An assignee for the benefit of creditors turned over the assets
to a trustee appointed in a later bankruptcy proceeding, less
certain amounts which he claimed as compensation for services
rendered and disbursements made, as assignee, before the bankruptcy
adjudication.
Page 256 U. S. 47
Held that his claim was an adverse claim which the
district court was without jurisdiction to dispose of summarily in
the bankruptcy proceedings over his objection. P.
256 U. S. 48.
Louisville Trust Co. v. Comingor, 184 U. S.
18.
261 F. 670, reversed.
THE case is stated in the opinion.
MR. JUSTICE DAY delivered the opinion of the Court.
This is a writ of certiorari to review a decision of the Circuit
Court of Appeals for the Eighth Circuit affirming an order of the
district judge for the District of North Dakota in a bankruptcy
proceeding. The pertinent facts are: on August 15, 1917, one Conrad
C. Reiswig executed a trust deed for the benefit of his creditors
to John P. Galbraith, assignee and the petitioner herein. The
assigned stock of merchandise was sold. Various proceedings and
meetings of creditors were had, not necessary to recite. On
December 22, 1917, upon the petition of creditors, Reiswig was duly
adjudged a bankrupt, and Valley, respondent herein, is his trustee
in bankruptcy. Galbraith appeared in the bankruptcy proceedings and
filed an account, claiming therein the right to retain a certain
sum for fees and disbursements under the assignment, and paid over
to the trustee in bankruptcy the other moneys which he had
acquired. Thereupon, the trustee in bankruptcy filed a petition
with the referee in bankruptcy asking, in a summary proceeding. for
an order upon Galbraith to show cause why he should not pay over
the sum of $1,474.10, retained as fees and expenses
Page 256 U. S. 48
as trustee under the assignment. The referee in bankruptcy made
an order that Galbraith forthwith pay over that sum to the trustee
in bankruptcy or show cause why he should not do so. Galbraith
appeared and set up that the order of the referee in the summary
proceeding was without authority, as he was an adverse claimant to
the moneys referred to in the order, and that the court had no
jurisdiction in a summary proceeding to hear and determine the
questions involved. Without waiving objection, and subject to the
right of Galbraith to assert his objection to the proceedings,
testimony was taken concerning the money expended and retained by
the assignee prior to the bankruptcy proceedings, for administering
the estate. Among other things, it was stipulated that, as to the
particular money expended by the assignee, he was an adverse
claimant. The referee delivered an opinion passing upon the amount
of expenditures and compensation, but held that Galbraith was an
adverse claimant within the rule declared by this Court in
Louisville Trust Co. v. Comingor, 184 U. S.
18, and that therefore the bankruptcy court was without
jurisdiction to proceed in a summary manner, and discharged the
order. The decision of the referee was reversed by the district
judge. 253 F. 390. The circuit court of appeals affirmed the order
of the district court, 261 F. 670, and the case is here upon writ
of certiorari.
We think the referee was right in holding that the case was
governed by
Louisville Trust Co. v. Comingor, supra. In
that case, a general assignment for the benefit of creditors was
made within four months of the bankruptcy proceeding; the
assignment was therefore an act of bankruptcy. A receiver was
appointed in the bankruptcy court. The assignee turned over the
proceeds of sale of the property, retaining his fees as assignee
and his disbursements to counsel. A summary proceeding was begun in
the district court ordering the assignee to show cause
Page 256 U. S. 49
why he should not pay to the receiver the amounts retained. This
order was made against the objection of the assignee that the court
had no authority to proceed in that manner. This Court held that
the assignee was an adverse claimant as to these amounts, and that
the district court was without jurisdiction to determine the
controversy in a summary proceeding. This case has been repeatedly
cited as determinative of the law and practice in similar cases.
*
The circuit court of appeals made no reference to the
Comingor case, and held the case was ruled by
Randolph
v. Scruggs, 190 U. S. 533, but
that case did not present the question here involved. In that case,
there had been an assignment prior to the bankruptcy proceedings,
and the question presented was whether a claim for professional
services rendered in the course of a general assignment before the
bankruptcy was entitled to be paid as a preferential claim out of
the estate in the hands of the trustee in bankruptcy when the
adjudication of bankruptcy had been made within four months after
the making of the assignment, and the assignment set aside as in
contravention of the bankruptcy law. It was held that the claim for
compensation could be allowed so far as the services were shown to
be beneficial to the estate.
In
Babbitt v. Dutcher, 216 U.
S. 102, also cited in the opinion of the circuit court
of appeals, it was held that books and records of a corporation,
upon adjudication in bankruptcy, passed to the trustee, and
belonged in the custody of the bankruptcy court, there being no
adverse claim to them. Upon that state of facts, it was
Page 256 U. S. 50
held that, on a rule to show cause, the court could properly
make an order compelling the delivery of the books to the trustee.
In the opinion in that case,
Louisville Trust Co. v. Comingor,
supra, and other cases are cited for the purpose of showing
that a different rule would prevail when an adverse claimant set up
a right to be heard in other than a summary proceeding.
It may be, as suggested by the circuit court of appeals, that a
summary proceeding at the instance of the trustee would afford a
more speedy and economical administration of the estate in
bankruptcy. But the right to recover in such instances, only in
suits of the ordinary character, with the rights and remedies
incident thereto, has been consistently maintained by this Court.
The principle of the
Comingor case has never been departed
from in this Court. It establishes the right of an assignee for the
benefit of creditors, to the extent that he asserts rights to
expenses incurred and compensation earned under an assignment in
good faith before the bankruptcy proceedings, to have the merits of
his claim determined in a judicial proceeding suitable to that
purpose, and not by summary proceedings where punishment for
contempt is the means of enforcing the order. We see no occasion to
depart from this practice. There was no waiver by the assignee of
his rights in this respect. He made no attempt to retain the body
of the estate as against the trustee in bankruptcy. As to his
disbursements and compensation while acting as assignee, he
asserted an adverse claim. Under the settled rule of this Court, he
could not be proceeded against summarily for such disbursements and
compensation over his protest duly made against that method of
procedure.
In our view, the courts below erred in deciding otherwise, and
the order of the circuit court of appeals is accordingly
Reversed.
*
See full consideration of the subject by the Circuit
Court of Appeals of the Eighth Circuit, Judges Sanborn, Van
Devanter, and Reed, in
In re Rathman, 183 F. 913; Collier
on Bankruptcy (11th ed.) 525, 528, and cases cited in notes; Black
on Bankruptcy, 974; 2 Remington on Bankruptcy (2d ed.) ยง 1612; 1
Loveland on Bankruptcy (2d ed.) 129.