« ForrigeFortsett »
sion by said Hiscock as such receiver and as such trustee of certain woolen goods in the piece, sold by said American Woolen Company to said J. M. Mertens & Co., and which goods formed a part of the stock in trade of said J. M. Mertens & Co., and were in the possession of said company, commingled with other goods, at the time of the filing of the petition herein, and at the time of the appointment of such receiver by this court, and at the time he took possession of same as such receiver under and pursuant to the order of this court, and which possession was taken before notice was given any one that the sale thereof by the said American Woolen Company to the said firm of J. M. Mertens & Co. was rescinded. Said goods were sold by said trustee, it is alleged, with the consent of said American Woolen Company, and the proceeds are now in his hands, subject to the order of this court.
Lewis & Crowley, for receiver and trustee.
McGowan & Stolz, for American Woolen Co.
RAY, District Judge (after stating the facts). At some time prior to the commencement of the bankruptcy proceedings herein the American Woolen Company of New York, city of New York, sold on credit and delivered to J. M. Mertens & Co., a firm doing business in the city of Syracuse, N. Y., certain woolen goods in the piece, of the value of several thousand dollars. Said American Woolen Company had been selling goods to said firm for a considerable length of time, and there was an open running account between them, with a balance of several thousand dollars due the woolen company. The petition in involuntary bankruptcy herein was filed on the 20th day of August, 1903, and on the same day Albert K. Hiscock, of Syracuse, N. Y., was, by this court, duly appointed receiver of the alleged bankrupts' estate. Such receiver gave the bond required, and entered on the discharge of his duties by taking possession of all the property of the firm of J. M. Mertens & Co., and by proceeding to complete the manufacture of certain goods previously ordered by customers, and fill such orders; all pursuant to the order and direction of this court. The schedules required by law were duly made and filed. Thereafter, and on the 31st day of August, 1903, McGowan & Stolz, the attorneys for said American Woolen Company of New York, which is a corporation duly incorporated under and pursuant to the laws of the state of New York, served on said receiver a notice and demand, of which the following is a copy (omitting the schedule of goods):
"Take notice that the pretended sales of certain pieces of cloth, more particularly described in the schedule hereto annexed and marked ‘A,' made by us to J. M. Mertens & Co., are rescinded on the ground of fraud perpetrated upon us by said J. M. Mertens & Co. in the purchase thereof, and we hereby demand the possession of such articles from you and of any and all suits, overcoats, and other articles of clothing into which the same may have been manufactured, or are in process of manufacture. And you will also take further notice, that we hereby demand that in case you shall have disposed of, or shall at any time hereafter dispose of, said pieces of cloth or any of them, or any of the suits, overcoats or other garments which may have been manufactured from the same, the proceeds thereof are our property and belong to us, and that you pay the same over to us, and that the said goods were obtained from us by fraud and
deceit, and that to the said property and the proceeds thereof neither you nor the said J. M. Mertens & Co. have any right or color of right.
"Dated, August 31, 1903.
"Yours &c., American Woolen Company of New York.
"To Albert K. Hiscock, Esq.,
"As Receiver of J. M. Mertens & Co.
"To J. M. Mertens & Co."
The receiver did not comply with the demand, acting on the information and belief that such goods were not obtained by fraud, and that the title was in the bankrupt, and also on the theory that in reclamation proceedings the title to such property could and should be determined in this court, the same being in the possession of this court. Thereafter said American Woolen Company of New York applied to this court for leave to commence a replevin action for these goods in the state court. The application was denied. September 16, 1903, said J. M. Mertens & Co., and each of the individuals composing said firm, were duly adjudicated bankrupts by this court. On the 21st day of September, 1903, this court made an order, which was duly served on said McGowan & Stolz, attorneys for said American Woolen Company, restraining all persons, and particularly said company and its attorneys, from bringing any suit in the state court for said stock of goods, or any suit against said receiver regarding said property or estate. Said order was not appealed from, set aside, or vacated. The writ of injunction issued pursuant to such order was not served until after the action now sought to be restrained was commenced. October 6, 1903, said American Woolen Company applied to this court for an order directing the receiver to set aside and hold and not sell these goods in question. That application was denied, and no appeal was taken. Such proceedings were duly had that on the 14th day of October, 1903, said Albert K. Hiscock, then acting as receiver, was duly appointed the trustee in bankruptcy of the estates of said bankrupts. On qualifying as trustee, said Hiscock, as receiver, actually passed over to himself as trustee the said stock of goods, including those in question, which remained unsold and undisposed of, except so far as the bankrupts themselves had disposed of them prior to the filing of the petition in bankruptcy.
