Where the jurisdiction of the federal court of a suit brought by
a trustee in bankruptcy rests upon diverse citizenship alone, the
judgment of the circuit court of appeals is final; if, however, the
petition also discloses as an additional ground of jurisdiction
that the case arises under the laws of the United States, the
judgment of the circuit court of appeals is not final, but can be
reviewed by this Court.
Page 227 U. S. 413
Whether the case is one arising under the laws of the United
States must be determined upon the statements in the petition
itself, and not upon questions subsequently arising in the progress
of the case.
Macfadden v. United States, 213 U.
S. 288.
Section 23 of the Bankruptcy Act, as amended by the Act of
February 5, 103, conferring jurisdiction on the circuit courts of
certain classes of cases, was not intended to increase the
jurisdiction of those courts in bankruptcy matters, but rather to
limit it to the classes of cases over which those courts are given
jurisdiction by the acts creating them.
Whether the federal court had jurisdiction on grounds other than
diverse citizenship must be determined from complainants' own
statement as set forth in the bill affirmatively and distinctly,
regardless of questions subsequently arising; grounds of
jurisdiction may not be inferred argumentatively.
A suit to enforce a right which takes its origin in the laws of
the United States is not necessarily, or for that reason alone, one
arising under those laws. There must be a controversy respecting
the validity, construction, or effect of such a law upon the
determination of which the result depends.
Where a trustee in bankruptcy sues in the federal court on the
ground that the property, or bond representing the value thereof,
belonged to the bankrupt, and diverse citizenship exists, the suit
does not depend upon the validity, construction, or effect of any
law of the United States, and the judgment of the circuit court of
appeals is final.
Where a trustee permits a bond to be given for value of goods
and sues on the bond as merely representing the goods, and not as
required by any statute, the case is not one arising under the laws
of the United States, and jurisdiction is not conferred on the
federal court by reason of the existence of such a bond.
Where diversity of citizenship exists, the trustee can sue in
the federal court without consent of defendant, and if consent be
given, it does not, where such diversity exists, create an
independent ground of jurisdiction.
Writ of error to review 192 F. 753 dismissed.
The facts, which involve the jurisdiction of this Court on
appeals from and error to the circuit court of appeals in cases
brought by trustees in bankruptcy, are stated in the opinion.
Page 227 U. S. 414
MR. JUSTICE DAY delivered the opinion of the Court.
This case is submitted upon motion to dismiss or affirm. The
action was brought by William S. Lovell, trustee of Knight, Yancey
& Company, against Isidore Newman & Son and others, in the
United States Circuit Court for the Eastern District of Louisiana,
to recover stipulated damages in the sum of $98,500 on a certain
bond. issues were joined and the case was tried and a judgment
rendered in favor of the defendants. 188 F. 534. On writ of error,
the circuit court of appeals affirmed that judgment. 192 F.
753.
A writ of certiorari to the judgment of the circuit court of
appeals was prayed and denied. (December 23, 1912.)
The question of jurisdiction presented is, was the judgment of
the circuit court of appeals final, or is it subject to review by
writ of error in this Court? As the present suit was upon a bond,
and concerns the right of the trustee to recover thereon, it
presents a controversy arising in a bankruptcy proceeding, the
finality of which in the circuit court of appeals depends upon the
application of the Circuit Court of Appeals Act to the case.
Hewit v. Berlin Machine Works, 194 U.
S. 296;
Coder v. Arts, 213 U.
S. 223,
213 U. S. 233;
Knapp v. Milwaukee Trust Co., 216 U.
S. 545,
216 U. S. 553;
Tefft, Weller & Co. v. Munsuri, 222 U.
S. 114,
222 U. S. 118.
If the jurisdiction in the present case rests alone upon diverse
citizenship, then, under the Circuit Court of Appeals Act, the
judgment of the circuit court of appeals is final; if, as contended
by the plaintiff in error, the petition
Page 227 U. S. 415
in the case discloses, as a ground of jurisdiction in addition
to that of diverse citizenship, that the case arises under the laws
of the United States, then the judgment of the circuit court of
appeals is not final, and the case can come here from that court.
