Petitioner, a corporate officer, was an accommodation maker on
notes of the corporation to two banks. After the corporation
suffered a serious fire, its funds and collections were placed in a
trust account under petitioner's control. Petitioner made payments
on the notes from this account within four months of the bankruptcy
of the corporation. Two claims were filed by petitioner in the
bankruptcy proceeding, one for rent due him and one for a payment
on one of the notes from his personal funds. The trustee asserted
that the payments from the trust fund to the banks were voidable
preferences and demanded judgment for the amount of the
preferences. The referee overruled petitioner's objection to his
summary jurisdiction and rendered judgment for the trustee on the
preferences. The District Court sustained the referee, and the
Court of Appeals affirmed the judgment for the amount of the
preferences.
Held: A bankruptcy court has summary jurisdiction to
order the surrender of voidable preferences asserted and proved by
the trustee in response to a claim filed by the creditor who
received the preferences. Pp.
382 U. S.
327-340.
(a) While the Bankruptcy Act does not expressly confer summary
jurisdiction to order claimants to surrender preferences, the scope
of summary proceedings is determined by consideration of the
structure and purpose of the Act as a whole and the particular
provisions of the Act in question. P.
382 U.S. 328.
(b) Summary disposition is one of the means chosen by the
Congress to effectuate its purpose of securing prompt settlement of
bankrupt estates. Pp.
382 U.S.
328-329.
(c) The basically important power granted by § 2a(2) of the Act
to "allow," "disallow" and "reconsider" claims is to be exercised
in summary proceedings and not by the slower and more expensive
process of a plenary suit. Pp.
382
U.S. 329-330.
(d) The trustee's objections under § 57g of the Act, which
forbids allowance of a claim to a creditor who has received
preferences
Page 382 U. S. 324
"void or voidable under this title" without surrender of the
preferences, is part of the allowance process, and is subject to
summary adjudication by a bankruptcy court. Pp.
382 U. S.
330-331.
(e) Section 60 of the Act, which deals with preferences and
their voidability and confers concurrent jurisdiction on state
courts and federal bankruptcy courts to entertain plenary suits to
recover preferences, applies only "where plenary suits are
necessary," and thus contemplates nonplenary recovery proceedings.
P.
382 U. S.
331.
(f) Since summary jurisdiction is available to determine the
issue of preference absent a demand for surrender of the
preference, it is also available to order return of the preference.
This follows because a bankruptcy court, in passing on a trustee's
§ 57g objection, must determine the amount of preference, if any,
so as to ascertain whether the claimant, should he return the
preference, has satisfied the condition imposed by § 57g on
allowance of the claim. Pp.
382 U. S.
333-334.
(g) When a bankruptcy court has dealt with the preference issue
under its equity power, nothing remains for adjudication in a
plenary suit, as the normal rules of
res judicata and
collateral estoppel apply. P.
382 U. S.
334
(h) Although petitioner might be entitled to a jury trial on the
preference issue if he presented no claim in the bankruptcy
proceeding and awaited plenary suit by the trustee, he is not so
entitled when the issue arises as part of the processing of claims
in bankruptcy proceedings, triable in equity. Pp.
382 U. S.
336-337.
(i) The doctrine of
Beacon Theatres v. Westover,
359 U. S. 500, and
Dairy Queen v. Wood, 369 U. S. 469,
that
"where both legal and equitable issues are presented in a single
case, 'only under the most imperative circumstances . . . can the
right to a jury trial of legal issues be lost through prior
determination of equitable claims,'"
is not applicable here where there is a specific statutory
scheme providing for the prompt trial of disputed claims without a
jury. Pp.
382 U. S.
338-340.
336 F.2d 535, affirmed.
Page 382 U. S. 325
MR. JUSTICE WHITE delivered the opinion of the Court.
The disputed issue here is whether a bankruptcy court has
summary jurisdiction to order the surrender of voidable preferences
asserted and proved by the trustee in response to a claim filed by
the creditor who received the preferences. The Court of Appeals
held that the bankruptcy court had such summary jurisdiction. 336
F.2d 535. We affirm.
The corporate bankrupt began business on April 21, 1960, and
borrowed $50,000 from two local banks. Petitioner, then an officer
of the company, was an accommodation maker on the two corporate
notes delivered to the banks. After the corporate bankrupt in this
case suffered a disastrous fire, its funds and collections were
placed in a "trust account" under the sole control of petitioner.
