Trustees in a reorganization proceeding under Chapter X of the
Bankruptcy Act, as amended by the Chandler Act of 1938, 52 Stat.
840, who have been authorized by the reorganization court to sue
officers and directors of the debtor corporation and affiliated
interests alleging misappropriation of corporate assets (discovered
in an investigation under § 167) and seeking an accounting and
other relief, may bring such suit in another federal district
court, even in the absence of diversity of citizenship or other
usual grounds of federal jurisdiction. Pp.
331 U. S.
646-662.
(a) The phrase "proceedings under this Act," as used in § 2,
does not relate solely to summary proceedings, but includes
plenary
Page 331 U. S. 643
suits as well.
Lathrop v. Drake, 91 U. S.
516, followed.
Bardes v. Hawarden Bank,
178 U. S. 524, and
Schumacher v. Beeler, 293 U. S. 367,
distinguished. Pp.
331 U. S.
646-662.
(b) Section 23 was adopted as a limitation on the plenary
jurisdiction conferred upon all district courts by § 2. Pp.
331 U. S.
648-654.
(c) Section 102 of Chapter X, making § 23 inapplicable in
proceedings under that Chapter, removes this limitation and gives
all federal district courts jurisdiction under § 2 over plenary
suits brought by a Chapter X trustee, even though diversity of
citizenship or other usual ground for federal jurisdiction is
lacking. Pp.
331 U. S.
654-659,
331 U. S.
661-662.
(d) Such jurisdiction is not confined to the reorganization
court, but applies to all other district courts as well. Pp.
331 U. S.
659-661.
159 F.2d 67 affirmed.
A District Court in New York dismissed for want of jurisdiction
a suit brought by trustees appointed by a District Court in
Virginia in a reorganization proceeding under Chapter X of the
Bankruptcy Act. 67 F. Supp. 223. The Circuit Court of Appeals
reversed. 159 F.2d 67. This Court granted certiorari. 330 U.S. 813.
Affirmed, p.
331 U. S.
662.
Page 331 U. S. 644
MR. CHIEF JUSTICE VINSON delivered the opinion of the Court.
Section 2(a) of the Bankruptcy Act [
Footnote 1] confers upon all bankruptcy courts
"such jurisdiction at law and in equity as will enable them to
exercise original jurisdiction in proceedings under this Act . . .
to . . . (7) Cause the estates of bankrupts to be collected,
reduced to money and distributed, and determine controversies in
relation thereto, except as herein otherwise provided. . . ."
The exception has reference to § 23 (b), which requires that
"Suits by the receiver and the trustee shall be brought or
prosecuted only in the courts where the bankrupt might have brought
or prosecuted them if proceedings under this Act had not been
instituted, unless by consent of the defendant, except as provided
in sections 60, 67, and 70 of this Act. [
Footnote 2]"
Congress, however, in the Chandler Act of 1938, declared the
inapplicability of § 23 in reorganization proceedings under Chapter
X, and it is upon the significance
Page 331 U. S. 645
of this action to the jurisdiction of the federal courts that
this case turns. [
Footnote
3]
Respondents were appointed trustees for the Central States
Electric Corporation, a Virginia Corporation in reorganization in
the District Court of the United States for the Eastern District of
Virginia. Following an investigation under § 167 [
Footnote 4] of the Act, respondents were
authorized to institute suit against petitioners, who are past and
present officers and directors of the debtor and others having
connection therewith. This suit was then filed against petitioners
in the District Court of the United States for the Southern
District of New York alleging a conspiracy to misappropriate
corporate assets and asking an accounting and other relief. There
was no allegation of diversity, and jurisdiction was rested
upon
"the Constitution of the United States (Article I, Section 8,
Clause 4, and Article III, Section 2), the Act of Congress relating
to Bankruptcies (U.S.Code Title 11), and . . .
Page 331 U. S. 646
the provisions of Section 24(1), (19) of the Judicial Code. . .
."
The District Court dismissed for lack of jurisdiction, [
Footnote 5] but the Circuit Court of
Appeals reversed, holding that, since the governing provisions of §
23, to which the "except" clause of § 2(a)(7) refers, were
suspended in Chapter X proceedings, jurisdiction to hear this
plenary suit could be rested upon the general language of § 2.
Other alleged grounds for jurisdiction were not considered. 159
F.2d 67.
1. Petitioners construe "proceedings under this Act," within
which the jurisdictional grant contained in § 2 is confined, as
extending only to matters proper for summary disposition, [
Footnote 6] and interpret the
suspension of § 23 in Chapter X cases, without providing a
substitute therefor, as removing from the Act an affirmative grant
to federal courts of jurisdiction to hear plenary suits, rather
than as an action aimed at expanding that jurisdiction. [
Footnote 7] But these views rest, in
the main, upon what we think is an erroneous appraisal of the
history of §§ 2 and 23.
Section 2 is substantially identical with § 1 of the Bankruptcy
Act of 1867, [
Footnote 8]
Babbitt v. Dutcher, 216 U. S. 102,
Page 331 U. S. 647
216 U. S. 107,
and cases dealing with that Act, while recognizing that certain
suits brought by bankruptcy assignees should proceed in plenary,
rather than summary, fashion, held that § 1 gave jurisdiction to
the bankruptcy courts to proceed in both ways. [
Footnote 9] And, although certain aspects of a
bankruptcy proceeding could be handled only by the court in which
the adjudication was had, § 1 conferred upon all bankruptcy courts
jurisdiction to hear plenary suits brought by bankruptcy assignees
against adverse claimants or against debtors of the bankrupt.
[
Footnote 10]
Lathrop v. Drake, 91 U. S. 516,
viewed the jurisdiction of the district courts in this manner and,
we think, contrary to the statements later made in
Bardes v.
Hawarden Bank, 178 U. S. 524, and
Schumacher v. Beeler, 293 U. S. 367,
upon which petitioners rely, considered the jurisdiction of the
district courts over plenary suits to rest upon § 1 of the 1867
Act. [
Footnote 11]
Page 331 U. S. 648
Section 2 of the Bankruptcy Act of 1898 substantially repeated
the broad grant of jurisdiction contained in § 1 of the 1867 Act.
