A suit does not arise under the laws of the United States unless
it really and substantially involves a dispute or controversy
respecting the validity, construction, or effect of some law of the
United States upon the determination of which the case depends, and
so appears not by mere inference, but by distinct averments
according to rules of good pleading.
In this case,
held that a suit to restrain trustees in
bankruptcy from prosecuting an equity suit against complainants in
the state court on the ground that the bankruptcy proceedings were
a fraud and that the appointment of the trustees was void was one
arising under the laws of the United States within the meaning of §
24, Judicial Code, and the decision of the circuit court of appeals
is not final.
Although there may be a general prayer for relief, if no relief
other than injunction against prosecution of a suit in the state
court is brought to the attention of either the district court or
the circuit court of appeals, the general prayer should be treated
as abandoned.
The prohibition, § 720, Rev.Stat., now § 265, Judicial Code,
against granting the writ of injunction by the federal court to
stay proceedings in a state court except where authorized by the
Bankruptcy Act
held, in this case, to apply to a case
commenced after adjudication of bankruptcy to enjoin the trustee
from prosecuting a suit in ejectment, in the courts of the state
where the land is situated. Such a case is not within the exception
or in aid of the bankruptcy proceeding.
206 F. 4, 207 F. 543, affirmed.
The facts, which involve the jurisdiction of this Court of
appeals from judgments of the circuit court of appeals and also the
construction and application of § 265, Judicial Code (§ 720,
Rev.Stat.), are stated in the opinion.
Page 234 U. S. 713
MR. JUSTICE PITNEY delivered the opinion of the Court.
The appellants, Joseph Hull, the Prairie Pebble Phosphate
Company (hereinafter referred to as the Prairie Company), and the
Savannah Trust Company, brought this action in equity in the
District Court of the United States for the District of
Massachusetts against appellees, Arthur E. Burr, Frank L. Simpson,
and J. Howard Edwards, who are trustees in bankruptcy of the Port
Tampa Phosphate Company, a corporation organized and existing under
the laws of the State of Massachusetts. The bill was filed in
August, 1912, and, defendants having demurred, an amended bill was
filed, and it was stipulated that the demurrer should stand as a
demurrer to the substituted bill. The district court entered a
decree sustaining the demurrer and dismissing the bill (206 F. 1).
The circuit court of appeals affirmed the decree (206 F. 4), and
denied a petition for rehearing (207 F. 543).
The amended bill, besides showing diversity of citizenship,
avers in substance as follows: that, prior to the transactions in
question, Stewart and Meminger were the owners in fee simple of a
tract of land in Polk County, Florida, containing 440 acres,
together with certain buildings and personal property situate upon
it; that, on May 22, 1905, in consummation of a prior contract,
they conveyed all their right, title, and interest in the property
to Hull by deed duly recorded, which vested in him a good legal
title in fee simple to the real estate, with full title to the
personal property and the right to possession as against all
persons, "and his recorded paper title to all the said properties
was perfect;" that, before the delivery of the deed by Stewart and
Meminger to Hull, the Port Tampa
Page 234 U. S. 714
Company claimed to own some equitable interest in the property,
under a contract between it and Stewart and Meminger, which
interest Hull purchased for a full consideration, and, before the
delivery of said deed to Hull, the Port Tampa Company adopted and
placed upon its records a resolution reciting its agreement to sell
the property to Hull and authorizing and directing Stewart and
Meminger to make a deed to him; that soon after the delivery of the
deed Hull took possession; that, on June 7, 1907, he executed and
delivered to the Prairie Company a deed of conveyance of all his
right, title, and interest in said properties for the consideration
of about $37,000, which deed was shortly afterwards recorded, and
the Prairie Company took actual and peaceable possession of the
property, and has continued to hold it until the present time,
having made valuable improvements upon it; that, afterwards, and
prior to March 26, 1908, the Prairie Company executed and delivered
to the Trust Company a deed of trust conveying its right, title,
and interest in said properties, together with other properties, to
secure the payment of bonds amounting to about $1,800,000, and the
deed of trust was duly recorded; that it came to the knowledge of
Hull that certain creditors of the Port Tampa Company had asserted
that the company owned some interest in said properties, and on the