From this account petitioner made two payments on one of the
company notes on which he was an accommodation maker and one
payment on the other. Bankruptcy followed within four months of
these payments. Petitioner filed two claims in the proceeding, one
for rent due him from the bankrupt and one for a payment on one of
the notes made from his personal funds. The trustee responded with
a petition asserting that the payments from the trust fund to the
banks were voidable preferences and demanding judgment for the
amount of the preferences, along with the amount of an unpaid stock
subscription owed to the corporation by petitioner. Petitioner's
objection to the summary jurisdiction of the referee was overruled,
and judgment was rendered for the trustee on both the preferences
and the stock subscription. Petitioner's claims were to be allowed
only when and if the judgment was satisfied. The District Court
sustained the referee. A divided Court of Appeals, sitting en banc,
after reconsidering
Inter-State National Bank of Kansas City v.
Luther, 221 F.2d
Page 382 U. S. 326
382 (C.A.10th Cir. 1955),
cert. dismissed under Rule
60, 350 U.S. 944, adhered to its pronouncements in that case,
affirmed the judgment for the amount of the voidable preferences
but reversed the judgment for the amount of the stock subscription.
The trustee did not seek review here of the adverse decision on the
stock subscription. We granted certiorari on the creditor's
petition because of the diversity of views among the Courts of
Appeals on the issue involved [
Footnote 1] and the importance of the question in the
administration of the bankruptcy laws. 380 U.S. 971.
The crux of the dispute here concerns the mode of procedure for
trying out the preference issue. The bankruptcy
Page 382 U. S. 327
courts are expressly invested by statute with original
jurisdiction to conduct proceedings under the Bankruptcy Act.
[
Footnote 2] These courts are
essentially courts of equity,
Local Loan Co. v. Hunt,
292 U. S. 234,
292 U. S. 240;
Pepper v. Litton, 308 U. S. 295,
308 U. S. 304,
and they characteristically proceed in summary fashion to deal with
the assets of the bankrupt they are administering. The bankruptcy
courts "have summary jurisdiction to adjudicate controversies
relating to property over which they have actual or constructive
possession."
Thompson v. Magnolia Petroleum Co.,
309 U. S. 478,
309 U. S. 481;
Cline v. Kaplan, 323 U. S. 97,
323 U. S. 98-99;
May v. Henderson, 268 U. S. 111,
268 U. S.
115-116;
Taubel-Scott-Kitzmiller Co. v. Fox,
264 U. S. 426,
264 U. S.
432-434. They also deal in a summary way with
"matters of an administrative character, including questions
between the bankrupt and his creditors, which are presented in the
ordinary course of the administration of the bankrupt's
estate."
Taylor v. Voss, 271 U. S. 176,
271 U. S. 181;
United States Fidelity & Guaranty Co. v. Bray,
225 U. S. 205,
225 U. S. 218.
This is elementary bankruptcy law which petitioner does not
dispute.
But petitioner points out that, if a creditor who has received a
preference does not file a claim in the bankruptcy proceeding and
holds the property he received under a substantial adverse claim,
so that the property may not be deemed within the actual or
constructive possession of the bankruptcy court, the trustee may
recover the preference only by a plenary action under § 60 of the
Act, 11 U.S.C. § 96 (1964 ed.),
See
Taubel-Scott-
Page 382 U. S. 328
Kitzmiller Co. v. Fox, 264 U.
S. 426; and, in a plenary action in the federal courts,
the creditor could demand a jury trial,
Schoenthal v. Irving
Trust Co., 287 U. S. 92,
287 U. S. 94-95;
Adams v. Champion, 294 U. S. 231,
294 U. S. 234;
compare Buffum v. Peter Barceloux Co., 289 U.
S. 227,
289 U. S.
235-236. Petitioner contends the situation is the same
when the creditor files a claim and the trustee not only objects to
allowance of the claim, but also demands surrender of the
preference. This is so, petitioner argues, because the Bankruptcy
Act does not confer summary jurisdiction on a bankruptcy court to
order preferences surrendered, and because, if it does,
petitioner's rights under the Seventh Amendment of the Constitution
are violated. We agree with neither contention.
With respect to the statutory question, it must be conceded that
the Bankruptcy Act does not, in express terms, confer summary
jurisdiction to order claimants to surrender preferences. But
Congress has often left the exact scope of summary proceedings in
bankruptcy undefined, and this Court has elsewhere recognized that,
in the absence of congressional definition, this is a matter to be
determined by decisions of this Court after due consideration of
the structure and purpose of the Bankruptcy Act as a whole, as well
as the particular provisions of the Act brought in question.
