alleged claim is fraudulent and void, and if any evidence thereof was given by the officers or agents of the said Tacoma Ornamental Iron Works to the officers or agents of the defendant, the same was done as a result of a conspiracy between the said officers to hinder, delay, and defraud the creditors of the said Tacoma Ornamental Iron Works, and to prefer the said defendant to the other creditors of the said Tacoma Ornamental Iron Works while the said Tacoma Ornamental Iron Works was insolvent, of which the said defendant had full knowledge.'

Plaintiff prays for judgment under the first cause of action for the amount of the alleged preference; under the second cause prays 'that said defendant be required forthwith to surrender said property so removed, giving a full and detailed statement of the items, and that in lieu thereof that said plaintiff do have and recover judgment against the said defendant in the sum of $900, with interest thereon from the 6th day of November, 1914, until paid'; and under the third cause prays 'that said alleged claim of the said defendant to the money due plaintiff herein by the said King Lumber Company be canceled and held for naught, and that said plaintiff be allowed his legal costs and disbursements herein, and such other and further relief as may be equitable.'

Defendant has moved to transfer the first cause of action to the law side of the court, 'for the reason that the same is not cognizable in equity,' and has moved to strike the second and third causes, because redundant and impertinent, and this court has no jurisdiction of the subject-matter therein set forth. In the event of a denial of the motion to strike as to either of these causes of action, defendant moves that they be transferred to the law side of the court, because not cognizable in equity.

As to the jurisdictional question, it can be said that this is not a proceeding in bankruptcy; nor is there diversity of citizenship and requisite amount involved to give this court jurisdiction. If jurisdiction obtains, it must be by virtue of the provisions of section 23 of the Bankruptcy Act and amendments thereto (Comp. St. 1913, Sec. 9607), which provides that (paragraph 'a'):

'The United States Circuit (now District) Courts shall have jurisdiction of all controversies at law and in equity as distinguished from proceedings in bankruptcy, between trustees as such and adverse claimants concerning the property acquired or claimed by the trustees, in the same manner and to the same extent only as though bankruptcy proceedings had not been instituted and such controversies had been between the bankrupts and such adverse claimants.'

Subdivision 'b' of section 23, Bankr. Act 1898, prior to amendment, provided that:

'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.'

The Supreme Court, in Bardes v. Hawarden Bank, 178 U.S. 524, 20 Sup.Ct. 1000, 44 L.Ed. 1175, in construing section 23, supra, held that under the limitations imposed by subdivision 'b,' controversies not strictly or properly part of the proceedings in bankruptcy, but independent suits brought by the trustee in bankruptcy to assert a title to money or property as assets of the bankruptcy against strangers to those proceedings, do not come within the jurisdiction of the United States District Courts, unless by consent of the proposed defendant.

Subdivision 'b,' supra, was thereafter amended, by the acts of 1903 and 1910, to add the following:

'Except suits for the recovery of property under section sixty, subdivision b, and section sixty-seven, subdivision e, and section seventy, subdivision e.'

It is apparent that the several causes of action in the complaint in this case, if they are within the jurisdiction of this court as to the subject-matter therein contained, must be brought within one of the classes specified in the amendment of subdivision 'b,' supra. The jurisdiction as to the first cause of action is not disputed, and of course obtains under section 60, subdivision 'b.'

Defendant contends that the second cause of action is one for an accounting, and therefore not within the exception. This cause of action is clearly one charging the transfer, for the purpose of hindering, delaying, and defrauding other creditors, of bankrupt's property to the defendant, and within the provisions of section 67e of the act. That is the gist of this cause of action. The fact that the trustee did not know the exact nature or value of the property charged to have been transferred and asks that the defendant be required to furnish a list, does not change the general character of the suit.

The third cause of action, however, cannot be brought within the exception. It is in the nature of a suit to quiet title to personal property, and while such a suit is cognizable in equity, where the requisites of jurisdiction are shown (section 57, Judicial Code (Comp. St. 1913, Sec. 1039); Burpee v. Guggenheim, 226 F. 214, filed in this court, August 11, 1915), the bankrupt could not have brought it in the federal court, and the trustee cannot bring it against the objection of the defendant (Bardes v. Hawarden Bank, supra).

Are the first and second causes of action cognizable in equity, or should they be transferred to the law side of this court? It does not appear that this question has ever been passed upon by the Supreme Court, and the District and Circuit Courts are not in harmony.

In Wall v. Cox, 101 F. 404, at page 412, 41 C.C.A. 408, at page 417, the Circuit Court of Appeals for the Fourth Circuit held that a trustee in bankruptcy, seeking to set aside a bill of sale and transfer of property previously made by bankrupt and alleged to have been fraudulent under the bankruptcy law, may proceed by bill in equity, and through District Judge Waddill said:

'The petitioners earnestly insist that, if the United States District Court has jurisdiction to entertain a suit of the character under consideration, the action should be by appropriate proceedings at law, and not by bill in equity. That courts of equity are clothed with full power and authority to entertain suits involving questions of fraud in the conveyance and transfer of property, and the annulling and cancellation of such transfers, is too well and firmly settled and established in the jurisprudence of the

...