On the 4th day of November, 1903, the trustee received a very advantageous offer for the stock of goods-$67,500—and an order was made by Chas. L. Stone, the referee in bankruptcy, to whom this bankruptcy matter had been duly referred, directing a sale of such stock of goods, and same were sold accordingly. McGowan & Stolz, appearing as attorneys for said American Woolen Company, consented to such sale. By these proceedings the goods in question have been converted into cash by the trustee pursuant to the order of the court, and the proceeds are now in the custody of the court in bankruptcy. This order of the court to sell the goods at the price offered-substantially the price at which same were inventoried-was made and entered November 6, 1903, and the goods were immediately delivered to the purchaser. On the very next day, and November 7, 1903, a summons in an action in the Supreme Court of the state of New York was served
on the said Albert K. Hiscock as such receiver and as such trustee, of which the following is a copy:
"State of New York, Supreme Court, County of New York. "American Woolen Company of New York v. Albert K. Hiscock as Receiver in Bankruptcy of J. M. Mertens & Co., and Albert K. Hiscock as Trustee in Bankruptcy of J. M. Mertens & Co.
"To the Above-Named Defendants: You are hereby summoned to answer the complaint in this action, and to serve a copy of your answer on the plaintiff's attorneys within twenty days after the service of this Summons, exclusive of the day of service; and, in case of your failure to appear or answer, judgment will be taken against you by default for the relief demanded in the complaint.
"Trial to be held in the County of New York. "Dated this seventh day of November, 1903,
"McGowan & Stolz, Plaintiff's Attorneys, "Office & P. O. Address, 339 Onondaga County Savings Bank Building, Syracuse, N. Y."
The plaintiff in such action is the same American Woolen Company of New York, before referred to, and the action is brought by the same attorneys hereinbefore named as appearing for such company in such prior proceedings, and who are under a restraining order, as stated. The bankrupts resided and had their place of business at Syracuse, in the Northern District of New York, in which district all of the proceedings in bankruptcy have been had, and where the said trustee resides, and where such property was situated and the proceeds are deposited. The plaintiff resides and has its place of business in the city of New York, in the Southern District of New York, and in said Southern District the venue of said action in the state court is laid.
Immediately after being appointed trustee, said Hiscock duly accounted as receiver, and his accounts were duly passed and settled, and he was directed to pay over all moneys and deliver all property held by himself as receiver to himself as trustee. No objection was made to this order, said American Woolen Company of New York being represented in that proceeding by said McGowan & Stolz as its attorneys. Such order has not been vacated, set aside, or appealed from, and its mandates were fully complied with. Owing to necessary delays, such order was not actually made and entered until after the commencement of such suit in the state court.
On this motion it is denied by the American Woolen Company of New York that McGowan & Stolz represented it when the order to sell the goods was made; but however that fact may be, the court is of opinion that the result is the same. It is conceded by said McGowan & Stolz, who represent the American Woolen Company on this motion, that this action in the state court is brought to recover damages for the alleged conversion by said receiver or trustee, as such, of the goods in question. Before considering the legal aspects of the case, it may be well to summarize the facts.
(1) Prior to the filing of the petition in bankruptcy herein, the American Woolen Company of New York sold and delivered the goods in question to J. M. Mertens & Co. on credit.
(2) On the 20th day of August, 1903, a petition in involuntary bankruptcy was filed in this court against said firm or copartnership of J. M. Mertens & Co.
(3) August 20, 1903, Albert K. Hiscock was duly appointed by this court in bankruptcy and in such pending proceeding the receiver of all the property and estate of said J. M. Mertens & Co., and directed to take possession of and hold the same which he did.
(4) The goods in question were then in the possession of said J. M. Mertens & Co. in their store, commingled with their other goods, and the sale to said company had not been rescinded, and such goods passed into the possession of said officer of this court, duly appointed, and were thenceforth, until sold, in the custody of this court.
(5) On the 31st day of August, 1903, said American Woolen Company of New York gave written notice that it then rescinded the sale of said goods to said J. M. Mertens & Co. on the ground that the contract of sale and the delivery of the goods were procured by fraud, and also demanded the goods, and the proceeds of such as had been sold, and the proceeds of the sale of any thereof thereafter sold by said receiver.