Taubel-Scott-Kitzmiller Co. v. Fox, 264 U.
S. 426,
264 U. S. 431
and n. 7.
When Congress enacted general revisions of the bankruptcy laws
in 1898 and 1938, it gave "special attention to the subject of
making [the bankruptcy laws] inexpensive in [their]
administration." H.R.Rep. No. 1228, 54th Cong., 1st Sess., p. 2;
H.R.Rep. No. 1409, 75th Cong., 1st Sess., p. 2; S.Rep. No. 1916,
75th Cong., 3d Sess., p. 2. Moreover, this Court has long
recognized that a chief purpose of the bankruptcy laws is "to
secure a prompt and effectual administration and settlement of the
estate of all bankrupts within a limited period,"
Ex
Page 382 U. S. 329
parte Christy, 3 How. 292,
44 U. S. 312,
and that provision for summary disposition, "without regard to
usual modes of trial attended by some necessary delay," is one of
the means chosen by Congress to effectuate that purpose,
Bailey v.
Glover, 21 Wall. 342,
88 U. S. 346.
See generally Wiswall v. Campbell, 93 U. S.
347,
93 U. S.
350-351;
United States Fidelity & Guaranty Co.
v. Bray, 225 U. S. 205,
225 U. S.
218.
It is equally clear that the expressly granted power to "allow,"
"disallow" and "reconsider" claims, Bankruptcy Act, § 2a(2), 11
U.S.C. § 11a(2) (1964 ed.), [
Footnote 3] which is of "basic importance in the
administration of a bankruptcy estate,"
Gardner v. New
Jersey, 329 U. S. 565,
329 U. S. 573,
is to be exercised in summary proceedings, and not by the slower
and more expensive processes of a plenary suit.
United States
Fidelity & Guaranty Co. v. Bray, 225 U.
S. 205,
225 U. S.
218,;
Wiswall v. Campbell, 93 U. S.
347,
93 U. S.
350-351. This power to allow or to disallow claims
includes
"full power to inquire into the validity of any alleged debt or
obligation of the bankrupt upon which a demand or a claim against
the estate is based. This is essential to the performance of the
duties imposed upon it."
Lesser v. Gray, 236 U. S. 70,
236 U. S. 74.
The trustee is enjoined to examine all claims and to present his
objections, Bankruptcy Act, § 47a(8), 11 U.S.C. § 75a(8) (1964
ed.), [
Footnote 4] and "[w]hen
objections are made, [the court] is duty-bound to pass on them,"
Gardner v. New Jersey, 329 U. S. 565,
329 U. S. 573.
"The whole process of proof, allowance, and distribution is,
shortly speaking, an adjudication of interests claimed in a
res,"
id. at
329 U. S. 574,
and thus falls within the principle quoted above that bankruptcy
courts
Page 382 U. S. 330
have summary jurisdiction to adjudicate controversies relating
to property within their possession. Further, the Act itself
directs that
"[o]bjections to claims shall be heard and determined as soon as
the convenience of the court and the best interests of the estates
and the claimants will permit,"
Bankruptcy Act, § 57(f), 11 U.S.C. § 93(f) (1964 ed.), and a
committee report indicates that the provision means that
"[o]bjections shall be heard and determined in a summary way,"
H.R.Rep. No. 1674, 52d Cong., 1st Sess., p. 20.
Section 57 of the Act contains another important congressional
directive around which much of this case turns. Subsection g
forbids the allowance of a claim when the creditor has "received of
acquired preferences . . . void or voidable under this title"
absent a surrender of any preference. Bankruptcy Act, § 57(g), 11
U.S.C. § 93(g) (1964 ed.). [
Footnote 5] Unavoidably, and by the very terms of the Act,
when a bankruptcy trustee presents a § 57(g) objection to a claim,
the claim can neither be allowed nor disallowed until the
preference matter is adjudicated. The objection under § 57(g) is,
like other objections, part and parcel of the allowance process,
and is subject to summary adjudication by a bankruptcy court. This
is the plain import of § 57, and finds support in the same
Page 382 U. S. 331
policy of expedition that underlies the necessity for summary
action in many other proceedings under the Act.
