Weidhorn v. Levy, 203

• Citation: 40 S.Ct. 534,64 L.Ed. 898,253 U.S. 268
• Decision Date: 01 June 1920
• Docket Number: No. 203,203
• Parties: WEIDHORN v. LEVY
• Court: United States Supreme Court

253 U.S. 268

40 S.Ct. 534

64 L.Ed. 898

WEIDHORN

v LEVY.

No. 203.

Argued Jan. 28 and 29, 1920.

Decided June 1, 1920.

Messrs. William M. Blatt and Walter Hartstone, both of Boston, Mass., and L. P. Loving, of Washington, D. C., for petitioner.

Mr. Lee M. Friedman, of Boston, Mass., for respondent.

Mr. Justice PITNEY delivered the opinion of the Court.

Upon his voluntary petition, filed in February, 1916, J. Herbert Weidhorn was adjudged a bankrupt, and the District Court referred the case to a referee under General Order XII(1), 172 U.S. 657, 18 Sup. Ct. vi. Thereafter the trustee in bankruptcy addressed to andf iled with the referee a bill in equity against the bankrupt's brother, Leo Weidhorn (the present petitioner), and the Boston Storage Warehouse Company, alleging that certain chattel mortgages, or bills of sale in the nature of mortgages, made by the bankrupt to Leo more than four months before the filing of the petition in bankruptcy, and under which, prior to the filing of the petition, possession of the chattels had passed to the mortgagee and the Storage Warehouse Company, were invalid because made in fraud of creditors, and seeking to set them aside under the statute of Elizabeth and the Bankruptcy Act, § 70e (Comp. St. § 9654), and recover the chattels or the proceeds thereof for the bankrupt estate. Defendant Leo Weidhorn promptly objected to the jurisdiction of the referee, and afterwards answered to the merits. The referee overruled the jurisdictional objection, proceeded to hear the merits, and entered a final decree in favor of the trustee. On review the District Court, considering the jurisdictional question only, vacated the decree and dismissed the bill upon the ground that the referee exceeded his powers under the order of reference. In re Weidhorn, 243 Fed. 756. The trustee petitioned the Circuit Court of Appeals to revise the decree under section 24b; and that court, deeming that the District Court had erred in holding that the referee acted without jurisdiction, reversed its decree dismissing the bill and remanded the cause for further proceedings, including a review of the merits. 253 Fed. 28, 165 C. C. A. 48. A writ of certiorari brings the case here. 248 U. S. 555, 39 Sup. Ct. 11, 63 L. Ed. 419.

It is assigned for error that the Circuit Court of Appeals ought not to have entertained the petition to revise under section 24b (Comp. St. § 9608); the contention being that since the decree complained of was made in a plenary suit the exclusive remedy was by appeal under section 24a. Had the District Court sustained the jurisdiction and passed upon the merits the point would be well taken, as the court thereby would have determined a 'controversy arising in bankruptcy proceedings.' Hewit v. Berlin Machine Works, 194 U. S. 296, 300, 24 Sup. Ct. 690, 691 (48 L. Ed. 986). But since the decision turned upon a mere question of law as to whether the referee had authority to hear and determine the controversy—in effect a question of procedure—it properly was reviewable by petition to revise under section 24b. Louisville Trust Co. v. Comingor, 184 U. S. 18, 26, 22 Sup. Ct. 293, 46 L. Ed. 413; Schweer v. Brown, 195 U. S. 171, 172, 25 Sup. Ct. 15, 49 L. Ed. 144; First Nat. Bank v. Title & Trust Co., 198 U. S. 280, 288, 291, 25 Sup. Ct. 693, 49 L. Ed. 1051; Matter of Loving, 224 U. S. 183, 188, 32 Sup. Ct. 446, 56 L. Ed. 725; Gibbons v. Goldsmith, 222 Fed. 826, 828, 138 C. C. A. 252.

Did the referee exceed the authority and jurisdiction conferred upon him by the Bankruptcy Act and the general order of reference?

The following provisions of the act are pertinent: By section 1(7), Comp. St. § 9585:

"Court' shall mean the court of bankruptcy in which the proceedings are pending, and may include the referee.'

By section 18g (section 9602):

'If the judge is absent from the district, or the division of the district in which the petition is filed at the time of the filing, the clerk shall forthwith refer the case to the referee.'

Section 22 (section 9606) provides that after a person has been adjudged a bankrupt the judge may make a reference to the referee either generally or specially with limited authority to act or to consider and report, and 'may, at any time, for the convenience of parties or for cause, transfer a case from one referee to another.' By section 36 (section 9620):

'Referees shall take the same oath of office as that prescribed for judges of United States courts.'

And by section 38a (section 9622):

'Referees respectively are hereby invested, subject always to a review by the judge, within the limits of their districts as established from time to time, with jurs diction to * * * (4) perform such part of the duties, except as to questions arising out of the applications of bankrupts for compositions or discharges, as are by this act conferred on courts of bankruptcy and as shall be prescribed by rules or orders of the courts of bankruptcy of their respecitive districts, except as herein otherwise provided.'

These provisions make it clear that the referee is not in any sense a separate court, nor endowed with any independent judicial authority, and is merely an officer of the court of bankruptcy, having no power except as conferred by the order of reference reading this, of course, in the light of the act; and that his judicial functions, however important, are subject always to the review of the bankruptcy court.

In the general orders established by this court pursuant to the act, under XII(1) provision is made for an order referring a case to a referee:

'And thereafter all the proceedings, except such as are required by the act or by these general orders to be had before the judge, shall be had before the referee.' 172 U. S. 657, 18 Sup. Ct. vi.

The question is whether the present suit brought by the trustee in bankruptcy against petitioner was a 'proceeding' within the meaning of this provision. We cannot concur in the view of the District Court that this question is governed by the distinction between 'proceedings in bankruptcy' and 'controversies at law and in equity arising in bankruptcy proceedings,' as these terms are employed in sections 23, 24a, 24b, and 25a (Comp. St. §§ 9607-9609); there may be controversies arising in the course of bankruptcy proceedings that are so far connected with those proceedings as to be in effect a part of them and capable of summary disposition by the referee under the general order of reference, although because of their nature or because involving a distinct and separable issue they may be reviewable, under the sections cited, by appeal rather than by petition to revise. Hewit v. Berlin Machine Works, 194 U. S. 296, 300, 24 Sup. Ct. 690, 48 L. Ed. 986; Knapp v. Milwaukee Trust Co., 216 U. S. 545, 553, 30 Sup. Ct. 412, 54 L. Ed. 610.

Thus, if the property were in the custody of the bankruptcy court or its officer, any controversy raised by an adverse claimant setting up a title to or lien upon it might be determined on summary proceedings in the bankruptcy court, and would fall within the jurisdiction of the referee. White v. Schloerb, 178 U. S. 542, 546, 20 Sup. Ct. 1007, 44 L. Ed. 1183; Mueller v. Nugent, 184 U. S. 1, 13, 22 Sup. Ct. 269, 46 L. Ed. 405.

But in the present instance the controversy related to property not in possession or control of the court or of the bankrupt or any one representing him at the time of petition filed, and not in the court's custody at the time of the controversy, but in the actual possession of the bankrupt's brother under an adverse claim of ownership based upon conveyances made more than four months before the institution of the proceedings in bankruptcy. In order to set aside these conveyances and subject the property to the administration of the court of bankruptcy a...