28th of November, 1905, he commenced an action of ejectment against
that company in the United States Circuit Court for the Southern
District of Florida, being the district in which the property was
situate; that the company was served with process therein on
December 6, 1905, and such further proceedings were had that, on
March 13, 1906, upon the verdict of a jury, a judgment was rendered
adjudging that Hull was entitled to recover from the Port Tampa
Company the fee simple title and right of possession of the lands
in question. The bill sets up that, on November 8, 1905, a petition
in bankruptcy
Page 234 U. S. 715
was filed against the Port Tampa Company "in this court of
bankruptcy" (the District Court of the United States for the
District of Massachusetts); that a subpoena was issued thereon
returnable on the twentieth day of the same month, and returned
served, and that, on the return day, an appearance was entered for
the company by one J. H. Robinson. Copies of the creditor's
petition, the subpoena, and the appearance are appended to the bill
as an exhibit. The bill alleges that defendants assert that, by
virtue of a decree in bankruptcy made in said district court on
November 27, 1905, adjudging the Port Tampa Company bankrupt, they
are the owners of an equitable interest or estate in the said lands
and other properties, and that the defendant Burr was, on December
27, 1905, appointed sole trustee in bankruptcy of the company; that
he resigned as such trustee on March 12, 1909, and on the same day
his resignation was accepted, and Burr, Simpson, and Edwards were
appointed trustees in his place, and that defendants claim that, by
the adjudication in bankruptcy and their appointment, the title to
an interest or estate in said lands became vested in them as such
trustees; that, on or about March 26, 1908, and before he resigned
as trustee, Burr brought a suit by bill in equity in the Circuit
Court in and for Polk County, Florida, against complainants, to
establish such interest or estate, but there has been no trial of
this suit on the merits, nor had the same been brought to final
issues of fact and law before Burr's resignation; that, on January
9, 1912, the defendants filed in said state court a supplemental
bill of complaint wherein they averred that said suit was brought
by Burr as trustee in bankruptcy, and that Burr resigned as such
trustee on March 12, 1909, and prayed that they might be
substituted as complainants in his place; that the present
complainants filed an answer to the said supplemental bill, but
that the issues have not been tried, and no decree has been
rendered making
Page 234 U. S. 716
the defendants as trustees complainants in said suit. The
present bill then proceeds to attack the proceedings and
adjudication in bankruptcy, and the title of the defendants as
trustees, as fraudulent and void upon various grounds, which may be
summarized as follows: that the Port Tampa Company's principal
place of business was not in Massachusetts, as alleged in the
petition, and that it had no business except in Florida; that it
was not insolvent, and did not commit the act of bankruptcy
alleged, or any act of bankruptcy; that the petitioning creditors
were directors of the company, and knew the company was solvent and
had committed no act of bankruptcy; that the jurisdictional facts
were falsely and fraudulently averred, being fabricated for the
purpose of pretending to state a cause within the jurisdiction of
the court; that the petitioning creditors controlled both sides of
the litigation through their ownership of a majority of the
company's stock; that Robinson, who entered the appearance in
behalf of the Port Tampa Company, was not in fact authorized to
appear for or represent the company, and that the petition was
fraudulently made to appear as an involuntary petition by
creditors, whereas in truth and in legal effect it was a voluntary
petition on the part of the company and its officers and directors.
It is also alleged that the appointment of defendants as trustees
in the place of Burr on March 12, 1909, was invalid, because no
judge or referee appointed them, their claim being that in fact
they were appointed trustees at a meeting of creditors, whereas
complainants allege that the pretended call by the referee for the
meeting of creditors was issued at a time when there was no vacancy
in the office of trustee; that ten days' notice of the meeting was
not given by mail to all the creditors, as required by law; that
the only creditor who attended the meeting was one Wills, a
director of the company, and that there were ten other creditors
who had proven claims; that Wills did
Page 234 U. S. 717
not own a
bona fide provable claim to the amount of
one-half of the claims that had been proven, and that the
appointment of defendants as trustees was made by Wills alone.
