Opinion — Isaacs v. Hobbs Tie & Timber Co.

SUPREME COURT OF THE UNITED STATES.

No. 72.—Ocroser Term, 1930.

B. K. Isaacs, as Trustee in Bankruptey

of the estate of Henrietta FE. Cun-

ningham, Bankrupt, Appellant,

vs.

Hobbs Tie & Timber Company.

n Certificate from the

United States Circuit

Court of Appeals for the

Eighth Circuit.

[February 24, 1931.)

Mr. Justice Roserts delivered the opinion of the Court.

In this cause the Circuit Court of Appeals certified the following

question :

“After the bankruptcy court has acquired jurisdiction of the

estate of the bankrupt and the referee therein has entered an order

requiring sale, by the trustee, of all of the property of the bank-

rupt but before the trustee has teken any steps to sell land (part

of such estate) entirely located in another judicial district, can a

suit to foreclose a valid nortyvage thereon be commenced and an

order of sale thereunder be made over the objection of the trustee,

by the court of the latter district "’

This Court ordered that the entire reeord be sent up.

The question correetly states the issue tried in the District Court

Which entered the Judgment from which the trustee appealed,

Henrietta E. Cunningham was adjudged bankrupt in the

Northern District of Texas. The estate embraces land situate in the

Western District of Arkansas. BB. K. Isaacs Was clected trustee

Thereafter appellee, the holder of a note secured by a mortgage on

the said land, instituted foreclosure procecaings in a state court of

Arkansas. It named the bankrupt and Isaaes, the trustee, as de-

fendants, recited the bankruptcy proceeding in the Texas district.

and that it had not filed its secured note as a claim therein.

The bankrupt and the trustee specially appeared and petitioned

for removal of the cause to the United States Distriet Court for

the Western District of Arkansas. After removal the trustee filed

an answer in which he set up, inter alia, his right and title as trus

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2 Tsaacs vs. Hobbs Tue a T tig he “ge ti mpany

tee, his lack of information as to the execution of the note and mort.

gage, and the fact that the land had been scheduled in the Texas

District Court as an asset of the bankrupt. He further averred that

.

as trustee he had taken and then held peaceable possession of the

land; that there was an equity in the same above the mortgaga

debt ; that a sale in foreclosure would prejudice the rights of general

creditors; that he required time for investigation as to the most

favorable method of sale; that neither he nor the bankruptey conrt

had consented to the foreclosure of the mort@ave; that the bank.

ruptey court had entered an order authorizing him to sell the land:

that that court had exclusive Jurisdiction to ascertain the fgets

and administer the property; that the Federal District Court in

Arkansas could proceed no further than to ascerfain the interests

of the defendants, the validity of the mortgage lien, and the

amount of the debt. The answer prayed that after these prelimin-

ary steps the court should refuse an order of sale, because of it

want of jurisdiction to enter one. i *

On motion of the plaintit® the court struck out so muel of the

answer as sought to delay judgment and sale, and entered, on the

pleadings, a decree of foreclosure and sale containing a proviso that

if there should be any surplus of purchase-money, over the amount

of the judgment, interest and costs, the same should be paid (rhe

trustee,

Upon adjudication, tith te the bankrupt’s property vests in

the trustee with actual or constructive possession, and is placed

in the custody of the bankruptey court, Mueller vo Nugent,

Ist UL S14 The tithe and right to possession of all prop-

erty owned and possessed by the bankrupt vests in the trustee

as of the date of the filing of the petition in bankruptey, no

matter whether situated within or without the district in which

the court sits. Robertson vo Howard, 229 U.S. 254, 259-260;

Wells v. Sharp, 208 Fed. 399, Galbraith v. Robson-Hilliard

Grocery Coa. 216 Fed. St2. It follows that the bankruptey

court has exclusive jurisdiction to deal with the property of

the bankrupt estate It may order a sale of real estate

lying outside the district. Robertson v. Howard, supra; In re

Wilka, 131 Fed. 1004. When this jurisdiction has attached the

court's possession cannot be affected by actions brought in other

courts, White © Schloerh, V78 US 542: Murphy vo Hofman, 21

Isaacs vs. Hobbs Tie & Timber Company. 3

U. 8. 562; Dayton v. Stanard, 241 U.S. 588. This is but an applica-

tion of the well recognized rule that when a court of competent

jurisdiction takes possession of property through its officers, this

withdraws the property from the jurisdiction of al! other courts

which, though of concurrent jurisdiction, may not disturb that

possession ; and that the court originally acquiring jurisdiction is

competent to hear and determine all questions respecting title,

possession and control of the property. Murphu v. Hofman, supra;

Wabash R. RL Ca. vo Adelbert College, 208 U.S. 38; Harkin vy.

