Young v. First Nat. Bank of Chicago, Civ. A. No. 48C680.

• Decision Date: 21 June 1949
• Docket Number: Civ. A. No. 48C680.
• Citation: 85 F. Supp. 68
• Parties: YOUNG v. FIRST NAT. BANK OF CHICAGO.
• Court: U.S. District Court — Northern District of Illinois

85 F. Supp. 68

YOUNG v. FIRST NAT. BANK OF CHICAGO.

Civ. A. No. 48C680.

United States District Court N. D. Illinois, E. D.

June 21, 1949.

Horace A. Young, Chicago, Ill., pro se, (Jay Frederick Reeve, Chicago, Ill., Preston Boyden, Chicago, Ill., Cassius M. Doty, Chicago, Ill., on the brief), for plaintiff.

Joseph A. Conerty, Chicago, Ill., Robert McClory, Chicago, Ill., (Daily, Dines, White & Fiedler, Chicago, Ill., of counsel), for defendant.

IGOE, District Judge.

The plaintiff, as trustee in bankruptcy, filed suit to recover funds on deposit in the defendant bank in the account of Bently S. Handwork, Ralph C. Boozer and Philip W. Lotz, as trustees, under two trust agreements made in August, 1935, by the mother and father of the bankrupt. The trust agreements (hereinafter referred to as the Joslyn family trusts) granted equitable life estates to the donors' four children (including the bankrupt, George R. Joslyn) and remainders to the donors' grandchildren and to United Charities of Chicago. The plaintiff claims that the equitable life estates of George R. Joslyn passed to him as trustee in bankruptcy in March 1936, by operation of law under section 70, sub. a(5) of the Bankruptcy Act, U.S.C.A. Title 11, Ch. 7, Sec. 110, sub. a(5), and that he is now the owner of those equitable life estates. As a consequence, the plaintiff claims that the funds of the trustees of the Joslyn Family Trusts now on deposit in the defendant bank are the property of the plaintiff, as trustee in bankruptcy.

The defendant has filed a motion to dismiss the complaint upon three grounds. First, it contends that there is no diversity of citizenship between the parties on which jurisdiction of the subject matter of this case depends. Second, it is claimed that, notwithstanding the jurisdictional ground, the merits of plaintiff's case are controlled by the substantive law of Illinois, namely, Section 49 of the Illinois Chancery Act, Sec. 49 of Ch. 22, Ill.Rev.Stats. 1947, which protects the Joslyn family trusts and the bankrupt's interests therein in the possession of the Joslyn trustees or subject to their control against the claims of creditors or a bankruptcy trustee acting in their behalf. Finally, defendant contends that the principle of res adjudicata applies here. I have given no consideration to this part of the motion to dismiss inasmuch as I am advised that Judge Shaw, before whom the bankruptcy proceeding is pending and who entered the order upon which the plea of res adjudicata is based, declined to act upon a similar motion in the related case, which was also pending before him, entitled, "Horace A. Young, as Trustee in Bankruptcy of the Estate of George R. Joslyn, Bankrupt, Plaintiff, v. Bently S. Handwork, Ralph C. Boozer and Philip W. Lotz, as Trustees, under Trust Agreements dated August 14 and 15, 1935, etc., Defendants, No. 46-C-2082." That case was ordered dismissed by Judge Shaw on May 5, 1949 upon the ground that Section 49 of the Illinois Chancery Act precluded a recovery of any interest in the trust estates.

The first inquiry is as to the diversity of citizenship between the parties. Although both the plaintiff and defendant are residents and citizens of Illinois, this question arises because of section 23, sub. b of the Bankruptcy Act, 11 U.S.C.A. § 46, sub. b, which clothes the plaintiff as trustee in bankruptcy with the citizenship of the bankrupt. This section provides in part: "b. Suits by the receiver and the trustee shall be brought or prosecuted only in the courts where the bankrupt might have brought or prosecuted them, if proceedings under this Act had not been instituted, * * *."

The pleadings show that the bankrupt was a citizen and resident of Illinois when his petition in bankruptcy was filed in February, 1936, but that he was a citizen and resident of Michigan when this complaint was filed. The principal place of business of the defendant bank has been at all times involved herein, Chicago, Illinois. The question in these circumstances is whether the trustee assumes the bankrupt's citizenship as of (a) the time of filing of the petition in bankruptcy or (b) the time of filing of the present suit.

Plaintiff, claiming that the date of filing of this suit controls, cites Irwin v. Missouri Valley Bridge & Iron Co., 7 Cir., 19 F.2d 300, and Boesenberg v. Chicago Title & Trust Co., 7 Cir., 128 F.2d 245, 141 A.L.R. 565. The holding in these cases, involving the general question of diversity, is that jurisdiction of the Federal Court is determined as of the date when suit is begun. The cited cases do not involve bankruptcy proceedings nor an interpretation of section 23, sub. b.

