Petition for a wRIT OF cERTIORARI — Trieber v. England

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Offies - Supreme Court, U

FILED

In the iene Go

Anited States

OcrosBer TERM, 1956

No, 55S

Morris TRIEBER,

vs.

JoHN QO. ENGLAND, Trustee in Bank-?;

ruptcy of the Estate of Gayne Sales

Co., Inc., a corporation, Bankrupt,

Respondent.

Petitioner,

Morris TRIEBER,

2020 St. Francis, San Carlos, California,

Petitioner in Propria Persona.

JosePH A. Brown,

1020 De Young Building, San Francisco 4, California,

Of Counsel.

Subject Index

Page

(a) Reference to the opinions delivered in the courts below 2

(b) A concise statement of the grounds on which the juris-

diction of this court is invoked ................c.00000- 2

(ec) The questions presented for review ................... 2

Se ee CRED NUEINED voce dase ib oS ecbdeee beccection 4

A Mo aie iin ss Gb ew ck ee or ae 4

(f) The federal jurisdiction in the court of first instance... 21

ee ES OE GN GI 5 5 in Ui bee cede s cance beens ose 22

I Oe I ovens ce kivswenebucbeascanes 22

I. The appellate jurisdiction of the Court of Appeals in

bankruptcy proceedings includes interlocutory as well

Ds Sn 09d, oe. and eo Teeth A HK 23

II. Neither the referee nor the District Court in bank-

ruptcy has any jurisdiction to make the order sought

by the trustee, or to hear or determine his claim for

damages or, more particularly, to make the ‘‘turn-

QUE Ge NE PE wack ve cevcncenskesdees swaus 35

A court of bankruptcy has no jurisdiction to try a

controversy between the trustee and one not a

party to the proceeding; and even the District

Court may not, in the exercise of its law or

equity jurisdiction, hear and determine such a

suit in the absence of diversity of citizenship.... 35

Ili. Neither the referee nor the District Court had any

jurisdiction to make the ‘‘turn-over’’ order sought by

Tt IED 6. o vvnenba dananenecdsdaeewn ot eeceeccnes 38

IV. The purported claim for affirmative relief by the trus-

tee is barred by the statute of limitations ........... 45

V. The proceedings by the trustee are barred by the final

judgment of the state court in an action between the

bankrupt and Trieber which was an action between

the same parties for the same cause ................ 47

Table of Authorities Cited

Cases Pages

Arkansas Corp. Commission v. Thompson, 116 Fed. 2d 179,

reversed on other grounds, 313 U.S. 132, 85 L.Ed. 1244,

asl be cock cnubsenncaviesd ven rh seneadeees 26, 32

Chandler v. Perry, 74 Fed. 2d 371 ...........cseceeeceees 40

Cline v. Kaplan, 323 U.S. 97, 65 S.Ct. 155, 89 L.Ed. 97...... 42

Cohen v. Eleven West 42d Street, Inc., 115 Fed. 2d 531.... 33

Columbia Foundry Co. v. Lochner, 179 Fed. 2d 630, 14

noc dkny 4a vende 64 Me agawt en? Sse hanenrens 27, 32

Cragge v. White, 113 C.A. 2d 356, 248 Pac. 2d 193 ........ 47

Crowley v. Modern Faucet Manufacturing Co., 44 Cal. 2d

ey eG Se e's Si 05s che eve edd ed eve deredrees 51

Daniel v. Guaranty Trust Co. of New York, 285 U.S. 154, 52

ee ee OE os and our canasarcnne cise Kee v 39

Delatour v. Meredit, 144 Fed. 2d 594..............-0000e- 27

Dwyer v. Franklin, 227 Fed. 2d 152 .........c. ces eeeeees 43

Erganian v. Brightman, 13 C.A. 2d 696, 57 Pac. 2d 971.... 51

Federal Land Bank v. Hansen, 113 Fed. 2d 82............ 28, 30

Freeze v. Salot, 122 C.A. 2d 561, 266 Pac. 2d 140.......... 51

Galbraith v. Vallely, 256 U.S. 46, 41 S.Ct. 415, 65 L.Ed. 823 42

Ge ©. re, Te Ge, GD vc cvteivtdasaveecasvevceee 50

Gibson v. Rath, 13 C.A. 2d 40, 55 Pac. 2d 1219............ 47

ee rs cnaen erat cies sade denvues 31

Goodard v. Security Title Insurance and Guarantee Co., 14

Se PE cus accokdesauht acer vetredeecwetvees sextet 50

Harris v. First National Bank, 216 U.S. 382, 30 S.Ct. 296,

SE rent GRradis be anieda tabkiends baes. chen onen « 35

Harris v. Mills Novelty Co., 106 Fed. 2d 976.............. 26

Hoehn v. McIntosh, 110 Fed. 2d 199...............20000e- 28

In re Chicago & E.I.R. Co., 121 Fed. 2d 785, certiorari de-

nied, 314 U.S. 653, 86 L.Ed. 528, 62 S.Ct. 102............ 27

In re Cox-Rackley Co., 245 Fed. 376 .............eeeeeeee 40, 43

TABLE OF AUTHORITIES CITED iii

Pages

In re Federal Photo Engraving Corp., 54 Fed. 2d 628...... 32

In re Joslyn’s Estate, 168 Fed. 2d 803 ................... 43

ee Sa, Be es We 8 ev cides Fikid danse celles vevnee 28

In re Luma Camera Service, 157 Fed. 2d 951.............. 41

rr rr Me ks 64 e's0-4a5 ¢ecnnaen ss ceenen’ 42, 43

In re Winton Shirt Corp., 104 Fed. 2d 777................ 27

Jackson v. Master Holding Corp., 16 Cal. 2d 824, 108 Pace.

DN ccivecnthtd ebehe Wan sexes ve wes 6b oasaeseeden 47

Kaigler v. Gibson, 264 Fed. 240 ............... 0.0.2 ee eee 36

Keidatz v. Albany, 39 Cal. 2d 826, 249 Pac. 2d 264........ 50

Kelso v. Maclaren, 122 Fed. 2d 867..................006. 27

Lake Washington Consolidated Co. v. Wood, 113 Cal. 482,

ca teh Mca cncweneénencedéeuececceanene 46, 49, 50

Lewis v. Security-First National Bank of Los Angeles, 58

ee ee ee WU BP Ri wv cv enndnect ceck es c4a0 orca 47

Lieberman v. Bankcroft, 59 Fed. 2d 202.................. 32

Lovell v. Newman, 227 U.S. 412, 33 S.Ct. 375............ 36

Maggio v. Zeitz, 333 U.S. 56, 68 S.Ct. 401, 82 L.Ed. 476..... 40

Morris Plan Industrial Bank v. Schorn, 135 Fed. 2d 538.... 28

Mortimer v. Loynes, 74 C.A. 2d 160.................0000- 50

Original Mining and Milling Co. v. Casad, 210 Cal. 71...... 50

Pearson v. Higgins, 34 Fed. 2d 27.............ccceeeeeees 30, 32

R. J. Rosen & Sons, Inc., 1380 Fed. 2d 81.................. 28

Re Bush Terminal Co., 105 Fed. 2d 150................4.. 26

Robertson v. Berger, 102 Fed. 2d 530................585. 26

Robinson v. Howard, 5 Cal. 429 .........cscccccesccceee 50

Sacramento Suburban Fruit Lands Co. v. Lindquist, 39 Fed.

2d 900, certiorari denied, 282 U.S. 853, 51 S.Ct. 31, 75

BAU FOE kwh ecee need acdews ce eeedeetusvacuededeudne 46

Seeger v. Odell, 18 Cal. 2d 409, 115 Pac. 2d 977, 136 A.L.R.

BE Rie en pcos eceevs00ce sche accesndavessnttesseens 47

Sides v. Sides, 119 C.A. 2d 349, 259 Pac. 2d 708............ 47

State Trust & Savings Bank v. Dunne, 278 U.S. 582, 73 L.Ed.

nc ces cine She ekeeweenTeveeenneasee 37

iv TABLE OF AUTHORITIES CITED

Pages

Taubel-Scott-Kitzmiller Co. v. Fox, 264 U.S. 426, 68 L.Ed.

oe Fe Se een erro rerrr rT tere Tre 42

Theard v. Fidelity & Deposit Co., 202 Fed. 2d 880.......... 26

Vertex Investment Company v. Schwabacher, 57 C.A. 2d

See SE, EEUU vecenatyedssces ecancdreresee eserves 46

Watkins v. Bryant, 91 Cal. 492, 27 Pac. 775............... 46

Weidhorn v. Levy, 253 U.S. 268, 40 S.Ct. 534.............. 35

West v. Great Western Power Co., 36 C.A. 2d 403, 97 Pae.

Be cocatuvesdkiees ¢0as sedi e cds Cid asaediaesoes 46

Wilmans v. Weissman, 38 C.A. 693, 102 Pac. 2d 382........ 46

Rules

Rules of the Supreme Court of the United States:

ee oe Pe 2 eeccveneds tennant vhuees 564 22

PEED. ccevorecrcnevesvevecedeuane 3

Statutes

Bankruptcy Act:

Section 21(a), 11 U.S.C. Section 44(a) ............... 26, 27

Section 24 as amended in 1938, 11 U.S.C. Sections 47

GE SEE cad canes bas dedh raed dsedennsvesees 4, 23, 25, 31

Cn se ekdbbhebvende tebe annette. anne 37

Section 75, 11 U.S.C. Section 203 ...............0006- 28

Chandler Act, amendment of June 22, 1938 .............. 31

Code of Civil Procedure, Section 338, subdivision 4........ 20

28 U.S.C. Section 1254, subdivision (1) ................-- 2

OE Ut, MD DU bo cencccdctedebedeiecsadevvecdees 21

Texts 7

GS Remington, p. BBS 2... ncccccccecccccccsccccccgewceeses 24

In the Supreme Court

Huited States

OcToBER TERM, 1956

No.

Morris T'RIEBER, :

Petitioner,

vs.

JoHN O. ENGLAND, Trustee in Bank-}

ruptey of the Estate of Gayne Sales

Co., Inec., a corporation, Bankrupt,

Respondent.

PETITION OF MORRIS TRIEBER

FOR A WRIT OF CERTIORARI

to the United States Court of Appeals

for the Ninth Circuit.

