Held, that the bankruptcy court, in a proceeding under
§ 77B of the Bankruptcy Act, abused its discretion in denying a
State permission to institute proceedings in a state court to have
adjudged confiscate a quantity of oil, then in the possession of
the trustee of the debtor, but claimed by the State to have become
its property through statutory forfeiture when, prior to the
approval of the debtor's petition, it was produced or transported
in alleged violation of the conservation laws of the State. P.
302 U. S.
289.
Possession had been voluntarily surrendered to the bankruptcy
court by receivers appointed by a state court in other proceedings
brought by the State.
88 F.2d 48 reversed.
Certiorari, 301 U.S. 674, to review a judgment affirming orders
of the District Court in a proceeding under § 77B of the Bankruptcy
Act.
Page 302 U. S. 285
MR. JUSTICE BUTLER delivered the opinion of the Court.
This writ is limited to the questions raised on the application
of Texas to the United States court for the Northern District of
that State in a proceeding under § 77B of the Bankruptcy Act, as
amended [
Footnote 1] for
permission to institute proceedings in a state court for the
confiscation of oil held by the trustee but claimed by the State as
"unlawful oil" because produced or transported in violation of
state conservation measures.
Texas statutes [
Footnote 2]
and orders of its Railroad Commission purport to prorate production
of crude oil, to prohibit purchase, transportation, or handling of
that produced in whole or in part in excess of the amount allowed,
[
Footnote 3] to impose fines
and penalties for violations, [
Footnote 4] and to make oil produced or transported in
violation of statute or order subject to confiscation in an action
brought by the State for that purpose. [
Footnote 5] The statute declares that if, at the
Page 302 U. S. 286
trial, it shall be found that the oil is unlawful, the court
shall render judgment forfeiting the same to the State and
authorizing an order directed to sheriff or constable commanding
him "to seize and sell" the condemned oil. Costs of suit and
expenses of the sale are to be paid out of money received from the
oil, and the balance becomes part of the general revenue fund of
the State.
There is before us no question as to validity of the State's
measures to regulate production, or as to when, if ever, the oil in
controversy became forfeit. [
Footnote 6] The sole issue is whether the bankruptcy court
should have permitted the State to bring suit in a state court to
have the oil adjudged confiscate.
These are the facts.
Texas sued the Trinity Refining Company in the district court,
126th judicial district, Travis county, to recover fines and
penalties for violation of the conservation
Page 302 U. S. 287
laws. The court appointed Clopton and Hyder receivers of
defendant's property pending the trial of the case. They took
possession of property claimed by the defendant, including a large
quantity of oil which the State insists had already become its
property because unlawfully produced or transported. Later, the
State sued the company in the district court, 98th judicial
district of the same county, to recover delinquent taxes. That suit
having been transferred to the district in which the first was
pending, the court there appointed as receivers in the second case
the same persons it had appointed in the first one.
Within four months after commencement of the first suit, the
company filed its petition in the United States District Court,
submitting a plan of reorganization. The court found the petition
to have been presented in good faith, approved it as properly
filed, appointed Donoghue trustee of the debtor, directed him to
take possession of its property, ordered that all persons having
property of the debtor deliver it to him, and issued in usual form
a restraining order preventing interference with his possession or
control. The trustee took from the receivers property claimed by
the debtor including the oil in question, approximately 77,000
barrels. Texas applied to the bankruptcy court for permission to
bring suit in a state court to obtain judgment of confiscation
against that oil. The court withheld consent and directed the
trustee to retain the oil. The Circuit Court of Appeals sustained
that ruling, 88 F.2d 48, 51, and, to review its judgment upon that
issue, we brought the case here. 301 U.S. 674. [
Footnote 7]
Page 302 U. S. 288
The State's right to bring the suit in the state court is the
same as if, on its voluntary petition, the company had been
adjudged bankrupt on the day its petition for reorganization was
approved. Section 77B(o). Forfeiture of unlawful oil under Texas
law is a penalty imposed to vindicate the State's policy of
conservation.
Champlin Refining Co. v. Corporation
Commission, 286 U. S. 210,
286 U. S.
240-241. The bankruptcy court exercises jurisdiction
under sovereignty that is independent of and foreign to that of
Texas.
Moore v. Mitchell, 281 U. S.
18,
281 U. S. 23. It
is without power to enforce penalties imposed by the State for
violation of its laws.
The Antelope,
10 Wheat. 66, 23 U. S.
123; Wisconsin v. Pelican Ins. Co.,
127 U. S. 265,
127 U. S.
289, et seq. Cf.
