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HULL v. BURR.

(Circuit Court of Appeals, Fifth Circuit. April 2, 1907.)

No. 1,639.

1. BANKRUPTCY-SUITS BY TRUSTEES-JURISDICTION OF DISTRICT COURT. A trustee in bankruptcy is vested by the act of 1898 with all the rights and title of the bankrupt and of his creditors, and, when he seeks to enforce rights or to recover property in a district other than that of the court which appointed him, he stands in the position of those whose rights he has acquired, and can resort only to the same courts, state or federal, and is confined to the same remedies, subject to the exceptions made by Act July 1, 1898, c. 541, §§ 23b, 70e, 30 Stat. 552, 565 [U. S. Comp. St. 1901, pp. 3431, 3452), as amended in 1903 (Act Feb. 5, 1903, c. 487, §§ 8, 16, 32 Stat. 798, 800 [U. S. Comp. St. Supp. 1905, pp. 686, 690]).

2. SAME.

A District Court of the United States is without jurisdiction of a suit by a trustee in bankruptcy appointed in another district to recover property from one to whom it was conveyed by the bankrupt more than four months prior to the bankruptcy, and who took possession of it after the bankruptcy; the ground of recovery alleged being that the conveyance was in fact a mortgage, unless the defendant consents to such jurisdiction. Such an action is not one of which the District Court as a court of bankruptcy is given jurisdiction without such consent, by Bankr. Act July 1, 1898, c. 541, § 23b, or section 70e, 30 Stat. 552, 565 [U. S. Comp. St. 1901, pp. 3431, 3452], as amended in 1903 (Act Feb. 5, 1903, c. 487, §§ 8, 16, 32 Stat. 798, 800 [U. S. Comp. St. Supp. 1905, pp. 686, 690]).

[Ed. Note.-Jurisdiction of federal courts in suits relating to bankruptcy, see note to Bailey v. Mosher, 11 C. C. A. 313.]

3. SAME.

Bankr. Act July 1, 1898. c. 541, § 70e, 30 Stat, 50 [U. S. Comp. St. 1901. p. 3452]. as amended in 1903 (Act Feb. 1903, c. 487, § 8, 32 Stat. 800 [U. S. Comp. St. Supp. 1905, p. 690]), does not confer on a court of bankruptcy jurisdiction of a suit brought by a trustee thereunder to avoid a transfer made by a bankrupt, unless by consent of the defendant, which is made a condition to such jurisdiction in all suits by trustees by amended section 23b with the exceptions expressly mentioned therein.

4. SAME COURTS OF BANKRUPTCY-ANCILLARY JURISDICTION.

Courts of bankruptcy have no jurisdiction except that conferred by statute; and Bankr. Act July 1, 1898, c. 541, 30 Stat. 544 [U. S. Comp. St. 1901. p. 3418], neither expressly nor impliedly provides for summary proceedings or for auxiliary or ancillary proceedings, in another court of bankruptcy, in aid of the bankruptcy court which made the adjudication and has charge of the bankrupt's estate.

Petition to Superintend and Revise Proceedings from the District Court of the United States for the Southern District of Florida.

The respondent, Arthur E. Burr, filed in the court below the following pe

tition:

"In the District Court of the United States in and for the Southern District of Florida.

"In the Matter of the Petition of Arthur E. Burr, Trustee in Bankruptcy of the Estate of the Port Tampa Phosphate Company, a Corporation, against Joseph Hull, of Savannah, in the State of Georgia.

"Your petitioner, Arthur E. Burr, trustee in bankruptcy of the estate of the Port Tampa Phosphate Company, a corporation, respectfully represents that, on November 9, 1905, a petition in bankruptcy was filed in the District Court of the United States for the District of Massachusetts, against the Port

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Tampa Phosphate Company, a corporation duly established according to the laws of the commonwealth of Massachusetts; that thereafter, on the 27th day of November, 1905, the said Port Tampa Phosphate Company was duly adjudged bankrupt; that your petitioner was duly appointed trustee of the estate of said bankrupt corporation on the 27th day of December, 1905, and thereafter duly qualified; that your petitioner brings this petition in his capacity as such trustee in bankruptcy of said corporation.