The petition of Morris Trieber for a writ of cer-

tiorari to the United States Court of Appeals for the

Ninth Circuit respectfully shows to Your Honors:

(8) REFERENCE TO THE OPINIONS DELIVERED

IN THE COURTS BELOW.

The opinion of the Court of Appeals for the Ninth

Circuit is reported in ........ Fed. 2d ........

The District Court did not file a written opinion.

The order of the District Court dismissing the petition

for review of the order of the referee in bankruptcy

by a judge is set forth at page 52 of the transcript

of record.

(b) A CONCISE STATEMENT OF THE GROUNDS ON WHICH

THE JURISDICTION OF THIS COURT IS INVOKED.

(1) The date of the judgment or decree of the

Court of Appeals sought to be reviewed and the

time of its entry: Sept. 5, 1956.

(ii) The date of the order of the Court of

Appeals respecting a rehearing: Rehearing denied

October 8, 1956.

(iii) The statutory provision believed to con-

fer upon this Court jurisdiction to review the

judgment or decree in question by writ of cer-

tiorari: U. 8S. Code, Title 28, Section 1254, sub-

division (1).

On petition of the respondent, the referee in bank-

ruptey at San Francisco in the Northern District of

California issued an order directed to the petitioner

requiring him to show cause why he should not be

ESI ee

required to pay to the respondent, as trustee of the

estate of the said bankrupt, the sum of $40,000 as

compensatory and punitive damages for alleged fraud

upon the bankrupt corporation.

For answer and return to the said order, the peti-

tioner moved to dismiss the petition and to discharge

the order to show cause for want of jurisdiction. The

referee made what was styled, ‘‘An Order, Judgment

and Decree’’ overruling petitioner’s objection to his

jurisdiction to make the turnover order. Petitioner

petitioned the District Court for a review of the

referee’s order, which petition was denied by the Dis-

trict Court upon the ground that the order was inter-

loeutory and not final. (TR 52.)

Petitioner appealed to the United States Court of

Appeals for the Ninth Circuit, which, on motion of

respondent, dismissed the appeal upon the ground

that the order was interlocutory and that the Court

had no jurisdiction of the appeal. A copy of the

opinion of the Court of Appeals is appended to this

petition pursuant to the provisions of subdivision 1(i)

of Rule 23 of this Court.

These are set forth in detail hereafter in the state-

ment of the case, and are here omitted in the interest

of brevity.

(d) THE STATUTE INVOLVED.

The statute involved in this case is Section 47, Title

11, U. S. Code:

‘Jurisdiction of Appellate Courts:

9a) The United States Courts of Appeals,

in vacation, in chambers, and during their re-

spective terms, as now or as they may be here-

after held, are invested with appellate jurisdiction

from the several courts of bankruptcy in their

respective jurisdictions in proceedings in bank-

ruptey, either interlocutory or final, and in con-

troversies arising in proceedings in bankruptcy

to review, affirm, revise or reverse, both in mat-

ters of law and in matters of fact.’’

(e) STATEMENT OF THE CASE.

Gayne Sales Co., Inc., a Cailfornia corporation,

was adjudicated a bankrupt on August 24, 1954, and

the proceeding was referred to the referee in bank-

ruptey. (TR 2.)

On October 15, 1954, Morris Trieber filed a proof

of claim, setting forth that the bankrupt corporation

was at the time of the filing of its petition and there-

tofore justly indebted to him in the sum of $3,162.24,

itemized as follows:

For salary for services performed for the corpora-

tion pursuant to an oral agreement, $1,600.00; for

money paid by claimant on a note owing by the bank-

rupt, which note claimant had guaranteed and on

which note claimant paid $750.00; for goods, wares

and merchandise sold and delivered to the bankrupt,

$382.65; paid by claimant on behalf of bankrupt on a

judgment rendered against the bankrupt, which judg-

ment this claimant guaranteed, $407.89 ; total $3,141.54.

It was further alleged that no part of the debt or

liability had been paid. On June 20, 1955, the trustee

filed a document entitled ‘‘Trustee’s Objection to the

Allowance of the Claim of Morris Trieber and Peti-

tion for Turnover Order.’’ This pleading, after deny-

ing the indebtedness, sets forth what is denominated :

‘“‘A further, separate and distinct defense to the allow-

ance of said claim, and as grounds for further relief.”’

This contains the following allegations:

“‘That from the inception of the said incorpora-

tion and during all of the times mentioned herein,

the said Morris Trieber was one of the incorpora-

tors of the said corporation, and together with

I. E. Arian, Jerome R. Gayne and Samuel Gayne,

was during all of the times herein referred to, a

director of said corporation, and that the said

Morris Trieber was at all times herein referred

to an officer of said corporation, to wit, the secre-

tary thereof.

“That heretofore and on or about the 8th day

of March, 1951, at a meeting of the Board of

Directors of said corporation, at which all of the

directors aforenamed were present, and at which

meeting the said Morris Trieber was present as

director and as secretary of the said corporation,

the said corporation adopted the following resolu-

tion:

‘* ‘Resolved, that the Secretary of this corpora-

tion, Morris Trieber, shall forthwith make ap-

plication to the Commissioner of Corporations

of the State of California for permission to issue

capital stock of this corporation, as follows:

‘““*To I. E. Arian, for the transfer by him to

this corporation of the business carried on and

conducted by him at 1151 Mission Street, includ-

ing generally U. S. merchandise, new and used

clothing, camping equipment, hunting clothes,

shoes and leggings, and general merchandise of

all kinds, including fixtures and office equipment

and the good will of said company now operated

under the name of U. S. Army Surplus and I. E.

Arian, one hundred (100) shares of the capital

stock of this corporation of the par value of Ten

Thousand Dollars ($10,000.00), and to pay to him

tlie sum of Twenty-five Hundred Dollars ($2500),

which sum has already been paid.

“**To Jerome R. Gayne, one hundred (100)

shares of the capital stock of this corporation

representing Ten Thousand Dollars ($10,000)

par value, for the sum of Ten Thousand Dollars

($10,000) in cash.

‘**To Samuel Gayne, one hundred (100) shares

of the capital stock of this corporation represent-

ing Ten Thousand Dollars ($10,000) par value,

for the transfer to this corporation of merchan-

dise of the fair and reasonable value of $6,708.18,

and the payment in cash of $3,291.82.

*¢ “To Morris Trieber, one hundred (100) shares

of the capital stock of this corporation represent-

ing Ten Thousand Dollars ($10,000) par value,

for the transfer by him to this corporation of

merchandise of the fair and reasonable value of

$8,967.10 and payment in addition thereto of cash

in the sum of $1,032.90.’

ELINA ISON PRG OGRE TTS NOWRA VT CE GELOMELS 1 2B PEE SORBET

‘That said resolution was adopted upon the

reliance of said Board of Directors upon the

representations of the said Morris Trieber at that

said meeting that he, the said Trieber, owned sur-

plus merchandise of the kind and character which

said corporation was organized to sell of the fair

and reasonable market value of $15,675.28; that

he, the said Morris Trieber, was indebted to

Samuel Gayne, one of the directors of the said

corporation, in the sum of $6,708.18; that he, the

said Trieber, and Samuel Gayne had agreed be-

tween themselves that said indebtedness of

Trieber to Gayne was to be paid by the said

Trieber delivering to the said corporation on be-

half of Gayne, merchandise of ‘the reasonable

value of $6,708.18 in partial payment of stock

to be issued to Samuel Gayne by the said corpora-

tion upon approval by the Department of Invest-

ment, Division of Corporations of the State of

California and that he, the said Trieber, would in

consideration of the said Samuel Gayne, I. E.

Arian and Jerome Gayne, subscribing for $10,000

worth of stock to be paid for as follows:

‘By I. E. Arian, by merchandise of the reason-

able value of his $10,000.00 subscription;

‘‘By Jerome Gayne, by the payment of cash

for his $10,000.00 worth of stock;

‘‘By Samuel Gayne, by the payment by Trieber

in his behalf of merchandise of the value of

$6,708.18, and cash in the sum of $3,291.82.

“That he, Trieber, would deliver to said cor-

poration, in payment of his subscription, merchan-

dise of the reasonable value of $8,967.10 and cash

in the sum of $1,032.90.

‘‘That said directors, relying upon said repre-

sentations, and believing the same to be true, did

adopt the resolution aforementioned.

‘‘That thereafter and on or about the 22nd day

of March 1951, in line with said resolution, and

with the full knowledge and consent of the said

Trieber, and believing the representations afore-

mentioned of the said Trieber, and in reliance

thereon, the officers and directors of said corpora-

tion filed an Application for Permit to Sell and

Issue Stock, to wit, one hundred (100) shares

to each of the persons heretofore named, for Ten

Thousand Dollars ($10,000.00), which said stock

was paid for as set forth in said resolution afore-

mentioned.

‘‘That thereafter and on the 28th day of March,

1951, the Commissioner of Corporations, State of

California, issued a permit for the issuance and

the sale of four hundred (400) shares of stock to

the said persons named, for the consideration set

forth in the resolution aforementioned; that said

permit further provided that the stock shall be

issued by the 28th day of September, 1951; that

said permit further required the appointment of

an escrow holder to be approved by the said Com-

missioner, which escrow holder was to hold the

stock issued to the persons aforementioned until

the further order of the said Commissioner of

Corporations; that no further order of the said

Commissioner of Corporations was thereafter

made.

‘‘That thereafter the directors of said corpora-

tion, with the full knowledge and consent of the

said Morris Trieber, and in reliance on the said

representations of the said Trieber, and with the

approval of the Commissioner of Corporations,

named and designated one Joseph A. Brown, an

attorney at law, as said escrow holder; that the

resolution appointing the said Joseph A. Brown

as said escrow holder was adopted at a special

meeting duly and regularly held on the 29th day

of March, 1951, and a certified copy thereof was

duly filed with the Division of Corporations by

the said Morris Trieber as secretary on the 4th

day of April, 1951, and said escrow holder was

approved by the Commissioner of Corporations

on the 6th day of April, 1951.

‘“‘That thereafter the said Morris Trieber, on

or about the 30th day of April, 1951, represented

to the directors and officers of said corporation

that he had delivered to the said corporation

merchandise of the reasonable value of $15,675.28,

being the merchandise hereinabove referred to

and delivered to said corporation in payment of

stock, as follows:

‘*$6708.18 against the stock to be issued to Sam-

uel Gayne;

“$8,967.10, in payment of the stock to be issued

to Morris Trieber.