Complainants insist that there was no power or jurisdiction in any
creditor or creditors to appoint defendants as trustees on March
12, 1909, because at that time there was no vacancy in the office
of trustee, since Burr had not then resigned and his resignation
had not been accepted by the court. The bill further avers that in
their answer to the supplemental bill in the equity suit in the
Circuit Court of Polk County, Florida, the present complainants set
up the defense of
"want of jurisdiction of the said court of bankruptcy to render
any decree of adjudication, and that such alleged decree was void
on the face of the said proceedings;"
that this part of the answer was excepted to and the exceptions
sustained by the order of the Polk County Circuit Court; that, on
appeal, the Florida Supreme Court affirmed this order on July 3,
1912, ruling that all such defenses were collateral attacks upon
the bankruptcy proceedings, which were not permissible, the ruling
being expressed in the following words:
"The assaults made upon the bankruptcy proceedings in the
federal court of Massachusetts by the answer of the appellants to
the supplemental bill of the appellees in the particulars wherein
said answer was excepted to by the appellees is simply a collateral
attack upon the judgments, orders, and proceedings in said
bankruptcy court that is not permissible either by way of defense
to the supplemental bill or to the original bill as amended;"
that, by reason of the said judgment of the Florida courts, the
present complainants cannot, by way of defense to the bills of
complaint in those courts,
"have and obtain that speedy, adequate, and appropriate relief
that this court is competent to render upon this original bill of
complaint, and your orators fear that the Florida courts will
decline to adjudicate as to the character
Page 234 U. S. 718
and title of the defendants as trustees and their competency to
attack your orators' title to said properties, as herein set forth,
upon any answer to the said bills in the said state court."
The present amended bill further sets up that,
"upon the facts hereinbefore set forth, which are conclusively
provable to be true by the record of the proceedings of the said
court of bankruptcy, if the said Port Tampa Company had any title
to any of the aforesaid properties, legal or equitable, at the time
of the said alleged decree of adjudication, such title still
remains in the said company; that your orators are still liable to
be sued by the said company in any court of competent jurisdiction
to assert such title, and that a final decree in the Florida state
court for or against the defendants as such alleged trustees would
not be pleadable in bar of a suit by the said company against your
orators to assert such title."
The specific prayer is for a decree to restrain defendants
"from asserting or claiming as trustees in bankruptcy, in any
court or place, any right, title, or interest in or to any of the
properties herein described until the further decree of this
court."
There is also a prayer for general relief. Appended as exhibits
and made a part of the bill are the copies of the petition,
subpoena, return, and appearance in the bankruptcy proceedings
already mentioned and a transcript of the record of the ejectment
suit in the United States Circuit Court for the Southern District
of Florida.
The district court, in sustaining the demurrer, held that, since
upon the face of the bankruptcy proceedings there was no want of
jurisdiction over the parties or the subject matter, and the decree
was not void in form, it could not be collaterally attacked, and
could be assailed only by a direct proceeding in a competent court,
citing
New Lamp Chimney Co. v. Ansonia Brass & Copper
Co., 91 U. S. 656,
91 U. S. 662;
Graham v. Boston, Hartford & Erie R. Co., 118 U.
S. 161,
118 U. S. 178.
Treating the present suit as a direct attack,
Page 234 U. S. 719
the court held first that no right or interest of complainants
appeared to be so prejudiced by the adjudication in bankruptcy as
to entitle them to equitable relief against it; that the
adjudication concerned only the bankrupt and its creditors, since
it made no difference to complainants whether the claim to the
Florida properties was asserted by the bankrupt itself or by its
trustees; that the allegation that a final decree in the Florida
suit would not bar an action brought by the company itself was a
mere conclusion of law, not admitted by the demurrer, and an
unsound conclusion in view of the facts alleged; that, the
adjudication not having been questioned by the bankrupt or its
creditors, they were bound by it, and by virtue of it the trustees
were in the bankrupt's place so far as concerned any claim that it
could assert to the Florida properties. And, secondly, that there
was a defect of necessary parties because the only defendants named
in the bill were the bankruptcy trustees, respecting whom it was
not alleged that they were parties to the bankruptcy proceedings,
nor that they participated in the fraud whereby the adjudication
was alleged to have been procured.