There is no contrary indication in any other provision of the
Act. The provisions of the Acts of 1800 and 1841 which gave the
creditor the right to have his claim tried by a jury were not
repeated in the Acts of 1867 and 1898. [
Footnote 6] Section 19 of the current law, Bankruptcy Act,
§ 19, 11 U.S.C. § 42 (1964 ed.), requires a jury in only limited
situations, and is not helpful to petitioner in this case. It is
true that § 60, dealing with preferences and their voidability,
confers concurrent jurisdiction on state courts and the federal
bankruptcy courts to entertain plenary suits for the recovery of
preferences. But, by its own terms, this provision applies only
"where plenary proceedings are necessary," and hence itself
contemplates non-plenary recovery proceedings. [
Footnote 7]
If anything, the other provisions of the Act support the view
that § 57(g), objections are to be summarily determined. Section
57(k) provides for reconsideration of claims that have previously
been allowed, and § 57(l)
Page 382 U. S. 332
provides that, when a claim has been reconsidered and rejected,
the trustee may recover any dividend previously paid on it,
proceedings for such recovery to be within the summary jurisdiction
of a bankruptcy court. [
Footnote
8] Even under the predecessor to the present section, which did
not expressly provide that the dividend could be summarily
recovered, Bankruptcy Act of 1898, § 57(1), 30 Stat. 561, this
Court held that the referee had jurisdiction to determine whether a
preference has been received and to order return of the dividend.
Pirie v. Chicago Title & Trust Co., 182 U.
S. 438,
182 U. S.
455-456. [
Footnote
9] So
Page 382 U. S. 333
too, proceedings under § 60(b), 11 U.S.C. § 96(d) (1964 ed.),
[
Footnote 10] for
examination of the reasonableness of amounts paid in contemplation
of bankruptcy to an attorney for services to be rendered for the
bankrupt are within the summary jurisdiction of the referee,
although the Act does not expressly so provide.
In re Wood and
Henderson, 210 U. S. 246;
Conrad, Rubin & Lesser v. Pender, 289 U.
S. 472.
So far,, we have been discussing principles applicable to a case
where the trustee presents a § 57(g) objection to a claim but does
not seek the affirmative relief of surrender of the preference. But
once it is established that the issue of preference may be
summarily adjudicated absent an affirmative demand for surrender of
the preference,
Page 382 U. S. 334
it can hardly be doubted that there is also summary jurisdiction
to order the return of the preference. This is so because, in
passing on a § 57(g) objection, a bankruptcy court must necessarily
determine the amount of preference, if any, so as to ascertain
whether the claimant, should he return the preference, has
satisfied the condition imposed by § 57(g) on allowance of the
claim.
Schwartz v. Levine & Malin, Ins., 111 F.2d 81
(C.A.2d Cir. 1940). Thus, once a bankruptcy court has dealt with
the preference issue, nothing remains for adjudication in a plenary
suit. The normal rules of
res judicata and collateral
estoppel apply to the decisions of bankruptcy courts.
Chicot
County Drainage District v. Baxter State Bank, 308 U.
S. 371,
308 U. S.
376-377;
Stoll v. Gottlieb, 305 U.
S. 165. More specifically, a creditor who offers a proof
of claim and demands its allowance is bound by what is judicially
determined,
Wiswall v. Campbell, 93 U. S.
347,
93 U. S. 351;
and if his claim is rejected, its validity may not be relitigated
in another proceeding on the claim.
Sampsell v. Imperial Paper
Corp., 313 U. S. 215,
313 U. S.
218-219;
Lesser v. Gray, 236 U. S.
70,
236 U. S. 75. The
Courts of Appeals have uniformly applied these principles to hold
that a bankruptcy court's resolution of the § 57(g) objection is
res judicata in a subsequent action by the trustee under §
60 to recover the preference.
Schwartz v. Levine & Malin,
Inc., 111 F.2d 81 (C.A.2d Cir. 1940);
Giffin v.
Vought, 175 F.2d 186 (C.A.2d Cir. 1949);
Ullman, Stern
& Krausse v. Coppard, 246 F. 124 (C.A.5th Cir. 1917);
Breit v. Moore, 220 F. 97 (C.A.9th Cir. 1915);
Johnson
v. Wilson, 118 F.2d 557 (C.A.9th Cir. 1941);
see In re J.
R. Palmenberg Sons, 76 F.2d 935 (C.A.2d Cir. 1935),
aff'd
sub nom. Bronx Brass Foundry, Inc. v. Irving Trust Co.,
297 U. S. 230. To
require the trustee to commence a plenary action in such
circumstances would be a meaningless gesture, and it is well within
the equitable powers of the bankruptcy
Page 382 U. S. 335
court to order return of the preference during the summary
proceedings on allowance and disallowance of claims.
