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Childs v. Ultramares Corp.

February 17, 1930


Appeal from the District Court of the United States for the Southern District of New York.

Author: Mack

Before MANTON, L. HAND, and MACK, Circuit Judges.

MACK, Circuit Judge.

In a suit in equity brought by a trustee in bankruptcy pursuant to sections 70(e) and 67(e) of the Bankruptcy Act, as amended by the Act of February 5, 1903, 11 USCA §§ 110(e), 107(e), to recover alleged illegal transfers of property, a motion to transfer the cause from the equity to the law side and for a jury trial was denied. The present appeal is from the order denying the transfer. Appellee moves to dismiss the appeal for want of jurisdiction on the ground that the order is interlocutory.

The determination of this motion depends upon the construction of the relevant sections of the Bankruptcy Act and the Judicial Code set forth in the margin.*fn1

Clearly this is an interlocutory and not a final order; it determines only that the cause shall proceed to trial. It is similar to an order overruling a demurrer based on want of equity or lack of jurisdiction in the court. The cause itself is neither dismissed nor are its merits determined.

Both parties agree that this is a controversy arising in bankruptcy proceedings. Appellant contends and appellee denies that section 128 of the Judicial Code and section 24 of the Bankruptcy Act (28 USC § 225 and 11 USC § 47 [28 USCA § 225 and 11 USCA § 47]) confer appellate jurisdiction over all interlocutory as well as final orders in all matters decided by the courts of bankruptcy. The basis of the contention is that, while in section 128 of the Judicial Code (28 USCA § 225), subdivision (a), deals expressly only with final decisions and subdivision (b) only with interlocutory orders, subdivision (c), relating to bankruptcy, has no such express limitations except as they might be imposed by sections 24 and 25 of the Bankruptcy Act (11 USCA §§ 47, 48); further, that while, under sections 24 (b) and 25, relating to "proceedings in bankruptcy," there are certain limitations to the right of appeal, such as leave of court, section 24 (a), 11 USCA § 47(a), relating to "controversies arising in bankruptcy proceedings," in no way expressly limits the right of appeal. It is then contended that, although under section 24 (b), the supervisory power extends expressly to interlocutory as well as final orders, section 24 (a), because of the failure expressly to limit the appellate jurisdiction, must be construed as necessarily or by fair implication conferring like broad jurisdiction over interlocutory as well as final decisions.

A consideration of the history of appellate jurisdiction in the federal courts and the statutory provisions in respect thereto compels us to reject this contention.

In McLish v. Roff, 141 U.S. 661, at page 665, 12 S. Ct. 118, 119, 35 L. Ed. 893, the Supreme Court answered an analogous contention that under the Act of March 3, 1891 (26 Stat. 826), which permitted direct review from a circuit court where "the jurisdiction of the court is in issue," a writ of error should be granted to reverse an order overruling a demurrer to the jurisdiction of the court. The court said:

"We think that upon sound principles of construction such is not the meaning of the act of congress under consideration. It is manifest that the words in section 5, 'appeals or writs of error,' must be understood within the meaning of those terms as used in all prior acts of congress relating to the appellate powers of this court, and in the longstanding rules of practice and procedure in the federal courts. Taken in that sense, these terms mean the proceedings by which a cause, in which there has been a final judgment, is removed from a court below to an appellate court for review, reversal, or affirmance. It is true that the judiciary act of 1789 limited the appellate jurisdiction of this court to final judgments and decrees in the cases specified. This, however, in respect to writs of error, was only declaratory of a well-settled and ancient rule of English practice. At common law no writ of error could be brought except on a final judgment. Bac. Abr. 'Error,' A. 2. 'If the writ of error be returnable before judgment is given, it may be quashed on motion.' 2 Tidd Pr. 1162. In respect to appeals there is a difference in the practice of the English chancery courts, in which appeals may be taken from an interlocutory order of the chancellor to the house of lords, and the practice of the United States chancery courts, where the right of appeal is by statute restricted to final decrees, so that a case cannot be brought to this court in fragments.

"From the very foundation of our judicial system the object and policy of the acts of congress in relation to appeals and writs of error (with the single exception of a provision in the act of 1875 in relation to cases of removal, which was repealed by the act of 1887) have been to save the expense and delays of repeated appeals in the same suit, and to have the whole case and every matter in controversy in it decided in a single appeal. Forgay v. Conrad, 6 How. 201, 204 [12 L. Ed. 404]. The construction contended for would render the act under consideration inconsistent with this long-established object and policy."

"Proceedings in bankruptcy" and "controversies arising in bankruptcy proceedings" are clearly differentiated throughout the Bankruptcy Act, and especially as to appellate jurisdiction in the subdivisions (a) and (b) of section 24, 11 USCA § 47 (a) (b). "Proceedings in bankruptcy" are within the summary jurisdiction of the bankruptcy court; they are the steps in the administration of the estate by the bankruptcy court. "Controversies" are ordinary suits in equity or actions at law between the trustee as such and adverse claimants of property; except by consent, they are plenary actions, regardless of whether they may or must be brought in the bankruptcy court or may be brought in other courts. Section 2 of the Bankruptcy Act (11 USCA § 11) grants original and exclusive jurisdiction of all "proceedings in bankruptcy" upon courts of bankruptcy, the District Courts; subdivision 7 of that section confers original jurisdiction, not of all, but only of some, "controversies," on these courts. Such controversies, however, are those which would normally belong to the bankruptcy court because of its control of a res claimed adversely to a trustee or receiver in possession thereof, and thus within the control of the bankruptcy court. The original jurisdiction of controversies "otherwise provided" and for subdivision 7 was granted by section 23 (11 USCA § 46); it was not, however, conferred upon the courts of bankruptcy, but upon state courts and the then Circuit Courts, the federal courts that alone had jurisdiction of many ordinary cases at law and in equity, including those based upon diversity of citizenship. Before the amendment of 1903, controversies like the present one under sections 67(e) and 70(e), could not, therefore, have been determined, except with the defendant's consent, in suits brought by the trustee in the bankruptcy court; such suits must have been begun in the state or federal Circuit Court that would have had jurisdiction over a like suit by the bankrupt if bankruptcy had not intervened.

Sections 24 and 25 (11 USCA §§ 47, 48) did not regulate original, but only appellate and supervisory, jurisdiction in bankruptcy matters. By their express terms, however, this appellate jurisdiction was limited to a review of "controversies arising in bankruptcy proceedings from the courts of bankruptcy" (section 24(a); "proceedings of the several inferior courts of bankruptcy" (section 24(b); "from the courts of bankruptcy" (section 25(a). They had no application, therefore, to "controversies" in the circuit courts or in the state courts, brought pursuant to Sec. 23 (11 USCA § 46).

As the "controversies" under section 23 were but ordinary cases at law or in equity either in the state or federal courts,*fn2 appellate jurisdiction as to them was governed by the general laws of the state or of the United States, respectively, on that subject; naturally no ...

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