§ 57j, Bankruptcy Act;
[Footnote 8] New York v.
Jersawit,
263 U. S. 493,
263 U. S.
496; United States v. Childs, 266 U.
S. 304,
266 U. S.
309-310. The State's insistence is not that it is
presently entitled to establish a right to forfeit the oil, but
that the oil became its property when produced or transported
contrary to law. It seeks not to forfeit, but to enforce the
forfeiture that resulted, as it maintains, immediately from
unlawful production or transportation.
Possession or control of the oil by the state court is not
essential to its jurisdiction to entertain the suit proposed to be
brought. [
Footnote 9] Texas
does not claim to be entitled to possession of the oil until final
adjudication in the state court. Retention by the trustee is not
inconsistent with the maintenance of that suit. He is entitled
there to be heard in support of his claim to the oil. If, when the
debtor's petition was approved, the oil did not belong to Texas,
the State was not entitled to have it withheld from the trustee.
But if, by reason of unlawful production or transportation, the oil
had already by forfeiture become
Page 302 U. S. 289
the property of the State, the trustee was not entitled to take
or retain it. If, in a suit brought by Texas in a state court, it
should be determined that title to the oil had vested in the State
before approval of the debtor's petition, the bankruptcy court
doubtlessly will recognize that title and direct the trustee to
hand over the oil or account for it to the State.
Rose v.
Himely, 4 Cranch 241,
8 U. S. 268;
Hudson v.
Guestier, 4 Cranch 293,
8 U. S. 297.
See Wisconsin v. Pelican Ins. Co., supra, 127 U. S.
291.
The filing of the petition for reorganization in the bankruptcy
court may not be held to deprive the opportunity in its own court
to establish its claim that through forfeiture it had already
become the owner of the oil for that would be to take the State's
property for the benefit of the offending company or its creditors.
Nor may the receivers' voluntary surrender of possession to the
debtor's trustee prevent adjudication of the State's claim. The
bankruptcy court abused its discretion in denying the State's
application for permission to institute proceedings in the state
court and, to the extent that the Circuit Court of Appeals
sustained that ruling, its judgment must be reversed.
Reversed.
[
Footnote 1]
11 U.S.C. § 207.
[
Footnote 2]
Texas Revised Civil Statutes, 1925, Title 102.
[
Footnote 3]
Art. 6049e, § 10.
[
Footnote 4]
Article 6036.
[
Footnote 5]
Article 6066a, § 10:
"(a) All unlawful oil . . . [is] hereby declared to be a
nuisance and shall be forfeited to the State as hereinafter
provided. . . ."
"(b) When the Attorney General is advised from any source of the
presence and existence of unlawful oil . . . it shall be his duty
to institute a suit
in rem against such unlawful oil . . .
and against all persons owning, claiming or in possession thereof,
such suit to be brought in the name of the State . . . in any court
of competent jurisdiction in Travis County or in the county in
which such oil . . . is located. If it shall appear to the court .
. . that unlawful oil . . . mentioned in the petition [is] in
danger of being removed, wasted, lost, or destroyed, the court is
authorized and required . . . to issue restraining orders or
injunctive relief . . . or to appoint a receiver to take charge of
the oil . . . in question, or to direct the sheriff of the county .
. . to seize and impound the same until further orders of the
court. . . ."
"(c) . . . If, upon the trial of such suit, the oil . . . in
controversy is found to be unlawful . . . , then the court . . .
shall render judgment forfeiting the same to the State . . . and
authorizing the issuance of an order of sale directed to the
sheriff or any constable of the county where the oil or products
are located commanding such officer to seize and sell said property
in the same manner as personal property is sold under execution. .
. . The money realized from the sale . . . shall be applied, first,
to the payment of the costs of suit and expenses incident to the
sale . . . and all funds then remaining, shall be . . . placed to
the credit of the General Revenue Fund of the State."
[
Footnote 6]
United States v.1960 Bags of
Coffee, 8 Cranch 398.
See also Clark v.
Protection Insurance Co., 1 Story 109, 134, Fed.Cas.
No.2,832.
[
Footnote 7]
Later, no plan of reorganization having been adopted, the
bankruptcy court ordered liquidation of the debtor's property under
subdivisions (c)(8) and (k) of § 77B. Donoghue was appointed
trustee in bankruptcy. Section 44, 11 U.S.C. § 72. This Court
substituted him in that capacity as respondent in place of himself
as trustee of the debtor.
