N. L. Wymard and George L. Stark, Receivers of Kemmel & Co., Inc., Debtor v. McCloskey & Co., Inc.

KALODNER, Circuit Judge

(dissenting).

I would vacate the judgment of the District Court for the reason that it lacked jurisdiction to entertain this action.

I agree with the majority’s view that “the claim of diversity jurisdiction fails” by reason of the fact that the pleadings fail to satisfy the requirements as to diversity jurisdiction.

I disagree, however, with its view that jurisdiction exists under the Bankruptcy Act by reason of the defendant’s asserted “consent” to the institution and prosecution of the instant action.

Section 23(b) provides that suits must “be brought or prosecuted only in the courts where the bankrupt might have brought or prosecuted them if proceedings under this Act had not been instituted, unless by consent of the defendant * * *(emphasis supplied)

*501 It is obvious from the Complaint that it premised the District Court’s jurisdiction solely on the diversity of the citizenship of the bankrupt and the defendant.

That that is so is established by the fact that the Complaint, in compliance with the requirement of Rule 8(a) F.R.C.P., that a complaint “contain a short and plain statement of the grounds upon which the court’s jurisdiction depends”, alleged as follows in Paragraph 3:

“3. Plaintiff is a corporation incorporated and existing under the laws of the Commonwealth of Pennsylvania. Defendant is a corporation incorporated under the laws of the State of Delaware. The matter in controversy exceeds, exclusive of interest and costs, the sum of $10,000.”

The majority agrees that “the parties and the court below viewed this as a diversity case”. That the District Court so viewed it is established by the fact that in its Findings of Fact 1 it specifically found:

“1. Kemmel [the bankrupt] is a painting contractor incorporated and existing under the laws of the Commonwealth of Pennsylvania.

“2. MeCloskey is a general contractor incorporated under the laws of the State of Delaware.”

The parties, plaintiffs and defendant alike, frankly admitted that they viewed this case as one in diversity when they first presented themselves for oral argument on this appeal. It was only after we had, sua sponte, then called attention to the fact that Para. 3 of the Complaint insufficiently pleaded diversity jurisdiction, in failing to allege that the defendant’s “principal place of business” was in a state other than Pennsylvania, that the plaintiffs, at a later date, asserted that jurisdiction existed by reason of the defendant’s “consent” to the institution and prosecution of this action.

The hard core of the majority’s reasoning in subscribing to the plaintiffs’ theory of “consent” jurisdiction is that the allegations in the complaint that the plaintiffs are receivers in bankruptcy, authorized by a referee to sue the defendant, sufficiently established jurisdiction below if the defendant “consented” to the action; “consent” need not be “express”, and defendant “consented”, when it appeared, answered and sought relief by way of counterclaim; and that the defendant’s mistaken belief that the suit was properly grounded on diversity jurisdiction “does not vitiate such consent.”

The majority’s holding that “consent need not be express” is premised on its view that “ * * * as a matter of policy Congress so framed section 23, sub. b as to enable a defendant to avoid a plenary suit by a receiver in any federal court in which the bankrupt himself could not have sued that defendant,” and that “Viewing this as a limitation of grace upon the normal reach of federal jurisdiction, the courts have consistently held that a defendant’s consent to be sued where the debtor could not have sued him need not be express”, and “submission by the defendant to the jursidiction of the court without asserting any objection predicated upon section 23, sub. b is deemed a sufficient consent within the meaning of that section.” (emphasis supplied)

I disagree both with the view that Section 23, sub. b was designed by Congress to enable a defendant “to avoid” an action similar to the instant one, and as “a limitation of grace upon the normal reach of federal jurisdiction.”

I also disagree with the majority’s view, later discussed, that the defendant’s submission to the jurisdiction of the court below “without asserting any objection predicated upon section 23, sub. b is deemed a sufficient consent within the meaning of that section”. The cases which it cites in support are utterly in-apposite.

First, as to the majority’s view that Section 23, sub. b was designed as an escape hatch for defendants seeking “to *502 avoid” submission to federal jurisdiction, and as “a limitation of grace upon the normal reach” of such jurisdiction:

The Supreme Court has time and again, since 1900, held to the contrary. It has ruled that Section 23, sub. b was designed to limit the jurisdiction of federal courts with respect to independent actions brought by bankruptcy trustees, and to leave their trial to the state courts. It has also explicitly ruled that absent diversity of citizenship between bankrupt and defendant in such actions, federal jurisdiction is created only by “the consent of the proposed defendant”.