And it is well settled that this question must be decided not
because of questions which may have arisen or which might arise in
the subsequent progress of the case, but upon the grounds of
jurisdiction asserted in the petition.
Macfadden v. United
States, 213 U. S. 288.
Turning, then, to the petition for the assertion of the cause of
action upon which this suit was brought, we find from its averments
that Knight, Yancey & Company, partners, doing business in
Decatur, Alabama, were adjudicated bankrupts by the District Court
of the United States for the Northern District of Alabama on the
20th of April, 1910; that Lovell, the trustee in bankruptcy, is a
citizen of the State of Alabama, and also that the members of the
partnership and each of them are citizens of other states than
Louisiana. It appears in the petition that, on the third of May,
1910, C. E. Frost and Lovell, who were then receivers in bankruptcy
of Knight, Yancey & Company, filed, as such receivers, in the
United States District Court for the Eastern District of Louisiana,
their petition, which is attached to and made part of the petition
in this case, setting forth that certain cotton was in the
possession of the master of the steamer
Ingelfingen at the
port of New Orleans, and would, unless restrained, be shipped
beyond the jurisdiction of the court; that certain persons in Italy
held spurious bills of lading upon which they would seek to obtain
possession of such cotton; that the original bills of lading had
been destroyed or made away with, and were not in the hands of
bona fide holders; that therefore the legal title to the
cotton was in the petitioners, and that any attempt to ship the
cotton to a foreign country would result in depriving the
Page 227 U. S. 416
bankrupt estate of that asset, and would subject it to the
claims of foreign creditors, and would constitute an unlawful
preference within the meaning and intendment of the bankruptcy act
in favor of the foreign holders of the spurious bills of lading,
and they prayed for an injunction, or that, in the alternative, the
court would order the United States marshal to seize and take
possession of the cotton, and prayed for an order upon the master
of the steamer
Ingelfingen, its owners and agents, to show
cause, if any they could, why the relief prayed for should not be
granted. A restraining order was issued by the district court, the
master of the
Ingelfingen appeared, excepted to the
petition, alleging that the receivers had no right or capacity to
institute suit and that the court was without jurisdiction, and
afterwards filed an answer in which he set up that the partnership
had sold cotton to various Italian purchasers under contracts in
the usual mercantile course -- that is, it had shipped the cotton
to Italy to its order, upon through bills of lading, and drafts for
the price of the cotton, with the bills of lading attached, had
been discounted, the Italian purchasers finally taking up the
drafts and securing the cotton covered by the bills of lading; that
in February, 1910, the partnership discounted, and the Italian
purchasers subsequently paid, certain drafts with bills of lading
attached, alleged in the petition to be forged, covering 1,400
bales of cotton bearing certain marks, and they acquired the bills
of lading in the regular course of business, prior to the filing of
the petition in bankruptcy, for value and in ignorance of the
forgery; that in March and April of that year, the partnership
shipped the cotton called for by the bills of lading, the cotton
bearing the same marks and the bills of lading being substantially
identical with the alleged forged bills of lading, and being the
bills of lading alleged in the petition to have been made away
with, and that 89 bales of the cotton were previously exported and
the 1,311 remaining
Page 227 U. S. 417
bales were on board the
Ingelfingen. The master further
alleged that the cotton was the property of the Italian purchasers,
and rightfully in his possession as bailee, and that the bankrupt
estate had no interest in the cotton; that, if the bills of lading
in the hands of the purchasers were spurious, they were forged by
the partnership, and that the cotton was shipped under genuine
bills of lading which were not now outstanding, but of which the
alleged forged bills of lading were duplicates; that the
partnership was paid for the cotton, which was apportioned to cover
the bills of lading held by the purchasers in good faith and at a
time when the partnership was not known to be insolvent; that the