The circuit court of appeals, while agreeing with this
reasoning, placed its decision upon the ground that complainants
were invoking not the powers of the district court in bankruptcy,
but its general powers as a court in equity; that it also appeared
that the proceedings in Florida were instituted by a bill in equity
with the parties reversed; that the Florida court was a chancery
court and a court of superior jurisdiction in equity, and for
present purposes of equal dignity and authority with the District
Court of the United States for the District of Massachusetts; that
the bill in substance merely invoked the general equitable
jurisdiction of the district court in order to restrain proceedings
in a state court proceeding in equity in a prior suit between the
same parties, and that this ran
Page 234 U. S. 720
counter to § 720, Rev.Stat. (§ 265, Judicial Code, 36 Stat.
1162, c. 231), as well as to the general principle that the
authority of the court first acquiring jurisdiction, the parties
being the same, must prevail, citing
Marshall v. Holmes,
141 U. S. 589,
141 U. S. 596,
and
Central National Bank v. Stevens, 169 U.
S. 432,
169 U. S.
462.
There is a motion to dismiss the appeal, based upon the ground
that the jurisdiction of the district court depended solely upon
diversity of citizenship, and that therefore the decree of the
circuit court of appeals is final, under § 128, Judicial Code (36
Stat. 1133, c. 231). The motion must be granted unless the suit was
one arising under the laws of the United States within the meaning
of the first subdivision of § 24 of the Code. The rule is firmly
established that a suit does not so arise unless it really and
substantially involves a dispute or controversy respecting the
validity, construction, or effect of some law of the United States
upon the determination of which the result depends. And this must
appear not by mere inference, but by distinct averments according
to the rules of good pleading; not that matters of law must be
pleaded as such, but that the essential facts averred must show not
as a matter of mere inference or argument, but clearly and
distinctly, that the suit arises under some federal law.
Hanford v. Davies, 163 U. S. 273,
163 U. S. 279;
Mountain View Mining & Milling Co. v. McFadden,
180 U. S. 533,
180 U. S. 535;
Defiance Water Co. v. Defiance, 191 U.
S. 184,
191 U. S. 191;
Arbuckle v. Blackburn, 191 U. S. 405,
191 U. S. 413;
Bankers Casualty Co. v. Minneapolis &c. Ry. Co.,
192 U. S. 371,
192 U. S. 383;
Shulthis v. McDougal, 225 U. S. 561,
225 U. S.
569.
We have not considered whether the action could be regarded as
ancillary to the proceedings in bankruptcy, and for that reason
maintainable in the district court as a suit arising under the laws
of the United States,
See Freeman v.
Howe, 24 How. 450,
65 U. S. 460;
Minnesota Co. v. Milwaukee
& St. Paul Co., 2 Wall. 609,
69 U. S. 633;
Buck v.
Colbath, 3 Wall. 334,
Page 234 U. S. 721
70 U. S. 345;
Christmas v.
Russell, 14 Wall. 69,
81 U. S. 81;
Krippendorf v. Hyde, 110 U. S. 276,
110 U. S. 281;
Lammon v. Feusier, 111 U. S. 17,
111 U. S. 19;
Covell v. Heyman, 111 U. S. 176,
111 U. S.
179-180;
Dewey v. West Fairmont Gas Coal Co.,
123 U. S. 329,
123 U. S. 333;
Gumbel v. Pitkin, 124 U. S. 131,
124 U. S. 144;
Morgans' Co. v. Texas Central Railway, 137 U.