The bankruptcy courts were given "such jurisdiction at law and in
equity as will enable them to exercise original jurisdiction in
bankruptcy proceedings. . . ." [
Footnote 12] But § 2(a)(7), while granting to all
bankruptcy courts jurisdiction to collect and to hear
controversies
Page 331 U. S. 649
relating to the estate of the bankrupt, appended the words
"except as herein otherwise provided." The exception had reference
to § 23, [
Footnote 13]
which, in the clause applicable to the district courts, provided
that, unless by the consent of the defendant, suits by the
bankruptcy trustee should be brought only in the courts where the
bankrupt might have brought them if bankruptcy proceedings had not
been instituted. In sharp contrast to the broad language of §
2(a)(7), and to the practice under the 1867 Act, [
Footnote 14] § 23, in the interest of
litigants and witnesses, deliberately directed to the state courts
most of a bankruptcy trustee's plenary suits. [
Footnote 15]
Page 331 U. S. 650
Some lower federal courts, however, immediately held that § 23
did not apply to suits brought to recover certain transfers of the
bankrupt's property and, relying upon § 2, upheld the jurisdiction
of federal courts. [
Footnote
16]
Bardes v. Hawarden Bank, supra, checked this trend
and gave full scope to the language of § 23. Suits to recover
fraudulent transfers, like other plenary suits, were to be tried in
the state courts. It was, in the
Bardes case, unnecessary
to explore the scope of § 2, for whatever the grant of jurisdiction
there made, the interpretation given § 23 would have required the
result reached. In any event, the construction of § 2, standing
alone and without regard for the influence of § 23, as being
confined to summary matters rested to a great extent upon a reading
of
Lathrop v. Drake, supra, with which, as has been
indicated, we cannot agree.
Congressional reaction to the
Bardes case was almost
immediate. Wishing to allow the trustee to resort to federal courts
in recovering fraudulent transfers and preferences, Congress, in
1903, created exceptions to § 23 in favor of suits brought under §§
60(b), and 67(e); [
Footnote
17] and, being doubly cautious, Congress also inserted in §§
60(b) and 67(e) clauses giving any bankruptcy court jurisdiction to
hear plenary suits brought under those sections. [
Footnote 18] It was explained at the time
by the House judiciary committee
Page 331 U. S. 651
that § 2(a)(7) would probably have been ample basis for the
jurisdiction of the bankruptcy courts, and that it was only to
remove all doubt that §§ 60(b) and 67(e) had also been amended.
[
Footnote 19]
Where §§ 60(b), 67(e), and 70(e) were not involved, the
Bardes rule continued to be applied where plenary
proceedings were required, as in cases relating to property
adversely
Page 331 U. S. 652
held [
Footnote 20] and
suits upon choses in action belonging to the bankrupt's estate.
[
Footnote 21] Left for
summary disposition under § 2 were those proceedings in which the
controversy related to property in the possession or constructive
possession of the court or to property held by those asserting no
truly adverse claim. [
Footnote
22]
From its inception, § 23 contained a clause seemingly mitigating
the rigors of the jurisdictional requirements imposed. A trustee,
"unless by consent of the proposed defendant," could bring suit
only in courts where the bankrupt could have sued. Subsequent to
the
Bardes case, some lower federal courts held that, even
with the consent of a defendant, some independent ground for
federal jurisdiction must be present. [
Footnote 23] The conflict was resolved in
Schumacher v. Beeler, supra. It was held that, in § 23,
Congress had exercised its bankruptcy powers to confer upon federal
courts jurisdiction conditioned upon a defendant's consent,
[
Footnote 24] and that,
given consent, no independent
Page 331 U. S. 653
ground for federal jurisdiction was required. The case turned
upon the meaning of the consent clause in § 23. The remarks offered
concerning § 2 were unnecessary, and, in any event, were based upon
the similar statements made in
Bardes v. Hawarden Bank,
supra.
The
Beeler decision, like that in the
Bardes
case, does not direct a conclusion that § 2, in the absence of §
23, confers only a summary jurisdiction; for it was because of the
limitations of § 23 that plenary suits had been excluded from the
otherwise broad scope of § 2. [
Footnote 25] Cases construing the latter in the presence
of the overriding prohibitions of
Page 331 U. S. 654
§ 23 are not persuasive in a situation where, for the first
time, § 23 has been declared inoperative.
2. To accept petitioner's reading of § 2 would produce
consequences affording peculiar explanations for the express
elimination of § 23 in Chapter X cases. For one thing, there would
be destroyed the consent basis for federal jurisdiction of plenary
suits brought by a trustee, [
Footnote 26] and, for another, diversity jurisdiction
would depend upon the citizenship of the trustee, rather than upon
that of the debtor. The latter is a formal change of no obvious
value, and the former puts a greater limitation upon the
jurisdiction of a Chapter X court than has been placed upon an
equity receivership, 77B, or ordinary bankruptcy court, a result in
obvious contrast to discernible trends in reorganization law.
The committee reports and Congressional debates do not elaborate
upon the decision to eliminate § 23, [
Footnote 27] and the hearings reveal only that § 23 was
one of several sections which the National Bankruptcy Conference
desired to eliminate, and which might be held applicable if not
expressly deleted. [
Footnote
28] However, the action occurred in the
Page 331 U. S. 655
process of developing a workable reorganization technique and
should be viewed in that context. While an equity receivership
court had dependent jurisdiction, regardless of diversity or other
independent grounds for federal jurisdiction, to hear plenary suits
related to the estate of the
Page 331 U. S. 656
debtor, [
Footnote 29]
under § 77B, which made reorganization of nonrailroad corporations
a part of the bankruptcy scheme, it was believed in some quarters
that § 23 would have its traditional effect upon the jurisdiction
of federal courts to hear plenary suits, even though the
reorganization court was given the "powers" of an equity
receivership court. [
Footnote
30] Other commentators, thinking that § 77B should not provide
a less efficient procedure than the equity receivership, considered
§ 23 inapplicable to 77B cases and regarded the reorganization
courts as having jurisdiction to hear plenary suits. [
Footnote 31] The controversy had not
been settled when Congressional committees were considering the
bill which became the Chandler Act of 1938, and such a background
for the suspension of § 23 in Chapter X cases obviously raises no
inference of a desire to restrict, rather than to expand, the
jurisdiction of the federal courts.
