HICKS V. KNOST.
we arrive in this case. And this is so notwitbstanding tbe difference in the specifie ground of liability declared in that case and in tbis. Substantially the same grounds urged for reversal here were pressed 'lIpon the attention of the court unsuccessfully in that case. In that case the liability the defendant was put upon the ground of negligence in the omission of a duty imposed by ordinance, while the ground of liability in the case at bar is that of a public nuisance causing special injury. In that case the operation of the railway was permitted, and the mode of operation regulated, whereas in this case the use of the rail way track at the time was expressly prohibited. Tht; provision of law in that case went to the manner of operation, while in this it goes to and denie8 the right to operate at all. The distinction is between the prosecution of a lawful business in a negligent manner and the prosecution of a business prohibited by law. The breach of law in that case was an omission of duty imposed, and in this the commis8ion of a wrong expressly prohibited. 'Ybethel', in the ordinary case, where the original aet of the defendant is lawful, or authorized by statute, negligence is the gist of the action, or a necessary element, we are not required to decide, as the original act in the case at bar was clearly unlawful and wrongful. The cases relied on by counsel for plaintiff in error are those in which tbe business was lawful, and the question was whether the business was operated in a negligent or unlawful manner. In view of tbe distinction which we have stated, such cases are not applicable. WOe conclude, therefore, in view of the whole case, that the court rightly instructed the jury that tbe undisputed facts established a right to recover, unleS!! such right was defeated' by the contributory negligence of the plaintiff's intestate. The fact that the instruction apparently proceeded upon the theory that the presence and operation of tbe train unlawfully upon the public landing constituted also a case of negligence does not affect the coerectness of the Pl'oposition that the plaintiff was, upon the undisputed facts, entitled to recover, pl'ovided plaintiff's intestate was in the exercise of due care on hiB p;trt. We think the law as thus stated and applied to this case is fully sustained upon authority, and is sound in principle, and we now so hold in a case which squarely presents tbe question. Judgment affirmed.
HICKS v. KNOST. (District Court, S. D. Ohio, W. D. 1,781. Under the bankruptcy act of 1898, a federal district court sitting in bankruptcy has no jurisdiction of a bill in equity by a trustee in bankruptcy against a creditor of the bankrupt to recover from the defendant money alleged to have been pll.id to him by the bankrupt as a preference or in fraud of the other creditors. Such a suit must be brought in the proper state court or federal circuit court. 94F.-40
June 1, 1899.)
, In Equity. ,,:' , This wallra bill in equity by William. A; Hicks, as trustee in bankruptcy of Albert Knost and Arnold Wilhelmy, late' partners under the firm name of Knost & Wilhelmy, agab;lst Bertha Winkler and W. A. Hicks, for plaintiff. Frank M. (Joppock, for
THOMPSON, This is 11 suit in equity by a trustee bankruptcy to compel the defendant to account for certain moneys Which, it is claimed, were in part paid to her as a creditor of the bankrupts, by way of preference, and in part given to -her, without consideration, in fraud of the other creditors, and is now presented to the court on the motion of the trustee for an order restraining the defendant from disposing of the moneys pending the hearing of the cause. This motion is resisted by the defendant on the ground that the court is without jurisdiction to entertain the bill or issue the injunction.. If the court has jurisdiction to entertain the bill, it must be found in those pro"Visions of sections 2. lmd 23 of the bankrupt act which reltdas follows:
"Sec. 2. T.llJl.t ot' bankruptcy as AeJ;eInbe!ore defined, viz, tlle distrIct courts of the United States in the several 'states, · * * are hereby invested, within' their respective' territorial limits as now established, or as they may be llereaftercllanged, with sucll jurisdiction .at law and in equity as will enable them to e:tercise original jurisdiction, i in bankruptcy proceedings, in vacation in cha,Ij1berS ,and during their re!'!llectlve terms, as. they are now or may beliereafter held, to *. * (7) cause the estates of bankrupt!'!' to be collected, reduced' to' money and'distributed, and determine controversies in relation thel'eto,.exdeptas hereIn otherwise proVided." "Sec. 23" ,of United States. and ,(a) The United States circuit"CW;1rts shall bave.,J\!risd,iction of aU controversies, .at law and in equity, as distinguished from proceedings . in bankruptcy, betweeh trustees as suc.h and cimcei'nlng the property acquired 'or Cl'aimed by the trustees, in tbemme'manner antlto the same extent only as though bankruptcy proceedings' hadi jI)ot· been institJlt(ld and suc1).; controverl'\iesl;lad; !been. betwe!ln t.he baI\krJ.lpts spch adverse. claimants. (b) .suits .by: tlle trustees shall only courts wIlere the bankrupt, whose estate is be brought or pi.'osecutedIu being trustee, might have' brought or prosecuted them if proceedings in bankruptcy had 'not been insUtuted, Unless by consent of the , proposed :defenllalit.. (c) The United States circUit courts shallhaye concurrent jurisdiction with the courts of bankruptcy, within their respective territorial limits, of the offenses enumerated In this act."
