Petition for Writ of Certiorari — Parkening v. Arnold

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JUL 25 1945

PAR—* AD. GHATL CwONE MORLEY

IN THE

Supreme Court of the United States

OcrToBer TERM, 1944 ,

No...2.5.9.....

In the Matter of

Otro HENRY PARKENING,

Bankrupt.

Orro Henry PARKENING,

Petitioner,

VS.

Jutes ARNOLD,

Petition for Writ of Certiorari to Review Decision of

Circuit Court of Appeals, Ninth Circuit, on Im-

portant Question of Bankruptcy Law.

Irt D. Brett,

533 Title Insurance Building, Los Angeles 13,

Solicitor for Petitioner.

GerALp E. KErrin,

Of Counsel.

Parker & Company, Law Printers, Los Angeles. Phone TR. 5206.

TABLE OF AUTHORITIES CITED.

Casgs.

Davis v. Chipman, 210 Cal. 609, 293 Pac. 40

Del Rey Realty Co. v. Pourl, 44 Cal. App. (2d) 399, 112 Pac.

(2d) 649 salina

Firpo v. Murphy, 72 Cal. App. 259, 236 Pac. 968

Gatti v. Highland Park Builders, 67 A. C. A. 872

Hayter v. Fulmor, 66 A. C. A. 039, 152 Pac. (2d) 746

Sola Electric Co. v. Jefferson Electric Co., 317 U. S. 173, 87 L.

a ite CO, GI ccc netics 10

Wise v. Radis, 74 Cal. 765, 242 Pac. 90

STATUTES.

Bankruptcy Laws, Sec. 2 (11 U. S.C. A., Sec. 11)... 6

Bankruptcy Laws, Sec. 17 (11 U. S.C. A., See. 35) ...........6, 7, 8

Business and Professions Code, Sec. 10136...0........0.....000000. eee 8

Business and Professions Code, Sec. 10137... ee eee 8

Business and Professions Code, Sec. 10157... 9

Business and Professions Code, Sec. LOLS8 0.0.0. cece Q

Judicial Code, Sec. 256 (28 U. S.C. A., Sec. 371)... 6, 7

Rules of the Supreme Court, Rale 38.00.0000... eee sestdeinde 6

United States Codes, Annotated, Sec. 47 (€ ) ..........0..ceccecceccceeeeeeeees 6

United States Constitution, Amendment X, Sec. boo... 8)

United States Constitution, Art. 1, Sec. 8, Sub. 4.000.000.0000... 6

United States Constitution, Art. V1, See. bo... Tee 6

IN THE

supreme Court of the United States

OcToBER TERM, 1944,

In the Matter of

Orto Henry PARKENING,

Bankrupt.

Orro Henry PARKENING,

Petitioner,

VS.

JuLes ARNOLD,

Petition for Writ of Certiorari to Review Decision of

Circuit Court of Appeals, Ninth Circuit, on Im-

portant Question of Bankruptcy Law.

To the Honorable Chief Justice, and to the Honorable, the

Associate Justices of the Supreme Court of the United

States: i

The petition of Otto Henry Parkening respectfully rep-

resents to the court as follows:

1. That prior to the 19th day of June, 1942, your

petitioner was, and at all times since has been, a resident

of the State of California, and that on that date he was,

by an order of adjudication, adjudged to be a voluntary

bankrupt by the United States District Court, Southern

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District of California, Central Division. That, thereafter,

and in due course and on the 12th day of August, 1942,

your petitioner was discharged “from all debts and claims

which are made provable by said Act against his estate,

except such debts as are, by said Act, excepted from the

operation of a discharge in Bankruptcy.” [Tr. p. 6.]

2. That among the debts scheduled by your petitioner

in said bankruptcy was a judgment rendered on Septem-

ber 16, 1941, by the Superior Court of the State of Cali-

fornia in the action entitled “Jules Arnold v. O. H. Par-

kening, Robert B. McElroy, S. G. Bateman, O. H. Par-

kening, Inc., a domestic corporation, et al.,” which judg-

ment was scheduled in the amount of $7,520.08 inclusive

| of interest and costs. [Tr. p. 5.]

3. That Jules Arnold, the judgment creditor, although

he received due notice of said judgment scheduled in said

bankruptcy, did not file his claim therein or otherwise

| appear in the matter of the bankruptcy and the character

| of the judgment debt was not, prior to the discharge of

the bankrupt, presented, litigated or determined by the

bankruptcy court and has never since been so determined

by that court.

