United States v. Smelser

• Decision Date: 16 January 1937
• Docket Number: No. 8203.,8203.
• Citation: 87 F.2d 799
• Parties: UNITED STATES v. SMELSER.
• Court: U.S. Court of Appeals — Fifth Circuit

87 F.2d 799 (1937)

UNITED STATES v. SMELSER.

No. 8203.

Circuit Court of Appeals, Fifth Circuit.

January 16, 1937.

Steve M. King, U. S. Atty., and Charles S. Pipkin, Asst. U. S. Atty., both of Beaumont, Tex.

J. Q. Mahaffey, of Texarkana, Tex., for appellee.

Before FOSTER, HUTCHESON, and HOLMES, Circuit Judges.

HOLMES, Circuit Judge.

This is a suit by the United States against a former referee in bankruptcy to recover multiple excessive fees paid to him from the funds of about forty estates. The total overpayments from January 1, 1927 to January 1, 1931, amount to $2,644.48. The suit is not upon the bond of the referee, although it is alleged that the fees were collected, while he was in office, from estates being administered by him, and that a bond was duly given. It further appears that the suit was brought on behalf of persons entitled to participate in said estates. A demurrer to the petition was sustained by the District Court, and judgment entered in favor of the referee. It is admitted by the demurrer that the referee has no right to retain the funds in controversy, because the fees were illegally paid to him by trustees in bankruptcy.

Section 61 of the Bankruptcy Act provides for the designation of depositories for funds of bankruptcy estates. 11 U.S. C.A. § 101. The moneys deposited therein are not in the registry of the court. Section 66 provides that dividends remaining unclaimed for a period of six months shall be paid into court (11 U.S.C.A. § 106); but the funds here involved were never set aside for dividends and cannot be regarded as dividends. Since section 66 applies only to unclaimed dividends (Johnson v. Norris C.C.A. 190 F. 459, L.R.A. 1915B, 884), it does not apply to these funds.

We think the contingent interest derived from the possibility of these funds being recovered by the estates, and thereafter being paid into the Treasury of the United States, is too remote to confer upon appellant any present right of action, either legal or equitable. If recovered, they would be paid into the depository for bankruptcy funds, and appropriated to the payment of dividends. Should the dividends, or any portion thereof, remain unclaimed for six months after the final dividend, the balance would be paid into the registry of the court. After remaining there unclaimed for a period of one year, they would be appropriated to payment of claims not satisfied in full, and any balance then remaining would be payable to the bankrupt. Finally, should any portion of these funds remain unclaimed by the bankrupt or the creditors for a period of five years, it would be paid into the Treasury of the United States. 11 U.S.C. A. § 106; 28 U.S.C.A. §§ 851, 852. It will thus be seen how remote is the possibility that the United States will become trustee of these funds.

This action was at law and proceeded to final judgment without the contention being made that it was of an equitable nature. In this court the suggestion is made that the cause should have been transferred to the equity docket. It is claimed that in equity the sovereign is entitled to maintain a suit in the nature of a bill of peace to settle the various controversies with the referee arising in bankruptcy estates. Before discussing remedies, let us examine the rights of appellant (1) at common law, (2) in equity, and (3) by statute. Causes of action should be distinguished from remedies. One precedes and gives rise to the other, but they are separate and distinct. The cause of action is not only different from the remedy but also from the relief sought. Emory v. Hazard Powder Co., 22 S.C. 476, 53 Am.Rep. 730; Frost v. Witter, 132 Cal. 421, 64 P. 705, 84 Am.St.Rep. 53; Hahl v. Sugo, 169 N.Y. 109, 62 N.E. 135, 61 L.R. A. 226, 88 Am.St.Rep. 539.

At common law, an "action" is defined by Lord Coke as a legal demand of one's right. Our Supreme Court says a cause of action comprises what a plaintiff must prove to obtain judgment. Bradford v. Southern R. Co., 195 U.S. 243, 25 S.Ct. 55, 49 L.Ed. 178. To entitle a plaintiff to judgment, something more than a legal cause of action must exist; the right to maintain it must be in the person instituting the suit. In United States v. Brainerd (D.C.) 250 F. 1011, 1012, 1015, the court held that "the sovereign in its representative capacity has no implied power to demand a general accounting for the purpose of impounding funds collected in excess of that by law allowed for the benefit of individuals entitled thereto, because the state, through its public officials, should not so assist either party in a private controversy." See, also, Oklahoma v. Atchison, Topeka & Santa Fe Ry. Co., 220 U.S. 277, 31 S.Ct. 434, 55 L.Ed. 465.

