Young v. Handwork

• Decision Date: 10 February 1950
• Docket Number: 9923.,No. 9922,9922
• Citation: 179 F.2d 70
• Parties: YOUNG v. HANDWORK et al. (two cases).
• Court: U.S. Court of Appeals — Seventh Circuit

179 F.2d 70 (1949)

YOUNG v. HANDWORK et al. (two cases).

Nos. 9922, 9923.

United States Court of Appeals Seventh Circuit.

December 12, 1949.

Rehearing Denied February 10, 1950.

Horace A. Young, Chicago, Ill., pro se.

Francis L. Daily, Joseph A. Conerty Robert McClory, Chicago, Ill. (Daily, Dines, White & Fiedler, Chicago, Ill., of counsel), for Handwork and others.

Before MAJOR, Chief Judge, and DUFFY and FINNEGAN, Circuit Judges.

MAJOR, Chief Judge.

Appeal in No. 9922 is from an order entered May 5, 1949, on defendants' amended motion, dismissing plaintiff's cause of action with prejudice. Thus the court's action was predicated solely upon the pleadings, which consisted of the complaint, defendants' amended motion to dismiss and certain exhibits consisting of two trust agreements which the court apparently considered as attached to and forming part of the complaint.

Plaintiff, as a bankruptcy trustee, filed his original complaint in his plenary action in the District Court on December 26, 1946. Jurisdiction was claimed by reason of diversity of citizenship between the bankrupt, alleged to be a resident of Michigan, and the defendants, trustees under the Joslyn trusts,¹ alleged to be residents of Illinois. It was also alleged that the matter in controversy exceeded, exclusive of interest and costs, the sum of $3,000. The complaint alleged the appointment of plaintiff as a bankruptcy trustee, that the bankrupt's vested equitable life estates under the Joslyn trusts "were transferable within the meaning of Section 70(a) (5) of the Bankruptcy Act of 1938 11 U.S.C.A. § 110, sub. a (5) * * *, and the laws, statutes and decisions of the United States of America and of the State of Illinois," that they were therefore administrable assets as a part of the bankruptcy estate, and that plaintiff as the bankruptcy trustee "became and is now vested with the sole ownership of said vested equitable life estates * * * by operation of law."

The complaint contains three counts, the first of which alleges that the defendants as trustees of the Joslyn trusts have received cash income, proceeds and avails from said vested equitable life estates of which more than $300,000 had been distributed to the bankrupt and that an accounting would be necessary to determine the amount thereof. This count prayed for discovery, an accounting and a decree for the amount found due the bankruptcy trustee. Count 2 alleges that the defendant trustees hold more than $89,000 of cash income, proceeds and avails of the vested equitable life estates, "sole title to which has been and is now vested in plaintiff" as the bankruptcy trustee. Count 3 alleges that plaintiff is entitled to an injunction restraining the defendant trustees from transferring the income, proceeds and avails of said vested equitable life estates to the bankrupt or to any third person for or on his behalf.

Defendants on March 19, 1948 filed what is designated as their original motion to dismiss, predicated upon three grounds: (1) that there was no diversity jurisdiction in the District Court because "The complaint shows upon its face that at the time of filing of his petition in bankruptcy twelve years earlier, in February 1936 that the said George R. Joslyn was a citizen and resident of Illinois and that all of the defendants were and are citizens and residents of Illinois;" (2) that the Bankruptcy Court by an order of June 1, 1948 (appealed from and reversed by this court on December 3, 1948, In re Joslyn's Estate, 171 F.2d 159) had "determined and finally and conclusively adjudicated" the issues raised in the original complaint and the same are, therefore, res adjudicata, and (3) that "The complaint discloses upon its face that the plaintiff is not entitled to any of the relief prayed for * * * in that the trust estates and the proceeds thereof sought to be recovered by the plaintiff are protected while in the possession or control of the defendants against the claims of creditors of George R. Joslyn or a bankruptcy trustee acting in their behalf by Section 49 of the Illinois Chancery Act (Sec. 49, Ch. 22, Ill.Rev.Stats.1947)."

On May 5, 1949 (the day the order appealed from was entered), the defendants filed what is designated as an amended motion to dismiss the complaint, in which it is alleged among other things that the complaint upon its face, together with the trust agreements, shows that "Marcellus L. Joslyn and Alice N. Joslyn, father and mother respectively of George R. Joslyn, created in good faith and with their own property two irrevocable trusts dated August 14 and August 15, 1935, * * * and that the plaintiff is not entitled to any of the relief prayed for against the defendants," assigning the same reason as alleged in the original motion to dismiss, that is, the provisions of Sec. 49 of the Illinois Chancery Act. In this amended motion to dismiss, no issue was made and no question raised as to diversity jurisdiction.