To interpret the elimination of § 23 in Chapter X cases as
restricting the access of the trustee to the federal courts would
not be in harmony with other provisions contemporaneously written
into Chapter X and defining anew the position and functions of the
reorganization trustee. The appointment of a disinterested trustee
was made mandatory in appropriate cases, [
Footnote 32] his qualifications were prescribed,
[
Footnote 33]
Page 331 U. S. 657
and upon him were devolved functions aimed at eliminating the
abuses of previous reorganization schemes. [
Footnote 34] It was his duty to prepare the
reorganization plan, [
Footnote
35] and there were conferred upon him investigative powers and
duties [
Footnote 36] which
not only contemplated the discovery of wrongs done the debtor by
its former management, but also insured the "prosecution of all
causes of action" which might "add to the assets of corporations in
reorganization." [
Footnote
37] These provisions were "of paramount importance in the
revision of § 77B," [
Footnote
38] and are hardly indicative of a Congressional desire to
restrict the trustee's choice of a forum in which to litigate
plenary suits. On the contrary, the conclusion more in accord with
the purposes of Chapter X and with the pivotal position in which
the trustee was placed [
Footnote
39] is that Congress
Page 331 U. S. 658
intended by the elimination of § 23 to establish the
jurisdiction of federal courts to hear plenary suits brought by a
reorganization trustee, even though diversity or other usual ground
for federal jurisdiction is lacking.
The decision of the Circuit Court of Appeals is in entire
harmony with the foregoing considerations. The language of § 2, in
its ordinary sense and no longer limited by § 23, easily
comprehends the present type of suit, and so to hold directly and
effectively subserves Congressional desires as revealed in the
plain policy of Chapter X and in the express elimination of § 23,
which has, since its enactment in 1898, been viewed as a sharp
restriction upon the jurisdiction theretofore exercised by
bankruptcy courts, and as a strong preference for state courts.
[
Footnote 40] Since all
reorganization courts are the objects of the jurisdiction conferred
by § 2, [
Footnote 41] the
District Court for the Southern District of New York has
jurisdiction to hear the present suit, which is brought by
reorganization trustees and which charges misappropriation of the
assets of a Chapter X debtor. [
Footnote 42] "This seems to be the only logical
conclusion to
Page 331 U. S. 659
be derived from the fact that § 23 has no application under
Chapter X." [
Footnote
43]
3. Respondents, in the alternative, argue that the equity
receivership powers conferred by § 115 [
Footnote 44] include jurisdiction to hear plenary
suits, and that all reorganization courts may exercise the
jurisdiction so conferred. Petitioners would, in any event, confine
the effects of § 115 to the reorganization court in which the
reorganization petition has been approved. We need not pass on
these contentions, for, assuming that § 115 is jurisdictional
[
Footnote 45]
Page 331 U. S. 660
and that it extends only to the primary court, jurisdiction in
the present case may still be rested upon § 2. That section, in the
absence of § 23, supports the jurisdiction of all district courts
to hear plenary suits brought by a reorganization trustee, a result
consistent with the aims of Chapter X and with the elimination of a
section which is itself applicable to all district courts. Congress
could have carved out of § 23 only a narrow exception in favor of
the court in which the reorganization proceedings are pending, and
thereby left unchanged the jurisdiction of other courts over a
trustee's plenary suits. Limited exceptions are familiar in the
history of § 23. But Congress went further, and eliminated § 23
entirely in Chapter X proceedings. Because of the country-wide
ramifications of corporate debtors placed in Chapter X
reorganization, it is as usual as not for the trustee to resort to
foreign jurisdictions for the disposition of plenary suits.
Allowing the primary court to hear these suits will not change this
situation if it is true that the process of a reorganization court
does not run nationwide in plenary cases. [
Footnote 46]
Page 331 U. S. 661
Congressional policy would receive only limited recognition if
the suspension of § 23 is interpreted as allowing the trustee
access to only the appointing court and as restricting his access
to all other district courts. [
Footnote 47]
4. Our holding is, of course, that Congress, in 1938, extended
the jurisdiction of the reorganization courts beyond that exercised
by ordinary bankruptcy courts. Section 2 of the 1898 Act contained
the broad language borrowed from § 1 of the Act of 1867. But the
exception to § 2(a)(7) acknowledged the overriding limitations of §
23, which was the embodiment of Congressional policy to exclude
from the bankruptcy courts many of the trustee's plenary suits.
That same meaningful section was expressly eliminated in 1938 in
the process of perfecting a chapter of the Bankruptcy Act dealing
with the distinctive and special proceedings in corporate
reorganization.
Cf. Continental Bank v. Rock Island R.
Co., 294 U. S. 648,
294 U. S. 676.
This negation of longstanding policy should be given effect
consistent with the aims of Chapter X, and should not be hedged by
judge-made principles not in accord with those aims. Congress need
not document its specific actions in elaborate fashion in order to
direct this Court's attention to statutory policy and purpose.
Page 331 U. S. 662
The failure to provide appropriate fanfare for the suspension of
§ 23 in Chapter X cases, and for the consequent expansion of
federal jurisdiction, hardly invites our opinion as to the
advisability of the action which Congress has taken. Judicial
drives to limit the jurisdiction of federal courts should not lead
to decision falling short of complete effectuation of statutory
scheme. With the limitations of § 23 suspended, § 2 confers
jurisdiction upon all reorganization courts to hear plenary suits
brought by a Chapter X trustee.
5. Petitioners insist that certain consequences, which they term
undesirable, will flow from this decision. It is said, for example,
that the state courts will automatically be deprived of
jurisdiction to hear a trustee's plenary suits. But whether or not
this and other suggested consequences will follow we leave for
consideration in cases presenting such issues for decision.
The decision of the Circuit Court of Appeals is
Affirmed.
[
Footnote 1]
The Chandler Act of 1938, 52 Stat. 840, generally revised the
Bankruptcy Act of 1898, 30 Stat. 544, as amended. Section 2, in its
original form, was substantially as set out in the text, except
that jurisdiction was conferred "in bankruptcy proceedings,"
instead of "[in] proceedings under this Act." The change in
language was made in 1938.
[
Footnote 2]
Section 23, in full, provides as follows:
"JURISDICTION OF UNITED STATES AND STATE COURTS. -- a. The
United States district courts shall have jurisdiction of all
controversies at law and in equity, as distinguished from
proceedings under this Act, between receivers and trustees as such
and adverse claimants, concerning the property acquired or claimed
by the receivers or trustees, in the same manner and to the same
extent as though such proceedings had not been instituted and such
controversies had been between the bankrupts and such adverse
claimants."
"b. Suits by the receiver and the trustee shall be brought or
prosecuted only in the courts where the bankrupt might have brought
or prosecuted them if proceedings under this Act had not been
instituted, unless by consent of the defendant, except as provided
in sections 60, 67, and 70 of this Act."
Section 23(a), as originally enacted, related to the circuit
courts, which were abolished in 1911 by § 289 of the Judicial Code,
36 Stat. 1167. Formal amendment to § 23(a), was made in 1926, 44
Stat. 664.