[
Footnote 8]
11 U.S.C. § 93(j).
[
Footnote 9]
Article 6066a, § 10(b) and (c).
MR. JUSTICE CARDOZO, dissenting.
I think the judgment should be affirmed.
Texas was not the owner of the oil in controversy when it came
into the possession of the court of bankruptcy. If she had been
such an owner, she could be heard in that court
pro interesse
suo, vindicating her title in reclamation proceedings like any
other adverse claimant. By common consent, ownership sufficient for
such relief was not hers when the court of bankruptcy took the oil
into its custody, and is not hers today.
"It is not correct to say that property forfeited is vested in
the government
Page 302 U. S. 290
at the very moment of forfeiture, and the title of the owner
immediately devested. On the contrary, the established doctrine is,
that, notwithstanding the forfeiture, the property remains in the
owner, until it is actually seized by the government, and then by
the seizure the title of the government relates back to the time of
the forfeiture."
Clark v. Protection Insurance Co., 1 Story 109, 134,
Fed.Cas. No.2832;
cf. United States v. Stowell,
133 U. S. 1. So far
as I am aware, there is no contention to the contrary. The oil
"shall be forfeited to the State as hereinafter provided" (Texas
Revised Civil Statutes, Art. 6066a, § 10), and not otherwise. The
statute does not mean that, without the aid of any judgment, title
is transferred at once on the commission of the offense. The
judgment is to be
in rem, and imports control over the
res. Pennoyer v. Neff, 95 U. S.
714,
95 U. S. 734;
Isaacs v. Hobbs Tie & T. Co., 282 U.
S. 734.
With the oil in the possession of the federal court of
bankruptcy -- a possession lawfully acquired -- leave to sue in the
state court for a decree of forfeiture and sale will be an idle and
empty form, productive of nothing except delay and vain expense,
unless, upon the pronouncement of the decree, it will be the duty
of the court of bankruptcy to surrender the oil to the court of
another jurisdiction, and this for the sole purpose of making a
forfeiture effective. I deny that any such duty will exist.
Cf.
Isaacs v. Hobbs Tie & T. Co., supra. I find no intimation
of its existence in any case till this one. Certainly there is none
in the cases now cited in the opinion of the court. True indeed it
is that, if possession of the
res were to be acquired by
the Texas court at the time of the decree of forfeiture, or even at
the time of a sale pursuant thereto, a title obtained thereunder
would be recognized as valid everywhere.
Wisconsin v. Pelican
Ins. Co., 127 U. S. 265,
127 U. S. 291;
Rose v. Himely,
4 Cranch 241;
Hudson v.
Guestier, 4 Cranch 293; Dicey, Conflict of
Page 302 U. S. 291
Laws, 5th Ed., pp. 484-485. This is far from saying that a court
of another jurisdiction which already holds the
res upon a
trust for general creditors will give its possession up in aid of a
forfeiture otherwise impossible. "The courts of no country execute
the penal laws of another."
The Antelope,
10 Wheat. 66,
23 U. S. 123;
Gwin v.
Breedlove, 2 How. 29,
43 U. S. 37;
Wisconsin v. Pelican Ins. Co., supra; Huntington v.
Attrill, 146 U. S. 657,
146 U. S. 666;
Loucks v. Standard Oil Co., 224 N.Y. 99, 102, 120 N.E.
198; Dicey,
supra, p. 212.
Cf. Bankruptcy Act, §
57(j). Within the purview of that doctrine, the state and the
federal courts are ranked as courts of separate sovereignties,
quite as much as the courts of different states.
Gwin v.
Breedlove, supra; Moore v. Mitchell, 281 U. S.
18,
281 U. S. 23. If
the oil in controversy had been removed to California and were in
possession of the receivers of a California corporation after a
decree of dissolution, would anyone contend that the California
court would order its receivers to return the property to Texas for
the purpose by such return of making a forfeiture effective? A
federal court of bankruptcy is subject to no greater duty. The
prevailing opinion commits us to a holding that property in one
jurisdiction may be diverted from the use of creditors and made to
feed a forfeiture in another jurisdiction, a forfeiture
brutum
fulmen unless thus aided from afar. If that is done, the
efficacy of penal laws will have taken on a new extension. Without
a transfer of possession, the forfeiture is dead at birth. A court
of bankruptcy will not stir a hand to make it viable.
I am authorized to state that MR. JUSTICE STONE joins in this
opinion.