‘‘That in reliance upon the said representations

of the said Trieber, so made on or about April 30,

1951, and believing the same to be true, the said

corporation, on the said 30th day of April, 1951,

pursuant to the Permit aforementioned, issued

one hundred (100) shares of stock to each of the

following named persons, for which stock said

persons paid, or in the instance of Morris Trieber

and Samuel Gayne, allegedly paid, the considera-

tion therefor:

REAL Se OEE SO HE SE LTE ERE ONL LAE REI SD

“‘T. E. Irian, 100 shares of the par value of

$100.00 each, $10,000.00 paid for by the said I. E.

Arian in merchandise of the reasonable value of

$10,000 ;

‘*Jerome R. Gayne, 100 shares of the par value

of $100.00 each, for $10,000.00 cash;

‘‘Samuel Gayne, 100 shares of the par value

of $100.00 each, in consideration of the alleged

delivery to the said corporation in his behalf of

merchandise of the reasonable value of $6,708.18,

as represented to said corporation by the said

Morris Trieber, was delivered by him to said cor-

poration, and cash in the sum of $3,291.82;

‘‘Morris Trieber, 100 shares of the par value

of $100.00 each, in consideration of the alleged

delivery to said corporation of merchandise of

the reasonable value of $8,967.10, as was repre-

sented by said Trieber, was by him delivered to

said corporation, and cash in the sum of $1,032.90.

“‘That certificates numbered 1, 2, 3 and 4, re-

spectively, were issued to said parties and deliv-

ered to the escrow holder on the 12th day of July,

1951, on behalf of said parties respectively, which

escrow holder in turn issued a receipt to each of

said parties for his said shares, setting forth that

he held said certificates for the said parties, and

filed a copy thereof with the Commissioner of

Corporations of the State of California.

“That thereafter and within three years last

past, the officers and directors of said corporation,

other than the said Trieber, for the first time dis-

covered that the representations of the said

Trieber made to the said corporate officers and

directors as above alleged on or about the 8th

day of March, 1951, were false and untrue and

were known by the said Morris Trieber to be false

and untrue, and discovered that said Trieber did

not own or control any surplus or other property

which was of the value of $15,675.28, or of any

value whatsoever; that but for said false and

untrue representations, said directors would not

have adopted the said resolution so adopted on

said day, nor would they have taken the further

steps hereinabove outlined as having been taken,

before the Division of Corporations of the State

of California; that within the three years last

past, the said officers and directors of said cor-

poration, for the first time, discovered that the

representations of the said Morris Trieber made

to the officers and directors of said corporation

on or about the 30th day of April, 1951, to the

effect that he had delivered to the said corpora-

tion merchandise of the fair and reasonable value

of $15,675.28 in partial payment of the stock as

hereinabove alleged, for which stock was issued

to him and Samuel Gayne, were in each and every

instance false, fraudulent and untrue, and that

the said Morris Trieber did not deliver any mer-

chandise to the said corporation of any value

whatsoever, either in payment of any stock issued

to him, or in payment of the stock issued to the

said Samuel Gayne as aforementioned, and that

the said Morris Trieber falsely, fraudulently and

wilfully misrepresented to the said corporation

the delivery of said merchandise. That the said

officers and directors of the said corporation be-

lieved said representations to be true and relied

thereon, and but for said belief and reliance,

would not have issued the stock hereinabove re-

BST Rs tye ite yu 4s no ace nips 5

I RF ESTERS GRAIL OE LEE RE GLIA ORLES ELLE ISL EE EE

ferred to the said Morris Trieber and/or Samuel

Gayne.

“‘That by reason of the said Morris Trieber’s

false, fraudulent and wilful misrepresentations as

hereinabove set forth, and the reliance thereon

by the said corporation’s directors and officers,

the said corporation and the creditors of said

corporation have been damaged in the sum of

$15,975.28, plus interest at the rate of seven per

cent (7%) per annum on said sum from the 7th

day of April, 1951, to date.

“‘That in doing the things herein alleged, the

said Trieber acted wilfully, maliciously and wan-

tonly and has been guilty of oppression, fraud

and malice and the said Trieber’s acts were in

direct violation of the Rules and Regulations and

Laws applicable to the sale of corporate stock and

the payment therefor, and by reason thereof

caused said corporation embarrassment, caused

said corporation to issue false and fraudulent

statements to creditors and banks, to the further

damage of the said corporation in the sum of

$10,000.00, and by reason of the foregoing, the

said corporation demands exemplary and punitive

damages against the said Morris Trieber in the

sum of $15,000.00.

‘*Wherefore, said Trustee prays that an Order

be made and entered disallowing the claim of the

said Morris Trieber in the sum of $3,162.24, and

the whole thereof, and that no allowance be made

for any sum whatsoever on said claim, and for an

Order disallowing said claim unless and until said

claimant pays to said Trustee the sum of $40,-

675.28, together with interest at legal rate of

$15,675.28 from April 30, 1951, forward, and that

xtansepeseas sith ISVS LAEY TNR AINE LLG LOTTI LTE GLE ELLE IES BPN TES OT ed

said claimant be ordered to pay said sum te the

Trustee herein, together with said Trustee’s costs

incurred herein, and for such further and differ-

ent Order as may be just and proper in the

premises. ”’

On the same day the Referee issued an order that

petitioner appear before him on July 7, 1955, to show

cause ‘‘why the relief prayed for by the trustee in

said objections to the allowance of the claim of

Morris Trieber should not be granted. (TR 19.)

On July 20, 1954, the petitioner filed a document

entitled, ‘‘Answer and return of Morris Trieber to

order to show cause and motion to dismiss petition

of trustee and to discharge order to show cause for

want of jurisdiction.’’ The grounds of motion to

dismiss the order to show cause for want of juris-

diction are thus stated in the said answer and return

(TR 20):

‘That this Honorable Court has not, nor has

your Honor as Referee in bankruptcy of said

Honorable Court any jurisdiction to hear or de-

termine the petition of said Referee which is

annexed to the said order to show cause, or to

make any order thereon or to grant any of the

relief prayed for by the said Trustee; and in

this behalf the said Morris Trieber further shows

to your Honor that this proceeding presents a

ease of a contest between the Trustee in bank-

ruptey and a third person who is not a party

to the bankruptcy proceeding and whose rights,

claims and defense cannot be summarily adjud-

icated by your Honor or by this Honorable Court

a ik ‘ f SER ees Ps a i i

in this proceeding; and that it further appears

that the aforesaid petition of said referee in

bankruptcy is a purported claim against the said

Morris Trieber for damages alleged to have been

made by said Morris Trieber, and that it is

further alleged in Paragraph X of said petition

that the said bankrupt corporation suffered addi-

tional damages in the sum of $10,000; and that

it is further alleged that the said corporation

demands exemplary and punitive damages against

the said Morris Trieber in the sum of $15,000;

and the said Trustee as the party of said petition

prays for an order by your Honor that the said

Morris Trieber pay to said Trustee the sum of

$40,675.28 together with interest at legal rate of

the sum of $15,675.28 from April 30, 1951, for-

ward; that your Honor has no jurisdiction to

make any such order, and that this Honorable

Court has no jurisdiction to make any such order;

that such an order or judgment could be made

only if a trial before a court of competent juris-

diction, and after a verdict of a jury duly em-

paneled and sworn to try the cause, or upon

findings made by the court in such cause, if trial

by jury were waived; and in this behalf the said

Morris Trieber further represents and shows to

your Honor that this Honorable Court would in

any event have no jurisdiction of any action

brought by the said Trustee in bankruptcy to

recover said sum or any other sum of money

claimed to be due from said Morris Trieber to

said bankrupt, by reason of any alleged fraud, or

otherwise, for the reason that there is no diver-

sity of citizenship between the parties, and the

jurisdiction of any such action is in the Court

of the State of California whose jurisdiction

cannot be ousted by any order that your Honor

might make.

‘‘And for Further Answer and Return to the

Said Order to Show Cause and as Further

Ground for the Dismissal and Discharge of the

Same and for Further Ground of Objection to

to the Jurisdiction of this Court to Hear and

Determine Any of the Matters and Things Set

Forth in the aforesaid Petition of the Said

Trustee in Bankruptcy, the said Morris Trieber

Alleged and Shows:

“That all and singular the matters and things

set forth by the said trustee in bankruptcy as

grounds for the order and relief sought herein

by the said trustee, and all and singular the

claims of the said trustee therein set forth cannot

be maintained by said trustee in this proceeding

for the reason that the said trustee is barred and

precluded from maintaining the same by virtue

of a said judgment and order heretofore, to wit,

on the 3rd day of August, 1954, duly given, made

and entered in and by the Superior Court of the

State of California in and for the City and

County of San Francisco, and numbered therein

431,888 in which Gayne Sales Co., Inc., a cor-

poration, the bankrupt in this proceeding, was

plaintiff and the said Morris Trieber was de-

fendant in which a certain second amended com-

plaint for damages for fraud, breach of contract

and money had and received was sustained by

said Superior Court without leave to amend ; that

the said second amended complaint was based

upon the same purported cause of action and

involved in all respects the said matters and

things and all and singular the same claims as

are set forth in the present proceeding by the

said Referee in bankruptcy, all of which form

the said second amended complaint in the action

last aforesaid, a copy of which is hereunto an-

nexed as Exhibit ‘A’ and made a part hereof,

fully and at large appears.

“‘That a copy of the Minute Order sustaining

the said demurrer of the said Morris Trieber to

the said complaint of the said Gayne Sales Co,

Inc., a corporation, without leave to amend is

hereunto annexed and made a part hereof in

like manner and with like effect as if heretofore

set forth in its entirety.