4. The action of Arnold v. Parkening, et al., was com-

-menced in the state court by Jules Arnold to determine

) his status as an equal partner of your petitioner in the

business of buying and selling real and personal property

on commission, and to his ownership of fifty per centum

of the capital stock of O. H. Parkening, Inc., a corpora-

tion, which corporation was alleged to be the ultimate

vehicle through which the business of the alleged partner-

ship was to be conducted. In that action the plaintiff

prayed for a judgment which by its terms shall adjudge

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and declare plaintiff to be the equitable owner and entitled

to one-half of the capital stock of the corporation, “and

one-half of the shares of stock evidencing the authorized

capital” thereof, and to all dividends, rights and emolu-

ments in any manner accruing therefrom; that defendants

be required to account to plaintiff for all rents, issues and

profits received by them or either of them for or on ac-

count of the defendants O. H. Parkening, Inc., and that

all such shares of stock, rents, issues and profits be ad-

judged to be held in trust by the defendants for the use

and benefit of plaintiff; that a restraining order be issued

and that a receiver be appointed, and for general relief.

[Tr. p. 35.]

From the complaint it appears the plaintiff in that action

and petitioner herein entered into an agreement to form a

partnership for the purpese of engaging in the business

of real estate broker, that is, to buy and sell real and

personal property on commission, a business or profes-

sion which is, by the laws of the State of California,

required to be licensed, or more properly, the individuals

practicing or engaging in such profession or business must

be licensed. By the provisions of such agreement it ap-

pears further that a corporation was to be formed to take

over the business of the partnership and that Jules Arnold

and your petitioner were to own the issued shares of

stock in equal proportions.

The corporation was formed but no application was

made to the Commissioner of Corporations of California

for the issuance of stock and no shares were ever issued,

nor did the corporation ever function as such.

Upon the trial of that action a judgment was entered

against the defendants, one of whom is your petitioner,

holding that Jules Arnold and petitioner were partners

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and that the corporation was a part of the partnership

[Tr. p. 60], and ordering a reference for the purpose of

an accounting. Upon the return and hearing of the report

of the referee a further judgment was made by which it

is held a partnership existed between Jules Arnold and

O. H. Parkening and finding the amount of money due

Jules Arnold from petitioner which ostensibly establishes

an equal division of the partnership profits for the period

of its existence.

It was this judgment that was scheduled by petitioner

in his bankruptcy proceedings.

5. Subsequent to the discharge of petitioner in bank-

ruptcy Jules Arnold applied to the state court in the mat-

ter of the action of Arnold v. Parkening, for the issuance

of a writ of execution, which writ was issued and under

which certain funds came into the hands of the sheriff.

Petitioner then applied to the state court for an order

recalling and quashing said writ of execution, and, upon

hearing, was denied such order. Petitioner thereupon ap-

plied to the United States District Court, in the matter

of said bankruptcy, for an order restraining the sheriff

from turning over to Jules Arnold any of the funds taken

into the possession of the sheriff by reason of the writ

of execution issued by the state court in the action of

Arnold v. Parkening, which order of restraint was duly

issued and made returnable before the Referee in Bank- |

ruptcy. Upon the hearing the Referee held that the peti-

tion of your petitioner herein for an examination of the

nature and character of the scheduled debt by the District

Court, sitting in bankruptcy, presented no unusual circum-

stances warranting a hearing and that a hearing would be

a retial of the issues previously determined by the state

court. [Tr. pp. 7-11.]

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From the decision of the Referee petitioner was, on his

application therefor, granted a review by the District

Court, which court affirmed the decision of the Referee

to the effect that a hearing on the merits would be a

retrial of the finding of the state court made upon the

motion to recall and quash the writ of execution. [Tr.

p. 64.] From that decision petitioner went by appeal to

the Circuit Court of Appeals for the Ninth Circuit. That

court, by Denman, Stephens and Healy, on March 24,

1945, affirmed the judgment of the District Court without

further opinion than to say, per curtam:

“We see no reason why the character of the judg-

ment as based on the fraud of appellant as determined

by the Superior Court of the State of California, in

and for the County of Los Angeles, shoud be reliti-

gated in this bankruptcy proceeding.” (148 F. (2d)

210.)

It is the decision and opinion of that court your peti-

tioner asks be reviewed by your Honorable Court.