The court in its order of dismissal found, among other things, "that the Court has jurisdiction of the parties hereto and of the subject matter hereof," and that the amended motion to dismiss should be allowed for failure to state a cause of action for the following reason:

"That under the undisputed facts as disclosed by the pleadings, the interests of George R. Joslyn in the Joslyn Family Trusts and the income therefrom in the hands of and under the control of the Joslyn Trustees fall clearly within the protection of Section 49 of the Illinois Chancery Act (Sec. 49 of Ch. 22, Ill.Rev.Stats. 1947) and may not be reached by creditors nor a bankruptcy trustee acting in their behalf and that this question of law is free from doubt, and

"That said interests of said George R. Joslyn in said trust estates are not property within the meaning of Section 70 of the Bankruptcy Act."

On May 9, 1949, plaintiff filed in the clerk's office his notice of appeal, together with the statement of points to be relied upon. Subsequently, on the 16th day of May, 1949, defendants filed what is designated as "Amendment to Amended Motion to Dismiss Complaint," in which they again, as in their original motion, alleged that there was no diversity of citizenship between the plaintiff and the defendants. On the same day, the court entered an order denying the motion on the ground that it appeared to the court "that said amendment is immaterial and that the Court lacks jurisdiction in connection therewith." On May 19, 1949, defendants filed what is termed a "Notice of Cross-Appeal." This so-called cross-appeal by the defendants is No. 9923 in this Court.

So far, we have purposely confined our statement of the procedure below so as to bring us directly to defendants' contention by reason of this cross-appeal, which we think may be disposed of in short order. It appears evident under Sec. 23, sub. b, of the Bankruptcy Act, Title 11 U.S.C.A. Sec. 46 sub. b, that jurisdiction could only be obtained by diversity without "consent of the defendant," as therein provided.

The question of the District Court's diversity jurisdiction arose at the final hearing on May 5, 1949, and, in our judgment, the record conclusively demonstrates two things, (1) that the defendants admitted the facts necessary to show diversity, and (2) that they consented to the court's jurisdiction. The colloquy which took place in court at that time, in abbreviated form, shows that at first defendants, in response to an inquiry from the court, denied that diversity jurisdiction was conceded, whereupon the court stated, "I wish you folks defendants would make up your minds. * * * The fact must be that, by admission in open court or otherwise, there is diversity of citizenship. Otherwise any order I entered would be a nullity. Make up your mind which way you want to jump." The court refused to enter an order so long as the diversity of citizenship was contested, whereupon defendants' counsel asked for a recess which was taken, after which a colloquy, a portion of which we set forth in a footnote², took place between the court and defendants' counsel.

On May 16, 1949, the date of the entry of the order from which the cross-appeal comes, the court in a colloquy with defendants' counsel stated as one of his reasons for denial of leave to file the amendment to the amended motion to dismiss as follows:

"Another ground is that there is a shift of position on your part, it having been admitted by everybody in open court the court had jurisdiction, and place of residence is a question of fact and not a question of law, and that question of fact has been settled in this court. Diversity of citizenship has been found as a fact."

We think the order of May 16, 1949 was correct. From what we have shown, it conclusively appears that while the defendants in their original motion to dismiss raised a question of diversity, they subsequently, by omitting such question from their amended motion and particularly by their statements in open court, admitted facts which disclosed diversity just as it had been alleged in plaintiff's complaint. More than that, the colloquy in court shows that the defendants consented to jurisdiction, which is sufficient under the statutory provision above referred to. Having invited — in fact, requested — the court to take jurisdiction, we can see no justification, after the court had rendered its decision and after the plaintiff had served his notice of appeal, for an attempted renewal by the defendants of the diversity issue. More than that, we are left in the dark as to the purpose of defendants' cross-appeal, inasmuch as they won below on the merits.

We hold that the court for the reasons stated had jurisdiction, and the order of May 16, 1949, from which the cross-appeal comes in No. 9923, is affirmed.

We now turn our attention to plaintiff's appeal in No. 9922. Numerous errors are assigned by the plaintiff which may be summarized as (1) the District Court should have granted a...