Opinion
No. 30460.
April 16, 1930.
Hartman Hartman, of Seattle, Wash., for petitioner.
Leopold M. Stern of Seattle, Wash., for trustee.
In Bankruptcy. In the matter of George S. Cochran and the marital community composed of George S. Cochran and Evelyn O. Cochran, his wife, bankrupts. An order of the referee granted an injunction, and the Seattle Curb Exchange, Incorporated, brings the matter before the court for review.
Affirmed with directions.
The Seattle Curb Exchange, Inc., is a Washington nonprofit corporation operated for the benefit of the membership, which is limited. A certificate is issued to a member. The by-laws set forth the interest in the corporation and the relation of the membership to each other.
During August, 1929, the bankrupt, Cochran, indorsed his name on the back of his membership certificate, and delivered the indorsed certificate to R.A. Phippeny in payment of indebtedness to Phippeny. On September 3, for himself and community of self and wife, he filed a petition in voluntary bankruptcy, not scheduling or referring to the membership certificate. On the following day, September 4, an order of adjudication and reference was entered. On the same day Phippeny made written application for membership with the executive secretary of the Seattle Curb Exchange on the basis of having purchased the membership, as provided by the by-laws. No action was taken on the application. At the opening of the Curb Exchange, September 4, it was found Cochran had failed to meet his obligations of the day before, and claims of lien, as provided by the by-laws of the exchange, were asserted, and also claims for accrued dues to the exchange. Thereafter, the board of governors, pursuant to authority asserted under the by-laws of the exchange, sold the membership for $3,950 and applied the proceeds to the payment of the accrued dues and to the preferred lien claims asserted by members of the exchange pursuant to the by-laws.
On November 18, following, Phippeny brought an action in the state court against the exchange, praying recovery for $4,050, alleged damages for "conversion of the seat by the exchange." On December 6, 1929, the trustee in bankruptcy made a demand for the proceeds of the sale by filing with the referee, and serving upon the exchange, a demand in the nature of a complaint, duly verified, and praying for recovery of the sum of $3,950. Show cause order was issued by the referee on said complaint and directed to the Seattle Curb Exchange to show cause, at a given time and place, why the proceeds should not be paid into the bankruptcy court. The exchange entered a special appearance challenging the jurisdiction of the referee in the said "turn-over proceeding."
On December 13, the Seattle Exchange answered the complaint of Phippeny in the state court and filed its special appearance before the referee; and, also, upon its motion, secured an ex parte order in the state court, without consent of or notice to the referee, making the trustee an additional party defendant, and in its answer to Phippeny's complaint, filed a cross-complaint praying that the claims of the respective parties to the said exchange seat be quieted and the exchange held free from all liability of either party.
Thereafter, the trustee filed a petition praying that the curb be enjoined from further proceeding in its action against the trustee in the state court. A show cause order was issued and served, to which the exchange appeared specially, challenging both the jurisdiction of the bankruptcy court and the referee. This challenge being denied, without waiving its objection, it filed its answer, and hearing was had and order entered by the referee granting the injunction. The exchange, feeling aggrieved, brought the matter before the court for review.
The title in the exchange seat is property incorporeal in character and vested in the trustee as of the date of adjudication. Section 110, title 11 USCA (section 70, Bankruptcy Act). See also Odell v. Boyden (C.C.A.) 150 F. 731, 10 Ann. Cas. 239; and cases cited; Board of Trade, etc., v. Johnson, 264 U.S. 1, 44 S. Ct. 232, 68 L. Ed. 533. The transfer, if any, by the bankrupt, while insolvent, within four months prior to filing of the petition, is "deemed null and void." Section 107, title 11 USCA (section 67, Bankruptcy Act). The trustee may avoid any such transfer and recover "the property * * * or its value, from the person to whom it was transferred" (section 110, title 11 USCA), or from the person converting it. In re Payman (D.C.) 36 F.2d 823.