In the landmark case of Bardes v. First National Bank of Hawarden, Iowa, 178 U.S. 524 , at page 538, 20 S.Ct. 1000 , at page 1006, 44 L.Ed. 1175 (1900) it was said:

“ * * * Congress, by the 2d clause of § 23 of the present bankrupt act, appears to this court to have clearly manifested its intention that controversies, not strictly or properly part of the proceedings in bankruptcy, but independent suits brought by the trustee in bankruptcy to assert a title to money or property as assets of the bankrupt against strangers to those proceedings, should not come within the jurisdiction of the district courts of the United States, ‘unless by corn-sent of the proposed defendant,’ of which there is no pretense in this case.” (emphasis supplied)

and at page 539, 20 S.Ct. at page 1006 :

“ ‘1st. The provisions of the 2d clause of § 23 of the bankrupt act of 1898 control and limit the jurisdiction of all courts, including the several district courts of the United States, over suits brought by trustees in bankruptcy to recovery or collect debts due from third parties, or to set aside transfers of property to third parties, alleged to be fraudulent as against creditors, including payments in money or property to preferred creditors.

“ ‘2d. The district court of the United States can, by the proposed defendants’ consent, but not otherwise, entertain jurisdiction over suits brought by trustees in bankruptcy to set aside fraudulent transfers of money or property, made by the bankrupt to third parties before the institution of the proceedings in bankruptcy.’ ” (emphasis supplied)

In Bush v. Elliott, 202 U.S. 477, 479-480 , 26 S.Ct. 668, 670 , 50 L.Ed. 1114 (1906), the Court said:

“The bankruptcy act of 1898, * * was a radical departure from the act of 1867 [14 Stat. at L. 517, chap. 176], in the evident purpose of Congress to limit the jurisdiction of the United States courts in respect to controversies which did not come simply within the jurisdiction of the Federal courts as bankruptcy courts, and to preserve, to a ,greater extent than the former act, the jurisdiction of the state courts over actions which were not distinctly matters and proceedings in bankruptcy. * * * The intention of Congress to prevent actions not strictly proceedings in bankruptcy from coming within the jurisdiction of the United States courts, except in certain cases, was enacted into law in the section of the statute ISection 23(b)] now under consideration.” (emphasis supplied)

In Schumacher v. Beeler, 293 U.S. 367 , 55 S.Ct. 230 (1934) the Court not only declared that Congress intended in Section 23, sub. b to limit the jurisdiction of the federal courts in independent actions brought by bankruptcy trustees and to leave their trial “for the most part in the state courts”, but emphasized that “Congress prescribed in section 23b the condition of consent on the part of the defendant sued by the [bankruptcy] trustee”, and that “Section 23b was thus in effect a grant of jurisdiction subject to that condition” (emphasis supplied) Said the Court at page 374, 55 S.Ct. at page 233 :

“In enacting section 23 [in 1898], it was clearly the intent of the Congress that the federal courts should not have the unrestricted jurisdic *503 tion of suits between trustees in bankruptcy and adverse claimants which these courts had exercised under the broad provisions of section 2 of the Act of 1867. The purpose was to leave such controversies to be heard and determined for the most part in the state courts ‘to the greater economy and convenience of litigants and witnesses.’ But no reason appeared for a denial of jurisdiction to the federal court if the defendant, the adverse claimant, consented to be sued in that court. The Congress, by virtue of its constitutional authority over bankruptcies (Const. Art. 1, § 8), could confer or withhold jurisdiction to entertain such suits and could prescribe the conditions upon which the federal courts should have jurisdiction. See Sherman v. Bingham, 21 Fed.Cas. 1270, 1272, No. 12,762. Exercising that power, the Congress prescribed in section 23b the condition of consent on the part of the defendant sued by the trustee. Section 23b was thus in effect a grant of jurisdiction subject to that condition.” (emphasis supplied)

More recently, in Williams v. Austrian, 331 U.S. 642 , 67 S.Ct. 1443 (1947) the Court had occasion to note, in another context, that Section 23, sub. b “has, since its enactment in 1898, been viewed as a sharp restriction upon the jurisdiction theretofore exercised by bankruptcy courts and as a strong preference for state courts.” (emphasis supplied)

The sum of the foregoing is that absent diversity of citizenship between the bankrupt and the defendant, in an action within the purview of Section 23, sub. b, federal jurisdiction is created only by “consent of the defendant.”

Under Section 23, sub. b there are only two jurisdictional grounds for plenary suits of the type here involved, namely, (1) diversity of citizenship between bankrupt and defendant, and (2) consent of the defendant.

As earlier stated Rule 8(a), F.R.C.P., requires that the complaint “contain a short and plain statement of the grounds upon which the court’s jurisdiction depends”.