"On or about May 27, 1905, said bankrupt corporation caused to be executed and delivered to the respondent, Joseph Hull, a deed of certain real estate and personal property then belonging to and owned by said corporation, and situated in the county of Polk, and state of Florida, to wit:

"The south half and the south half of the northeast quarter, and the southeast quarter of the northwest quarter of section thirty-four (34) in township twenty-nine (29) south, range twenty-three (23) east, Polk county, Florida: also," etc. (The description of the fixtures is omitted.)

“Said deed was caused by said corporation to be made, executed, and delivered to the respondent as and for security for certain money, at that time advanced, and for money to be thereafter advanced, to said corporation by the respondent.

"As a part of the same transaction, and at or about the same time, to wit. June 9, 1905, the said Joseph Hull and said bankrupt corporation executed and delivered a certain instrument and agreement of defeasance, wherein said Hull agreed to reconvey to the said bankrupt corporation all of the said above described property upon the payment to the said Hull of certain sums set forth in said instrument. Your petitioner is informed and believes, and there fore avers, that said Hull duly recorded said deed to said property.

"On the 9th day of November, 1905, and for a long time prior thereto sai bankrupt corporation was the owner of and in actual and legal possession of said property, both real and personal, and thereafter your petitioner by opera tion of law became vested with the title to all the property belonging to the bankrupt corporation on the 9th day of November, 1905, and came into lega possession thereof as of the said date. After said date, and after the filing of said petition in bankruptcy, the respondent well knowing all of the aforesai facts, and that the said property was the property of the said trustee of the aforesaid corporation, on or about December 15, 1905, entered upon said rea estate and took possession of said above-described personal property, and nov holds the same, both real and persona! property, and has refused to delive or convey the same or any part of it to your petitioner.

"Said deed and instrument of defeasance constitute in law and equity mortgage, and said property is now the property of your petitioner as suc trustee, subject to a lien in favor of the respondent for the amounts loane and advanced by him to said bankrupt corporation.

"Your petitioner is without information, and therefore cannot aver as to th amount of indebtedness due the respondent upon November 9, 1905, by sai bankrupt corporation, for the reason that the amount thereof is entirely withi the knowledge of the respondent; but your petitioner is informed and be lieves, and therefore avers, that the amount of said indebtedness due said Hu by said corporation at said time did not exceed the amount of twenty-fiv thousand dollars ($25,000).

"Said property is of great value, and is worth a large amount in excess o said indebtedness due said Hull by said corporation.

"Since said Hull took possession of said property on December 15, 1905, I has used and operated it, and mined a large amount of phosphate trerefrom Your petitioner is unable to state the exact amount received by said Hull fro said use and operation aforesaid, as your petitioner is unable to obtain an a counting thereof from said Hull. ** **

"Your petitioner is informed and believes and avers that there is danger the said Hull may make a conveyance of said real estate to a bona fide purchase for value.

"Wherefore your petitioner prays:

"(1) That this honorable court may issue forthwith a preliminary decre restraining and enjoining said Joseph Hull from conveying or transferrin said real property until the further order of this court.

"(2) That said deed and instrument of defeasance may be declared to be a mortgage.

"(3) That all of said property, both real and personal, be declared to be the property of your petitioner as such trustee.

"(4) That an accounting may be had of the amount due said Hull by said hankrupt corporation on November 9, 1905; and that a further accounting may he had of the amount received by said Joseph Hull from the operation and use of said property since December 15, 1905; and that this court will determine the amount of the lien now held by said Joseph Hull.

"(5) That said Joseph Hull be ordered forthwith to convey and deliver to your petitioner all of said personal property taken by him from the possession of your petitioner, or to account for the value thereof.