purchasers and their agents were ignorant of the forgery or that
the shipment was other than in regular course, and that no
preference was given them. The master also alleged that the
partnership had for some time been following this practice, and
that the purchasers had been securing their cotton under forged
bills of lading, of which practice they were ignorant until after
the filing of the petition in bankruptcy. The master further
alleged that he was the bailee under regular bills of lading, and
bound to deliver to the true owners, for whom he was obliged to
protect the cotton for which he had issued receipt, and was
entitled to earn his freight, for which and other charges he had a
lien on the cotton, and that the charges would be increased by
further delay. He denied the inadequacy of a remedy at law. The
agent of the steamer also appeared and adopted the answer of the
master of the
Ingelfingen as its own. The court, upon a
hearing, ordered a temporary injunction upon the receivers giving
bond in the sum of $10,000, and thereupon, the bond having been
given and the temporary injunction awarded, the bond now in suit
was executed and delivered, running to the receivers and such
trustee as might be elected or appointed, which after reciting the
order of injunction, provided:
Page 227 U. S. 418
"Whereas, it was further provided in said order or injunction
that said cotton might be removed out of said jurisdiction upon the
filing by the respondents in said proceeding, or either of them, of
a bond for the value of said cotton, which has been fixed by
agreement for purposes of bonding at the sum above mentioned."
"Now therefore the condition of this obligation is such that, if
said Th. Ruhne and Isidore Newman & Son, New Orleans,
Louisiana, above mentioned, shall well and truly pay to said
obligees the said sum of ninety-eight thousand, five hundred
($98,500) dollars, or such part thereof as the court may direct,
if, in a suit or action at law or in equity that may or shall
hereafter he brought on this bond by said receivers, or by said
trustee or trustees, or by said estate in bankruptcy against the
obligors herein, or either of them, in the circuit or District
Court of the United States for the Eastern District of Louisiana,
it shall be adjudged that said receivers, or said trustee or
trustees of said Knight, Yancey & Company, or the bankrupt
estate of said Knight, Yancey & Company, have the right, title,
or interest in or to said cotton, or any part thereof, then and in
such case this obligation shall be null, void, and of no effect;
otherwise the same shall remain in full force and effect."
From this recital it is apparent that the proceeding in the
United States District Court for the Eastern District of Louisiana
was ancillary to the original proceeding in the court of bankruptcy
in Alabama, where the adjudication was had. It was long in doubt
whether, under the Act of 1898, such ancillary proceeding would lie
in another district court, but the matter was settled in favor of
such jurisdiction in aid of the original jurisdiction by the
decisions of this Court in
Babbitt v. Dutcher,
216 U. S. 102, and
in
Elkus, Petitioner, 216 U. S. 115.
Later, after this ancillary suit was brought, the Congress removed
all doubt concerning the matter by passing an Act of June 25,
Page 227 U. S. 419
1910 (36 Stat. 838), expressly conferring such ancillary
jurisdiction in aid of the jurisdiction of the bankruptcy court
which had appointed the receiver or trustee.
The present action was brought upon the bond in the United
States circuit court, and was taken by writ of error to the circuit
court of appeals, and the appellate jurisdiction to review that
court is the one now in question. Section 23 of the Bankruptcy Act
must be consulted to determine the jurisdiction of the circuit
court. That section provides:
"Sec. 23
a. The United States circuit courts shall have
jurisdiction of all controversies at law and in equity, as
distinguished from proceedings in bankruptcy, between trustees as
such and adverse claimants, concerning the property acquired or
claimed by the trustees, in the same manner and to the same extent
only as though bankruptcy proceedings had not been instituted, and
such controversies had been between the bankrupts and such adverse
claimants."
"
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, except suits for the recovery of
property under section sixty, subdivision b, and section
sixty-seven, subdivision e"
[the exception being added by the amendment of February 5,
1903].