[
Footnote 3]
Chapter X, containing the reorganization provisions, superseded
§ 77B. Section 102 of Chapter X provides:
"The provisions of chapters I to VII, inclusive, of this Act
shall, insofar as they are not inconsistent or in conflict with the
provisions of this chapter, apply in proceedings under this
chapter:
Provided, however, That section 23, subdivisions
h and n of section 57, section 64, and subdivision f of section 70,
shall not apply in such proceedings unless an order shall be
entered directing that bankruptcy be proceeded with pursuant to the
provisions of chapters I to VII, inclusive. For the purposes of
such application, provisions relating to 'bankrupts' shall be
deemed to relate also to 'debtors,' and 'bankruptcy proceedings' or
'proceedings in bankruptcy' shall be deemed to include proceedings
under this chapter."
[
Footnote 4]
The investigation was made pursuant to the decision in
Committee for Holders v. Kent, 143 F.2d 684.
[
Footnote 5]
Petitioners also based their motion to dismiss on the applicable
statute of limitations, but the District Court indicated that, if
there had been jurisdiction to proceed, the motion to dismiss would
otherwise have been denied because of factual issues which first
required determination.
[
Footnote 6]
"Proceedings under this chapter," referred to in §§ 101 and 102
of Chapter X, is similarly construed.
[
Footnote 7]
According to this view, there would, in Chapter X cases, be no
provisions in the Bankruptcy Act conferring jurisdiction upon
federal courts to hear plenary suits other than in §§ 60, 67, and
70. A reorganization trustee would be left, where he could, to take
advantage of the ordinary grounds for federal jurisdiction.
[
Footnote 8]
14 Stat. 517. Section 1 gave the bankruptcy courts original
jurisdiction "in all matters and proceedings in bankruptcy" which
extended
"to all cases and controversies arising between the bankrupt and
any creditor or creditors who shall claim any debt or demand under
the bankruptcy; to the collection of all the assets of the
bankrupt. . . ."
[
Footnote 9]
Sherman v. Bingham, 21 Fed.Cas. 1270;
Goodall v.
Tuttle, 10 Fed.Cas. 579. The requirement of plenary
proceedings, though not expressly appearing in the Act, was well
recognized.
Marshall v.
Knox, 16 Wall. 551;
Smith v.
Mason, 14 Wall. 419.
[
Footnote 10]
Sherman v. Bingham, 21 Fed.Cas. 1270;
Goodall v.
Tuttle, 10 Fed.Cas. 579.
[
Footnote 11]
The references to the Act contained in the discussion of the
jurisdiction of the district courts obviously referred to § 1, and
Sherman v. Bingham, 21 Fed.Cas. 1270, which expressly
based upon § 1 the jurisdiction of the district courts to hear
plenary suits was cited with unreserved approval. The pertinent
passage in the
Lathrop case is as follows:
"The language conferring this jurisdiction of the district
courts is very broad and general. It is that they shall have
original jurisdiction in their respective districts in all matters
and proceedings in bankruptcy. The various branches of this
jurisdiction are afterwards specified, resulting, however, in the
two general classes before mentioned. . . . Each court, within its
own district, may exercise the powers conferred, but those powers
extend to all matters of bankruptcy, without limitation. . . . But
the exclusion of other district courts from jurisdiction over these
proceedings does not prevent them from exercising jurisdiction in
matters growing out of or connected with that identical bankruptcy,
so far as it does not trench upon or conflict with the jurisdiction
of the court in which the case is pending. Proceedings ancillary to
and in aid of the proceedings in bankruptcy may be necessary in
other districts where the principal court cannot exercise
jurisdiction, and it may be necessary for the assignee to institute
suits in other districts for the recovery of assets of the
bankrupt. That the courts of such other districts may exercise
jurisdiction in such cases would seem to be the necessary result of
the general jurisdiction conferred upon them, and is in harmony
with the scope and design of the Act. The State courts may
undoubtedly be resorted to in cases of ordinary suits for the
possession of property or the collection of debts, and it is not to
be presumed that embarrassments would be encountered in those
courts in the way of a prompt and fair administration of justice.
But a uniform system of bankruptcy, national in its character,
ought to be capable of execution in the national tribunals without
dependence upon those of the States in which it is possible that
embarrassments might arise. The question has been quite fully and
satisfactorily discussed by a member of this court in the first
circuit in the case of
Shearman v. Bingham, 7 Bank Reg.
490, and we concur in the opinion there expressed, that the several
district courts have jurisdiction of suits brought by assignees
appointed by other district courts in cases of bankruptcy."
91 U.S.
516,
91 U. S.
517-518.
[
Footnote 12]
Section 2 created the courts of bankruptcy and invested them
"with such jurisdiction at law and in equity as will enable them
to exercise original jurisdiction in bankruptcy proceedings . . .
to . . . (7) cause the estates of bankrupts to be collected,
reduced to money and distributed, and determine controversies in
relation thereto, except as herein otherwise provided."
[
Footnote 13]
First Nat. Bank v. Title & Trust Co., 198 U.
S. 280,
198 U. S. 289;
Bryan v. Bernheimer, 181 U. S. 188,
181 U. S. 189,
181 U. S. 194;
Bardes v. Hawarden Bank, 178 U. S. 524,
178 U. S. 535.
Section 23(b), as originally enacted, provided:
"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."
[
Footnote 14]
"A construction of the statute of 1898 which would deprive the
federal courts of jurisdiction of the suits in question [trustee's
suit to recover property] would make the act of 1898 unprecedented
among bankrupt acts."
In re Hammond, 98 F. 845, 853.
[
Footnote 15]
When S. 1035, which eventually became the Act of 1898, reached
the House, the judiciary committee recommended striking out all
after the enacting clause and substituting the committee's own
bill. Section 23 of the House version, 31 Cong.Rec. 1781 (1898),
survived both debate and conference action, and became § 23 of the
Act of 1898. In reviewing the bill preliminary to debate, the
chairman of the House judiciary committee explained:
"The jurisdiction of State courts to try controversies between
the trustees of bankrupt estates and parties claiming adverse
interest is not in any way interfered with."
"Suits by the trustee shall only be brought in the courts where
the bankrupt might have brought them except for the misfortune of
his bankruptcy, unless by the consent of the proposed
defendant."
"Under the last bankruptcy law, the litigation incident to the
settlement of estates was conducted almost wholly in United States
courts. The result was great inconvenience and much expense to a
majority of the people interested in such litigation as principals,
witnesses, and attorneys. Such will not be the effect under this
bill. It is proper that such should not be the case, speaking
generally, in behalf of the administration of justice."