That an action against the referee accrued at common law is clear, but it does not appear that such action accrued to the United States. Inasmuch as a plaintiff must recover on the strength of his own case rather than upon the weakness of his opponents, we conclude, upon the undisputed facts, that, at common law, the United States is not entitled to recover in a plenary action of this character.

Transferring the case to the equity side of the court would not help, unless an equitable right, in præsenti, existed in the United States. Equity generally follows the law, and the mere fact that, in the particular case before us, the legal remedy has failed will not justify the interposition of a court of equity. Rees v. City of Watertown, 19 Wall. 107, 121, 22 L.Ed. 72. Neither such failure nor the hardship of the case allows a court of equity to administer abstract justice at the expense of well-settled principles. Heine v. Levee Commissioners, 19 Wall. 655, 658, 22 L.Ed. 223; Carlton v. Salem, 103 Mass. 141, 143; Heilman v. Union Canal Co., 37 Pa. 100; Mitchell v. Dowell, 105 U.S. 430, 432, 26 L.Ed. 1142.

As administered in this court, equity has a precise, definite, and limited signification, and the facts of this case do not fall within any of the well-recognized principles which are employed in the exercise of its extraordinary jurisdiction. It is one of the requisites of maintaining a bill of peace that the complainant must first have established his right at law, though a court of equity will, if necessary, direct an issue to be tried for that purpose. Such requisite is wanting here, and, from the facts in this record, cannot be supplied.

It is undisputed that, by statute, the United States had the right to sue in its own name for the use of the beneficiaries of the trust, but that right was limited to a suit upon the bond, and was barred by lapse of time. Section 50 of the Bankruptcy Act provides that: "Bonds of referees * * * may be sued upon in the name of the United States for the use of any person injured by a breach of their conditions." But it also provides that such suits "shall not be brought subsequent to two years after the alleged breach of the bond." 11 U.S.C.A. § 78 (h), (l).

Since the right to sue is created by statute, and is coupled with a remedy which is prescribed in the same act, the remedy thus prescribed in conjunction with the right is exclusive, and must be followed. Pollard v. Bailey, 20 Wall. 520, 22 L.Ed. 376; Globe Newspaper v. Walker, 210 U. S. 356, 28 S.Ct. 726, 52 L.Ed. 1096.

As held in United States v. Whited & Wheless, 246 U.S. 552, 38 S.Ct. 367, 62 L. Ed. 875, where there are two remedies for the protection of the same right, one may be barred and the other may not be. The statutory remedy in this case was approved in United States v. Ward (C.C.A.) 257 F. 372, and no other remedy seems to exist in the United States as plaintiff in a civil action. See, also, Mingus v. Wadley, 115 Tex. 551, 285 S.W. 1084, to the effect that, where a cause of action and the remedy for its enforcement are derived not from the common law but from the statute, the statutory provisions are exclusive, and must be complied with in all respects or the action is not maintainable.

The argument is made that no statute of limitations runs against the United States. This is undoubtedly true when the Government is the real party in interest, and is proceeding simply to assert its own rights and to recover its own property, but in this case it is not suing for the purpose of asserting any public right or protecting any public interest. The suit is brought on behalf of persons entitled to participate in the various bankruptcy estates. At best, the United States is only a formal party, acting to enforce the rights of private individuals. Therefore, the defense of limitation may be availed of as though the Government were out of the case. United States v. Beebe et al., 127 U. S. 338, 8 S.Ct. 1083, 32 L.Ed. 121; U. S. v. Des Moines Navigation & R. Co., 142 U. S. 510, 12 S.Ct. 308, 35 L.Ed. 1099.

The judgment of the District Court is affirmed.

HUTCHESON, Circuit Judge (dissenting).

The suit, filed on the law side of the docket, was for moneys appellee had collected and retained as due him out of various bankrupt estates administered by him as referee in bankruptcy from January 1, 1927, to January 1, 1932. The claim was that the amount sued for, $2,644.48, represented moneys appropriated by him personally in various estates in excess of fees, costs, charges, and commissions allowed him by law, the general orders in bankruptcy, and the rules of the District Court, and therefore moneys which were the properties of the various estates administered. In addition to his defenses on the merits, appellee, by demurrers and pleas in bar, raised three objections to the maintenance of the action: (1) The petition showed no right in law in appellant to the moneys or to maintain the suit. (2) If in law appellant ever had a right to sue, that right was barred by the two years statute of limitations of Texas. (3) That the wrongful receipt and retention of moneys which the suit charged against appellee constituted breaches of appellee's bond as referee. That action on that bond within the two...