From the filing of the petition the exchange seat was in custodia legis. The possession may have been constructive and not manual, but it was only because it was not capable of more tangible custody, and it was an adjudication not in possession of adverse claimant, and the jurisdiction of the bankruptcy court attached, Mueller v. Nugent, 184 U.S. 1, 22 S. Ct. 269, 46 L. Ed. 405; In re Hoey (C.C.A.) 290 F. 116, and was exclusive, U.S.F. G. Co. v. Bray, 225 U.S. 205, 32 S. Ct. 620, 56 L. Ed. 1055; Lazarus v. Prentice, 234 U.S. 263, 34 S. Ct. 851, 58 L. Ed. 1305; Acme Co. v. Beekman Co., 222 U.S. 300, 32 S. Ct. 96, 56 L. Ed. 208, and the "seat" was withdrawn from the jurisdiction of all other courts, Georgia v. Jesup, 106 U.S. 458, 1 S. Ct. 363, 27 L. Ed. 216; Murphy v. Hoffman, 211 U.S. 562, 29 S. Ct. 154, 53 L. Ed. 327. See also May, etc., v. Henderson, etc., 268 U.S. 111, 45 S. Ct. 456, 69 L. Ed. 870. Where the state court and the federal court had concurrent jurisdiction, the jurisdiction of the court first attached must prevail. Spokane County v. United States, 279 U.S. 80, 49 S. Ct. 321, 73 L. Ed. 621.
The exchange of the seat for money did not change the custodia legis status of the property. The trustee could elect to confirm the sale and demand delivery of the money received in exchange for the seat. The conversion of the curb exchange seat by the curb exchange did not create the curb exchange an adverse claimant within the bankruptcy act or rules. Such a relation could only exist where possession of the property and claim thereto asserted was prior to the bankruptcy proceedings or adjudication. Any other rule would result in chaos. Porter v. Sabin, 149 U.S. 473, 13 S. Ct. 1008, 37 L. Ed. 815. The court may determine all controversies over property in custodia legis, and its jurisdiction cannot be destroyed after it attaches, or impaired through a seizure thereof by an adverse claimant. Whitney v. Wenman, 198 U.S. 540, 25 S. Ct. 778, 49 L. Ed. 1157; Mueller v. Nugent, supra; White v. Schloerb, 178 U.S. 542, 20 S. Ct. 1007, 44 L. Ed. 1183; In re Schermerhorn (C.C.A.) 145 F. 341. The trustee is an officer of the court and entitled, in administering his trust, to the court's protection. In re Montevallo Mining Co. (D.C.) 2 F.2d 979.
The powers of the referee are granted and limited by the Bankruptcy Act, general orders, and order of reference. Bankruptcy Act § 1 (section 1, title 11 USCA) (7) "`Court' shall mean the court of bankruptcy in which the proceedings are pending, and may include the referee." Section 38, Bankruptcy Act (section 66, title 11, USCA), invests the referee, subject to review by the judge, with jurisdiction to "(4) perform such part of the duties * * * as are by this title conferred on courts of bankruptcy. * * *" General Order 12 (See 11 USCA § 53), requires that a copy of the order of reference be delivered to the referee; "* * * thereafter all the proceedings, except such as are required by the act or by these general orders to be had before the judge, shall be had before the referee." And further provides that the referee shall act upon the matters arising under the several cases referred to him and "perform the duties which they are empowered by the act to perform," except enjoin proceedings of a court or officer of the United States or of the state.
No court or officer of the United States or of the state was enjoined in this proceeding. The order was a general reference without restriction. The referee had power to issue the injunction. In re Roger Brown Co. (C.C.A.) 196 F. 758. The curb exchange was enjoined from proceeding in the state court against the trustee in bankruptcy, an officer of this court.
Any attempt to disturb the custody or possession of property in custodia legis, without leave first obtained, is contempt of court on the part of the person making it. Wiswall v. Sampson, 55 U.S. (14 How.) 52, 14 L. Ed. 322. See also Grosscupp v. German Savings Loan Soc. (C.C.) 162 F. 947. In Merryweather v. United States, 12 F.2d 407, 408, the Court of Appeals of this circuit, through Judge Hunt, said: "By thoroughly established rule, when a court, exercising jurisdiction in equity, appoints a receiver, * * * administration of the estate is assumed by the court. The possession of the receiver is the possession of the court. * * * No suit, unless expressly authorized by statute, can be brought against the receiver without the permission of the court which appointed him."
By the same token, when the bankruptcy court acquired jurisdiction of the bankrupt's estate by the filing of the petition and adjudication, administration of the estate is assumed by the court, and the possession of the trustee is the possession of the court.
The injunction issued by the referee is affirmed. The referee will proceed to determine the rights of the exchange to accrued dues and preferred liens, if any, of comembers of the bankrupt in the exchange assertable after the membership passed to the trustee, and settle all adverse claims against the said "seat."