31 Cong.Rec.1785 (1898).
[
Footnote 16]
In re Woodbury, 98 F. 833;
In re Hammond, 98
F. 845;
Louisville Trust Co. v. Marx, 98 F. 456.
[
Footnote 17]
32 Stat. 798, 799.
[
Footnote 18]
Id. at 799, 800. Congress likewise amended § 70(e),
but, by an oversight, the exceptions made to § 23 were not
correspondingly extended. The omission was corrected in 1910, 36
Stat. 840.
See H.Rep. No.511, 61st Cong., 2d Sess. 6
(1910).
[
Footnote 19]
"Section 9: Under the law of 1867, the Federal and State courts
had concurrent jurisdiction of suits to recover property
fraudulently or preferentially transferred.
Bardes v. Bank of
Hawarden (Iowa),
178 U. S. 524, has so construed
section 23(b) of the law as to deny such jurisdiction to the
district courts, save with the consent of the proposed defendant.
In commercial centers, this amounts to a denial of justice, the
calendars of the State courts being years behindhand, while,
growing out of
Bardes v. Bank have come decisions which
have crippled the administration of the law to a marked degree.
(
See In re Ward (Mass.), 5 A.B.R. 215;
Mueller v.
Nugent (Ky.), 105 F. 581; this latter, however, recently
reversed by the Supreme Court.) There is a very general demand for
a return to the policy of the law of 1867.
Were it not for
section 23(b), section 2(a)(7) would probably confer ample
jurisdiction on the district courts. The change in section
23(b) proposed by the bill simply excepts from the operation of it
all suits which can, under the specific words of the law, be
brought to recover property, and this merely by referring to the
three sections under which alone such suits can be brought.
To
remove all doubt, also, sections 13 and 16 of the bill confer
concurrent jurisdiction of all such suits on the State courts and
the Federal district courts, by adding appropriate words to each of
the three sections, section 60(b), section 67(e), and section
70(e)."
H.Rep. No.1698, 57th Cong., 1st Sess. 7 (1902). (Italics
added.)
Substantially the same explanation was given on the floor of the
House by Representative George W. Ray, chairman of the judiciary
committee. 35 Cong.Rec. 6941, 6942 (1902).
Representative Ray, we note, was second ranking member of the
judiciary committee at the time of the passage of the 1898 Act. It
was that committee which drafted §§ 2 and 23 in substantially the
form appearing in the 1898 Act.
See note 15 supra. Representative Ray was
also a member of the House conference committee, and it was in
conference that the Act of 1898 was finally drafted and the serious
differences between the House and Senate were resolved.
[
Footnote 20]
Harris v. First Nat. Bank, 216 U.
S. 382.
[
Footnote 21]
Kelly v. Gill, 245 U. S. 116;
In re Roman, 23 F.2d 556;
Lynch v. Bronson, 177
F. 605.
[
Footnote 22]
Whitney v. Wenman, 198 U. S. 539;
Mueller v. Nugent, 184 U. S. 1;
Bryan v. Bernheimer, 181 U. S. 188,
181 U. S. 189;
White v. Schloerb, 178 U. S. 542.
"But in no case where it lacked possession could the bankruptcy
court . . . adjudicate in a summary proceeding the validity of a
substantial adverse claim. In the absence of possession, there was,
under the Bankruptcy Act of 1898, as originally passed, no
jurisdiction, without consent, to adjudicate the controversy even
by a plenary suit."
Taubel-Scott-Kitzmiller Co. v. Fox, 264 U.
S. 426,
264 U. S.
433-434.
[
Footnote 23]
Matthew v. Coppin, 32 F.2d 100, 101;
see Stiefel v.
14th Street & Broadway Realty Corp., 48 F.2d 1041, 1043;
Coyle v. Duncan Spangler Coal Co., 288 F. 897, 901;
Operators' Piano Co. v. First Wisconsin Trust Co., 283 F.
904, 906;
De Friece v. Bryant, 232 F. 233, 236;
McEldowney v. Card, 193 F. 475, 479.
Contra: Beeler v.
Schumacher, 71 F.2d 831;
Toledo Fence & Post Co. v.
Lyons, 290 F. 637, 645.
[
Footnote 24]
"The Congress, by virtue of its constitutional authority over
bankruptcies, could confer or withhold jurisdiction to entertain
such suits and could prescribe the conditions upon which the
federal courts should have jurisdiction. . . . Exercising that
power, the Congress prescribed in § 23b the condition of consent on
the part of the defendant sued by the trustee."
Schumacher v. Beeler, 293 U. S. 367,
293 U. S.
374.
[
Footnote 25]
The cases decided under the 1867 Act and referred to in notes
10-11 supra,
recognized the broad scope of language similar to that of § 2, and
cases arising under the 1898 Act and decided before
Bardes v.
Hawarden Bank, 178 U. S. 524,
based upon § 2 the jurisdiction of the federal courts to entertain
plenary suits to recover property adversely held.
See
note 16 supra.
Later cases have recognized the overriding consequence of §
23.
"Section 2, clause 7, confers upon the court of bankruptcy
jurisdiction to 'cause the estates of bankrupts to be collected,
reduced to money and distributed, and determine controversies in
relation thereto, except as herein otherwise provided.' But § 23(b)
prohibits the trustee (with exceptions not here applicable) from
prosecuting, without the consent of the proposed defendant, a suit
in a court other than that in which the bankrupt might have brought
it had bankruptcy not intervened."
Kelley v. Gill, 245 U. S. 116,
245 U. S.
119.
"There is plainly a controversy in relation to the estate of a
bankrupt, and subdivision 7 of section 2 would confer jurisdiction
if it were not for the limiting words, 'except as herein otherwise
provided.'"
Lynch v. Bronson, 160 F. 139, 140.
See also
Lowenstein v. Reikes, 54 F.2d 481, 485 (dissenting opinion),
and the analysis of the interplay of §§ 2 and 23 in Ross, Federal
Jurisdiction in Suits by Trustees in Bankruptcy, 20 Iowa L.Rev. 565
(1935), which was written after the
Beeler decision.
[
Footnote 26]
Schumacher v. Beeler, 293 U. S. 367.
See p.
331 U. S. 652
and
note 24 supra.
In
Tilton v. Model Taxi Corp., 112 F.2d 86, a 77B case,
the jurisdiction of the district court to entertain a plenary suit
was based upon consent.
[
Footnote 27]
The Senate report said, in regard to the committee's suggested
amendments to § 102:
"The proposed amendment amplifies the provision with reference
to applicability so as to leave no doubt that the provisions of
Chapters I to VII are alone to be deemed applicable, except where
inconsistent or in conflict with the provisions of the
chapter."
