In re Continental Coal Corp. , 151 C.C.A. 189 ( 1916 )

McCALL, District Judge

(after stating the facts as above). [1] Under the petition for revision, the question for decision is: Did the court below err, as a matter of law, in denying the motion by petitioners to stay the involuntary proceedings pending in that court?

If it be true that the principal place of business of the Corporation had been in the Eastern district of Kentucky, for a period of six months next preceding the filing of the involuntary petition, then that court would have exclusive jurisdiction of the case; otherwise, it would not have jurisdiction. The petitioners seek to deprive the court of the Eastern district of Kentucky of the right to determine that jurisdictional fact for itself, and for that purpose they assert and show that, after the involuntary petition had been filed in the federal court in Kentucky, and service had, the Corporation filed a voluntary petition in the federal court at Chattanooga, Tenn., and was adjudicated a bankrupt. This action, it is insisted, ex necessitate adjudicated the principal place of business of the Corporation for six months next preceding the date of the filing of the petition to have been in Tennessee, and, the judgment not having been set aside or appealed from, that question is res adjudicata. This, perhaps, would be true, if the petition in involuntary bankruptcy had not been previously filed in the' federal court in Kentucky. That having been done, and both courts exercising jurisdiction of the case, it becomes necessary to determine the nature and extent of the jurisdiction of the federal court in Kentucky, upon the filing of the involuntary petition. <

In Mueller v. Nugent, 184 U. S. 1, 22 Sup. Ct. 269, 46 L. Ed. 405, Mr. Chief Justice Fuller, speaking for the Supreme Court, said:

“It is as true of the present law as it was of that of 1867 that the filing of the petition is a caveat to all the world, and in effect an attachment and injunction (Bank v. Sherman, 101 U. S. 403 [25 L. Ed. 866]); and on adjudication, title to the bankrupt’s property became vested in the trustee (sections 70, 21e), with actual or constructive possession, and placed in the custody of the bankruptcy court.”

In so far as we are advised, the doctrine of the Nugent Case, supra, has not been materially modified. It is thus clear that the filing of the petition in bankruptcy in the District Court for the Eastern District of Kentucky, and the issuing of process thereon, was an assertion of the jurisdiction of the court over the bankrupt’s estate, ánd gave that court prior jurisdiction over the subject-matter, which jurisdiction was exclusive during the pendency of such proceedings for adjudication. It may be true that the court below did not have actual possession, through its- officers, of the property of the bankrupt estate, but it cannot be denied with reason that the court had such possession of the bankrupt estate, as placed it in custodia legis.

In Acme Harvester Co. v. Beekman Lumber Co., 222 U. S. 307, 32 Sup. Ct. 96, 56 L. Ed. 208, Mr. Justice Day, speaking for the court, said:

“An attachment of the bankrupt’s property after the filing of the petition and before adjudication cannot operate to remove the bankrupt’s estate from the jurisdiction of the bankruptcy court for the purpose of administration under the act of Congress. It is the purpose of the bankruptcy law, * * * to place the property of the bankrupt under the control of the court, where-ever it is found, with a view to its equal distribution among the creditors. The filing of the petition is an assertion of jurisdiction with a view to the determination of the status of the bankrupt and a settlement and distribution of his estate. The exclusive jurisdiction of the bankruptcy court is so far in rem that the estate is regarded as in custodia legis from the filing of the petition. It is true that under section 70a of the act of 1898 thei trustee of the estate, on his appointment and qualification, is vested by operation of law with the title of the bankrupt as of the date he was adjudicated a bankrupt, but there are many provisions of the law which show its purpose to hold the property of the bankrupt intact from the time of the filing of the petition, in order that it may be administered under the law .if an adjudication in bankruptcy shall follow the beginning of the proceedings.”

