C. Reiss Coal Co. v. Stroik

This action was begun by the C. Reiss Coal Company, plaintiff, on the 13th day of February, 1946, against Raymond Stroik, doing business as Stroik Produce Company, defendant, and Joseph Lorbiecki, garnishee defendant. The defendant Stroik was an operator of a feed mill in connection with which he conducted a small retail business. He purchased coal from the plaintiff, and on September 5, 1945, the plaintiff took judgment against the defendant Stroik for $1,074.53 on account of coal sold and delivered by the plaintiff to the defendant.

On May 18, 1944, Stroik executed a chattel mortgage to secure the payment of $1,300 to the Bank of Rosholt.

On February 6, 1945, Stroik sold his entire business to the garnishee defendant Lorbiecki. In the transaction the real property was valued at $2,500, the machinery, fixtures, equipment, elevator, and truck at $2,500, and the stock of flour, feed, seed, medicines, etc., at $5,736. The entire amount was paid to the Bank of Rosholt which held the mortgages against the real and personal property used by Stroik in his business, which amounted to $6,196.62. Payment was made for the purpose of securing to Lorbiecki an unincumbered title to the business, stock of goods, real estate, and other personal property. No attempt was made to comply with the Bulk Sales Law.

In December, 1945, Stroik was adjudged a bankrupt in bankruptcy court for the Western district of Wisconsin at La Crosse. On February 13, 1946, these garnishment proceedings were begun, the plaintiff claiming that the transfer in violation of the Bulk Sales Law was fraudulent as to creditors. A trustee was appointed in the bankruptcy proceedings on February 18, 1946, and he filed his bond on the same day.

Near the close of the trial the garnishee defendant discovered for the first time that a petition in bankruptcy had been filed. Thereupon, without amending the pleadings, the garnishee defendant claimed that a cause of action, if any existed, on account of the alleged fraudulent transfer was in the trustee in bankruptcy.

The trial court did not pass upon this contention but decided the case upon the merits in favor of the defendant. Judgment was entered accordingly on the 22d day of June, 1946, from which the plaintiff appeals. The plaintiff argues that if the defendant's contention is sound, then the trustee in bankruptcy should have been joined as a plaintiff, that he was not joined, therefore there is a defect of parties plaintiff and the question not having been raised by demurrer or answer, it is waived.

It is well established by the decisions of the United States supreme court that the trustee in bankruptcy gets the title to all property which has been transferred by a bankrupt in fraud of creditors, or which prior to the petition he could by any means have transferred, or which might have been levied upon or sold under judicial process against him. Moore v. Bay (1931), 284 U.S. 4, 52 Sup. Ct. 3, 76 L. Ed. 133. See also 6 Am. Jur., Bankruptcy, p. 596, sec. 150, and cases cited in note 17.

Sec. 70a of the Bankruptcy Act, 11 USCA, sec. 110a, provides that —

"the trustee of the estate of a bankrupt and his successor or successors, if any, upon his or their appointment and qualification, shall in turn be vested by operation of law as of the date of the filing of the petition with the title of the bankrupt to all the property," etc. 4 Collier (14th ed.), Bankruptcy, p. 943, sec.70.04, and cases cited.

"It was generally held that the right conferred by former section 67e to recover property transferred by the bankrupt in fraud of his creditors belonged exclusively to the trustee in bankruptcy, and that the grant of concurrent jurisdiction to bankruptcy and state courts found in the last sentence of that subdivision extended only to suits instituted by the trustee against adverse claimants." 4 Collier (14th ed.), Bankruptcy, p. 406, sec. 67.48, and cases cited in notes 6 and 7. See also Thomas E. Hogan, Inc., v. Berman (1941),310 Mass. 259, 37 N.E.2d 742.

There are exceptions to these rules, none of which apply to the facts in this case. It appears therefore that the exclusive jurisdiction to hear, try, and determine controversies relating to the fraudulent transfer by the bankrupt is in the proper bankruptcy court.

The proceeding in this case is a straight garnishment action in which the plaintiff asks that the proceeds be applied to the liquidation of its claim. Under these facts it would be futile for this court to proceed to consider a case of which neither the trial court nor this court has jurisdiction.

By the Court. — The judgment appealed from is vacated, and cause remanded to the trial court with directions to dismiss the plaintiff's complaint for want of jurisdiction.