“And in this behalf the said Morris Trieber

further shows to your Honor that thereafter and

on the 11th day of August, 1954, the said Gayne

Sales Co., Inc., appealed from the order of said

Superior Court to the Supreme Court of the

State of California from the order of the said

Superior Court sustaining the demurrer of the

said Morris Trieber to the second amended com-

plaint of Gayne Sales Co., a corporation, the

bankrupt therein, without leave to amend; and

the said Morris Trieber further shows that there-

after, and prior to the first day of December,

1954, the said Supreme Court of the State of

California, in the exercise of the jurisdiction

conferred upon it by the Constitution of the

State of California, duly transferred the said

appeal to the District Court of Appeal of the

State of California in and for the First Appel-

late District, Division Two, and that on the first

day of December, 1954, the said Gayne Sales Co.,

Ine., a corporation, filed in said District Court

of Appeal a certain brief, in which the said

SRP DPR IR AM LIE IRL MN LOIN RR I REE Tic EF

corporation sets forth in substance and effect all

of the matters and things now set forth in the

present proceedings by the said Referee in bank-

ruptey; that thereafter and on the 20th day of

December, 1954, the said Morris Trieber filed in

the said District Court of Appeal, a notice of

motion to dismiss the said appeal of the said

Gayne Sales Co., Inc., from the said order sus-

taining the said demurrer to the second amended

complaint without leave to amend, and filed

therewith a Memorandum of Points and Author-

ities in support of the said motion;

“That thereafter and on the 10th day of Jan-

uary, 1955, the said motion to dismiss the said

appeal from the said order of said Superior

Court, came on regularly to be heard before the

said District Court of Appeal and was argued

by counsel; in consideration whereof it was by

the said District Court of Appeal, ordered,

adjudged and decreed that the said motion be

granted and that the said appeal of the said

Gayne Sales Co., Inc., be dismissed; and that

by reason of all and singular the premises, the

said judgment in the aforesaid action of Gayne

Sales Co., Inc. v. Morris Trieber, is res judicata

as to all and singular the matters before your

Honor and before this Honorable Court in the

instant cause, and the said Gayne Sales Co., Inc.,

and its said trustee in bankruptcy are, and each

of them is, estopped and concluded from seeking

the order prayed for herein and from obtaining

any of the relief sought by them or by either of

them; and your Honor and this Honorable Court

are likewise estopped and precluded from grant-

ing any relief in the premises to the said bank-

rupt or to the said trustee in bankruptcy.

“‘And for Further Answer and Return to the

Said Order to Show Cause Said Morris Trieber

Respectfully Shows to Your Honor:

“That the purported cause of action and each

and every of the said purported causes of action

and any and all matters and things whatsoever

set forth herein by the said Trustee in bank-

ruptcy are barred by the Statute of Limitations

as set forth in Subdivision 4 in Section 338 of

the Code of Civil Procedure of the State of Cali-

fornia.”’

The prayer of the answer and return is that the

order to show cause be dismissed and discharged, that

the trustee take nothing thereby, and that it be held

and considered that the Court has no jurisdiction

of the proceeding. (TR 26.)

Annexed to the answer is a copy of a second

amended complaint filed in the Superior Court of

the State of California, in and for the City and

County of San Francisco, and numbered therein

431,888 and entitled Gayne Sales Co., Inc., a corpora-

tion, v. Morris Trieber. (TR 26 et seq.)

On January 10, 1956, the referee made an order

which, after certain preliminary recitals, reads as

follows:

“Tt hereby is ordered, adjudged and decreed:

‘1. That this bankruptcy court has jurisdic-

tion over said Morris Trieber and said subject

matter;

“9. That the objection to jurisdiction of said

Morris Trieber be, and said objection is, over-

ruled;

“3. That January 30, 1956, be, and said last

mentioned date is, hereby fixed for the hearing

on the merits of the trustee’s said objection

and/or the trustee’s said petition for turn-over

order, and that said hearing, on the merits, be

held on said last mentioned date, commencing

at the hour of 10:00 o’clock a.m. of said last

mentioned day, at Room 609 Grant Building,

1095 Market Street, San Francisco, California,

to be postponed and/or continued from time to

time thereafter as the circumstances shall war-

rant.’’ (TR 43, 44.)

On January 13, 1956, the petitioner filed in the

District Court a petition for review of the said order

of the referee by a judge. (TR 44-45 et seq.) This

petition, after setting forth the order of the referee

in haec verba, assigns seven errors in respect thereto.

The first of these is that neither the Court nor the

referee had any jurisdiction to determine the petition

of the trustee in bankruptcy, for the reason that

the order sought to be reviewed was made in a case

of a contest between the trustee in bankruptcy and

Trieber, who was not a party to the bankruptcy

proceedings, and whose rights, claims and defenses

could not be summarily adjudicated by the referee

or by the Court.

The second error assigned is that the petition of

the referee in bankruptcy sets forth a purported

claim for both compensatory and exemplary damages

against Trieber, and prays for an order that Trieber

pay and turn over to the trustee the sum of $40,675.28,

together with interest at the legal rate in the sum

of $15,675.28 from April 30, 1951 forward.

The third error assigned is that neither the Court

nor the referee has any jurisdiction to make any such

order; ‘‘that such an order or judgment could be

made only upon a trial before a court of competent

jurisdiction, and after verdict of a jury duly impan-

eled and sworn to try the cause, or upon findings

made by the court in such eause, if trial by jury

were waived.”’

The fourth error assigned is that neither the Court

nor the referee would have any jurisdiction over such

an action, for the reason that there is no diversity

of citizenship between the parties, and the jurisdic-

tion of any such action is in the Courts of the State

of California.

The fifth and sixth grounds set forth the judgment

of the state Court in Gayne Sales Co., Inc. v. Trieber,

which Trieber’s return describes in detail, and the

dismissal of the bankrupt corporation’s appeal by the

District Court of Appeal of the State of California,

as res judicata.

The seventh ground sets forth that the purported

cause of action set forth in the petition of the trustee

in bankruptcy against Trieber is barred by the Stat-

ute of Limitations of the State of California, as set

forth in Subdivision 4 of Section 338 of the Cali-

fornia Code of Civil Procedure.

The prayer of the petition is that the order of the

referee be reviewed by one of the judges of the Dis-

SE ANY LE SPR LON LONER DAI RRS 5 IRE REIN T LHOEPIO Mi ryMytnee _—

trict Court, and that the petition of the trustee be

dismissed and the order to show cause discharged.

(TR 46-52.)

On April 11, 1956, the District Court made an

order, which, after certain preliminary recitals, con-

cludes as follows:

‘It appears that the order of the Referee

involved here was interlocutory and not final, and

that therefore this Court should not review the

order. See Collier on Bankruptcy, $3921. Accord-

ingly, the petition for review is hereby dismissed

and the cause is remanded to the Referee for

a hearing on the merits, reserving to the peti-

tioner all his objections to the jurisdiction of the

Referee.’’ (TR 53.)

On April 16, 1956, Trieber appealed to the United

States Court of Appeals for the Ninth Circuit from

the said order of the District Judge. (TR 54.)

Thereafter, on September 5, 1956, the Court of

Appeals granted a motion of respondent to dismiss

the said appeal. Petitioner prays certiorari to review

the said dismissal.

(f) THE FEDERAL JURISDICTION IN THE COURT

OF FIRST INSTANCE.

“The District Courts shall have original juris-

diction, exclusive of the courts of the states, of

all matters and proceeds in bankruptcy.”’

U. S. Code, Title 28, Section 1334.

ee higei :

(g) ARGUMENT OF THE CASE.

The Court of Appeals has rendered a decision in

conflict with the decisions of other Courts of appeals

on the same matter; and has decided an important

question of federal law which has not been, but should

be, settled by this Court; and has decided a federal

question in a way in conflict with applicable decisions

of this Court; and has so far departed from the ac-

cepted and usual course of judicial proceedings, and

has so far sanctioned such a departure by a lower

Court, as to call for an exercise of this Court’s power

of supervision. (Rule 19, Subdivision 1(b).)

SUMMARY OF THE ARGUMENT.

The jurisdiction of the Court of Appeals in bank-

ruptecy matters extends to interlocutory as well as to

final orders, and a review should be had in all eases

where a substantial right is involved. The petitioner

should not be compelled to undergo the delay and

expense of a long hearing before the referee, if the

bankruptcy Court lacks jurisdiction to grant the de-

mand of the trustee for damages, both compensatory

and punitive, in a summary proceeding, thus denying

petitioner the constitutional right to a trial by jury.

The return of the petitioner to the order to show

cause, which is not controverted, shows that the claim

of fraud has already been adjudicated by the state

Court in a controversy between petitioner and the

bankrupt corporation; and shows, moreover, that

since the trustee stands in the position of the bank-

rupt, he is barred by the applicable statute of limita-

tions of the State of California.

THE APPELLATE JURISDICTION OF THE COURT OF APPEALS

IN BANKRUPTCY PROCEEDINGS INCLUDES INTERLOCU-

TORY AS WELL AS FINAL ORDERS.

We discuss this subject at the vutset because we

anticipate a motion by the respondent to dismiss this

appeal upon the ground that the order appealed from

is an interlocutory and not a final order. We shall

proceed to show that, under the plain provisions of

the statute, the jurisdiction of the Court of Appeals

includes interlocutory orders in bankruptcy:

Section 47, Title 11, U.S.C.A. reads as follows:

“Jurisdiction of appellate courts.

‘““(a) The United States courts of appeals, in

vacation, in chambers, and during their respective

terms, as now or as they may be hereafter held,

are invested with appellate jurisdiction from the

several courts of bankruptcy, either interlocutory

or final, and in controversies arising in proceed-

ings in bankruptcy, to review, affirm, revise, or

reverse, both in matters of law and in matters of

fact; Provided, however, that the jurisdiction

upon appeal from a judgment on a verdict

rendered by a jury shall extend to matters of law

only: And provided further, That when any

order, decree, or judgment involves less than $500,

an appeal therefrom may be taken only upon al-

lowance of the appellate court.

i RE RY TPN LRP ELS WEY TES ESE ATPL NES Be Ye LOIN LOS pr SLIT LLIN TEFEN AOR BORE IN TEATS SAIN

‘‘(b) Such appellate jurisdiction shall be ex-

ercised by appeal and in the form and manner

of an appeal.

‘‘(e) The Supreme Court of the United States

is vested with jurisdiction to review judgments,

decrees and orders of the United States courts of

appeals in proceedings under this title in accord-

ance with the provisions of the laws of the United

States now in force or such as may hereafter be

enacted.”’

It would seem that this language is so clear that

he who runs may read; yet its force and effect seems

to have been lost sight of in decisions handed down

since the amendment of 1938, which ignore that the

distinction in the former statute between ‘‘proceed-

ings”’ and “‘controversies’’ no longer exists, and that

interlocutory as well as final orders are appealable,

subject only to the rule that the order must not be

of a purely formal or trivial character; in other words,

the order must be one which affects substantial rights

of the appellant.