That section gives jurisdiction to the circuit courts of the
United States of controversies at law or in equity, as
distinguished from bankruptcy proceedings, between the trustee and
adverse claimants in the same manner and to the same extent as
though bankruptcy proceedings had not been instituted. It is also
provided that suits by the trustee can only be brought in courts
where the bankrupt might have brought them, if proceedings in
bankruptcy
Page 227 U. S. 420
had not been instituted, unless by consent of the proposed
defendant. Later, when Congress enlarged the jurisdiction of the
district court by the Act of February 5, 1903, exception was made
in favor of certain suits for the recovery of property in fraud of
the act, but this did not affect suits of the present character.
The cases in this Court which have considered this section have
determined that it was not intended to increase the jurisdiction of
the United States circuit courts in bankruptcy matters, but rather
to limit it to such suits and controversies as are within the
jurisdiction given such courts by the acts creating them -- that
is, controversies in law and in equity with adverse claimants,
where the amount involved is in excess of $2,000, where diverse
citizenship exists (the citizenship test being, because of the
Bankruptcy Act, that of the bankrupt, and not that of the trustee),
or there is a cause of action arising under the Constitution or
laws of the United States.
Bush v. Elliott, 202 U.
S. 477; 1 Loveland on Bankruptcy, 4th ed. §§ 74
et
seq.; 1 Remington on Bankruptcy § 1686.
The present suit, so far as the ground of diverse citizenship is
concerned, conforms to the requirement of the Bankruptcy Act as
construed in
Bush v. Elliott, supra, for the citizenship
of the bankrupts is other than that of Louisiana, and the amount in
controversy exceeds the sum of $2,000. But it is contended that the
petition also discloses a ground of jurisdiction other than diverse
citizenship, and upon the solution of that question the present
jurisdiction depends. This Court had recent occasion to summarize
the principles upon which such jurisdiction rests in
Shulthis
v. McDougal, 225 U. S. 561, and
we can do no better than to recur to that summary for a statement
of the principles which must control in deciding the present case
(p.
225 U. S.
569):
"1. Whether the jurisdiction depended on diverse citizenship
alone, or on other grounds as well, must be determined from the
complainant's statement of his own
Page 227 U. S. 421
cause of action as set forth in the bill, regardless of
questions that may have been brought into the suit by the answers
or in the course of the subsequent proceedings.
Colorado
Central Mining Co. v. Turck, 150 U. S. 138;
Tennessee v.
Union & Planters' Bank, 152 U. S. 454;
Spencer v.
Duplan Silk Co., 191 U. S. 526;
Devine v. Los
Angeles, 202 U. S. 313,
202 U. S.
333."
"2. It is not enough that grounds of jurisdiction other than
diverse citizenship may be inferred argumentatively from the
statements in the bill, for jurisdiction cannot rest on any ground
that is not affirmatively and distinctly set forth.
Hanford v.
Davies, 163 U. S. 273,
163 U. S.
279;
Mountain View Mining Co. v. McFadden,
180 U. S.
533;
Bankers' Casualty Co. v. Minneapolis &c.
Co., 192 U. S. 371,
192 U. S.
383,
192 U. S. 385."
"3. A suit to enforce a right which takes its origin in the laws
of the United States is not necessarily, or for that reason alone,
one arising under those laws, for a suit does not so arise unless
it really and substantially involves a dispute or controversy
respecting the validity, construction, or effect of such a law upon
the determination of which the result depends."
Does it, then, appear in the petition in the present case, in
addition to averments of diverse citizenship, that the petitioner
has asserted a ground of jurisdiction which
"really and substantially involves a dispute or controversy
respecting the validity, construction, or effect of a law of the
United States, and upon which his right to recover depends?"