6. Your petitioner’s appeal to the Circuit Court of

Appeals presented two points, the first being that a state

court has no power to construe an order, decree or judg-

ment of a Bankruptcy Court or to act under any statute,

law or regulation of the Federal Government relating to

bankruptcy: and the second being that a state statute re-

quiring a real property broker or salesman to be licensed

as a prerequisite to his carrying on such profession or

business renders all contracts void which relate to a divi-

sion of the earnings of such licensed broker or salesman

with an unlicensed person, and that the judgment in the

action of Arnold v. Parkening rendered by the state court

was and is void on its face for the reason that, as re-

quired by the statutes of California, there was no allega-

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tion by the complaint in that action, no proof adduced at

the trial and no finding, that Arnold was a licensed broker

or salesman at any time during his relationship with your

petitioner.

In discussing the points made to the Circuit Court your

petitioner points out that the only expression of that court

was to the effect that there appeared no reason why the

Federal Court should relitigate the decision of the state

court. Petitioner sought a rehearing by the Circuit Court,

suggesting that the questions raised were of importance

and that the reasons of that court for affirming the lower

court might well satisfy petitioner and save the expense

of this application for review. His petition was denied

without comment.

To establish the jurisdiction of this court under Rule 38

of the Rules of the Supreme Court petitioner relies upon:

(1) Section 2 of the Bankruptcy Laws (Title 11 U. S.

C. A. sec. 11).

(2) Section 17 of the Bankruptcy Laws (Title 11

LW). 3, ek ee

(3) Art. I, sec. 8, sub. 4; Article VI, sec. 1, and

Amendment X, sec. 1 of the Constitution of the United

States.

(4) Title 28 U. S. C. A. sec. 371 (Sec. 256, Judicial

Code).

(5) Title 11 U.S. C. A. sec. 47(c).

The first point of petitioner is directed to the proposi-

tion that the several states of the Union surrendered to

the Federal Government their right to enact bankruptcy

laws or to legislate in relation to the bankruptcy of their

citizens. If this premise is true (Art. I, sec. 8, sub. 4;

—

sale.

Art. VI, sec. 1, and Amend. X, sec. 1, U. S. Const.) then it

follows that a state court acts in excess of its powers

when it attempts to adjudge in bankruptcy matters. Like-

wise, the Congress may not enact statutes which have the

effect of delegating any powers to the state courts in

bankruptcy matters, nor have Federal courts power to

decline to take jurisdiction in bankruptcy matters and

acknowledge or abide by the decisions of state courts in

such matters. The jurisdiction of federal courts in bank-

ruptcy being exclusive and original (Title 28 U.S. C. A.,

sec. 371(6)) it follows that a refusal to take jurisdiction

of bankruptcy proceedings or any of the matters thereof

at the behest of a bankrupt petitioner is a denial of jus-

tice. The Federal Court is not bound by any constitutional

provision nor by any rule of comity to take cognizance

of a decision by a state court which in any manner per-

tains to a construction of the record in a bankruptcy

proceeding properly inaugurated, and hence, a hearing in

the Federal Court after action by a state court is in no

sense a rehearing of the matters requested.

Section 17 of the Bankruptcy Act specifies those debts

of a bankrupt which are not discharged by the Act. There

is no provision by the Act as to the time, place or manner

of determination of the character of any such debts as

dischargeable or not. From the nature of the Act and the

constitutional authorities under which it is promulgated,

that is, the jurisdiction of the Federal courts being ex-

clusive, it is only the Federal courts which can determine

the nature and character of the debt as dischargeable or

otherwise. Thus, a judgment creditor of a scheduled debt

may not sit by and decline to present his claim with proof

of its character and after discharge of the bankrupt charge

in the state court that such debt was not discharged. The

SORTS ONE te EE SRS EG TS ER RN,

union

evident purpose of the Act is to discharge the debtor of

all his debts except those determined in the bankruptcy

proceedings, and on the motion of the creditor to be not

dischargeable under the provisions of Section 17. The

insertion in the decree of discharge of a clause excepting

therefrom such debts as are not dischargeable under the

Act does not, if it has any effect at all, fulfill the pur-

poses of the Act but leaves all of his scheduled debts open

to future determination. It is apparent that the determi-

nation of the character of the debt must be in the bank-

ruptcy proceedings and if not there so determined must

be discharged, the burden being upon the creditor to ad-

vance his reasons as to why the debt fell within the ex-

ceptions of section 17 of the Act.

Il.

The second of the propositions advanced by petitioner

is that the judgment of the state court in the action of

Arnold v. Parkening is void on its face and so being

could not be considered for any purpose.

