Leroux v. Hudson - 109 U.S. 468 (1883)
U.S. Supreme Court
Leroux v. Hudson, 109 U.S. 468 (1883)
Leroux v. Hudson
Argued November 6-7, 1883
Decided December 10, 1883
109 U.S. 468
1. A marshal of the United States who, under a provisional warrant in bankruptcy, has, after receiving a bond of indemnity under General Order No. 13, in bankruptcy, seized goods as the property of the debtor and been sued for damages for such seizure in an action of trespass in a state
court by a third person who claimed that the goods were his property at the time of the seizure, cannot maintain a suit in equity in a circuit court of the United States for an injunction to restrain the further prosecution of the action of trespass, the parties to the suit in equity being citizens of the same state.
2. Such marshal having delivered the goods seized to the assignee in bankruptcy appointed, after an adjudication of bankruptcy, in the proceeding in which the provisional warrant was issued, and the assignee having sold the goods, under the order of the court in bankruptcy, without giving to the plaintiff in the action of trespass any notice, under § 5063 of the Revised Statutes, of the application for the order of sale or of the sale, and such plaintiff not having brought any action against the assignee to recover the goods or applied to the bankruptcy court for the proceeds of sale, and the assignee not being sued in the action of trespass, he cannot bring a suit in equity in a circuit court of the United States, joining the marshal as plaintiff, against the plaintiff in the action of trespass, to have the title to the goods determined on the allegation that they were transferred to such plaintiff in fraud of the Bankruptcy Act, and for an injunction restraining the prosecution of that action.
Bill in equity to restrain the prosecution of an action in the state courts of Michigan, against the assignee of a bankrupt and the marshal of the Eastern District of Michigan, for entering on the premises of Leroux and removing goods claimed by the assignee to be the property of the bankrupt, and to quiet the title to said goods in the assignee. The material facts were as follows:
On the 14th of March, 1878, proceedings in involuntary bankruptcy were instituted in the District Court of the United States for the Eastern District of Michigan against Samuel Schott and Philip Feibish, composing the firm of Schott & Feibish. On the same day, a warrant was issued by the court to the marshal, under § 5024 of the Revised Statutes, commanding him "to take possession provisionally of all the property and effects of the debtors." The petitioning creditors gave a bond of indemnity to the marshal, under Order No. 13 of the General Orders in Bankruptcy, and required him to seize under the warrant, as the property of the debtors, certain goods in the hands of Joseph P. Leroux and Max Schott, composing the firm of Leroux & Co., then in the store of the latter at Bay City, Bay County, Michigan, which goods the creditors alleged,
had been transferred to J. Leroux & Co. by Samuel Schott and Feibish, in violation of the bankruptcy law. The seizure was made on the 29th of March by the marshal, Salmon S. Matthews, assisted by his deputies, Myron Bunnell and Horace Becker. An adjudication of bankruptcy was made against Samuel Schott and Feibish on the 13th of April. On the 22d of April, J. Leroux & Co. commenced an action of trespass in the Circuit Court for Bay County, Michigan, against Matthews, Bunnell, and Becker, to recover $25,000 damages for the acts of the defendants on the 29th of March, in breaking and entering the store at Bay City and injuring the same and taking therefrom and carrying away goods of the value of $25,000, the property of the plaintiffs, and converting the same to their own use, and preventing the plaintiffs, for three days, from carrying on their lawful business in the store. On the 6th of May, Joseph L. Hudson was appointed assignee in bankruptcy of Samuel Schott and Feibish, and became duly vested with that office. Thereupon the marshal delivered the goods to the assignee, and the latter took possession of them as part of the estate of the bankrupts. The defendants in the trespass suit appeared therein by attorney and demanded a trial and served a notice of defense, setting up the issuing of the provisional warrant, the seizure of the goods thereunder, the fact that they were the goods of Samuel Schott and Feibish, the adjudication in bankruptcy, the appointment of an assignee, and the fact that the goods had been turned over by the marshal to the assignee, and were held by him as a part of the estate of the bankrupts. At a term of the state circuit court in September following, on application of the defendants, the trial of the suit was postponed to the next term on affidavit of the illness and absence of an important witness.
In October, 1878, Hudson (the assignee), Matthews (the marshal), and Bunnell and Becker filed a bill in equity in the Circuit Court of the United States for the Eastern District of Michigan against Leroux and Max Schott, setting forth the substance of the above facts and alleging that the goods had been sold by the assignee under the order of the bankruptcy court; that he was holding the proceeds to be applied as a part
of the estate of the bankrupts, if the title should be found to be in the assignee or he should be entitled to the said assets as assignee, and to distribute the same as part of the estate, and that he had the proceeds in hand awaiting the determination of that question. The bill also alleged that the goods were transferred by the bankrupts, when insolvent, to Leroux and Max Schott with a view to prevent them from coming to the assignee in bankruptcy, and a large part of them within three months before the filing of the petition in bankruptcy, and when Leroux and Max Schott knew that the transfer was made with a view to prevent the goods from going to the assignee, and to prevent them from being distributed under the Bankruptcy Act, to defeat its object, and to injure and delay its operation and evade its provisions; that the transfers of the goods were therefore void, and the title to them became vested in the assignee; that he claimed that by reason of the suit in the state court, he was unable to proceed with the settlement of the estate of the bankrupts; that the funds so received by him for the goods must be kept until the question in reference to their title should be determined, and that the question in regard to the fraud on the Bankruptcy Act, so attempted, could not be litigated and determined in the state court. The bill then set forth various matters intended to show the existence of such fraud, and prayed that Leroux and Max Schott be enjoined from further prosecuting their suit, or any other suit in a state court, for damages in regard to the goods seized by the marshal, and that if they should claim any interest therein they should proceed to establish their claim in the circuit court of the United States or in the district court in bankruptcy. It also prayed that any sale or transfer of the goods from the bankrupts to Leroux and Max Schott be set aside and decreed to be in violation of the Bankruptcy Act, and that the goods be decreed to be a part of the estate of the bankrupts, and that the title of the assignee to the goods, or the funds arising therefrom, be quieted and decreed to be perfected in him. In November following, on notice and after a hearing, the court granted a preliminary injunction in accordance with the prayer of the bill. Each of the defendants demurred
separately to the bill for want of jurisdiction and want of equity. The demurrers were overruled on a hearing. Each of the defendants then answered separately. The answers maintained the right of the defendants to proceed with the suit in the state court and averred that they owned the goods at the time of the seizure and denied the equity of the bill. Proofs were taken in the cause on both sides. At the close of the plaintiffs' proofs, the defendants entered on the record a protest against the jurisdiction of the court, with a statement that by bringing the suit in the state court, they had not sought in any manner to interfere with the goods seized, but had waived the question of interference with the goods. A decree was entered adjudging that the goods were at the time of their seizure a part of the estate of the bankrupts; that the title thereto vested in the assignee; that the sale or transfer of them to the defendants was in violation of the Bankruptcy Act, and be set aside; that the title of the assignee to the goods and their proceeds be quieted and declared to be perfect, and that the defendants be perpetually enjoined according to the prayer of the bill. From this decree the defendants have appealed.