Remington (Vol. 8, p. 323), under the heading,

‘‘Appealable Orders; in General,’’ thus states the

situation as it now exists with respect to appeals from

orders in bankruptcy:

‘“‘The original provisions of Sections 24-25 of

the 1898 bankruptcy act were quite at variance

from the present form. It contemplated possible

use of a writ of error or of certiorari, as well as

appeals in equity; were so phrased as to indicate

a distinction between; ‘controversies arising in

bankruptcy’ and ‘bankruptcy proceedings’; and

the only expressly appealable orders were (1) a

judgment adjudging bankruptcy, (2) a judg-

ment granting or giving a discharge, and (3) a

judgment allowing or rejecting a claim of $500

or more. To state that this left things in consider-

able doubt and uncertainty reflects polite restraint

in the use of stronger terms. In certain respects,

some of the older decisions still have value, but

the majority of them, since the 1926 and 1938

amendment of the sections herein involved, are

worthless. It can be said now that appeal lies

from any order, either interlocutory or final,

whether entred in a ‘controversy arising in bank-

ruptcy,’ or in a ‘bankruptcy proceeding,’ by which

the appellant is aggrieved. There is no longer any

doubt about the appealability of the various and

sundry intermediate or interlocutory orders in the

course of bankruptcy administration, provided

they have actual signtficance.’’

The provisions of Section 24 of the Bankruptcy Act,

as amended in 1938, 11 U.S.C. Sec. 47, in respect of

the review by appeal of interlocutory orders in pro-

ceedings in bankruptcy, have been applied or invoked

in the instances hereinafter noted in which the order

in question was expressly characterized by the Court

as such an order or has been deemed to be such al-

though not expressly so characterized, with the results

stated.

In the following instances, in addition to the others

subsequently noted, the order in question has been

held or declared appealable, or an appeal therefrom

has been entertained :

beasts iets ‘

—An order denying a motion by the debtor to dis-

miss an involuntary petition in bankruptcy. (Harris

v. Mills Novelty Co., 106 Fed. 2d 976; Theard v. Fi-

delity & Deposit Co., 202 Fed. 2d 880), or for the re-

organization of a corporate debtor.

—An order in a reorganization proceeding appoint-

ing a person other than a referee as a special master

to take testimony and report as to the fairness and

reasonableness of a proposed compromise offer, the

Court having intimated that if such offer should be

accepted and approved the debtor corporation would

be returned to the stockholders and the proceeding

would be dismissed.

—An order of contempt for failure to produce books

of account relating to the business of the bankrupt.

(Robertson v. Berger, 102 Fed. 2d 530.)

—An order denying the petition of the trustee for

an order directing a witness to answer certain ques-

tions and produce certain memoranda in an examina-

tion under Sec. 21(a) of the Bankruptcy Act, 11

U.S.C. Sec. 44(a) (Re Bush Terminal Co., 105 Fed.

2d 150.)

—An order denying a motion of tax authorities for

the dismissal of a petition of the debtor’s trustee al-

leging that taxes assessed against the debtor were ex-

cessive and praying that the Court hear and determine

the amount and legality of the taxes in question.

(Arkansas Corp. Commission v. Thompson, 116 Fed.

2d 179, reversed on other grounds, 313 U.S. 132, 85

L.Ed. 1244, 61 S.Ct. 888.)

eC meee ae

—An order denying the motion of a creditor to

withdraw a claim previously filed by it in the bank-

ruptcy proceeding. (Kelso v. Maclaren, 122 Fed. 2d

| 867.)

—An order denying the motion of a creditor,

-, against whom a counter claim had been filed by the

trustee, for the dismissal of the counter claim, insofar

as it exceeded the amount of the creditor’s claim, on

the ground that the Court was without jurisdiction of

the creditor by reason of his nonresidence and the lack

of service of process. (Columbia Foundry Co. v.

Lochner, 179 Fed. 2d 630, 14 A.L.R. 2d 1349.)

—An order in a reorganization proceeding refusing

to recognize a state Court judgment obtained against

the debtor on a claim for damages for a personal in-

jury sustained after the institution of the proceeding

as proof of such claim and remanding the claim to the

master for hearing on the merits. (In re Chicago &

E.I.R. Co., 121 Fed. 2d 785, certiorari denied, 314 U.S.

653, 86 L.Ed. 523, 62 S.Ct. 102.)

—An order requiring the referee to furnish to a

creditor a transcript of testimony taken in an ex-

amination under Section 2la of the Bankruptcy Act.

(In re Winton Shirt Corp., 104 Fed. 2d 777.)

—An order in a reorganization proceeding impound-

ing the list of the debtor’s creditors and stockhold-

ers and providing that use of the list for the purpose

of sending communications to security holders should

be permitted only separate applications to the Court

to authorize specific communications. (Delatour v.

Meredit, 144 Fed. 2d 594.)

nina

—An order approving an order of the referee in-

structing the trustee not to pay a sum required to

extend the bankrupt’s leasehold interest in property

occupied by it. (R. J. Rosen & Sons, Inc., 130 Fed.

2d 81.)

—An order in a reorganization proceeding author-

izing the sale by the trustee of certain real property

alleged to belong to the debtor. (Hoehn v. McIntosh,

110 Fed. 2d 199.)

—An order in a proceeding under Section 75 of the

Bankruptcy Act, 11 U.S.C. Sec. 203, denying a motion

of creditors of the debtor for leave to forclose their

mortgages. (Federal Land Bank v. Hansen, 113 Fed.

2d 82.)

—An order denying the bankrupt’s motion to com-

plete the record upon the referee’s refusal to trans-

mit to the Court, on review of his order denying a

discharge, copies of motion before referee to vacate

his findings and documents attached thereto as ex-

hibits. (In re Leigh, 139 Fed. 2d 386.)

—An order affirming the action of the referee in

sustaining the exceptions of the bankrupt to a portion

of a creditor’s specifications of objections to her dis-

charge and overruling others. (Morris Plan Indus-

trial Bank v. Schorn, 135 Fed. 2d 538.)

In the case of In re Leigh, 139 Fed. 2d 386, the

referee in bankruptey made findings indicating that

he would deny the discharge of the bankrupt on the

ground that he had failed to keep proper financial

records. The bankrupt moved to vacate these findings,

SEIS ee SER PEG AORN Ba 14a ? ERE RON —

which motion was denied by the referee. The bankrupt

then filed a timely petition for review of the order,

and the referee refused to transmit to the District

Court either a copy of the motion or copies of certain

Court records which were attached to them. The bank-

rupt moved for a completion of the record in the Dis-

trict Court. This motion was denied and an appeal

was taken to the United States Court of Appeals for

the District of Columbia. At page 387, that Court,

reversing the District Court, uses the following lan-

guage:

‘‘Courts have refused appeals from interlocu-

tory orders in bankruptcy which are trivial in

their effect on the proceedings, but this is not the

ease here. A bankrupt who seeks a review of an

order on a motion is entitled to have the court

consider the motion papers and all the exhibits

as they were presented to the referee, and this

is a substantial right.”

The Court, while holding that the petitioner had

misconceived his remedy in seeking a special appeal

and that it must look to the bankruptcy act for its

jurisdiction, states:

“That act authorized an appeal of right from

all bankruptcy orders, interlocutory as well as

final, except where money alone is involved and

the amount is less than $500.”

The Court proceeds to state, however, that it would

not be in the interest of justice to dismiss a special

appeal merely to have it presented again in different

form, and that it would ‘‘take jurisdiction of this

case on the papers before us as an appeal of right.”

The limitation on the right to appeal from inter-

locutory orders is thus stated in Federal Land Bank

v. Hansen, 113 Fed. 2d 82, by the Circuit Court of

Appeals of the Second Circuit:

‘‘Appeals should be dismissed only when the

court has no jurisdiction to review any aspect

of the action taken below. When the order below

is re-examined, even to the limited extent of de-

termining whether or not the discretion of the

District Court has been abused, the appellate

court exercises its appellate jurisdiction, and

affirmance or reversal would appear to be re-

quired. The present order was an interlocutory

one. Even in bankruptcy, various interlocutory

orders which determine nothing, such as orders

merely of reference for report, are not review-

able and appeals will be accordingly dismissed.

Other interlocutory orders are reviewable for

abuse of discretion alone. Appeals from such

4 orders have occasionally been dismissed, but we

believe it is better practice to affirm if no abuse

of discretion is shown (citing cases).”’

We have emphasized the phrase ‘‘even in bank-

ruptey”’ in the foregoing quotation because it is ob-

vious that the Court recognizes that, in contract with

appeals generally, in which review is limited to final

judgments or decrees, appeals in bankruptcy run

from interlocutory orders. This, of course, is in con-

formity with the plain provisions of the statute as it

now stands.

In the case of Pearson v. Higgins, 34 Fed. 2d 27,

in which the Circuit Court of Appeals of the Ninth

Cireuit held that an order of the District Court

% Se AE SELIM ze ceieiinmeaieiiiessaann

— ;

denying review of a referee’s determination that the

bankruptcy Court had jurisdiction in a summary

proceeding, was not an appealable order, is no longer

the law, in view of the amendments to the sections

of the act relating to appeals.

It is remarkable that, on the Ninth Circuit as late

as 1949, it was held that an interlocutory order in

a ‘‘controversy”’ in bankruptcy, as distinguished from

a ‘“‘proceeding’”’ in bankruptcy was not appealable,

despite the fact that subdivision (a) of Section 47

specifically authorizes appeals both in ‘‘controversies”’

and in ‘‘proceedings.’’ It is quite obvious that the

Court relied upon decisions prior to the amendment

of 1938 and that the drastic and sweeping changes

in the law were not called to the attention of the

Court.

In Goldie v. Carr, 116 Fed. 2d 325, the Court of

Appeals of the Ninth Circuit dismissed an appeal

from an order overruling defendant’s objection to the

jurisdiction of the bankruptcy Court to compel the

appellant to turn over certain corporate shares and

moneys alieged to be held in trust for the debtor’s

estate. The Court says that the order was plainly

interlocutory in character and that no turnover order

had been made. In regard to the amendment of June

22, 1938, embodied in the Chandler Act, the Court

says that Act—the controlling law here—does not

mate an interlocutory order in a controversy in bank-

ruptey appealable. This language directly contradicts

the plain provisions of Section 47(a) itself, which

makes interlocutory orders appealable whether made

Ee ne ee Te

—s

in a controversy in bankruptcy or in a proceeding

in bankruptcy. It is submitted that this language

must have been inadvertently used, and that the

Court, in spite of its reference to the amendment,

relied upon decisions prior to its adoption. This is

clear from the fact that in support of the statement

it cites Pearson v. Higgins, supra; In re Federal

Photo Engraving Corp., 54 Fed. 2d 628, and Lieber-

man v. Bankcroft, 59 Fed, 2d 202, all of which were

decided prior to the effective date of the 1938 amend-

ment.