"16) That your petitioner may be authorized and empowered to sell at private sale all of said property either subject to the lien, if any, of the said JoHull, or free from incumbrances, reserving to the said Joseph Hull the right to be reimbursed out of the proceeds of the sale of the said real estate. "(7) That due and proper process be issued forthwith out of this honorable court to enforce its decrees and orders.

"(8) For such other and further general relief as to this honorable court ems meet.

"And that a writ of subpoena of the United States of America may issue directed to the said Joseph Hull, commanding him on a certain day to appear and answer to this petition, and to abide by and perform such orders and derees in the premises as to this honorable court may seem meet and proper." The petition was signed by petitioner's solicitor, and was duly verified. The respondent, Joseph Hull, appeared, and filed the following plea to the jurisdiction:

"Now comes the above-named defendant, Joseph Hull, and appearing for the special purpose, and no other until the question herein raised is decided, of 4jecting to the jurisdiction of this court, doth object to this court entertainng the petition of Arthur E. Burr, as trustee in bankruptcy of the estate of The Port Tampa Phosphate Company, a corporation, against this defendant, or arther proceedings thereon, because under the Constitution and laws of the nited States a District Court of the United States is precluded from enterating and adjudging any such matter or controversy as is by said petition up; and prays judgment whether this court has jurisdiction, and asks be dismissed with his costs."

The plea was signed by counsel and sworn to..

The court overruled the objection to its jurisdiction, and thereupon Joseph full filed his petition in this court to revise and reverse the decree of the District Court, alleging that "under the bankruptcy law of the United States hy remedy the said Burr has must be pursued by proceedings at law or in ty in the state or federal court as they may have jurisdiction and otherse than by summary proceeding in bankruptcy.”

H. Bisbee and George C. Bedell, for petitioner.
E. R. Gunby, for respondent.

Before PARDEE, McCORMICK, and SHELBY, Circuit Judges.

SHELBY, Circuit Judge, having made the foregoing statement of the case, delivered the opinion of the court.

1. The sole question to be decided is whether or not the District Curt had jurisdiction of the case presented by the petition of the trusre. The question must, of course, be answered by an examination of the relevant parts of the bankruptcy act of 1898. Act July 1, 1898, 541, 30 Stat. 544 [U. S. Comp. St. 1901, p. 3418]. The second section of the act makes the District Courts of the United States courts of bankruptcy and confers on them jurisdiction. Clauses 3 and 7 of the section are relied on as conferring jurisdiction in this case.

By those subdivisions jurisdiction is conferred to "(3) appoint receiv ers or the marshals, upon application of parties in interest, in case the courts shall find it absolutely necessary for the preservation of estates to take charge of the property of bankrupts after the filing of the petition and until it is dismissed, or the trustee is qualified * * *"; and to "(7) cause the estates of bankrupts to be collected, reduced to money and distributed, and determine controversies in relation thereto, except as herein otherwise provided." The juris diction conferred by the seventh clause is limited by the words "except as herein otherwise provided." These words refer to section 23 of the act, which relates to the jurisdiction of the United States and state courts. We here insert that section, placing in italics the amendment of 1903:

"Sec. 23. (a) The United States Circuit 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 prop erty 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.

"(b) 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 bee instituted, unless by consent of the proposed defendant, except suits for the recovery of property under section sixty, subdivision b, and section sixty-seren, subdivision e.” 30 Stat. 557, c. 541 [U. S. Comp. St. 1901, p. 3431], amended by Act Feb. 5, 1903, c. 487, § 8, 32 Stat. 797 [U. S. Comp. St. Supp. 1905, p. 686]. Disregarding the amendment for the present, this section, as originally written, confers jurisdiction on the Circuit, not on the District, Courts of all controversies at law and in equity, as distinguished from proceedings in bankruptcy, between trustees and adverse claimants of the bankrupt's property. But this jurisdiction is conferred to the same extent only as the bankruptcy proceedings had not been instituted and such controversies had been between the bankrupt and the adverse claimant. The trustee can sue, in such cases, only in the courts where the bankrupt could have sued if proceedings in bankruptcy had not been instituted. The petitioner who sued in the District Court in the case at bar sued as the trustee in bankruptcy of a Massachusetts corporation. The parts of the act quoted, if we construe the petition as presenting a controversy at law or in equity, as distinguished from a proceeding in bankruptcy, confers jurisdiction on such United States Circuit Courts and state court as would have had jurisdiction of such a suit by the corporation if there had been no bankruptcy proceeding. But the statute does not confer jurisdiction in such cases on a United States District Court, not even when it is the court of adjudication. Bardes v. Hawarden Bank, 178 U. S. 524, 20 Sup. Ct. 1000, 44 L. Ed. 1175.