This question has been cOli."sidered by many of the district courts, but they do not agree as to the true construction of the sections quoted. It has been held t'hat'secti'0I12- is 'in no wise limited by section 23; that 23 applies only to the circuit cQurts, and limits their jurisdiction to such suits and actions as might have been brought or prosecuted therein,by the bankrupts, because of diverse citizenship; that claUSe b of Section 23 to cover suits and cdntroversies, arising without the territorial jurisdiction of the bankruptcy courts, which tru8tees. would be reoquired to bring and prosecute in t.he courts where the 'Oankrupt might have brought or prosecuted 't4em, to wit, jIl the. state courts, or in the United States circuit courts, if there wa,s diversity of citizens'hip and the amount was sufficient to invoke that jurisdiction; but:that,in all
cases arlsmg within the territorial' jul'isdiction of the bankruptcy courts, resort may be had by trustees to those couM:salone, and that full scope for the applicatioll of the exception in clause 7 of section 2 is found in the provisions of the act which authorlze compromises and arbitrations, and which permit trustees to prosecute or defend pending suits. In re Sievers, 91 Fed. 370-373. It has also been held that the limitation of jurisdiction referred to by the exception in clause 7 of section 2 is found in section 23, but that it is only applicable to causes of action existing in favor of bankrupts prior to adjudication, and is not intended to cover causes of action accruing to trustees in the discharge of their official duties; that in such a case as the one at bar the trustee's right of action is not a derivative one, growing out of a prior right possessed by the bankrupt, but his right is original, created by law, and in the enforcement of it he represents the creditors, and his suit is, in effect, the exact equivalent to reach property fraudulently transferred; that of a when suits which the bankrupt could have brought or prosecuted in the courts of the state are spoken of, ·evidently real suits upon existing causes of action belonging to the bankrupt are meant, and not suits for the pretended enforcement of causes of action which never existed in favor of the bankrupt. Carter v. Hobbs, 92 Fed.
594. It is said, in support of these rulings, that a construction of the exception in clause ,7 of section 2 which would remit to the courts
of the state jul'isdiction over all suits for the collection of debts and demands due the bankrupt would be repugiIant to the body of the act, and not admissible. Is this true? Whether it is or not must be determined from an examination of the act itself, with a view to ascertain its general purpqse and intent. The object and purpose of the law is (1) to discharge honest bankrupts from their debts, and (2) to secure to their creditors an equal distribution of thdr estates. Now, is it necessary, within the meaning of the law, in order to accomplish these ends, to invest bankruptcy courts with jurisdiction to hear and determine all controversies incident to the collection and conversion into money of the bankrupt's estate? Must all suits and actions for that purpose, actions on accounts, promissory notes, and contracts, and suits to foreclose mortgages, set aside fraudulent conveyances, and the like, be brought in the bankruptcy courts, without reference to the amount involved, the citizenship of the parties, or the questions presented? Must the dockets be crowded, and the time of the district courts bE taken up with the hearing of minor controversies-, at great inconvenience and expense to the litigants, who may be compelled to travel long distances to attend the courts, or was it the intention of congress to follow its long-established policy of permitting such controversies to be determined in the local state courts, at the doors of the people, without unnecessary expense or inconvenience? It is the policy of congress to require all controversies where the amount involved 'is less than $2,000 to be determined in the state courts, notwitlliitanding they may involve a federal question or the parties be of diverse citizenship, and the con· struction of the bankrupt act insisted nponby the complainant wonld