Compare In
re Wood and Henderson, 210 U. S. 246,
210 U. S. 256
(determination of reasonableness of attorney's fee would be
res
judicata in suit to recover the excess),
with Conrad,
Rubin & Lesser v. Pender, 289 U.
S. 472 (upholding turnover order). What we said in
Alexander v. Hillman, 296 U. S. 222, in
connection with the jurisdiction of a receivership court to
entertain a counterclaim against a claimant in the receivership
proceeding, is equally applicable here:
"By presenting their claims, respondents subjected themselves to
all the consequences that attach to an appearance. . . ."
"
* * * *"
"Respondents' contention means that, while invoking the court's
jurisdiction to establish their right to participate in the
distribution, they may deny its power to require them to account
for what they misappropriated. In behalf of creditors and
stockholders, the receivers reasonably may insist that, before
taking aught, respondents may by the receivership court be required
to make restitution. That requirement is in harmony with the rule
generally followed by courts of equity that, having jurisdiction of
the parties to controversies brought before them, they will decide
all matters in dispute and decree complete relief."
296 U.S. at
296 U. S.
241-242.
Our examination of the structure and purpose of the Bankruptcy
Act and the provisions dealing with allowance of claims therefore
leads us to conclude, and we so hold, that the Act does confer
summary jurisdiction to compel a claimant to surrender preferences
that under § 57(g) would require disallowance of the claim.
[
Footnote 11] A number
Page 382 U. S. 336
of Courts of Appeals, including the court below, have reached
similar results. [
Footnote
12]
Petitioner contends, however, that this reading of the statute
violates his Seventh Amendment right to a jury trial. But although
petitioner might be entitled to a jury trial on the issue of
preference if he presented no claim in the bankruptcy proceeding
and awaited a federal plenary action by the trustee,
Schoenthal
v. Irving Trust Co., 287 U. S. 92, when
the same issue arises as part of the process of allowance and
disallowance of claims, it is triable in equity. The Bankruptcy
Act, passed pursuant to the power given to Congress by Art. I, § 8,
of the Constitution to establish uniform laws on the subject of
bankruptcy, converts the creditor's legal claim into an equitable
claim to a
pro rata share of the
res. Gardner
v. New Jersey, 329 U. S. 565,
329 U. S.
573-574, a share which can neither be determined nor
allowed until the creditor disgorges the alleged voidable
preference he has already received.
See Alexander v.
Hillman, 296 U. S. 222,
296 U. S. 242.
As bankruptcy courts have summary jurisdiction to adjudicate
controversies relating to property over which they have actual or
constructive possession,
Thompson v. Magnolia Petroleum
Co., 309 U. S. 478,
309 U. S. 481;
Cline v. Kaplan, 323 U. S. 97,
323 U. S. 98-99;
May v. Henderson, 268 U. S. 111,
268 U. S.
115-116; and as the proceedings of bankruptcy courts are
inherently proceedings in equity,
Local Loan Co. v. Hunt,
292 U. S. 234,
292 U. S. 240;
Pepper v. Litton, 308 U. S. 295,
308 U. S.
304;
Page 382 U. S. 337
there is no Seventh Amendment right to a jury trial for
determination of objections to claims, including § 57(g)
objections. As this Court has previously said in answering the
argument that disputed claims must be tried before a jury:
"But those who use this argument lose sight of the fundamental
principle that the right of trial by jury, considered as an
absolute right, does not extend to cases of equity jurisdiction. If
it be conceded or clearly shown that a case belongs to this class,
the trial of questions involved in it belongs to the court itself,
no matter what may be its importance or complexity."
"
* * * *"
"So, in cases of bankruptcy, many incidental questions arise in
the course of administering the bankrupt estate which would
ordinarily be pure cases at law, and, in respect of their facts,
triable by jury, but, as belonging to the bankruptcy proceedings,
they become cases over which the bankruptcy court, which acts as a
court of equity, exercises exclusive control. Thus, a claim of debt
or damages against the bankrupt is investigated by chancery
methods."
Barton v. Barbour, 104 U. S. 126,
104 U. S.
133-134. This has been the characteristic view of the
courts.
Carter v. Lechty, 72 F.2d 320 (C.A.8th Cir. 1934);
In re Michigan Brewing Co., 24 F.