S. 171,
137 U. S. 201;
Byers v. McAuley, 149 U. S. 608,
149 U. S. 615;
Root v. Woolworth, 150 U. S. 401,
150 U. S. 413;
Moran v. Sturges, 154 U. S. 256,
154 U. S. 274;
White v. Ewing, 159 U. S. 36,
159 U. S. 39;
Carey v. Houston & Texas Ry., 161 U.
S. 115,
161 U. S. 130;
In re Johnson, 167 U. S. 120,
167 U. S. 125;
Pope v. Louisville &c. Ry., 173 U.
S. 573,
173 U. S. 577;
Wabash Railroad v. Adelbert College, 208 U. S.
38,
208 U. S. 54,
because complainants have not planted themselves upon that
ground.
Complainants are not parties to the proceeding in bankruptcy,
and are setting up rights in opposition to the adjudication and the
appointment of trustees therein. They seek to have the trustees
restrained from prosecuting the equity suit against them in the
state court of Florida, and to that end undertake to show (a) that
the bankruptcy proceedings were void for want of jurisdiction; (b)
that the entire proceedings were a fraud upon the bankrupt act, and
(c) that, even if the proceedings were valid, the appointment of
the trustees was void. This is the theory of the bill of complaint,
and it is by this that the right of ultimate appeal to this Court
is to be tested, rather than by the grounds upon which the district
court and the circuit court of appeals reached conclusions adverse
to the relief prayed. Were the views adopted by those courts found
to be untenable, it would be necessary to pass upon the attack made
by complainants upon the title of the trustees in bankruptcy, and
to do this would require us to determine the construction and
effect of those provisions of the Bankruptcy Act that bear upon the
matters of fact averred as the basis of the attack. We deem,
therefore, that the suit is one arising under the laws of the
United States, within the meaning of
Page 234 U. S. 722
§ 24, Judicial Code, and the motion to dismiss will be
denied.
Upon the merits, we find it unnecessary to consider the views
expressed by the district court, since it seems to us that the view
of the circuit court of appeals as to the effect of § 720,
Rev.Stat., is correct, and is sufficient to dispose of the
case.
The substance of the matter is that complainants allege that
they are the owners of certain property in Florida in which
defendants, as trustees in bankruptcy of the Port Tampa Company,
assert an equitable claim or interest, to establish which they are
prosecuting or attempting to prosecute an equitable action in a
Florida state court against complainants. The latter aver that,
because of fraud or for other reasons, the proceedings and
adjudication in bankruptcy and the appointment of defendants as
trustees are invalid, and that, for this reason, any decree that
may be made by the Florida state court will not be binding upon the
Port Tampa Company. As already mentioned, the specific prayer is
that defendants may be restrained from asserting or claiming as
trustees in bankruptcy, in any court or place, any right, title, or
interest in the property. There is a prayer for general relief, but
it was pointed out by the circuit court of appeals (207 F. 534,
544) that no right to relief other than by way of an injunction was
brought to the attention of the district court or of the court of
appeals upon the hearing. The general prayer should therefore be
treated as abandoned.
So far as the action already pending in the Florida court of
equity is concerned, the case is clearly within § 720, Rev.Stat. (§
265, Judicial Code, 36 Stat. 1162, c. 231):
"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 injunction may be authorized by any law
relating to proceedings in bankruptcy. "
Page 234 U. S. 723
The latter clause formerly had reference to § 5106, Rev.Stat. (§
21 of the Bankruptcy Act of March 2, 1867, 14 Stat. 526 c. 176); in
the place of which we now have § 11 and subdivision 7 and 15 of § 2
of the Bankruptcy Act of July 1, 1898 (30 Stat. 546, 549, c. 541).
It is quite evident that the injunction sought by the present
complainants is not one authorized by the Bankruptcy Act.
The prohibition against injunctions to stay proceedings in state
courts originated in the Act of March 2, 1793 (c. 22, § 5, 1 Stat.
335), and has been constantly observed by the courts.
See Diggs v.