Such a cause of action was not asserted simply because the
action was brought by an assignee in bankruptcy. Mr. Justice Gray,
speaking for the Court, said in
Bardes v. Hawarden Bank,
178 U. S. 524,
178 U. S.
536:
"The first clause provides that 'the United States circuit
courts shall have jurisdiction of all controversies at law and in
equity, as distinguished from proceedings in bankruptcy' (thus
clearly recognizing the essential
Page 227 U. S. 422
difference between proceedings in bankruptcy, on the one hand,
and suits at law or in equity, on the other), 'between trustees as
such and adverse claimants, concerning the property acquired or
claimed by the trustees;' restricting that jurisdiction, however,
by the further words, 'in the same manner and to the same extent
only as though bankruptcy proceedings had not been instituted and
such controversies had been between the bankrupt and such adverse
claimants.' This clause, while relating to the circuit courts only,
and not to the district courts of the United States, indicates the
intention of Congress that the ascertainment, as between the
trustee in bankruptcy and a stranger to the bankruptcy proceedings,
of the question whether certain property claimed by the trustee
does or does not form part of the estate to be administered in
bankruptcy, shall not be brought within the jurisdiction of the
national courts solely because the rights of the bankrupt and of
his creditors have been transferred to the trustee in
bankruptcy."
This was also held in
Spencer v. Duplan Silk Co.,
191 U. S. 526, in
which the assignee brought an action in the state court in trover
for the conversion of goods alleged to belong to the estate.
Diversity of citizenship was shown, and upon that ground the case
was removed to the circuit court of the United States. It went to
the circuit court of appeals, and it was then contended that it
might be reviewed here, but the writ of error was dismissed for
lack of jurisdiction, Mr. Chief Justice Fuller saying (p.
191 U. S.
530):
"But a suit does not so arise unless it really and substantially
involves a dispute or controversy as to the effect or construction
of the Constitution, or validity or construction of the laws or
treaties of the United States, upon the determination of which the
result depends, and which appears in the record by plaintiff's
pleading. . . ."
"Plaintiff's declaration set forth no matter raising any
Page 227 U. S. 423
controversy under the Constitution, laws, or treaties of the
United States. It is true that, if the lumber and materials
belonged to Bennett and Rothrock on January 13, 1900, plaintiff in
error succeeded to the title of the firm on the adjudication, but
the question of Bennett and Rothrock's ownership on that day, in
itself, involved no federal controversy, and the mere fact that
plaintiff was trustee in bankruptcy did not give jurisdiction.
Bardes v. Bank, 178 U. S. 524. Indeed, if the
case had not been removed, and had gone to judgment in the court of
common pleas, and that judgment had been affirmed by the Supreme
Court of Pennsylvania on the same grounds as those on which the
circuit court of appeals proceeded, a writ of error could not have
been brought under § 709 of the Revised Statutes, for the case
would not have fallen within either of the classes enumerated in
that section as the basis of our jurisdiction. The validity of the
Bankruptcy Act was conceded, and no right specially set up or
claimed under it was denied."
That case has frequently been cited approvingly since.
Warder v. Loomis, 197 U.S. 619;
Watkins v. American
Nat'l Bank of Denver, 199 U.S. 599;
Mobile Transp. Co. v.
Mobile, 199 U.S. 604;
Montana Catholic Missions v.
Missoula County, 200 U. S. 118,
200 U. S. 126;
Empire State-Idaho Mining & Developing Co. v. Bunker Hill
and Sullivan Mining Co., 200 U.S. 613;
Russell v.
Russell, 200 U.S. 613;
Bush v. Elliott, 202 U.
S. 477;
Warder v. Cotton, 207 U.S. 582;
Shulthis v. McDougal, 225 U. S. 561.
The trustee, for his recovery upon the bond, did not rely upon
any right specially conferred upon him under the federal statute
which was the subject of controversy, and therefore a ground of
jurisdiction. He sued to recover upon the bond solely because of
his claim that the 1,311 bales of cotton were at the time of the
bankruptcy proceeding, the property of Knight, Yancey &
Company. He alleged in the petition that:
Page 227 U. S. 424
"Your petitioner further avers that the said 1,311 bales of
cotton were, at the time of the bankruptcy proceedings, and have
ever since been, the property of Knight, Yancey & Company, and
that, as trustee in bankruptcy of the said Knight, Yancey &
Company, your petitioner as aforesaid is the owner of and has the
right, title, and interest in and to the said 1,311 bales of
cotton, and that your petitioner is therefore entitled to proceed
against and to demand, collect, and receive the principal sum of
the bond filed by the said Th. Ruhne with the said Isidore Newman
& Son as surety. . . ."