(6) The said receiver did not comply with such demand, or acquiesce in the claims of the woolen company.
(7) The said woolen company then applied to this court in bankruptcy for leave to prosecute an action of replevin for said goods, which motion was denied. Said company also applied to the court for an order directing the said receiver to set apart and hold said goods in question, and not sell same. This application was denied. No appeal was taken from said orders.
(8) Thereafter said Albert K. Hiscock, who was acting as such receiver, was duly appointed trustee in bankruptcy of all the property, etc., of said J. M. Mertens & Co. and of the individual members of said firm, they having been duly adjudicated bankrupts on the 16th day of September, 1903. The possession of said property then passed to the trustee. Subsequently a formal order was made by this court directing the transfer of the possession of such property, including the proceeds of the sale of the property in question.
(9) The said trustee, having received an advantageous offer for the entire stock of goods of said J. M. Mertens & Co., including the goods in question, was authorized and directed by this court to sell such goods. Said order was complied with, and the goods were paid for, and the purchase money deposited in one of the designated depositories to the credit of said trustee, where it now remains.
(10) Said American Woolen Company has not taken any proceeding in this court to determine the title to the goods in question or the title to the proceeds thereof.
(11) The day after such sale was consummated said American Woolen Company commenced an action in the Supreme Court of the state of New York against said Albert K. Hiscock as such receiver and as such trustee to recover damages for the alleged conversion of such goods claimed by said woolen company, the claim being that the sale to J. M. Mertens & Co. was induced and procured by fraud, that same was voidable, and was rescinded, and that title did not pass to J. M. Mertens & Co. and hence did not pass to the receiver or to the trustee, and that by selling such goods even under and pursuant to the order of this court said officer was guilty of a conversion thereof.
In this summary of the facts all reference to the injunction order and the alleged consent of said woolen company to the sale is purposely omitted. The said Albert K. Hiscock has done no act in reference to the property in question or its proceeds not sanctioned, approved, and directed by the bankruptcy court. He took possession of, held, and sold same under and pursuant to the orders and directions of the court having the custody of the property and the control of said Hiscock, its duly appointed officer. Said American Woolen Company, the claimant, and also the plaintiff in said action for conversion, had the right to appeal to this court in reclamation proceedings for the surrender and delivery to it of said property, and still has the right to appeal to this court for the surrender and delivery of the proceeds thereof. Said company takes no such action, or any action, in this court, but sues the officer of this court in the state court and in the Southern District of New York, charging that he was guilty of a conversion of its property when he followed the instructions and obeyed the orders of this court. If the action is maintainable, and cannot be restrained and enjoined by this court, its action in the premises heretofore taken is, in effect, to be reviewed, and, it may be, pronounced null and void, or at least illegal, by one of the courts of the state of New York. These goods had been sold and delivered to J. M. Mertens & Co., and mingled with their stock in their general store in Syracuse. Apparently they were the property of said J. M. Mertens & Co. The sale had not been rescinded. when proceedings in bankruptcy were instituted, when the receiver was appointed by this court, and when possession of the property was taken by this court. This court has at all times asserted its jurisdiction over the property, and its power and right to determine the title thereto and the validity of all adverse claims. It has not granted any order permitting its officer to be sued in any other court, but has steadily denied all such applications. It went further, and made an order restraining and enjoining all actions in the state court that would interfere with this property or its proceeds. Having come into this court on at least two occasions once with a motion for leave to prosecute a replevin action in the state court for this property, and again for an order to have the property in question set aside, and not sold-the American Woolen Company is not in a position to assert that it has not made itself a party to these bankruptcy proceedings. It has twice submitted itself and its claim to this property to the jurisdiction of this court. The Revised Statutes of the United States expressly provide that:
"The writ of injunction shall not be granted by any court of the United States to stay proceedings in any court of a state, except in cases where such injunetion may be authorized by any law relating to proceedings in bankruptcy.” Rev. St. U. S. § 720 [U. S. Comp. St. 1901, p. 581].
The Constitution in express terms confers upon Congress the power to enact uniform laws on the subject of bankruptcies, and in the exercise of this power Congress has conferred on the courts in bankruptcy the power to grant injunctions and appoint receivers and trustees of the estates of bankrupts. The laws of the United States passed pursuant to the Constitution are paramount, and suspend the operation of all