In Arkansas Corporation Commission v. Thompson,

116 Fed. 2d 179, in which the Commission appealed

from an interlocutory order denying its motion to

dismiss a proceeding brought by the trustee, which

alleged that the property of the railroad had been

assessed in excess of its fair market value, the Circuit

Court of Appeals of the Eighth Circuit says:

‘In limine the trustee has presented that this

court should decline to maintain this appeal be-

cause the order appealed from is a proceeding

in bankruptcy and is manifestly interlocutory

and is not conclusive of the merits of the con-

troversy between the trustee and the Arkansas

tax authorities. But we conclude that the appeal

is authorized by the provisions of Section 24,

subdivisions a, b of the Bankruptcy Act as

amended June 22, 1938, 52 Stat. 854, 855, 11

U.S.C.A. See. 47, Subs. a, b, and decline to dis-

miss it.’’

In Cohen v. Eleven West 42d Street, Inc., 115 Fed.

2d 531, the Cireuit Court of Appeals of the Second

PEDRO LO LYS SEER ah ALE DOLLY GME ALON ERDAS IIE II STEED LEO MERBE NS AL ORIN —

Circuit, reversing an order denying a motion for a

summary judgment, says at page 533:

“‘The appellee suggests that the order, being

: interlocutory, is not appealable. In an action that

would of course be true, for it merely refuses

to dispose of the case without a trial (In re Fink-

elstein, 102 Fed. 2d 688; Jonse v. St. Paul F. &

Ins. Co., 108 Fed. 2d 123, 125). But in bank-

ruptcy, interlocutory orders are in general ap-

pealable. (Robertson v. Berger, 102 Fed. 2d 530;

j In re Winton Shirt Corp., 104 Fed. 2d 777.) And

this was not an example of that class of orders

which are merely incidents in an inquiry pending

in the District Court (In re Hotel Governor Clin-

ton, 107 Fed. 2d 398, 399).”’

In Columbia Foundry Co. v. Lochner, 179 Fed. 2d

630, 14 A.L.R. 2d 1349, the law of appeals from in-

terlocutory orders in bankruptcy is very aptly sum-

marized by Judge Soper of the Fourth Cireuit in the

following language:

“Tt is urged upon us that this appeal should

be dismissed as premature since it relates only to

the jurisdiction of the court to render an affirm-

ative judgment against the creditor and does not

represent a final judgment in which the rights of

the parties are determined. Section 24, sub. a,

11 USCA Sec. 47, sub a, of the Bankruptey Act

provides that the Circuit Courts of Appeals are

invested with appellate jurisdiction from the sev-

eral courts of bankruptcy in their respective

jurisdiction in proceedings in bankruptcy, either

interlocutory or final, and in controversies arising

in proceedings in bankruptcy. Since the appeal

in the instant case is from an interlocutory order,

‘ St oD i

it is premature unless it was entered in a pro-

ceeding in bankruptey. Although the line of

demarcation between proceedings and contro-

versies is uncertain, it is generally accepted that

questions between bankrupt and his creditors,

such as is presented in the instant case, fall into

the category of proceedings in bankruptcy. Mat-

ter of National Finance & Mortgage Corp., 9 Cir.

96 F 2d 74; Broders v. Lage, 8 Cir. 25 F 2d 299;

Morehouse v. Pacific Hardware & Steel Co., 9

Cir. 177 F 337; Collier on Bankruptcy, 14th Ed.,

Vol. 2, Sec. 24.12.

‘*The appeal under Section 24, sub a, from an

interlocutory order involving $500 or more in a

proceeding in bankruptcy is generally one of

right; but the decision limit the appeal to in-

terlocutory orders which have the character of a

formal exercise of judicial power affecting the

asserted rights of a party and an appeal from an

interlocutory order involving the exercise of the

trial court’s discretion is allowed only upon a

showing of an abuse of discretion. See Collier on

Bankruptcy, supra, Sees. 24.11, 24.39. Clearly

due regard for the efficiency and dispatch of bank-

ruptey proceedings requires that the right of ap-

peal from interlocutory orders under Section 24,

sub a, be kept within reasonable bounds.

‘*However, even prior to the enactment of Sec-

tion 24, sub a, an interlocutory order overruling

an objection to jurisdiction had been held ap-

pealable. In re Margolies, 2 Cir. 266 F 203; see

In re Hotel Governor Clinton, Inc., 2 Cir. 107 F

2d 398, 399. It is our view that in consideration

of the importance of the question involved, the

appeal in this case should be entertained, and the

motion to dismiss is therefore denied.”’

II.

NEITHER THE REFEREE NOR THE DISTRICT COURT IN BANK-

RUPTCY HAS ANY JURISDICTION TO MAKE THE ORDER

SOUGHT BY THE TRUSTEE, OR TO HEAR OR DETERMINE

HIS CLAIM FOR DAMAGES OR, MORE PARTICULARLY, TO

MAKE THE ‘‘TURNOVER’’ ORDER PRAYED FOR.

A Court of Bankruptcy Has No Jurisdiction to Try a Contro-

versy Between the Trustee and One Not a Party to the Pro-

ceeding; and Even the District Court May Not, in the Exer-

cise of Its Law or Equity Jurisdiction, Hear and Determine

Such a Suit in the Absence of Diversity of Citizenship.

The law has been well settled for many years by

well-considered decisions of the Supreme Court of

the United States that a referee in bankruptcy, and

the District Court sitting in bankruptcy proceedings,

have no jurisdiction to try title to property claimed

adversely by one not a party to the bankruptcy pro-

ceedings. In other words, such a question of title can-

not summarily tried in the absence of the consent of

the defendant, unless he appears in the Bankruptcy

Court and consents to have his title tried in that man-

ner.

Weidhorn v. Levy, 253 U.S. 268; 40 S.Ct. 534;

Harris v. First National Bank, 216 U.S. 382,

30 S.Ct. 296, 54 L.Ed 528.

The jurisdictional point that we make is not merely

that the referee in bankruptcy has no jurisdiction to

try and determine adverse claims in the bankruptcy

proceeding; But

The Federal Court itself would have no jurisdiction

over a suit (which formerly would have been on the

equity side) brought by the trustee to recover prop-

erty claimed to belong to the bankrupt or over any

suit to recover damages ex contractu or ex delicto

against a third party who denied the claim, in the

absence of a showing of diversity of citizenship.

We may add that the language used in some of the

decisions as to consent is seriously questionable, be-

cause of the universal rule that the party cannot, by

consent, give a Court, as such, jurisdiction in a matter

which is excluded by the laws of the land.

Thus in Kaigler v. Gibson, 264 Fed. 240, it is said

that ‘‘a trustee cannot sue in a Federal Court where

there is no diversity of citizenship and no Federal

question, unless he brings the case within one of the

exceptions.”’

It is also added:

‘*It may be doubted whether the consent of the

defendant mentioned above (referring to a sec-

tion of the Bankruptcy Act) extends further than

to a question of venue, which may be waived. As

a general rule, Federal jurisdiction, properly so-

called, cannot be so conferred. Minnesota v. North-

ern Securities Co., 194 U.S. 43.”

And the Supreme Court in Lovell v. Newman, 227

U.S. 412, 33 S.Ct. 375, says that the consent provided

for in the act ‘‘certainly was not intended to enlarge

the jurisdiction of the Cireuit Court of the United

States so as to give them a jurisdiction which they

would not have because of diverse citizenship and a

requisite amount in controversy, or by reason of a

cause of action arising under the constitutional laws

of the United States.”’

BRATS ES LOT LIOR SSO LEIA LOG AM RONDA TERN TT —

In any event, the entire question of jurisdiction was

set at rest as long ago as January 14, 1929, in a brief

per curiam decision by the Supreme Court of the

United States in State Trust & Savings Bank v.

Dunne, 278 U.S. 582, 73 L.Ed. 518, 49 S.Ct. 184.

To understand that decision it is necessary to

examine the opinion of the Cireuit Court of Appeals

in the same case (24 Fed. 2d 477). A trustee in bank-

ruptey, to use the language of the Cireuit Court of

Appeals for the Fifth Circuit, ‘‘brought suit to re-

cover certain collaterals, alleged title to same to be

in him as trustee, and also avering that they had been

transferred by the bankrupt within four months prior

to the filing of the petition with intent and purpose

on its part to hinder, delay and defraud its creditors

in violation of the provisions of Section 67e of the

Bankrupt Act. In the alternative the bill prayed for

an accounting and for recovery of the value of the

collaterals, less any amount found to be due appel-

lant.”’

The District Court rendered a decree or judgment

in favor of the plaintiff, and this was affirmed by the

Circuit Court of Appeais, which said in part:

“Tt is contended by appellant that the District

Court was without jurisdiction. The allegations

of the bill were sufficient to show a cause of ac-

tion arising under section 67e of the Bankruptcy

Act. We must put aside consideration of the

merits as to that part of the bill, not as being

without substance, but as unnecessary to be de-

cided. The asserted ground of jurisdiction re-

quired the District Court to take jurisdiction

initially and have done so, to decide the equities

of the case.”’

A petition for a writ of certiorari was filed with

the Supreme Court of the United States, and on Jan-

uary 14, 1929, the Court said:

“‘Per curiam: Reversed, for the reason that

there is no Federal jurisdiction over the cause.

(Wood v. A. Wilbert’s Shingle & Lumber Co.,

226 U.S. 384, 57 L.Ed. 264, 33 S.Ct. Rep. 125;

Weidhorn v. Levy, 253 U.S. 268, 64 L.Ed. 898, 40

S.Ct. Rep. 534; Taubel-Scott-Kitzmiller Co. v.

Foz, 264 U.S. 426, 68 L.Ed. 770, 44 S.Ct. Rep.

396.) ”’

ITI.