And in the amended petition, he again averred:
"Your petitioner further avers that the statements in said
petition contained with reference to said bills of lading are not
true in point of fact, and that the bills of lading for all of said
cotton described in the original petition herein, and in the
petition in said suit No. 14, 129, were in the possession and under
the control of the receivers of Knight, Yancey & Company,
bankrupt, and have since come into the possession and are now under
the control of your petitioner as trustee of Knight, Yancey &
Company, bankrupt, and your petitioner reiterates that the title to
all of the cotton described in said original petition was in said
Knight, Yancey & Company, bankrupt, and is in said bankrupt
estate and in your petitioner as the trustee in bankruptcy of
Knight, Yancey & Company, bankrupt."
And the circuit court, in determining the character of the
action, said:
"As this case stood on the original petition, in view of some of
the allegations of the petition in the district court referred to,
there might have been some doubts as to plaintiff's right to
proceed at law; but, considering the supplemental petition whereby
the plaintiff has eliminated those pleadings from the instant case
and stands solely on his claim of absolute ownership of the cotton,
it is clear
Page 227 U. S. 425
the action is properly at law. If anything were needed to
strengthen this, the statement of plaintiff's counsel in open court
that he disavows any intention of claiming a voidable preference
against anyone in regard to the shipment of the cotton is
sufficient."
It therefore appears that the action, as outlined in the
petition, made the plaintiff's right to recover depend upon the
ownership of the property by the bankrupt as its own before the
bankruptcy proceeding. The investigation of this question involved
only matters of general law, and did not depend upon any right
conferred by the Bankruptcy Act upon the trustee.
The cases cited by the plaintiff to the effect that actions upon
marshal's bonds, etc., under statutes of the United States, gives
jurisdiction to the circuit court because they arise under the laws
of the United States, are not in point; no more are cases in which
this Court has held that the decision of a state court might be
reviewed when the construction of the Bankruptcy Act, claimed by a
party in interest as a federal right, has been denied. The bond
here was not required by any law of the United States. It was
permitted to be given that the property might be removed upon the
steamer upon which it was about to be carried abroad. Under the
allegations of his complaint, the trustee could recover if he could
show that the bankrupt owned this property before the bankruptcy
proceedings. It is said that this bond could not be recovered upon
unless the trustee could show that the property was such as had
passed to the trustee, and was liable to execution at the suit of
his creditors. But there is nothing in the petition to show any
lien upon the property, or any averments which would have prevented
its being made the subject of levy by creditors if it was owned by
the bankrupt. The fact that such matters might have been brought up
by the defendants, or that questions may arise in the subsequent
progress of the action which involve laws of
Page 227 U. S. 426
the United States, it has frequently been held, does not give
jurisdiction. The petition must assert grounds of recovery which
involve a controversy concerning such laws.
It is also asserted that this case shows not only diversity of
citizenship, giving jurisdiction to the circuit court under § 23 of
the Bankruptcy Act, but the bond itself gives consent that the suit
may be brought in the circuit court, and that this is an
independent ground of jurisdiction. But in this case, diversity of
citizenship between the bankrupt and the defendants existed, and no
consent was required to enable the plaintiff to sue in the circuit
court. Furthermore, the consent provided for in § 23b certainly was
not intended to enlarge the jurisdiction of the circuit courts of
the United States so as to give them a jurisdiction which they
would not have because of diverse citizenship and a requisite
amount in controversy, or by reason of a cause of action arising
under the Constitution or laws of the United States. 1 Remington on
Bankruptcy § 1686.
Bush v. Elliott, 202 U.
S. 477.
We reach the conclusion that the jurisdiction of the Circuit
Court asserted in the petition in this case rested alone upon
diverse citizenship, and therefore, under the Circuit Court of
Appeals Act, the case is one of those made final in the circuit
court of appeals.
Writ of error dismissed.