It is argued by the defendant that if no bankruptcy proceeding had been instituted, George R. Joslyn, if capable of bringing suit at all, would have had to file it in the state court as he was then a resident and citizen of Illinois. There is persuasive authority in support of this argument.

In Martin v. Clarke, 7 Cir., 95 F.2d 26, 27, certiorari denied Clarke v. Martin, 304 U.S. 584, 58 S.Ct. 1059, 82 L.Ed. 1545, it was argued that the court there had no jurisdiction upon a diversity of citizenship under section 23, sub. b because the suit was based upon events occurring subsequent to the adjudication.

The court held, however, that the demand sued upon was in existence at the time bankruptcy intervened and that "The parties' rights were fixed as of that date."

In view of this, it would seem logically to follow that the citizenship of the parties must be determined as of the time of adjudication.¹

See also In re Standard Gas & Electric Co., 3 Cir., 119 F.2d 658, and Bush v. Elliott, 202 U.S. 477, 26 S.Ct. 668, 50 L.Ed. 1114.

I have grave doubt that I have jurisdiction to proceed further in the consideration of this case. Certainly, the State courts would have jurisdiction, and it would have been more in keeping with the purpose of section 23, sub. b had the bankruptcy trustee filed his suit in the State courts. This purpose was summarized in the case of Bardes v. First Nat. Bank of Hawarden, 178 U.S. 524, 20 S.Ct. 1000, 44 L.Ed. 1175.

Nevertheless, I am of the opinion that defendant's motion should be sustained upon another ground which goes to the very substance of plaintiff's action.

The plaintiff, in his complaint, alleges that the interests of George R. Joslyn in the Joslyn Family Trusts, were, on the date of the filing of the petition in bankruptcy in February, 1936, transferable within the meaning of Section 70, sub. a(5) of the Bankruptcy Act of 1938 and the laws, statutes and decisions of the United States of America and State of Illinois, and were and are assets subject to administration by the plaintiff as trustee in bankruptcy, and that the plaintiff is now vested with the sole ownership of the equitable life estates of George R. Joslyn by operation of law. It is further set forth that the defendant, as depositary for the trustees of the Joslyn Family Trusts, has received income from the equitable life estates which should have been paid and should be paid to the plaintiff as trustee in bankruptcy.

It is alleged that this income now exceeds $80,000 and that this amount is the sole and exclusive property of the plaintiff, as trustee in bankruptcy, and is subject to administration as a part of the estate of George R. Joslyn, bankrupt.

Section 70, sub a(5) of the Bankruptcy Act, U.S.C.A. Title 11, Ch. 7, Sec. 110, under which the plaintiff claims, provides: "The trustee of the estate of a bankrupt * * * shall * * * be vested by operation of law with the title of the bankrupt as of the date of the filing of the petition in bankruptcy * * * to all * * * property; * * * which prior to the filing of the petition he could by any means have transferred or which might have been levied upon and sold under judicial process against him or otherwise seized, * * *."

The question of whether the bankrupt's interest as a beneficiary was, at the time of bankruptcy, transferable, or subject to attachment, seizure or judicial sale, is a matter to be determined by the law of Illinois where the trust has its situs. Collier on Bankruptcy, 14th Ed., Vol. 4, page 1149 and cases there cited.

Section 49 of the Illinois Chancery Act provides in part: "Whenever an execution shall have been issued against the property of a defendant, on a judgment at law or in equity, and shall have been returned unsatisfied, in whole or in part, the party suing out such execution may file a complaint against such defendant, and any other person, to compel the discovery of any property or thing in action, belonging to the defendant, and of any property, money, or thing in action due to him or held in trust for him, and to prevent the transfer of any such property, money or thing in action, or the payment or delivery thereof to the defendant, except when such trust has, in good faith, been created by, or the fund so held in trust has proceeded from, some person other than the defendant himself." (Italics added.)

The defendant contends that the Joslyn family trusts meet the requirements of the italicized portion of the foregoing statute and that consequently, the plaintiff was precluded from acquiring any title to the equitable life estates of the bankrupt or the income of the trustees of the Joslyn family trusts on deposit in the defendant bank. The extensive briefs filed by both parties presented a full discussion of this question. I am of the opinion that the defendant's motion must be sustained upon this ground.

The complaint shows that Alice Newell Joslyn and Marcellus Lindsey Joslyn, mother and father, respectively, of the bankrupt, each established a trust in August, 1935, in which the bankrupt was granted an equitable life estate. Although the trust instruments were not attached to the complaint, the court has examined them in the bankruptcy file pending in this court under the title "In the matter of: The Estate of George R. Joslyn,...