The opinion of the court was delivered by: BYERS
This is a motion by complainant in equity to strike an answer, and for a decree pro confesso against the defendant.
The action is by a trustee in bankruptcy against a garage keeper; the complainant seeks a decree declaring that the seizure of a motor truck by the defendant, within four months prior to the voluntary bankruptcy of one Marmolstein, be declared a preference voidable under section 60b of the Bankruptcy Act, as amended (11 U.S.C.A. § 96 (b), and that the defendant be required to turn over to the complainant the said truck or the sum of $800.00 with interest.
The bill recites proceedings before the referee in bankruptcy wherein a proof of claim filed by the defendant as a creditor of the bankrupt, in the sum of $692.10, was expunged at the instance of the trustee, upon the ground that the defendant had received a preference voidable under section 60b; this relief was accorded to the trustee by the referee after the taking of testimony.
The order of the referee is annexed to the bill and by its terms the seizure of the truck is held to have constituted an illegal conversion under the laws of the state of New York, and a voidable preference under section 60b of the Bankruptcy Act, as amended (11 U.S.C.A. § 96(b), and "the proof of debt" is expunged and disallowed "unless and until the said Bruno Milea shall turn over to the said Morris L. Steinberg as Trustee in Bankruptcy herein, pursuant to 57g of the Bankruptcy Act [as amended (11 U.S.C.A. § 93 (g)] * * *" the truck "or its value in the sum of $800, converted by the said Bruno Milea, and received by him as a preference voidable under the Bankruptcy Act," etc.
Then follows a provision that, upon doing either, the proof of debt shall be allowed with leave to the trustee to attack its correctness.
The answer denies that the bankrupt on or about February 10, 1935, was the owner of the truck; and that it was seized by the defendant on that date, and that such seizure was a conversion which occurred within four months of the filing of the petition; and that this defendant knew or had reasonable cause to believe that insolvency existed; and that in seizing the truck he would receive a greater percentage of his indebtedness than could be paid to other creditors, and that the seizure was a conversion under the laws of the state of New York, and a preference voidable under section 60b of the Bankruptcy Act.
It is admitted that a correct copy of the order is annexed to the complaint.
As a first complete defense, it is alleged that the defendant was in the garage business, and that prior to February 10, 1935, the bankrupt stored a Ford truck in the said garage, and purchased gasoline, oil and supplies therefor from the defendant, and became indebted thereby in the sum of $692.10, which has not been paid.
That on February 10, 1935, the defendant caused the truck to be seized by virtue of a lien created in his favor under the laws of the state of New York, and that pursuant thereto the truck was sold at public auction according to the law, upon notice to the bankrupt, whereby $250.00 was realized, and that the defendant had to pay $125.00 out of the said sum to the conditional vendor of the bankrupt and $25.00 for the expenses of the sale, and that he received the sum of $100.00 on account of the said indebtedness, leaving a balance of $592.10 still owing.
As a second defense, it is alleged that in March of 1935 the plaintiff in this cause unsuccessfully prosecuted a turn-over proceeding with respect to the said truck before the said referee; and as a third partial defense, the matters alleged in the first defense are reiterated.
It will be seen that the defendant seeks to question the determination of the referee that he had received a preference voidable under the Bankruptcy Act. Since he did not seek to review the order of the referee, the complainant urges that it cannot be the subject of collateral attack in this action.
That would seem to be true, and to the extent that the referee was required to pass upon the question of whether there resulted a preference to this defendant, from the proceedings which he conducted to foreclose his garage keeper's lien, the order of the referee is res judicata. McCulloch v. Davenport Savings Bank (D.C.) 226 F. 309; Shea v. Falls Canning Co., 231 App.Div. 535, 247 N.Y.S. 766.
The determination of the referee was confined to the issue before him, which had to do only with the objection to the claim presented to him by this defendant. He was empowered to expunge that claim, upon the ground that a preference had come into existence which rendered the claim objectionable. To so much of the ...