NEITHER THE REFEREE NOR THE DISTRICT COURT HAD ANY

JURISDICTION TO MAKE THE ‘‘TURN-OVER’’ ORDER

SOUGHT BY THE TRUSTEE.

The effect of this order would not merely mean

that a summary judgment would be rendered against

-'Trieber without a trial, by jury or otherwise, but also

that he would be ordered to pay the entire amount

claimed as damages by the trustee, and that if he re-

fused to do so he could be attached and punished for

contempt of Court, and ordered to stand committed

until he paid to the trustee the entire amount claimed,

both as compensatory and as punitive damages.

This, as we heretofore stated, is indeed something

novel in the law. It harks back to the horrors of the

debtors’ prison and the infamies of the Wardens of

the Fleet, described so vividly by the Ear] of Birken-

head in his work on ‘‘Celebrated Criminal Trials.”’

The vice of the preceding attempt in the case at bar

is clearly pointed out by Justice McReynolds in Daniel

v. Guaranty Trust Co. of New York, 285 U.S. 154, 52

S.Ct. 326, 78 L.Ed. 675:

“In the circumstances, would the referee have

jurisdiction to enter the turnover order against

the Trust Company? The answer must be ‘No’

unless that company, by filing its petition for

reclamation entered its general appearance and

in effect consented to submit itself to summary

proceedings before that officer in respect of mat-

ters having no immediate relationship to the

claim which it had presented.

‘In practice, such a rule might lead to unfor-

tunate complications and deprive owners of prop-

erty of fair opportunity to recover. The risk in-

cident to a general appearance and consent to

adjudication of claims of all kinds might easily

enter where the right to recover is clear. More-

over, the choice would not be between tribunals

merely but between the ordinary process in a

plenary suit and a summary hearing. We are not

cited to any opinion by an appellate court which

definitely approves the view advanced by the peti-

tioner. We cannot conclude that the demand for

speedy administration of the bankrupt estates is

enough to justify such a radical departure from

ordinary procedure. And the suggestion that it

is possible to impose equitable terms as a con-

dition to an order of reclamation is not helpful.”’

It is, indeed, something new to ask a Court to order

a litigant, under the pains and penalties of contempt,

to pay both compensatory and punitive damages to

his adversary.

We again submit that neither the Referee nor the

District Court could make any such order.

‘Jurisdiction in summary proceedings, being

of statutory authority, and based upon necessity

to prevent threatened loss to the rightful owners

of property, or defiant disobedience to the orders

and decrees of courts, should not be enlarged by

construction or implication.”’

In re Cox-Rackley Co., 245 Fed. 376.

We shall proceed to show that the order sought by

the trustee will issue only in cases in which the ad-

verse party is actually in the possession of property

belonging to the bankrupt estate, or where the sum-

mary process is used ‘‘to recover possession of prop-

erty which has been in the Court’s possession and has

i been wrongfully taken away.”’

Chandler v. Perry, 74 Fed. 2d 371.

In Maggio v. Zeitz, 333 U.S. 56, 68 S.Ct. 401, 82

L.Ed. 476, the Supreme Court unanimously reversed

a commitment for contempt of Court for failure to

comply with a ‘‘turnover’’ order which had been af-

firmed by the Circuit Court of Appeals (157 Fed. 2d

951).

At 68 S.Ct. 405, Mr. Justice Jackson, who delivered

the opinion of the majority of the Court, says of a

“‘turnover’’ order:

‘‘But this procedure is one primarily to get a

property rather than to get at a debtor. Without

pushing the analogy too far, it may he said that

the theoretical basis for this remedy is found in

the common law actions to recover possession—

SETA ORI ERE EPL PT TOY

detinue for the unlawful detention of chattels

and replevin for their unlawful taking—as dis-

tinguished from actions in trespass or trover to

recover damages for the withholding or for the

value of the property. Of course the modern

remedy does not follow any of these ancient and

often overlapping procedures, but the object—

possession of specific property—is the same. The

order for possession may extend to proceeds of

property that has been disposed of, if they are

sufficiently identified as such. But it is essentially

a proceeding for restitution rather than indemni-

fication, with some characteristics of a proceed-

ing in rem; the primary condition of relief is

possession of existing chattels or their proceeds

capable of being surrendered by the person

ordered to do so. It is in no sense based on a

eause of action for damages for tortious conduct

such as embezzlement, misappropriations, or im-

provident dissipation of assets.”’

In no other case is the injustice and absurdity of

such proceedings as the one at bar stated more forcibly

than by the Cireuit Court of Appeals of the Second

Circuit in the case of In re Luma Camera Service, 157

Fed. 2d 951:

“We would hold that a turn over proceeding may

not, via a fiction be substituted for a criminal

prosecution so as to deprive a man of a basic con-

stitutional right, the right of trial by jury. We

would note, too, that one consequence of the fiction

is that the respondent may be twice punished for

the same offense, since, if he later is indicted for

violation of 11 U.S.C.A. Section 52, sub b, his

imprisonment for contempt will not serve as a

defense. We would add that nowhere in the Bank-

ruptey Act has Congress even intimated an in-

tention to authorize such results, and that they

stem solely from a judge-made gloss on the

statute.’’ (Emphasis by the Court.)

In Cline v. Kaplan, 323 U.S. 97, 65 S.Ct. 155, 89

L.Ed. 97, it is said at page 155 of 65 S.Ct.:

“If the property is not in the court’s posses-

sion and a third party asserts a bona fide claim

adverse to the receiver or trustee in bankruptcy,

he has the right to have the merits of his claim

adjudicated ‘in suits of the ordinary character,

with the rights and remedies incident thereto.’ ”

In support of this statement, Justice Frankfurter

cites Galbraith v. Vallely, 256 U.S. 46, 41 S.Ct. 415,

65 L.Ed. 823 and Taubel-Scott-Kitzmiller Co. v. Fos,

supra. |

It is further held that:

‘‘Consent (te proceed summarily) is wanting

where the claimant has throughout resisted the

petition for a turn over order and where he has

made formal protest against the exercise of sum-

mary jurisdiction by the bankruptcy court be-

fore that court has made a formal order.

We further call the attention of the Court to the |

very learned and exhaustive opinion of Judge San-

born of the Eighth Circuit in the case of In re Rath

man, 183 Fed. 913, which has often been cited with

approval, it having been said in a later decision that

‘‘Judge Sanborn reviews all of the decisions and dis-

cusses exhaustively the cases in which a summary

proceeding may be resorted to.’’ (In re Cox-Rackley

Co., 245 Fed. 367.)

Space forbids lengthy quotation from the Rathman

ease. It is sufficient to say that he prefaces his dis-

cussion with the statement that the trustee may not

escape ‘‘from the declarations of the Supreme Court

that the jurisdiction of the Bankruptcy Court sum-

marily to determine claims to lien upon and title to

property claimed as that of the bankrupt arises out

of its actual possession of the property (citing cases)

and is exclusive of all other grounds because the

actual possession draws to it the legal custody of the

property (etc.).”’

An outstanding decision which specifically holds

that money or the property of the bankrupt estate,

not in the actual or constructive possession or control

of the trustee, are not subject to the summary juris-

diction of the Bankruptcy Court, and cannot be re-

covered by a “‘turn over’’ order, is In re Joslyn’s

Estate, 168 Fed. 2d 803, in which the Circuit Court of

Appeals for the Seventh Circuit says, at page 806:

‘The law is well established that a Bankruptcy

Court does not have summary jurisdiction over

a turnover proceeding to recover an alleged in-

debtedness due from a third party to the bank-

rupt estate, or on property rights claimed by

an adverse party who is in possession and makes

timely objections to the summary jurisdiction.’’

In Dwyer v. Franklin, 227 Fed. 2d 152, decided Jan-

uary 2, 1956, the Court of Appeals of the Seventh

Circuit, holds (we quote the syllabi in the Pacific

Reporter in lieu of quotation from the decision

itself) :

“1. Though filing a claim in Bankruptey

Court is an implied consent to summary adjudi-

cation by that court of any counter-claims based

upon the subject matter of that claim, it is not

an implied consent to summary adjudication in

Bankruptcy Court of a counterclaim arising out

of subject matter which has no relation to that

claim. Bankr. Act, Paras. 2, sub. a(7), 23, subs.

a, b, 60, 67, 70 and sub. e, 11 U.S.C.A., Paras,

11, sub. a(7) 46, subs. a, b, 96, 107, 110 and

sub. e.

“2. Where former director of bankrupt cor-

poration filed claim for goods sold bankrupt, and

trustees asserted counterclaim based on breach

of claimant’s fiduciary duty as director, bank-

ruptey court did not have jurisdiction to deter-

mine counterclaim in absence of consent of

claimant which could not be implied from filing

of claim. Bankr. Act, Paras. 2, sub. a(7) 23,

subs. a, b, 60, 67, 70 and sub. e, 101-267, 301-399,

11 U.S.C.A. Paras. 11, sub. a(7), 46, subs. a,

b, 96, 107, 110 and sub. e, 501-676, 701-799.

**3. Trustees’ unliquidated claim for damages

against creditor, and creditor’s claim against

bankrupt for goods sold were not ‘mutual debts,’

within provision of Bankruptcy Act authorizing

the setoff of mutual debts. Bankr. Act, Para. 68,

sub. a, 11 U.S.C.A. Para. 108, sub. a.

‘“‘4. The phrase ‘account stated’ in provision

of Bankruptcy Act authorizing the setoff of

mutual debts between a creditor and a bankrupt

means an agreement between the parties to an

account based upon prior transactions between

claienlctltdcgedeel

them, and does not authorize trustee to setoff or

counterclaim an unrelated, unliquidated claim

for damages against creditor’s claim for goods

sold and delivered to bankrupt. Bankr. Act, Sec.

68, sub. a, 11 U.S.C.A. Sec. 108, sub. a.”’

IV.

THE PURPORTED CLAIM FOR AFFIRMATIVE RELIEF BY THE

TRUSTEE IS BARRED BY THE STATUTE OF LIMITATIONS.

The separate defense of the trustee, shows upon

its face that the alleged fraudulent representations al-

leged to have been made by Morris Trieber to the offi-

cers and directors of the bankrupt corporation were

made on April 30, 1951, and that the stock certificates

alleged to have been issued to Trieber and others were

issued on the same day. The trustee’s so-called ‘‘Sep-

arate and Distinct Defense’’, which is in reality in

the nature of a cross-complaint, was not filed until

June 20, 1955, or more than four years after the date

on which the fraud was alleged to have been committed

and consummated.