The opinion of the Supreme Court in Bardes v. Hawarden Bank. construing the act as it stood before the amendment, seems to us conclusive of the proposition that the court of bankruptcy did not have jurisdiction of the case made by the petition, if the petition presents a controversy at law or in equity within the meaning of section 23 of the act.

Does the amendment of 1903 affect the case at bar? The amendment makes exceptions to the limitation on the jurisdiction of the District Courts, and thereby extends their jurisdiction; but the extension does not include cases like that presented by the petition of the trustee. The amendment confers jurisdiction on the District Courts in "suits for the recovery of property under section sixty, subdivision b, and section sixty-seven, subdivision e." Turning to section 60, we find that subdivision "a" defines a preference, and that subdivision "b" provides that the trustee may sue the person receiving a preference and recover the property or its value. Under the amendment, suit for that purpose may be brought in "any court of bankruptcy." The case at bar involves no question of preference. Examining section 67, subd. "e," we find that it relates to fraudulent conveyances by the bankrupt and conveyances made within four months prior to the time of filing the petition in bankruptcy. The amendment confers jurisdiction on any court of bankruptcy of suits to recover property so conveyed. The petition of the trustee in the case at bar contains no charge of fraud, and the deed and contracts in question were executed more than four months before the beginning of the bankruptcy proceedings. It follows that the amendment quoted has no application to this case. The case, when viewed as a controversy at law or in equity, not being affected by the amendment, must be governed by the principles announced in Bardes v. Hawarden Bank, supra, which denies the jurisdiction of the District Court. 2. The only other part of the act that might be referred to in this connection is section 70, subd. "e." We quote it here, placing the part of it added by the amendment of 1903 in italics:

"(e) The trustee may avoid any transfer by the bankrupt of his property which any creditor of such bankrupt might have avoided, and may recover the property so transferred, or its value, from the person to whom it was transferred, unless he was a bona fide holder for value prior to the date of the adjudication. Such property may be recovered or its value collected from whoever may have received it, except a bona fide holder for value. For the purpose of *uch recovery any court of bankruptcy, as hereinbefore defined, and any state court which would have had jurisdiction if bankruptcy had not intervened, skall have concurrent jurisdiction." 30 Stat. 566, c. 541 [U. S. Comp. St. 1901, p. 3452], amended by Act Feb. 5, 1903, c. 487, § 16, 32 Stat. 800 [U. S. Comp. St. Supp. 1905, p. 690].

Such jurisdiction as is conferred by this language relates to suits by the trustee to "avoid any transfer by the bankrupt of his property which any creditor of such bankrupt might have avoided.' The petition of the trustee in the instant case does not seek to avoid a transfer. It does not allege that the deed to Hull was made under circumstances that made it voidable at the suit of his creditors. In fact, it is not alleged in the petition that the corporation owed any debts at the date of its transfer to Hull. No charge of fraud against creditors is made. On the contrary, it is alleged that the deed to Hull was based on a large consideration, not less than $25,000. A careful consideration of the trustee's petition convinces us that it was not intended as a suit under section 70e, and that subdivision has not been cited by learned counsel for the trustee as conferring jurisdiction. But there is another reason why section 70e cannot be relied on as

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