Supp. 430 (W.D.Mich.1938),
aff'd, Conlon v. Michigan
Brewing Co., 101 F.2d 1007 (C.A.6th Cir. 1939);
In re
Rude, 101 F. 805 (D.C.D.Ky.1900);
In re Christensen,
101 F. 243 (D.C.N.D.Iowa 1900).
See also In re Wood and
Henderson, 210 U. S. 246,
210 U. S. 258;
Pirie v. Chicago Title & Trust Co., 182 U.
S. 438,
182 U. S.
455-456.
And, of course, it makes no difference, so far as petitioner's
Seventh Amendment claim is concerned, whether the bankruptcy
trustee urges only a § 57(g) objection
Page 382 U. S. 338
or also seeks affirmative relief. In practical effect, the
denial of a jury trial would be no less were the bankruptcy court
merely to determine the existence and amount of the preference,
since that determination would be entitled to
res judicata
effect in any subsequent plenary action. And we have held that
equity courts have power to decree complete relief, and, for that
purpose, may accord what would otherwise be legal remedies.
See
Mitchell v. Robert DeMario Jewelry, Inc., 361 U.
S. 288,
361 U. S.
291-292;
Porter v. Warner Co., 328 U.
S. 395,
328 U. S.
398-399;
Alexander v. Hillman, 296 U.
S. 222;
McGowan v. Parish, 237 U.
S. 285,
237 U. S.
296.
Petitioner's final reliance is on the doctrine of
Beacon
Theatres, Inc. v. Westover, 359 U. S. 500, and
Dairy Queen, Inc. v. Wood, 369 U.
S. 469, that,
"where both legal and equitable issues are presented in a single
case, 'only under the most imperative circumstances, circumstances
which, in view of the flexible procedures of the Federal Rules, we
cannot now anticipate, can the right to a jury trial of legal
issues be lost through prior determination of equitable
claims."
369 U.S. at
369 U. S.
472-473.
The argument here is that the same issues -- whether the
creditor has received a preference, and, if so, its amount -- may
be presented either as equitable issues in the bankruptcy court or
as legal issues in a plenary suit, and that the bankruptcy court
should stay its own proceedings and direct the bankruptcy trustee
to commence a plenary suit so as to preserve petitioner's right to
a jury trial. Unquestionably, the bankruptcy court would have power
to give such an instruction to the trustee,
Thompson v.
Magnolia Petroleum Co., 309 U. S. 478,
309 U. S.
483-484;
see Bankruptcy Act, § 2a(7), 11 U.S.C.
§ 11a(7) (1964 ed.), and some lower courts have required such a
procedure,
B. F. Avery & Sons Co. v. Davis, 192 F.2d
255 (C.A.5th Cir. 1951),
cert. denied, 342 U.S. 945;
Page 382 U. S. 339
Triangle Electric Co. v. Foutch, 40 F.2d 353, (C.A.8th
Cir. 1930);
see Katchen v. Landy, 336 F.2d 535, 543
(C.A.10th Cir. 1964) (Phillips, J., dissenting in part).
Nevertheless, we think this argument must be rejected.
At the outset, we note that the
Dairy Queen doctrine,
if applicable at all, is applicable whether or not the trustee
seeks affirmative relief. For, as we have said, determination of
the preference issues in the equitable proceeding would in any case
render unnecessary a trial in the plenary action, because of the
res judicata effect to which that determination would be
entitled. Thus, petitioner's argument would require that, in every
case where a § 57(g) objection is interposed and a jury trial is
demanded, the proceedings on allowance of claims must be suspended
and a plenary suit initiated, with all the delay and expense that
course would entail. Such a result is not consistent with the
equitable purposes of the Bankruptcy Act, nor with the rule of
Beacon Theatres and
Dairy Queen, which is itself
an equitable doctrine,
Beacon Theatres v. Westover, 359
U.S. at
359 U. S.
509-510. In neither
Beacon Theatres nor
Dairy Queen was there involved a specific statutory scheme
contemplating the prompt trial of a disputed claim without the
intervention of a jury. We think Congress intended the trustee's §
57(g) objection to be summarily determined; and to say that,
because the trustee could bring an independent suit against the
creditor to recover his voidable preference, he is not entitled to
have his statutory objection to the claim tried in the bankruptcy
court in the normal manner is to dismember a scheme which Congress
has prescribed.
See Alexander v. Hillman, 296 U.