S.Rep. No.1916, 75th Cong., 3d Sess. 6 (1938).
The amendments to § 102 were agreed to without comment on the
floor of the Senate, and were similarly accepted by the House. 83
Cong.Rec. 8697, 9103, 9107, 9110 (1938).
[
Footnote 28]
The recommendation was made by Mr. John Gerdes.
See
Hearings before Subcommittee of the Committee on the Judiciary,
U.S. Senate, on H.R. 8046, 75th Cong., 2d Sess. 77 (1938). Mr.
Gerdes did not at this time explain the reasons for the suggested
suspension of § 23. He stated as follows:
"Chapter X is not intended to be self-sufficient. All provisions
of the general bankruptcy act are applicable to proceedings under
chapter X, except such provisions are inconsistent with express
provisions in chapter X. Some provisions of the general act are
clearly inconsistent with the corporate reorganization provisions,
and are therefore inapplicable. Other provisions are clearly
applicable. However, there are certain sections which, by their
nature, permit of doubt as to whether or not they are applicable.
Section 64 of the general bankruptcy act, for example, provides for
a fixed priority in the payment of claims. This section deals
solely with unsecured claims, only unsecured claims being affected
by bankruptcy. To apply it in corporate reorganizations -- where
secured as well as unsecured claims are dealt with -- would cause
great confusion. To make it clear that section 64 does not apply,
we propose this amendment which expressly provides that 64 shall
not be applicable to chapter X. The priorities under chapter X
would therefore be those used in equity receiverships. That is the
present practice under 77B, which expressly provides that section
64 shall not be applicable. When we adopt the same provision here,
we merely adopt the practice which is already in existence under
section 77B."
"In this enumeration of sections and subsections which are not
applicable, we include only those as to which there may be
reasonable doubt. The sections which we enumerate are 23, 57(h),
57(n), 64, and 70(f). We propose that section 102 be amended to
provide that these sections and subsections shall not be applicable
to proceedings under chapter X."
A representative of the Association of the Bar of the City of
New York also listed § 23 among those sections which "have no
applicability to a reorganization procedure."
Id. at 37.
And the spokesman for the Philadelphia Court Plan Committee
suggested amending § 23 to give ordinary bankruptcy courts more
effective powers to deal with fraudulently transferred or concealed
assets.
Id. at 26.
[
Footnote 29]
White v. Ewing, 159 U. S. 36;
see Riehle v. Margolies, 279 U. S. 218,
279 U. S.
223.
[
Footnote 30]
Finletter, Principles of Corporate Reorganization 185-87
(1937).
[
Footnote 31]
2 Gerdes, Corporate Reorganizations 1465 (1936). The courts had
not been squarely faced with the problem at the time Congress was
considering the 1938 revision of the Bankruptcy Act.
Matter of
United Sportwear Co., 28 Am.B.R. (N.S.) 456 (1935), had
suggested that § 23 was applicable, while the contrary intimation
is evident in
Thomas v. Winslow, 11 F. Supp.
839.
See also Note, 49 Harv.L.Rev. 797 (1936).
[
Footnote 32]
§ 156. The requirement of a disinterested trustee was one of the
major substantive additions which Chapter X made to § 77B. S.Rep.
No.1916, 75th Cong., 1st Sess.19 (1938).
[
Footnote 33]
§§ 156 and 158.
[
Footnote 34]
The important defects of 77B reorganizations and the remedy
provided in Chapter X are analyzed in S.Rep. No.2084, 75th Cong.,
3d Sess. 1-3 (1938).
[
Footnote 35]
§§ 167(6) and 169.
[
Footnote 36]
Section 167 in part provides:
"The trustee, upon his appointment and qualification --"
"(1) shall, if the judge shall so direct, forthwith investigate
the acts, conduct, property, liabilities, and financial condition
of the debtor, the operation of its business, and the desirability
of the continuance thereof, and any other matter relevant to the
proceedings or to the formulation of a plan, and report thereon to
the judge;"
"(2) may, if the judge shall so direct, examine the directors
and officers of the debtor and any other witnesses concerning the
foregoing matters or any of them;"
"(3) shall report to the judge any facts ascertained by him
pertaining to fraud, misconduct, mismanagement and irregularities,
and to any causes of action available to the estate."
[
Footnote 37]
S.Rep. No.1916, 75th Cong., 3d Sess. 29 (1938).
[
Footnote 38]
Ibid.
[
Footnote 39]
"These functions of the trustee appointed in the larger cases
are difficult to overemphasize. . . . Investors must be afforded a
focal point' for reorganization." H.Rep. No.1409, 75th Cong.,
1st Sess. 43 (1937).
[
Footnote 40]
"The bankruptcy act of 1898, in respect to the matters now under
consideration, was a radical departure from the act of 1867, in the
evident purpose of Congress to limit the jurisdiction of the United
States courts in respect to controversies which did not come simply
within the jurisdiction of the Federal courts as bankruptcy courts,
and to preserve, to a greater extent than the former act, the
jurisdiction of the state courts over actions which were not
distinctly matters and proceedings in bankruptcy."
Bush v. Elliott, 202 U. S. 477,
202 U. S.
479-480.
And see pp.
331 U. S.
649-650,
notes
14-15 supra.
[
Footnote 41]
Section 1(10) defines the courts of bankruptcy as follows:
"'Courts of bankruptcy' shall include the district courts of the
United States and of the Territories and possessions to which this
Act is or may hereafter be applicable, and the District Court of
the United States for the District of Columbia;"
Babbitt v. Dutcher, 216 U. S. 102.
And see § 2(a)(20) of the Bankruptcy Act.
[
Footnote 42]
Our conclusion is not changed by the language of § 23(a), which
as drawn in 1898, 30 Stat. 544, 552, was designed to grant a
limited jurisdiction to circuit courts over "controversies at law
and in equity," as distinguished from "proceedings in bankruptcy,"
and which seems only to have recognized the rule existing under the
1867 Act that certain bankruptcy matters were the exclusive concern
of the bankruptcy court. If "proceedings," as used in § 23(a),
denoted those instances in which summary jurisdiction was proper,
to find that "proceedings" in § 2 has no such precise meaning
simply exemplifies the variety of ways in which "proceedings" has
been employed in the bankruptcy statute. Section 11(e) authorizes
trustees to institute "proceedings in behalf of the estate upon any
claim," and refers to "any proceeding, judicial or otherwise." And
§ 60(b), 67(e), and 70(e) speak of "proceedings" in connection with
plenary. In Chapter X itself, §§ 101 and 102 refer to "proceedings
under this chapter." This term must extend to plenary suits, for
otherwise § 23, which deals only with plenary suits, would not be
suspended at all. Significant too is that "bankruptcy proceedings"
in § 2 was, in 1938, changed to "proceedings under this Act" in
order that the jurisdiction granted by § 2 would extend to
"proceedings" under the new debtor relief chapters, including
Chapter X.