Here the Complaint alleged only the diversity ground and not that of consent. The majority has properly rejected the diversity ground because it was not properly pleaded. Surely the total failure to plead the consent ground is as fatal as the inadequate pleading of the diversity ground. Bare as it was of “a short and plain statement of the grounds upon which the court’s jurisdiction depends”, as required by Rule 8(a), the Complaint should have been dismissed by the District Court for lack of jurisdiction at the very outset of this case.

The majority has relied on a number of lower federal court cases to support its view that the failure to plead consent jurisdiction in a complaint is not fatal, and that such jurisdiction is sufficiently established by the “submission 2 by the defendant to the jurisdiction of the court without asserting any objection predicated upon section 23, sub. b”.

Independent of the circumstance that these cases are inapposite on their facts, 3 *504 they lack precedential value for these two further salient reasons: first, most of them were decided before Rule 8(a) became effective on September 1, 1938, and second, those later decided do not afford the slightest indication that they considered the impact of the Rule.

The majority has here taken a position which presents an anomaly. It first holds that the failure of the Complaint to contain an “allegation of the principal place of business of either corporate party” is fatal to a claim of diversity jurisdiction. It then holds, in total disregard of Rule 8 (a) that “the averments in the opening paragraphs of the complaint [that the plaintiffs are receivers authorized by a trustee in bankruptcy to sue the defendant] asserted facts enough to disclose that jurisdiction could be exercised under the Bankruptcy Act, unless consent should be withheld under section 23, sub. b.”

I cannot discern in averments that receivers have been authorized by a bankruptcy referee to bring a suit even a glimmer of an intimation that jurisdiction is based on consent.

Assuming, arguendo, that a,complaint is not required to state in terms that consent is the basis of jurisdiction it is settled that it must at least make such allegation as will put the defendant on notice that jurisdiction is based on his consent.

In Toledo Fence & Post Co. v. Lyons, 290 F. 637 (6 Cir.1923), often cited for its holding that a defendant consents to jurisdiction when it answers “upon the merits”, it was said (p. 646):

“The consent contemplated by section 23(b) would seem to be one given, at the earliest, after bankruptcy, so that it could be intelligently made with specific reference to the suit which the trustee was about to bring or had brought.” (emphasis supplied)

It is obvious that one cannot consent to the jurisdictional premise of a suit of which he is unaware, and of which the prosecutor of the suit and the court which tries it are equally unaware. Section 23, sub. b certainly requires that the consent to jurisdiction be a knowing consent since the creation of jurisdiction is dependent on it.

Here the defendant submitted itself to the jurisdiction of the court in reliance on the allegation, in the Complaint, of diversity of citizenship between it and the bankrupt, albeit such diversity was insufficiently pleaded. The plaintiffs admittedly premised their allegation of jurisdiction solely on the diversity of citizenship between the bankrupt and the defendant and the court did likewise.

There was not even a “pretense in this case” of consent to the suit within the meaning of Section 23, sub. b as construed by the Supreme Court.

It is the settled rule that words used in a statute must be construed in accordance with their accepted sense and meaning. “Consent”, as the term is used by laymen and the legal profession, is defined as “a rational and voluntary concurrence in an act or contract.” Funk & Wagnalls, New Standard Dictionary of the English Language, 1942 ed. at page 561.

For the reasons stated I would vacate the judgment of the District Court because of its lack of jurisdiction to entertain this action. *

Circuit Judges STALEY and GANEY join in this dissent.

. The opinion of the District Court is reported at 217 F.Supp. 143 (E.D.Pa.1963).

. “Submission” by entering an appearance, filing an answer or trial on the merits.

. In Gins v. Mauser Plumbing Supply Co., 148 F.2d 974 (2 Cir. 1945) there was no allegation in the complaint that jurisdiction existed by reason of diversity of citizenship between the bankrupt (the Court called attention to that fact in Note 5, page 977), and the defendant by answering was held to have consented to the court’s jurisdiction.

In Detroit Trust Co. v. Pontiac Savings Bank, 196 F. 28 (6 Cir. 1912), aff’d 237 U.S. 186 , 35 S.Ct. 509 , where the defendant appeared generally and answered, the court held there was consent for that reason. There is no indication, however, that the complaint in that case premised jurisdiction on diversity of citizenship between the bankrupt and the defendant.

In McEldowney v. Card, 193 F. 475 (C.C.E.D.Tenn.1911), the Court held that the defendant consented to its jurisdiction • by reason of answer, set-off and trial. However, it is significant that in that case the Court expressly noted at *504 page 477 of its opinion that “Neither the citizenship nor residence of the bankrupt was, however, alleged.” {emphasis supplied)

Were we to reach the merits we would agree with the majority that the item of $78,843.44 oyerhead awarded in the District Court’s judgment should be disallowed and that otherwise the judgment should be affirmed with no costs to either party as against the other.