Board of Road Com'rs of Monroe County v. Keil , 170 C.C.A. 144 ( 1919 )

DENISON, Circuit Judge

(after stating the facts as above). [1,2] We think it clear that the appeal must be dismissed. There has been no final order from which an appeal could be taken. Nor is any precedent pointed out for entertaining a petition to revise; but, with some hesitation, we conclude that the proceeding is of the character which the statute intends may be reviewed in that form. The petitioner asks instructions that he be directed to commence and prosecute certain litigation. It is objected that the court would have no jurisdiction thereof. The objection is overruled, and, if the order stands, the litigation will be undertaken. It would involve great delay and expense to the parties. Whether there is or is not jurisdiction is a question of law upon the face of the record. It would be most unfortunate to have such litigation prosecuted to the end, only to reach the eventual conclusion that it was all unavailing. We conclude that the order made below, and retaining jurisdiction in order to give such directions to the trustee, is one of those steps in administration which come within the scope of the petition to revise in matter of law provided by Act July 1, 1898, c. 541, § 24b, 30 Stat. 553 (Comp. St. § 9608). Gibbons v. Goldsmith (C. C. A. 9) 222 Fed. 826, 828, 138 C. C. A. 252. The statute contains no express limitation to “proceedings” which are final; but we do not intend to hold that we would entertain such a petition in all cases where there had been merely a preliminary declaration of jurisdiction below. The result which we later reach in this case makes such review now advisable. See In re Chotiner (C. C. A. 3) 218 Fed. 813, 134 C. C. A. 501.

[3] The dispute includes two main subjects, and these are separable, or, at least, are capable of separate treatment. One subject is the right to the possession and use of the equipment. The claim of the board is that it was and is entitled to treat this equipment as the property of the company, pledged to the board by the contracts. It is the claim of the bank and of the company that the equipment is the property of a partnership, distinct from the company, and that the company was using it only by permission of the .owner. However this may be, we must infer from this record that, when the bankruptcy petition was filed, the equipment was in the possession of the company, either as owner or as lessee, and that, on October 20, 1917, all parties, including the board, recognized that the receiver was in actual possession and control, unless and except so far as that control was modified by the injunction which had been issued by the Monroe county chancery court. It is clear that the jurisdiction of the bankruptcy court attached at once to property thus possessed by or for the bankrupt, and in spite of the fact that it was not situated within the district where the bankruptcy proceedings were begun, and that the jurisdiction of other courts, which had not been so exercised as to ripen into an actual holding of the property adverse to the bankrupt, was superseded (Babbitt v. Dutcher, 216 U. S. 102, 109, 30 Sup. Ct. 372, 54 L. Ed. 402, 17 Ann. Cas. 969; Fidelity Co. v. Bray, 225 U. S. 205, 225, 32 Sup. Ct. 620, 56 L. Ed. 1055; In re Martin (C. C. A. 6) 193 Fed. 841, 846, 113 C. C. A. 627; Orinoco Co. v. Metzel (C. C. A. 6) 230 Fed. 40, 46, 148 C. C. A. 338; In re Diamond (C. C. A. 6) 259 Fed. 70, - C. C. A. - (January 7, 1919). It follows that the filing of this bankruptcy petition and the appointment of a receiver, by an order vesting in him the right to the possession of all the property of the bankrupt, and which expressly directed him to take the custody of all the equipment in question which was in use by the bankrupt in connection with its contracts in Monroe county, gave to the bankruptcy court exclusive jurisdiction to determine the right of the board or any other adverse claimant who should seek to obtain possession of the same equipment. It is not necessary to consider the rights of the Toledo bank, which claimed an adverse possession taken before the filing of the bankruptcy petition, because that bank is fully acquiescing in the jurisdiction of the bankruptcy court.

[4] It further appears that, by this order and agreement of October 20, 1917, the board acquired from the receiver and the bankruptcy court that possession and use of the equipment which it could not otherwise have obtained without litigation. It agreed that, when the whole construction was finished, the equipment should be returned by it to the bankruptcy court. It also agreed that, before it should be entitled to receive the equipment, it should deposit a fund in cash as security against loss or damage to the equipment, and that this fund should be subject to the orders of the bankruptcy court. If the board refused to return the equipment after it became legally bound to do so, there would seem to be a loss or damage subject to be assessed by the bankruptcy court under this provision, and this implies both the right and power of that court to determine when the duty to return might exist. If there were doubt about the original jurisdiction on this subject — although we do not mean to imply that there is — it would be removed by the appearance and participation of the board in this agreement and order of October 20. It results that, in so far as the trustee’s petition of August, 1918, sought an order for the return of the equipment or an assessment of damages under the terms of the deposit for security, it presented a matter within the jurisdiction of the. court, and that there was no error in proceeding to consider the merits of such application.

