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Lowenstein v. Reikes

December 7, 1931

LOWENSTEIN
v.
REIKES ET AL.; SAME V. I. N. PLATT & CO., INC.



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

Author: Manton

Before MANTON, SWAN, and CHASE, Circuit Judges.

MANTON, Circuit Judge.

Motions are made in the above suits to dismiss the appeals because they were not filed within 30 days' time as specified in section 24c of the Bankruptcy Act (11 USCA § 47(c). If the time as not controlled by section 24c, then 28 USCA section 230 is applicable which allows three months in which to appeal.

In Lowenstein v. Reikes, the trustee sued in the District Court in a plenary action to set aside fraudulent and preferential conveyances and transfers under sections 60b, 67e, and 70e, of the Bankruptcy Act, 11 USCA §§ 96(b), 107(e), 110(e). The first cause of action is to set aside a transfer of stock to the bankrupt's wife, claimed to be in violation of section 70 as well as in breach of the state law; the second cause of action is to set aside the transfer of the same stock to one Wilk, and Wilk Brothers, on the ground of preference; the third cause of action is based on conspiracy by the bankrupt, his wife, Wilk, and Wilk Brothers, to make preferential transfers; the fourth cause of action relates to a preferential transfer of stock to the Fordham National transfer of the fifth cause of action is based upon an alleged conveyance of real estate and transfer of stock by the bankrupt to his wife without consideration and upon an agreement by her to hold the property for his benefit and reconvey it upon demand.

The Platt Case differs from the Reikes Case in that there is no cause of action based on the state law. This action was tried before a jury.

The question presented is whether an independent plenary preference suit brought on the equity side of the court is a "controversy arising in bankruptcy proceedings from the court of bankruptcy" within section 24a (11 USCA § 47(a), and therefore whether section 24c limiting the time of appeal to 30 days is applicable. Section 23 of the Bankruptcy Act (11 USCA § 46(b) confers jurisdiction on the District Court in the following language: "(b) Suits by the trustee shall be brought or prosecuted only 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 been instituted, unless by consent of the proposed defendant, except suits for the recovery of property under section 96, subdivision b, of this title; section 107, subdivision e, of this title; and section 110, subdivision e, of this title."

The amendments to the Bankruptcy Act in 1903 and 1910 modified the restriction originally laid down as to the jurisdiction of the federal courts in suits to set aside unlawful or fraudulent preferences, by making exceptions in the case of suits for the recovery of property under section 60b, 67e and 70e, 11 USCA §§ 96(b), 107(e), 110(e). The first section relates to preferences given within four months of filing the petition in bankruptcy; the second relates to the setting aside of conveyances made to hinder, delay, or defraud creditors made within a like period; and the third is a provision by which the trustee may avoid any transfer by the bankrupt of his property, which any creditor of the bankrupt might have avoided. These respective sections grant jurisdiction to the "courts of bankruptcy" and to the state courts concurrently. If a plenary suit be brought either at law or in equity against a third person, jurisdiction vests in the District Court under section 23(b) since the amendment, and as to causes of action based upon either sections 60b, 67e, or 70e, jurisdiction may be exercised without the consent of the defendant and does not depend upon diversity of citizenship or the amount involved. Flanders v. Coleman, 250 U.S. 223, 39 S. Ct. 472, 63 L. Ed. 948; Stellwagen v. Clum, 245 U.S. 605, 38 S. Ct. 215, 62 L. Ed. 507; Collett v. Adams, 249 U.S. 545, 39 S. Ct. 372, 63 L. Ed. 764; Brent v. Simpson, 238 F. 285 (C.C.A. 5); Golden Hill Distilling Co. v. Logue, 243 F. 342 (C.C.A. 6). Prior to these amendments, in Bardes v. Hawarden Bank, 178 U.S. 524, 20 S. Ct. 1000, 44 L. Ed. 1175, the court held that, under section 23 of the Bankruptcy Act, the District Court could, by the consent of the defendant, and not otherwise, entertain suits by trustees against third persons to recover property conveyed by the bankrupt before an institution of bankruptcy proceedings. And in Collett v. Adams, 249 U.S. 545, 39 S. Ct. 372, 374, 63 L. Ed. 764, where a suit was brought in equity by a trustee in bankruptcy to set aside the transfers as a voidable preference, basing it upon section 60b of the Bankruptcy Act, 11 USCA § 96(b), the court, in holding that jurisdiction existed under section 23b, 11 USCA § 46(b), said: "The amendments are couched in plain words and effect a material change in the jurisdiction of suits by trustees to avoid preferential transfers and recover the property or its value under section 60b. The exception ingrafted on section 23b takes such suits out of the restrictive provisions of that section; the sentence added to section 60b makes them cognizable in the courts of bankruptcy, as well as in such state courts as could have entertained them if bankruptcy had not intervened; and the new clause in section 2 dispels any doubt that otherwise might exist respecting the power of a court of bankruptcy other than the one in which the bankruptcy proceeding is pending to entertain such a suit where the property sought to be recovered is within its territorial limits."