[2] The title of the trustee in bankruptcy, appointed under the involuntary proceedings so first begun, would be fixed as of the time of filing the petition. Acme Harvester Co. v. Beekman Lumber Co., supra; Everett v. Judson, 228 U. S. 474, 33 Sup. Ct. 568, 57 L. Ed. 927, 46 L. R. A. (N. S.) 154; Bailey v. Baker Co., 239 U. S. 268, 36 Sup. Ct. 50, 60 L. Ed. 275; Toof v. City National Bank (C. C. A. 6) 206 Fed. 250, 251, 124 C. C. A. 118. And therefore the federal court in Kentucky, upon the filing of the involuntary petition, took such possession of the bankrupt’s estate, as placed it in custodia legis, and it had jurisdiction to' retain the case to ascertain the facts, for the purpose of determining its own jurisdiction, that question having been raised by the pleadings. Mr. Justice Moody, in speaking for the court in the case of Murphy v. John Hofman Co., 211 U. S. 562, 29 Sup. Ct. 154, 53 L. Ed. 327, said:

“Where a court of competent jurisdiction has taken property into its possession, through its officers, the property is thereby withdrawn from the jurisdiction of all other courts.”

And again:

' “The jurisdiction in such cases arises out of the possession of the property and is exclusive of the jurisdiction of all other courts, although otherwise the controversy would be cognizable in them.”

In that case, the court had the actual possession of the property, through its officers; but we can sep no valid reason why the same principle should not apply with equal force, where the possession is merely potential. Orinoco Iron Co. v. Metzel (C. C. A. 6) 230 Fed. 40, 44, 144 C. C. A. 338.

If this were a case of concurrent jurisdiction on the part of the federal courts in Kentucky and Tennessee, then the question would be disposed 'of under section 32 of the Bankruptcy Act and General Order No. 6 (89 Fed. v, 32 C. C. A. ix); o'r if the two courts had concurrent jurisdiction, and section 32 and General Order No. 6 did not exist, then it would perhaps be held that the court first acquiring jurisdiction would retain the case for the purpose of adjudging the defendant corporation a bankrupt, and settling and distributing its estate; but here one or the other of these courts has exclusive jurisdiction to entertain this case. The jurisdiction of the federal court in Kentucky first having been asserted on the filifig of the involuntary petition, in the absence of any statute or general order in bankruptcy, we think, both upon principle and authority, that the court in which jurisdiction was first asserted took constructive possession of the property of the bankrupt estate, and should retain the casé for the purpose of determining the question of its own jurisdiction. Lazarus v. Prentice, 234 U. S. 263, 34 Sup. Ct. 851, 58 L. Ed. 1305; Robertson v. Howard, 229 U. S. 254, 33 Sup. Ct. 854, 57 L. Ed. 1174; Acme Harvester Co. v. Beekman Lumber Co., 222 U. S. 300, 32 Sup. Ct. 96, 56 L. Ed. 208; Murphy v. John Hofman Co., 211 U. S. 562, 29 Sup. Ct. 154, 53 L. Ed. 327; Mueller v. Nugent, 184 U. S. 1, 22 Sup. Ct. 269, 46 L. Ed. 405; Bank v. Sherman, 101 U. S. 403, 25 L. Ed. 866. The cases cited and relied on by the attorneys for petitioner, in our opinion, are ^distinguished from the case at bar, and our conclusion is not in conflict with them.

[3] It does not appear that notice of the filing or intention to file the voluntary petition in the federal court in Tennessee was given to the petitioning creditors in the involuntary proceedings pending in the federal court in Kentucky, nor that the pendency of the involuntary proceedings was brought to the attention of the referee in bankruptcy in the Eastern district of Tennessee, who made the adjudication; and ,we assume, therefore, that the adjudication under the voluntary proceedings was had without the referee’s knowledge of the pendency of the involuntary case, or else he would have required such notice, following the holding of this court in International Silver Co. et al., v. New York Jewelry Co. et al., 233 Fed. 945,- C. C. A. -, wherein it was said:

“Notice of the filing of the voluntary petition should have been given to the petitioning creditors, and opportunity thus afforded to determine the course most likely to conserve the interests of the estate.”

This we think the better practice.

The petition to revise must be denied, with costs, and the case remanded for further proceedings.

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