04 FEDEll,AL. REPOltTER.
antagonwe and defeat that policy,: in so far arising under i;lul.t act are concerned. The consistent adherence of congress to this policy is illustrated by t)J.e act of August 13, 1888' (25 Stat. 433), permitting receivers appointed by United States courts to be sued in the state courts, and, if. congress intended by the bankrupt act to establish an exception repugnant to this general policy, it should clearly appear from the l;lnguage of ,the law, without the aid of ingenious construction. .. ' , " , Under the bankrupt act the courts of bankruptcy are invested with jurisdiction to adjudge persons bankrupt; allow' or disallow claims against bankrupts; appoint receivers or the mars.hals to take charge of the property ofbankru]Jts until the trustee is qualified; try offenses against the bankrupt law; authorize the business of bankrupts to be conducted by receivers, marshals, or trustees; bring in parties necessary to a complete determination ofa matter in controversy; close estates, when they appear to be fully administered; confirm ()r reject composltio,ns; .. consider, and confirm, modify, or overrule, the. action of referees';' determine the bankrupt's exempbankrupts; enforce. obedience tions; discharge or refuse to to the orders of the court by :flne and imprisonment; extradite bankrupts; make such orders, issue, such process, and enter such judgments, in addition to those specifically provided for, as may be necessary for the e.nforcement of the provisions of this act; punish contempts before referees; ,appoint trustees, when the creditors fail to do so, and remove them; tax costs and render judgments therefor;' transfer causes to other courts of bankruptcy; and "cause the estates of bankrupts to be collected, reduceq to money, and distributed; and determine controversies in relation thereto, except as herein otherwise llrovided." aut it is claimed 'that, if this exception per· mits actions and suits incident to, the .I+ollection and reduction to money of the bankrupt's estate to be brought in the state courts or the United States circuit courts, the bankruptcy courts. will be shorn of power to accomplish the purpose of their creation. The bank· ruptcy courts may cause such controversies to be compromised or arbitrated (sections 26 and 27), or may determine them when they arise between trustees and bankrupts, or between trustees and credo itors, but will be shorn of power to accomplish the purpose of their creation, if they are not permitted to try actions at law and hear suits in equity between trustees and strangers who claim property acquired or claimed by the trustees. I cannot agree with this construction of the law. ' It seems to me that it was the intention of congress to permit such controversies, when they could not be settled by compromise or arbitration, to be litigated in the courts which, under the general law, would have jurisdiction of them, just as assignees under ,state insolvency laws bring suits ,i.n courts of general jurisdiction to collect assets, which are afterwards distributed by the court of insolvency. The bankrupt court controls the trustee, supervises the administration of his trust, settles his accounts, and orders the distribution of the moneys in his hands, but is not required to assume the burden of the litigations necessary for the collection of assets, nor are adverse claimants of
IN BE HOLLENFELTZ.
property acquired or claimed by trustees to. be put to unnecessary inconvenience and expense in litigating their rights. I find support for this view of the law in Burnett v. Mercantile 00., 91 Fed. 365, in Mitchell v. McClure, ld. 621, and He Abraham (recently decided by the circuit court of appeals, Fifth circuit) 1 Nat. Bankr. News, 281,93 Fed. 767. It is not necessary in this case to give construction to the last clause of subdivision b of section 23 which reads, "Unless by consent of the proposed defendant," but I am inclined to think it has reference, not to jurisdiction in bankruptcy courts, but to courts having jurisdiction of the subject-matter of the action, but not of the perBon of the proposed defendant. The motion for the injunction will be overruled, and the bill will be dismissed, at complainant's costs.
In re HOLLENFELTZ. (District Court, N. D. Iowa. June 12, 1899.)
BANKRUPTCy-MoRTGAGE CREDITOR-PAYMENT OF TAXER.
Where a mortgage creditor of the bankrupt forecloses his mortgage, and bids in the property at the foreclosure sale, but the property remains In the possession of the trustee in bankruptcy during the time allowed by law for redemption, and the latter collects rent from tenants of the premIses, the creditor Is not entitled to be reimbursed, out of such rent, for the amount advanced by him payment of taxes which were due and a lien on the property at the time of the sale.
On review of rulings of referee.
Duffy & Maguire, for bankrupt. SHIRAS, District Judge. From the facts certified up by the referee in the above case it appears that Michael Hollenfeltz was adjudged a bankrupt on October 4,1898; that at that time the Dubuque National Bank held a mortgage on the middle and south middle fifths of lot 434 in the city of Dubuque to secure an indebtedness due the bank, upon which a decree of foreclosure was rendered in favor of the bank at the January term, 1899, ()f the district court of Dubuque county, Iowa, and that at the sheriff's sale had in purI;lUance of the decree of foreclosure the bank became the purchaser of the realty for the sum of $11,145, and now holds the sheriff's certificate of sale, the time of the redemption under the statute of Iowa not having expired. It further appears that at the time of the sheriff's sale there were due up()n said realty, and a lien thereon, the . taxes for the year 1897 and 1898, amounting to the sum of $16.60, which have been paid by the bank, and it also appears that the trustee has collected as rentals from the mortgaged realty the sum of $176. Based up()n these facts, the bank now asks an order directing the trustee to apply, S() far as necessary, the rentals received from the realty to the repayment of the taxes, on the ground that it would be inequitable to require the bank to pay the taxes, and yet permit the trustee to retain the rentals for the benefit of the