The opinion of the court was delivered by: JUDD
Plaintiff has moved to dismiss the counterclaims in defendants' answer.
The action, brought by a Connecticut trustee in bankruptcy, seeks an injunction restraining the use or endorsement by the bankrupt or his wife of checks which may be issued by the Internal Revenue Service by reason of plaintiff's claim for an income tax refund.
The complaint recites that the parties are citizens of different states, that the jurisdictional amount exists, and that the action arises under Section 70 of the Bankruptcy Act (11 U.S.C. § 110). The complaint asserts that the tax refund, estimated to be about $12,000, is an asset of the bankruptcy estate, that it may be sent to the defendants instead of the plaintiff because of the Internal Revenue Service mailing procedures, and that plaintiff seeks to preserve the assets of the estate by enjoining the defendants from misappropriating the refund. It is also asserted that a previous refund check was received and endorsed by the bankrupt and appropriated to the defendants' own use, in spite of an order entered in summary proceedings in the bankruptcy court in Connecticut restraining the defendants from using such funds.
The answer, in addition to denials, contains two counterclaims. The first asserts that the refund is not property of the bankrupt estate and that the trustee in bankruptcy is not entitled to it. The second asserts that the refund arises from joint income tax returns and that half of it is the property of defendant, Evelyn Heft, the wife of the bankrupt.
From affidavits submitted in connection with the motion, it appears that the refund check in the amount of $14,490.85 was received directly by the trustee in bankruptcy some time after this action was begun and has been deposited in an authorized account in the District of Connecticut.
The counterclaims are related to the same transaction which is referred to in the complaint and might be compulsory counterclaims under F.R. Civ. P. 13(a), if the case were not affected by the special provisions of the Bankruptcy Act. It should be observed that the first counterclaim is essentially a denial of plaintiff's allegation of title, coupled with a request for declaratory judgment, which would be within the discretion of the court to entertain or dismiss. 28 U.S.C. § 2201. With respect to the second counterclaim, it may also be noted that the wife's interest in the refund check is less than $10,000 and therefore would not support jurisdiction in an independent diversity action.
The procedural sufficiency of the counterclaims need not be decided, since the Bankruptcy Act does not give this court jurisdiction of them under the facts recited above.
Section 70 of the Bankruptcy Act (11 U.S.C. § 110), which the bankruptcy trustee mentions in the complaint, is the section which vests the trustee with the bankrupt's title to all property rights as of the date of the initiation of the bankruptcy proceeding. This section has been held to give the trustee title to loss carryback tax refunds for losses sustained in the year of bankruptcy. Segal v. Rochelle, 382 U.S. 375, 86 S. Ct. 511, 15 L. Ed. 2d 428 (1966). Defendants assert that Connecticut law requires that the refund be prorated between the wife and the husband's bankruptcy estate. Cf. In re Buchholtz, 259 F. Supp. 31 (D. Minn. 1966). The pending motion raises the question whether such a right to proration must be decided in the bankruptcy court in Connecticut or may be tried under the counterclaims in this court.
The Bankruptcy Act seeks to maintain the exclusive jurisdiction of the bankruptcy court, even to the extent of limiting the powers of other federal courts, except with respect to adverse claims of third parties to property not in the trustee's possession. Section 2 of the Bankruptcy Act (11 U.S.C. § 11) provides, in its appropriate portions:
"§ 11. Creation of courts of bankruptcy and their jurisdiction
(a) The courts of the United States hereinbefore defined as courts of bankruptcy are hereby created courts of bankruptcy and are hereby invested, within their respective territorial limits as now established or as they may be hereafter changed, with such jurisdiction at law and in equity as will enable them to exercise original jurisdiction in proceedings under this title, in ...