S. 222,
296 U. S. 243.
Both
Beacon Theatres and
Dairy Queen recognize
that there might be situations in which the Court could proceed to
resolve the equitable claim first even though the results might be
dispositive of the issues involved in
Page 382 U. S. 340
the legal claim. To implement congressional intent, we think it
essential to hold that the bankruptcy court may summarily
adjudicate the § 57(g) objection; and, as we have held above, the
power to adjudicate the objection carries with it the power to
order surrender of the preference.
Affirmed.
MR. JUSTICE BLACK and MR. JUSTICE DOUGLAS dissent for the
reasons stated in the dissenting opinion of Judge Phillips in the
Court of Appeals.
[
Footnote 1]
B. F. Avery & Sons Co. v. Davis, 192 F.2d 255
(C.A.5th Cir. 1951),
cert. denied, 342 U.S. 945, held the
referee did not have summary jurisdiction to entertain the
trustee's demand for surrender of the preference. In
Avery, the preference arose out of a different transaction
than the creditor's claim, and a subsequent decision of the Fifth
Circuit notes that, although that fact was not the articulated
basis of the
Avery decision, it may not preclude summary
jurisdiction to order return of a preference received in the same
transaction.
Gill v. Phillips, 337 F.2d 258 (1964),
opinion on denial of rehearing, 340 F.2d 318 (C.A.5th Cir.
1965). The Fifth Circuit rule is thus uncertain, but
Avery
at least prevents summary recovery of unrelated preferences.
Several Courts of Appeals have upheld the summary jurisdiction of
the referee over counterclaims arising out of the same transaction
as the creditor's claim, but have stated that such jurisdiction
does not extend to permissive counterclaims arising out of distinct
transactions.
See In re Solar Mfg. Corp., 200 F.2d 327
(C.A.3d Cir. 1952),
cert. denied sub nom. Marine Midland Trust
Co. of New York v. McGirl, 345 U.S. 940;
In re Majestic
Radio & Television Corp., 227 F.2d 152 (C.A.7th Cir.
1955),
cert. denied sub nom. Dwyer v. Franklin, 350 U.S.
995;
Peters v. Lines, 275 F.2d 919 (C.A.9th Cir. 1960).
The decision presently under review upholds summary jurisdiction to
order return of a preference whether or not the preference relates
to the same transaction as the claim but declines to extend such
jurisdiction to unrelated counterclaims not involving a preference,
set-off, voidable lien, or a fraudulent transfer. 336 F.2d at
537.
[
Footnote 2]
Bankruptcy Act, § 2, sub. a, 11 U.S.C. § 11, sub. a (1964 ed.),
provides:
"(a) The courts of the United States hereinbefore defined as
courts of bankruptcy are hereby created courts of bankruptcy and
are invested, within their respective territorial limits as now
established or as they may be hereafter changed, with such
jurisdiction at law and in equity as will enable them to exercise
original jurisdiction in proceedings under this title. . . ."
[
Footnote 3]
11 U.S.C. § 11, sub. a(2) confers power to:
"(2) Allow claims, disallow claims, reconsider allowed or
disallowed claims, and allow or disallow them against bankrupt
estates."
[
Footnote 4]
11 U.S.C. § 75, sub. a(8) provides that trustees shall:
"(8) examine all proofs of claim and object to the allowance of
such claims as may be improper."
[
Footnote 5]
11 U.S.C. § 93, sub. g provides:
"(g) The claims of creditors who have received or acquired
preferences, liens, conveyances, transfers, assignments or
encumbrances, void or voidable under this title, shall not be
allowed unless such creditors shall surrender such preferences,
liens, conveyances, transfers, assignments, or encumbrances."
The language of this section, it will be observed, is concerned
with
creditors, rather than
claims, and thus
contemplates that allowance of a claim may be conditioned on
surrender of preferences received with respect to transactions
unrelated to the claims. The exact reach of § 57, sub. g is not
entirely settled,
see 3 Collier on Bankruptcy, 57.19(3.2)
(14th ed. 1964), and that question is not involved here.
[
Footnote 6]
The history of the early jury trial provisions is traced in
In re United Button Co., 140 F. 495 (D.C.D.Del.),
aff'd sub nom. Brown & Adams v. United Button Co., 149
F. 48 (C.A.3d Cir. 1906).
[
Footnote 7]
Bankruptcy Act § 60(b), 11 U.S.C. § 96(b) (1964 ed.),
provides:
"(b) Any such preference may be avoided by the trustee if the
creditor receiving it or to be benefited thereby or his agent
acting with reference thereto has at the time when the transfer is
made, reasonable cause to believe that the debtor is insolvent.