[
Footnote 43]
6 Collier on Bankruptcy § 673 (14th ed.1947).
[
Footnote 44]
Section 115 provides:
"Upon the approval of a petition, the court shall have, and may,
in addition to the jurisdiction, powers, and duties hereinabove and
elsewhere in this chapter conferred and imposed upon it, exercise
all the powers, not inconsistent with the provision of this
chapter, which a court of the United States would have if it had
appointed a receiver in equity of the property of the debtor on the
ground of insolvency or inability to meet its debts as they
mature."
[
Footnote 45]
The similar "powers" provision in § 77B has been viewed as
nonjurisdictional.
In re Standard Gas & Electric Co.,
119 F.2d 658, 662;
see In re Prima Co., 98 F.2d 952, 958.
These cases were decided after the passage of the Chandler Act, and
considered § 23 fully applicable in pending 77B proceedings. In
Tilton v. Model Taxi Corp., 112 F.2d 86, § 23 was
considered applicable in § 77B proceedings so as to permit
jurisdiction of the district court to be based upon a defendant's
consent.
And see Thompson v. Terminal Shares, 104 F.2d 1,
for a treatment of a similar provision contained in § 77. On the
other hand, § 115 has been interpreted as jurisdictional.
In re
Cuyahoga Finance Co., 136 F.2d 18;
see Warder v.
Brady, 115 F.2d 89, 93, 94. Other courts have thought the
suspension of § 23 in Chapter X cases would give the reorganization
court jurisdiction to hear plenary suits.
See Clarke v.
Fitch, CCH Bankr.Law Ser. � 53,805 (1942);
Tilton v. Model
Taxi Corp., supra, 112 F.2d at 88.
[
Footnote 46]
It has been so held.
In re Standard Gas & Electric
Co., 119 F.2d 658;
Bovay v. H. M. Byllesby & Co.,
88 F.2d 990;
United States v. Tacoma Oriental S.S. Co., 86
F.2d 363;
Clarke v. Fitch, CCH Bankr.Law Ser. � 53,805
(1942).
[
Footnote 47]
The Chapter X cases cited in
note 45 supra, did not reach the question of
whether courts other than the primary court would have jurisdiction
to hear plenary suits where the latter had jurisdiction of such a
suit but could not exercise it because of personal service or venue
difficulties. Nor did Mr. Gerdes, who construed the suspension of §
23 as establishing, by way of § 115, the jurisdiction of the
reorganization court to hear plenary suits. Gerdes, Corporate
Reorganizations: Changes Effected by Chapter X of the Bankruptcy
Act, 52 Harv.L.Rev. 1, 21 (1938). But it was his opinion even under
§ 77B, where the applicability of § 23 was left in doubt, that all
reorganization courts, not just the domiciliary court, had
jurisdiction to hear plenary suits brought by the trustee, even
though the usual grounds for federal jurisdiction were lacking. 2
Gerdes, Corporate Reorganizations 1480, 1513-14, 1525-26
(1936).
MR. JUSTICE FRANKFURTER, whom MR. JUSTICE JACKSON joins,
dissenting.
On the surface, this appears to be merely a bankruptcy case
raising technical questions of federal jurisdiction. But the
answers to these questions have far-reaching import. They involve
the distribution of judicial power as between United States and
State courts, and thus concern federal-state relations generally.
More immediately, inasmuch as the allowable scope of the business
of the federal courts is in controversy, a proper disposition of
the case bears upon the quality of the work of those courts, and of
this Court in particular.
The Court makes a shift in the distribution of judicial power
between State and federal courts which has prevailed for half a
century. Such a break with the past is
Page 331 U. S. 663
not required by what Congress has written, nor by any inference
drawn from disclosed Congressional policies. On the contrary, I
believe that the result reached is repelled by every consideration
relevant to the proper construction of the statutory materials by
which the jurisdiction of the federal courts is to be
determined.
In 1867, Congress granted jurisdiction to the then lower federal
courts over suits on claims owing to one whose estate was
administered in bankruptcy, though the claims were based wholly on
local law and were devoid of any federal aspect which would give a
federal court jurisdiction were the creditor not in bankruptcy.
This was another one of those enactments of the Reconstruction
period when the influences toward expansion of federal jurisdiction
were at flood-tide. As part of the recession from this
Reconstruction tendency, Congress, in the Bankruptcy Act of 1898,
withdrew from the federal courts suits that rested solely on local
law even though they involved claims asserted on behalf of one
whose estate was being administered in the bankruptcy court. By a
tenuous process of implication, the Court now concludes that
Congress, through the Chandler Act of 1938, enlarged federal
jurisdiction in one aspect of the bankruptcy law, though neither
the terms of the legislation, nor its context, nor its legislative
history, nor considerations of policy heretofore suggested, call
for such construction, while the history and structure of the
legislation, its judicial interpretation, regard for congruity in
finding meaning, and the larger claims of the federal judicial
system support a different reading of the statute. The large
assumptions of the decision are that, by indirection and without
manifested design, Congress reversed its prevailing policy of
limiting federal jurisdiction and preserving a proper balance
between federal and State courts; that Congress deviated from a
principle of our federalism especially respected in recent times,
according to which claims arising under State
Page 331 U. S. 664
law shall be tried under local trial procedure in the local
courts; that Congress has departed from a settled policy of fifty
years uniformly applicable in bankruptcy proceedings and which now
continues as to all other proceedings in bankruptcy, although this
established policy of leaving local claims to the State courts does
not at all interfere with those aims for effective reorganization
through use of the bankruptcy power which gave rise to Chapter
X.
1. The facts in this case are not in dispute. The Central States
Electric Corporation filed in the District Court for the Eastern
District of Virginia a voluntary petition for reorganization under
Chapter X of the Bankruptcy Act. With the consent of the
reorganization court, respondents, as trustees, brought this suit
in the District Court for the Southern District of New York on
behalf of the Corporation for an accounting and damages against its
officers and directors for alleged fraud and mismanagement. The
District Court found want of jurisdiction, but was reversed by the
Circuit Court of Appeals for the Second Circuit. 159 F.2d 67. This
Court now affirms the Circuit Court of Appeals and holds that a
Chapter X trustee may bring this plenary suit
in personam
in a federal district court not the reorganization court, although
neither diversity of citizenship nor other ground of federal
jurisdiction exists.