[5] The other subject-matter in dispute is the liability of the board to the company and the trustee under the contracts. The board being a resident of 'Michigan, and the District Court for the Northern District of Ohio not being a court which would have had jurisdiction of an action by the company against the board, and the proposed proceeding not being one to set aside a preference or to recover property fraudulently conveyed, it is clear that the bankruptcy court would have no right to entertain the proposed proceeding against the board, unless the board had lost its right to object. See section 23b, Bankruptcy Act (Comp. St. § 9607). In the arguments here and in the opinion of the trial court such loss or waiver is predicated chiefly upon the order or agreement of October 20, 1917, and the effect of this order in this particular is the vital question.

It is said that an appearance for the purpose of testing jurisdiction over the subject-matter is a waiver of any lack of personal jurisdiction, and that the board, by its appearance at this time before the referee, has subjected itself to this result. It may be assumed that, after an appearance for the purpose of contesting jurisdiction over the subject-matter, just as it is after an appearance to contest the general merits, it. is too late to deny any personal privilege of choice of forum; but the rule does not apply here. Although the paper filed with the referee purported to challenge the jurisdiction of the court on the subject-matter named, this challenge must be interpreted with reference to the facts. The District Court for the Northern District of Ohio could hear and decide such a controversy, if the board were properly served within the district; as a court of bankruptcy, circumstances could arise which would give it jurisdiction; the challenge, therefore, whatever its form, was, in the end, a claim that jurisdiction could not be exercised against the consent of the board, and was accompanied by an express refusal to consent beyond a stated limit. Indeed, whether a quasi municipal corporation could consent to be sued in a foreign state is a question which challenges attention. At least, its consent must be clear. The board did not join in submitting to the court any matter of' the power of the court to hear the question of liability against it under the contract, nor did it ask or receive the opinion of the court thereon. Its substantial attitude as to the matt.er was:

“Prior to the bankruptcy, there was a dispute between the bankrupt and us as to our respective rights under the contract. This dispute has taken form in litigation in Michigan. We cannot be sued and we are unwilling to be sued anywhere else, but, as the bankruptcy court has jurisdiction to direct its receiver to assume and carry on the contract, we will attend before the referee, put the situation before him, and make some concessions to aid him in deciding whether or not to give such instructions, or whether to leave the contract and equipment in our hands for completion by us; but it shall be expressly understood that we do not submit ourselves to the jurisdiction of that court with reference to any claim against us for damages under the contract.”

We do not know of any principle or precedent which would justify treating such a denial of jurisdiction and express refusal to be sued on that cause of action in this court as being, nevertheless, an admission of jurisdiction and a consent to be sued. It goes without saying that there was no intent on the part of the referee in bankruptcy to mislead the board, but for the trustee and the bankruptcy court to accept whatever benefit there was in the agreement in question, and then repudiate the condition upon which that benefit was procured, has the effect of misleading. Language could not be clearer than that employed in the disclaimer. It was expressly provided that, as to the substantial controversy whether anything, and, if so, how much, was owing by the board to the bankrupt, the jurisdiction of the bankruptcy court was denied, “the rights of the parties being the same in this respect as if this order had not been entered”; 'and we find nothing in any other part of the order inconsistent with this reservation.

The trial court was largely influenced in its conclusion by the thought that the board could not be heard to deny the jurisdiction of the court to enforce the very contract which the board had made with the court through its officer. Just how far the court may have personal jurisdiction over a nonresident to enforce a contract made with its receiver or trustee, which contract has been by both parties submitted to the court for approval, we need not decide. We do not find that the rights sought to be enforced and the wrongs sought to be redressed by the receiver (as to liability) had substantial basis in the contract of October, 1917. This contract made no vital change in the existing rights of the parties. There had already been a breach, and the party guilty thereof was liable to the other party in damages. After the effort to have the receiver assume and carry out the contract failed, the parties then made an arrangement, the sole purpose of which was to minimize the damages in the interest of whichever party might eventually be found liable. In place of the legal rules for determining damages under those circumstances, the parties substituted some voluntary arrangements. Indeed, it is doubtful whether they made any very substantial change in the obligations which the law would or might have imposed. Any breach of this later contract is wholly incidental to the underlying breach. We cannot conceive an assessment of damages for violating the contract of October 20 which would not be inextricably confused with the original liability and the original damages. To permit jurisdiction which might rest upon the enforcement of such an incidental contract to neutralize lack of jurisdiction as to the'main underlying question, would be to merge the principal thing in the incidental.

It follows that the bankruptcy court is without jurisdiction to entertain the controversy as to how much is due from one party to the other for damages for breach either of the original contract or of the incidental one of October 20. We do not find this subject and that of the equipment so interdependent that power to hear and decide upon one necessarily includes the other.

■■ The order under review should be set aside, and should be modified as indicated in this opinion. The petitioner will recover costs.