This proposition finds its support in pertinent provi-

sions of the laws of the State of California, namely, those

provisions which prohibit an unlicensed person from shar-

ing in the earnings of a licensed real estate broker realized

in the pursuit of his business. (Sec. 10137, Bus. and

Prof. Code: “It is unlawful for any licensed real estate

broker to employ or compensate, directly or indirectly, any

person for performing any of the acts within the scope

of this chapter who is not a licensed real estate broker,

or a real estate salesman licensed under the broker em-

ploying or compensating him.” Sec. 10136, Bus. and

Prof. Code: “No person engaged in the business or act-

ing in the capacity of a real estate broker or a real estate

salesman within this State shall bring or maintain any

saillien

action in the courts of this State for the collection of com-

pensation for the performance of any of the acts men-

tioned in this article without alleging and proving that

he was a duly licensed real estate broker or real estate

salesman at the time the alleged cause of action arose.”)

Even if the relationship of partners existed between

petitioner and Arnold, or any other relation by which

Arnold was to directly or indirectly share in the earn-

ings of petitioner as a broker, that relationship must have

been based upon a license in Arnold. (Sec. 10157, Bus.

and Prof. Code: “No real estate license gives authority

to do any act specified in this chapter to any person,

other than the person to whom the license is issued,” and

Sec. 10158 of the same code: “When a real estate license

is issued to a corporation, if it desires any of its officers

other than its president, to act under its license as a real

estate broker, it shall procure an additional license to so

employ each of such officers. When a real estate license

is granted to a partnership, if it desires any of its mem-

bers other than the one or ones through whom it is already

licensed to act as a real estate broker, it shall procure

an additional license to so employ each of such additional

members.) Manifestly it is impossible in a general part-

nership to conduct a real estate brokerage business with

only one partner licensed. Under a form of limited part-

nership, permissible in California, the general partner

might be licensed while none of the limited partners were,

they having no control of or in the business and not par-

ticipating in its management. But the partnership here

involved, if it was so, was a general one.

An examination of the record discloses that Arnold did

not allege himself to be a licensed real estate broker or

salesman. [Tr. p. 27 et seg.) Neither is there any find-

tins

ing that he was a licensed broker or salesman nor that

any proof was offered on that point at all. The allega-

tion of license and an affirmative finding thereof are neces-

sary, in an action of this kind, to create a valid judgment.

The lack of such allegation and such finding appearing on

the face of the judgment roll the judgment is void and

hence subject to attack anywhere at any time and in any

proceeding.

But even if the judgment were not subject to attack

here, still petitioner can raise the validity of the contract

at any time. On this point see Sola Electric Co. v. Jef-

ferson Electric Co. (1942), 317 U.S. 173, 87 L. Ed. 165,

63 Sup. Ct. 172. That such contracts are illegal has been

held by the California courts on several occasions. (Firpo

v. Murphy (1925), 72 Cal. App. 259, 236 P. 968; Del Rey

Reality Co. v. Powrl (1941), 44 Cal. App. (2d) 399, 112

P. (2d) 649; Davis v. Chipman (1930), 210 Cal. 609, 293

P. 40: IWise v. Radis (1925), 74 Cal. 765, 242 P. 90.

That it is necessary to allege and prove, in an action

for realty broker’s commissions, that the plaintiff was

licensed at the time the commission was earned, is held by

Hayter v. Fulmor (1944), 66 A. C. A. 639, 152 P. (2d)

746, and that the requirement to license a realty broker

falls within the police power of the state is held by Gatti

v. Highland Park Builders (1945), 67 A. C. A. 872.

Petitioner avers that the points presented are of national

interest in relation to matters within the purview of the

bankruptcy laws, especially the first point a3 it bears upon

the effect of discharge of bankrupts from debts whose

character is undetermined prior to such discharge. Also

it is of national interest and the even administration of

justice that the jurisdiction of both state and Federal

ae om

courts in bankruptcy be determined and not left to the opin-

ions of individual district judges as to whether they will or

will not take jurisdiction as a matter of convenience.

It has been said that the relation between state and

Federal courts rests upon comity. This may be true in

those cases in which each has original jurisdiction, but

cannot be so in those cases in which one or the other has

exclusive jurisdiction under the Constitution, for comity

can only apply among courts of equal power. For a Fed-

eral court to accept and abide by the judgment of a state

court construing an order of the Federal court in bank-

ruptcy is beyond the power of the Federal court and no

question of comity can arise,

Wherefore, in consideration of the foregoing, your peti-

tioner prays this Honorable Court issue its writ of cer-

tiorari to review the decision of the Circuit Court of Ap-

peals for the Ninth Circuit.

And your petitioner will ever pray.

Irt D. Brett,

533 Title Insurance Building, Los Angeles 13,

Solicitor for Petitioner.

GERALD E. KERRIN,

Of Counsel.