Where the preference is voidable, the trustee may recover the
property or, if it has been converted, its value from any person
who has received or converted such property, except a bona-fide
purchaser from or lienor of the debtor's transferee for a present
fair equivalent value. . . . For the purpose of any recovery or
avoidance under this section, where plenary proceedings are
necessary, and State court which would have had jurisdiction if
bankruptcy had not intervened and any court of bankruptcy shall
have concurrent jurisdiction."
[
Footnote 8]
Bankruptcy Act, § 57(k) and (l) and 1, 11 U.S.C. § 93(k) and (l)
(1964 ed.), provide:
"(k) Claims which have been allowed may be reconsidered for
cause and reallowed or rejected in whole or in part according to
the equities of the case, before but not after the estate has been
closed."
"(l) Whenever a claim shall have been reconsidered and rejected,
in whole or in part, upon which a dividend has been paid, the
trustee may recover from the creditor the amount of the dividend
received upon the claim if rejected in whole, or the proportional
part thereof if rejected only in part, and the trustee may also
recover any excess dividend paid to any creditor. The court shall
have summary jurisdiction of a proceeding by the trustee to recover
any such dividends."
[
Footnote 9]
Under the Act as it then stood, the preference involved in
Pirie was not voidable or recoverable, but nevertheless
was ample ground for disallowance of the claim. But the creditor
argued that compelling repayment of the dividend would constitute
determination of a "suit by the trustee" without the consent of the
defendant contrary to the provisions of then § 23(b) (presently
codified, without alterations material to the present discussion,
in 11 U.S.C. § 46(b) (1964 ed.)) that:
"b Suits by the trustee shall only be brought or prosecuted in
the courts where the bankrupt, whose estate is being administered
by such trustee, might have brought or prosecuted them if
proceedings in bankruptcy had not been instituted, unless by
consent of the proposed defendant."
30 Stat. 552. That argument was rejected by the Court on the
ground the proceedings under review were not a "suit" within the
meaning of the quoted provision. 182 U.S. at
182 U. S.
455-456. We apply that reasoning in our opinion today,
and hold that determination of objections to claims, whether or not
affirmative relief is decreed, does not constitute adjudication of
a suit by the trustee, and thus it is not necessary to ascertain
whether the creditor has "consented" to such determination within
the meaning of § 23(b). Rather, our decision is governed by the
"traditional bankruptcy law that he who invokes the aid of the
bankruptcy court by offering a proof of claim and demanding its
allowance must abide the consequences of that procedure.
Wiswall v. Campbell, 93 U. S. 347,
93 U. S.
351."
Gardner v. New Jersey, 329 U.
S. 565,
329 U. S. 573.
As this is the basis of our decision, we obviously intimate no
opinion concerning whether the referee has summary jurisdiction to
adjudicate a demand by the trustee for affirmative relief, all of
the substantial factual and legal bases for which have not been
disposed of in passing on objections to the claim.
[
Footnote 10]
11 U.S.C. § 96(d) provides:
"(d) If a debtor shall, directly or indirectly, in contemplation
of the filing of a petition by or against him, pay money or
transfer property to an attorney at law, for services rendered or
to be rendered, the transaction may be examined by the court on its
own motion or shall be examined by the court on petition of the
trustee or any creditor and shall be held valid only to the extent
of a reasonable amount to be determined by the court, and the
excess may be recovered by the trustee for the benefit of the
estate. . . ."
[
Footnote 11]
See note 5
supra.
[
Footnote 12]
See the decisions cited in
note 1 supra, upholding summary jurisdiction to
grant affirmative relief on related counterclaims that would also
be defenses to the claim, particularly
In re Solar Mfg.
Corp., 200 F.2d 327, 331, (C.A.3d Cir. 1952),
cert. denied
sub nom. Marine Midland Trust Co. of New York v. McGirl, 345
U.S. 940;
In re Majestic Radio & Television Corp., 227
F.2d 152, 156 (C.A.7th Cir. 1955),
cert. denied sub nom. Dwyer
v. Franklin, 350 U.S. 995.
See also Florance v.
Kresge, 93 F.2d 784 (C.A.4th Cir. 1938);
Floro Realty
& Inv. Co. v. Steem Electric Corp., 128 F.2d 338 (C.A.8th
Cir. 1942).