These suits in the District Court may be regarded as in a court of bankruptcy. They are not, however, "controversies arising in bankruptcy proceedings" as referred to in section 24a.

A trustee's suit to recover a prohibited preference is analogous to a suit by a judgment creditor to set aside a fraudulent transfer, and hence may be maintained as a suit in equit, but solely by reason by section 23b. Prior to the amendments, section 23b (30 Stat. 552) permitted suits by he trustee of the bankrupt's estate to be brought only in those courts where they could have been brought if proceedings in bankruptcy had nto been instituted. These suits are plenary suits to recover assets and enforce rights belonging to the estate, against persons claiming adversely to the bankrupt with respect to such assets or rights. The bankruptcy courts, as such, have jurisdiction by virtue of section 60b, 67e, and 70e, for the recovery of property under those sections without the consent of the proposed defendant. The bankruptcy court has no broader power than that conferred upon it by statute. Section 2 of the act (11 USCA § 11) invests it "will such jurisdiction at law and in equity as will enable it to exercise original jurisdiction in bankruptcy proceedings." This jurisdiction is exclusive. In U.S. Fidelity Co. v. Bray, 225 U.S. 208, at page 217, 32 S. Ct. 620, 625, 56 L. Ed. 1055, the court said: "The jurisdiction of the bankruptcy courts in all 'proceedings in bankruptcy' is intended to be exclusive of all other courts, and that such proceedings include, among others, all matters of administration, such as the allowance, rejection, and reconsideration of claims, the reduction, the determination of the and its distribution the determination of the preferences and priorities to be accorded to claims presented for allowance and payment in regular course, and the supervision and control of the trustees and others who are employed to assist them."

Under this test, the exclusive jurisdiction of the bankruptcy court does not extend to suits at law or in equity effecting a bankrupt's estate where jurisdiction is invoked under section 23 of the act. Section 23 covers all controversies at law and in equity concerning property acquired or claimed by the trustee. Sections 60b, 67e, and 70e relate not to property which the trustee has acquired, but to such property as he claims and seeks to recover. The purpose of these sections is to avoid fraudulent or preferential transfer, and recover the property thus transferred to the estate of the bankrupt and have it applied to his estate, so that it may be available for the payment of his debts. Suits for the recovery of fraudulent and preferential transfers of property in possession of third parties, who claim adversely, are not proceedings in bankruptcy, but are controversies at law or in equity. They do not come within the provision of section 11 (11 USCA § 29) authorizing a court of bankruptcy to stay a pending suit against a bankrupt upon a claim from which the discharge in bankruptcy would be a release.In re United Wireless Telegraph Co. (D.C.) 192 F. 238; Frost v. Latham & Co. (C.C.) 181 F. 866; Parker v. Black (D.C.) 143 F. 560.

The jurisdiction conferred by section 24(a) of the act deals with controversies arising in bankruptcy proceedings as such, and not with independent suits brought in the District Court. It is section 23 which grants jurisdiction in plenary suits by the trustee in the District Court, and in doing so refers to controversies at law and in equity as distinguished from proceedings in bankruptcy. Section 24a refers only to appellate jurisdiction of "controversies arising in bankruptcy proceedings from the courts of bankruptcy," and section 24b speaks of courts of bankruptcy and does not mention the District Courts as such. The Circuit Court of Appeals, by virtue of the statute creating it, has jurisdiction, independent of the Bankruptcy Act, of appeals from judgments and decrees of the District Court. The purpose of section 24 is to confer upon the Circuit Court of Appeals appellate jurisdiction of orders and decrees of the bankruptcy courts which arise in bankruptcy proceedings. This court pointed out in Childs v. Ultramares Corp., 40 F.2d 474, 478, decided after the 1926 amendment, that section 24 and 25 of the Bankruptcy Act (11 USCA §§ 47, 48) are 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." And we said further: "As the 'controversies' under section 23 were but ordinary cases at law or in equity either in the state of federal courts, 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 provision in respect thereto was necessary or is found in the Bankruptcy Act."

The report of the Committee of the Judiciary of the House of Representatives with reference to the adoption of the amendment of 1926 to section 24 (filed April 24, 1926, known as Report 877) shows that it was intended by Congress that the purpose of the amendment was to eliminate the distinction which had existed between petitions to review and petitions to appeal, and to make uniform the time in which all appeals from proceedings of the inferior courts of bankruptcy should be taken. Prior to 1926, the time within which the petition to review could be filed with the Circuit Court of Appeals varied in the circuits according to rule. In some circuits it was ten days and in others it was thirty. If Congress intended to change the jurisdiction or modify the time from appeals in suits at law or in equity under section 23, we think it clear that some appropriate language would have been used to express that view in the report of the committee, and, as this court pointed out in the language quoted, from Childs v. Ultramares, supra, the Bankruptcy Act is silent with respect to limiting such appeals.

Therefore, though thirty days expired before the appeals were taken in the above actions, they were taken within three months, the time limited by 28 ...


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