Brendage, 276 UL S. 36. Thus, while valid liens existing at the

time of the commencement of a Lankruptey proceeding are pre-

setved, it is solely within the power of a court of bankruptey to

ascertain their validity and amount and to deeree the method of

their liquidations La purte City Bank of New Grleans, 3 How.

292; Houston ve City Bank of New Orleans, 6 How. 456; Ray v.

Norseworthy, 23° Wall, 128; In re Wilka, supra; Nisbet y.

Federal Title and Trust Co., 229 Fed. 644.) The exercise of this

function necessarily forbids interference with it by foreclosure pro-

ceedings in other courts, which save for the bankruptey proceed-

ing would be competent to that end. As mortgaged property ordi-

narily lies within the district in which the bankruptey court sits,

and the mortgagee can consequently be served with its process, the

procedure usually followed is for that court to restrain the institu-

tien of forclosure proceedings i any other.’ Where the land lies

outside the limits of the district in which the bankruptey court sits,

ancillary proceedings may be instituted in the district eourt of the

United States for the district in Which the land is, and an injune.

tion against foreclosure issued by the court of ancillary jurisdiction.

In re Patterson Lumber Company, 228 Fed. 916; 247 Fed. 578.

Compare Scewrity Mortgage Co. v. Powers, 278 0 S. 149%. Such

injunctions are granted solely for the reason that the court in

whieh foreclosure proceedin&® are instituted is without jurisdic-

tion, after adjudication of bankruptey, to deal with the land or

liens upon it save by consent of the bankruptey court. The appel-

Un re Pittclkow, 92 Fed. Wl, In re Dana, 167 Fed, 529. In ve Brown,

196 Fed. 758, Pugh v. Loisel, 219 Fed. 417; certiorari denied, 238 U. & 631.

Kerasit v. People's Trust (o., 241 Fed. 939, In re Larkin, 252 Fed. 885. In

“ Loewat Building Co., 272 Fed, 988. First Trust Ca. ¥. Raylor, 1 Fed. (24)

24. In re Southern Florida Corporation, G1 Fed. (24) 171. In re Gillette, 18

Ped. (2d) 687,

EP rere ee i re OR a AID . ee . =

4 Isaacs vs. Hobbs Tie & Timber Company

lant-trustee might have instituted ancillary proceedings in the Dis.

triet Court for the Western Distriet of Arkansas and there obtained

an injunction to restrain the appellee from foreclosing its mortgage,

There is no reason, however, why he should not have followed the

course here pursued, of pleading the adjudication in Texas in

abatement of the foreclosure proceeding. The state court in which

the foreclosure action was begun was without Jurisdiction to pursue

it. Upon removal into the federal court upon the ground of diver-

sity of citizenship, the latter court had no higher or different right

to interfere with the bankruptey administration than had the

state court. The answer of the trustee stated a valid defence and

it was error to enter jJudyment against him on the pleadings. k

Appellee asserts that inasmuch as the appellant removed the\

cause into the Federal Court he waived any lack of jurisdiction in,

that court and estopped himself to set up exclusive Jurisdiction of

the bankruptey court. There is no merit in this contention. The

jurisdiction in bankruptcy is made exclusive in the interest of the

due administration of the estate and the preservation of the rights

of both secured and unsecured creditors. This fact places it beyond

the power of the court’s officers to oust it by surrender of property

which has come into its possession. Whitney v. Wenman, 198 U. S.

539: In re Schermerhorn, 145 Fed. 341. Indeed, a court of bank-

ruptey itself is powerless to surrender its control of the adminis-

tration of the estate. U.S. F. & G. Co. v. Bray, 225 U.S. 205. The

action of the trustee in removing the cause, could not, therefore,

divest the Texas District Court of its Jurisdiction.

The judgment of the District Court must be reversed and the

cause remanded to that court, for further proceedings in con-

formity with this opinion.

Reversed.

A true copy.

Test:

Clerk, Supreme Court, U. 8.