Wolcott, 4 Cranch 179;
Peck v.
Jenness, 7 How. 612,
48 U. S. 625;
Watson v.
Jones, 13 Wall. 679,
80 U. S. 719;
Haines v. Carpenter, 91 U. S. 254,
91 U. S. 257;
Dial v. Reynolds, 96 U. S. 340;
Chapman v. Brewer, 114 U. S. 158,
114 U. S. 172;
United States v. Parkhurst-Davis Mercantile Co.,
176 U. S. 317,
176 U. S. 320;
Hunt v. New York Cotton Exchange, 205 U.
S. 322,
205 U. S. 338;
Prentis v. Atlantic Coast Line, 211 U.
S. 210,
211 U. S.
226.
It is recognized, however, that § 720 was not intended to limit
the power of the federal courts to enforce their authority in cases
that, on other grounds, are within their proper jurisdiction, and
hence, it has been held that, in aid of its jurisdiction properly
acquired, and in order to render its judgments and decrees
effectual, a federal court may restrain proceedings in a state
court which would have the effect of defeating or impairing such
jurisdiction.
French v. Hay,
22 Wall. 250,;
Deitzsch v. Huidekoper, 103 U.
S. 494,
103 U. S. 497;
Julian v. Central Trust Co., 193 U. S.
93,
193 U. S. 112;
Madisonville Traction Co. v. St. Bernard Mining Co.,
196 U. S. 239,
196 U. S.
245.
The contention that the present case falls within this exception
to the general application of § 720, because the bill is really
filed in aid of the judgment of a federal court -- that is to say,
the judgment in favor of Hull in the ejectment suit in the Circuit
Court of the United States for
Page 234 U. S. 724
the Southern District of Florida -- will not bear analysis. The
ejectment suit was commenced after the adjudication of bankruptcy,
and the bill does not aver that the judgment cut off the equitable
rights of the Port Tampa Company, but, on the contrary, declares
that, if that company had any title to the property, legal or
equitable, at the time of the adjudication of bankruptcy, such
title still remains in the company. It is not averred that the
claim of equitable right on the part of the company is inconsistent
with the judgment, or should be subordinated to it. The present
trustees, or either of them, were not made parties to the ejectment
suit, nor is the company made a party to the present action. And,
upon the whole, it seems to us that by no interpretation or
construction can the present bill be deemed to have been filed in
aid of the judgment in ejectment or be sustained upon that
theory.
It is argued that the bill cannot be deemed to have as its
object the staying of a pending suit in the state court, because
that action abated upon Burr's resignation as trustee, and no
further proceeding can be had until his successors have been made
parties. To this point, a decision of the Florida supreme court in
the very action is cited (
Hull v. Burr, 62 Fla. 499). We
do not interpret this decision as sustaining the contention, and in
a subsequent stage of the same litigation (64 Fla. 83), the court
distinctly held that the action did not abate on the resignation of
Burr, but might be proceeded with by his successors when appointed,
the same as if originally instituted by them, and that a
supplemental bill was the proper procedure to have such successors
formally brought into the case as parties. Indeed, it is only upon
the theory that defendants are prosecuting that suit that the
complainants show ground for an injunction against them.
To the suggestion that the term "any court," in the bill of
complaint, may include other federal courts, it is
Page 234 U. S. 725
sufficient to say that the bill is devoid of any showing that
defendants are asserting claims against complainants' title in any
court other than the Florida state court. Hence, there is no
occasion to invoke the general rule that the court first obtaining
jurisdiction of a controversy should be permitted to proceed
without interference.
Peck v.
Jenness, 7 How. 612,
48 U. S. 624;
Central Nat. Bank v. Stevens, 169 U.
S. 432,
169 U. S. 459;
Bigelow v. Old Dominion Copper Co., 74 N.J.Eq. 457, 473
et seq.
We deem that the main object of the bill, to which all else is
incidental, is in contravention of § 265 of the Judicial Code
(formerly § 720 of the Revised Statutes), and that therefore the
decree should be affirmed.