Thus, the claim of the referee for affirmative relief

is clearly barred by the statute of limitations unless

the party who alleges the fraud has pleaded himself

out of the statute by a proper allegation of nondiscov-

ery. The only attempt made by the referee in that

behalf is in paragraph IX of the Separate Defense

and is as follows:

“That thereafter and within three years last

past, the officers and directors of said corpora-

tion, other than the said Trieber, for the first time

discovered that the representations of the said

Trieber, made to the said corporate officers and

directors as above alleged on or about the 8th day

of March, 1951, were false and untrue and were

untrue, etc.’’

There is no allegation anywhere in this pleading of

the facts and circumstances which led to the discovery,

or why the discovery was not made sooner, or that

the discovery could not have been made within the

statutory period by the exercise of reasonable dili-

gence on the part of the corporation or its officers.

The naked allegation that fraud was not discovered

until within three years prior to the filing of the suit

has been held utterly insufficient in a long line of

California cases.

Watkins v. Bryant, 91 Cal. 492, 27 Pac. 775;

Lake Washington Consolidated Co. v. Wood,

113 Cal. 482, 45 Pac. 809;

Wilmans v. Weissman, 38 C.A. 693, 102 Pace. 2d

382 ;

Vertex Investment Company v. Schwabacher,

57 C.A. 2d 406, 134 Pac. 2d 891;

West v. Great Western Power Co., 36 C.A. %

403, 97 Pac. 2d 1014.

A complaint alleging only that the falsity of repre

sentations was not discovered until a certain date was

insufficient.

Sacramento Suburban Fruit Lands Co. v. Lind

quist, 39 Fed. 2d 900. (Certiorari denied by

the Supreme Court of the United States, 282

U.S. 853, 51 S.Ct. 31, 75 L.Ed. 756.)

known by the said Morris Trieber to be false and

See to the same effect:

Sides v. Sides, 119 C.A. 2d 349, 259 Pac. 2d 708;

Cragge v. White, 113 C.A. 2d 356, 248 Pac. 2d

193 ;

Lewis v. Security-First National Bank of Los

Angeles, 58 C.A. 2d 827, 137 Pac. 2d 864;

Seeger v. Odeli, 18 Cal. 2d 409, 115 Pac. 2d 977,

136 A.L.R. 1291;

Jackson v. Master Holding Corp., 16 Cal. 2d

824, 108 Pac. 2d 673;

Gibson v. Rath, 13 C.A. 2d 40, 55 Pac. 2d 1219.

It would be like carrying coals to Newcastle to cite

further decisions in support of a rule so long and so

well settled. The allegation of the trustee’s claim here-

tofore quoted is wholly insufficient to avoid the bar

of the statute of limitations and, accordingly, the

referee obviously had no jurisdiction to proceed to

hear and determine a claim outlawed upon its face.

THE PROCEEDINGS BY THE TRUSTEE ARE BARRED BY THE

FINAL JUDGMENT OF THE STATE COURT IN AN ACTION

BETWEEN THE BANKRUPT AND TRIEBER WHICH WAS AN

ACTION BETWEEN THE SAME PARTIES FOR THE SAME

CAUSE.

The complaint filed in the action in the state Court

is set forth in haec verba as an exhibit to the return

of Trieber to the order to show cause. (T.R. 26-41.)

The separate defense of the trustee, claiming dam-

ages and demanding the turnover of $40,675.28 to the

trustee appears at pages 9 to 18 of the Transcript.

Let us consider, at the outset, the allegations of

the two pleadings as they stand side by side.

Paragraphs I and II of each set forth the corporate

capacity of the bankrupt corporation, Gayne Sales

Co., Inc. and the fact that it was originally organized

as Arian Gayne and Associates.

Paragraph IIT sets forth the names of the incor-

porators, to wit, I. E. Arian, Jerome R. Gayne and

Samuel Gayne, and states that at all the times re-

ferred to the incorporators were directors of the cor-

poration and that Trieber was also a director.

Paragraph IV of the Trustee’s defense is identical

with Paragraph VI of the Second Amended Com-

plaint. The only distinction between the two docu-

ments at this juncture is in the order in which they

are set forth.

The resolution referred to in paragraph VI of the

Second Amended Complaint is preceded by allegations

as to certain representations alleged to have been

made by Trieber at the meeting at which the resolu-

tion was adopted; whereas, in the trustee’s defense,

the alleged representations are set forth after the

resolution.

To state the matter otherwise—in one pleading it

is set forth that the directors of the corporation

adopted a resolution and that the resolution was

adopted because of alleged representations made by

Trieber; in the other, it is alleged that Trieber made

the representations and that the resolution was adopted

in reliance thereon. They certainly stand not upon

the order of their going.

bs SENG 2 are ai Naa a ors —

Paragraph VI of the trustee’s defense and para-

graph VII of the complaint both recite the filing of

an application for the issuance of 400 shares with the

Commissioner of Corporations and paragraph VII

of the trustee’s defense and paragraph VIII of the

second amended complaint each recite the approval

of the application by the Commissioner.

We may add that paragraph VII of the defense and

paragraph IX of the second amended complaint each

contains allegations that Joseph A. Brown was ap-

pointed escrow holder for all of the stock to be issued

by the corporation and that this appointment was ap-

proved by the Commissioner.

In paragraph VIII of the first and paragraph X

of the second pleading, there are recitals that on or

about the 30th day of April Trieber represented to

the directors and officers of the corporation that he

had delivered to the said corporation merchandise of

a reasonable value of $15,675.28, $6,708.18 against the

stock to be issued to Samuel Gayne, and $8,967.10 in

payment of the stock to be issued to Morris Trieber

and that in reliance upon the said representations the

corporation issued certain shares of stock to the per-

sons therein named. The numbers of these certificates

are set forth in each of the pleadings.

In paragraph IX of the defense and paragraph XI

of the complaint, there are allegations to the effect

that the representations made by Trieber were false,

fraudulent and untrue and there is in the trustee’s

defense the naked allegations, repeatedly held to be

insufficient (see Lady Washington Consolidated Gold

a he

Mining Co. v. Wood, 113 Cal. 482; Galusha v. Fraser,

178 Cal. 653; Original Mining and Milling Co. »,

Casad, 210 Cal. 71; Mortimer v. Loynes, 74 C.A. 24

160, and other decisions heretofore cited), that the

discovery of the falsity of the representations was

made within three years prior to the commencement |

of the action. Then in each case follow allegations of

actual and punitive damages.

How any factual distinction can be drawn between

the allegations of the two pleadings beggars our com-

prehension.

The law is well settled in California that a judg.

ment of dismissal on the sustaining of a demurrer is

res judicata on the identical factual issues. This rule

is stated in the quite recent case of Keidatz v. Albany,

39 Cal. 2d 826, 249 Pac. 2d 264. This has apparently

been the law ever since Robinson v. Howard, 5 Cal.

Heydenfeldt that a judgment upon demurrer is a bar _

to subsequent action ‘‘when it determines the whole

merit of the case,’’ and the opinion proceeds to say:

‘*Here the averment of the answer shows that the

demurrer went to the validity of the contract

which gave rise to the claim, and this averment is

found to be true as alleged, by the judge at nisi

prius, upon inspecting the record of the case.”

The same rules are stated with extensive discussion |

of authorities in Goodard v. Security Title Insurance

and Guarantee Co., 14 Cal. 2d 47, commencing at page

51, in which it is stated that a judgment given after

the sustaining of a general demurrer on a ground of

substance may be deemed a judgment on the merits

and conclusive in a subsequent suit.

In Erganian v. Brightman, 13 C.A.2d 696, 57 Pac.

2d 971, the Court says at page 700:

‘‘A judgment upon an order sustaining a de-

murrer constitutes a trial on the merits when an

issue of law raised by the demurrer is heard and

ruled upon by the court. If leave to amend is

granted, it must be taken advantage of, and if

it is not, a plaintiff finds himself in the same

position as if a demurrer were sustained with-

out leave to amend.”’

In the paragraph preceding this language the Court

says:

‘‘And a judgment upon the sustaining of a de-

murrer to the complaint for failure to state a

cause of action is a bar to a subsequent action

setting up the same facts.’’

In Freeze v. Salot, 122 C.A. 2d. 561, 266 Pac. 2d

140 (hearing denied by the Supreme Court), affirm-

ing a judgment entered on an order sustaining a de-

murrer without leave to amend, the Court said that

in determining the validity of a plea in res judicata

the pertinent question is whether the issue decided

in the prior adjudication was identical with the one

presented in the action in question.

In the recent case of Crowley v. Modern Faucet

Manufacturing Co., 44 Cal. 2d 321, 282 Pac. 2d

33, the Supreme Court affirmed a judgment dismissing

an action upon the ground that a prior judgment

sustaining a demurrer without leave to amend was

res judicata and that the plaintiff ‘‘was in fact

seeking to relitigate the precise issue that was finally

adjudicated against him in the former action,”’ and

thus that ‘‘the trial Court properly exercised its power

to stop vexatious litigation, clearly without merit,

and burdensome to the Courts as well as to defend-

ants.”’

Wherefore, your petitioner prays that a writ of

certiorari issue out of and under the seal of this

Honorable Court directed to the Honorable Judges

of the United States Court of Appeals for the Ninth

Circuit, commanding them to certify and send to this

Court for its review and determination, on a day cer-

tain to be therein named, a full and complete tran-

script of the record of all proceedings in the cause §

therein depending, entitled Morris Trieber, Appellant,

v. John O. England, Trustee in Bankruptcy of the

Estate of Gayne Sales Co., Inc., a corporation, Bank-

rupt, Appellee, and numbered in said United States

Court of Appeals 15,134, that the judgment of said

Court of Appeals may be reviewed by Your Honor

and the judgment aforesaid reversed; and that the

cause aforesaid be remanded to the said Court of

Appeals with direction to do and cause to be done

what of right, and according to the laws and customs

of the United States ought to be done; and that your

petitioner have such other and further judgment,

order or relief as to Your Honors shall seem meet,

just and proper in the premises; and thus your pe-

titioner will ever pray.

Dated, San Francisco, California,

November 1, 1956.

Morris TRIEBER,

Petitioner in Propria Persona.

JosEPH A. Brown,

Of Counsel.

(Appendix Follows.)

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.