No doubt Congress could authorize such a suit.
See
Schumacher v. Beeler, 293 U. S. 367,
293 U. S. 374.
Nor is there any doubt that Congress has not conferred upon the
district courts the power to entertain such a suit by an ordinary
bankruptcy trustee. Section 23 of the Bankruptcy Act specifically
limits plenary jurisdiction to a few enumerated cases (of which
this is not one), or where defendant consents. The Court finds,
however, that Congress, by making § 23 inapplicable to Chapter X
proceedings, opened all the federal courts to plenary suits by a
Chapter X trustee. To determine the significance of the
inapplicability
Page 331 U. S. 665
of § 23 to Chapter X proceedings, it is necessary to consider
the affiliations between the Bankruptcy Act of 1898 and the
Chandler Act. That, in turn, makes it necessary to examine the Act
of 1898 in relation to its predecessor, the Act of 1867. These
three enactments -- the Bankruptcy Act of 1867, the Bankruptcy Act
of 1898, and the Bankruptcy Act of 1938 -- are an interrelated
process of legislation. The role of § 23 cannot be properly
assessed merely by a textual reading, or by ascertaining its
presence or absence in these three Acts. It must be placed in the
context of the history of the Act of 1867 and of the Act of 1898,
and the relation of that history to the aims of the Chandler
Act.
2. To understand the full import of the Act of 1867, so far as
now relevant, it will bear repetition that it reflected the
expansionist trend in federal jurisdiction after the Civil War.
Statute after statute gave to the federal courts jurisdiction over
cases which had previously been left entirely to State tribunals,
and this Court gave a broad construction to such statutes. The
Bankruptcy Act of 1867 gave to all district and circuit courts
concurrent jurisdiction over suits "by the assignee in bankruptcy
against any person claiming an adverse interest" in the estate.
Section 2 of the Act of March 2, 1867, 14 Stat. 517, 518. This
provision was construed in
Lathrop v. Drake, 91 U. S.
516. Mr. Justice Bradley, with characteristic clarity,
distinguished between
"jurisdiction as a court of bankruptcy over the proceedings in
bankruptcy . . . [and] jurisdiction, as an ordinary court, of suits
at law or in equity brought by or against the assignee in reference
to alleged property of the bankrupt, or to claims alleged to be due
from or to him."
91 U.S. at
91 U. S. 517.
But the terms of the Act were read to confer the latter
jurisdiction on the lower federal courts. It is worth noting that
Mr. Justice Bradley was a well known exponent of expansive
Page 331 U. S. 666
federal jurisdiction.
See, e.g., his dissenting opinion
in
Murdock v.
Memphis, 20 Wall. 590,
87 U. S.
639.
3. The business which this broad construction of the Act of 1867
brought to the federal courts, together with that from other
sources, led to the overburdening of their dockets, and inevitably
of the dockets of this Court, and gave rise to the various
movements for their relief. The history of the federal courts is to
a considerable measure a history of the rise and fall of the scope
of the jurisdiction given to them by Congress. Not to take account
of these underlying factors in the construction of judiciary acts
is to leave out the meaning in the interstices of the words of
enactments. The Act of 1898 explicitly reveals the important shift
in emphasis that had taken place within thirty years in the
distribution between State and federal courts of the judicial power
at the disposal of Congress. By 1898, the expansionist trend in
federal jurisdiction had receded. The movement was toward a
curtailment for an overburdened judiciary. The new Bankruptcy Act
also showed the recession.
The Act of 1898 was not an amendment of the Act of 1867. The
latter had been repealed by the Act of June 7, 1878, 20 Stat. 99,
and for twenty years there was no federal bankruptcy Act.
Accordingly, the 1898 Act is not to be read as a modification of an
existing system. It established a scheme of bankruptcy
administration where there was none. Its framers, of course, drew
on history. They borrowed heavily from the Act of 1867. But a
comparison of the jurisdictional sections of the 1898 Act with
those of its predecessor reveals the great change in the attitude
of Congress regarding the withdrawal of essentially local
litigation from the State courts.
4. The shift in jurisdictional direction was duly respected when
the Act of 1898 first came here for construction. Speaking for a
unanimous Court, Mr. Justice Gray pointed out the marked structural
differences between
Page 331 U. S. 667
the Act of 1898 and that of 1867. The latter granted summary
jurisdiction to the district court in § 1; plenary jurisdiction was
conferred by § 2 on district and circuit courts concurrently of
"suits at law or in equity, between the assignee in bankruptcy and
an adverse claimant." The Act of 1898 took over § 1 of the Act of
1867, and discarded § 2. Section 2 of the Act of 1898, derived from
§ 1 of the 1867 Act, confers only summary jurisdiction. Plenary
jurisdiction was not conferred by the Act of 1898 on either the
district or circuit courts, except to the very limited extent
granted by § 23.
Such was the construction of the Act of 1898 made almost
contemporaneously with its enactment.
Bardes v. Hawarden
Bank, 178 U. S. 524.
This construction was reaffirmed thirty-four years later by a
unanimous Court, speaking through Mr. Chief Justice Hughes.
Schumacher v. Beeler, supra.
5. This recognition of the drastic difference between the two
Acts was not drawn merely from the inert words of the statutes. The
words expressed the great differences of outlook, to which
reference has been made, in regard to the transfer to the federal
courts of what is essentially State litigation. This Court found
the accent of the Act of 1867 to be on enforcement through
"national tribunals." The matter was put quite plainly by Mr.
Justice Bradley.
"The State courts may undoubtedly be resorted to in cases of
ordinary suits for the possession of property or the collection of
debts, and it is not to be presumed that embarrassments would be
encountered in those courts in the way of a prompt and fair
administration of justice. But a uniform system of bankruptcy,
national in its character, ought to be capable of execution in the
national tribunals without dependence upon those of the States in
which it is possible that embarrassments might arise."
Lathrop v. Drake, supra, at
91 U. S.
518.
Page 331 U. S. 668
The outlook of the Act of 1898 as to proceedings not in
bankruptcy "properly so called,"
Bardes v. Hawarden Bank,
178 U. S. 524,
178 U. S. 533,
was precisely the opposite. The emphasis was not on uniform
enforcement through "national tribunals." Concern was with "the
greater economy and convenience of litigants and witnesses" by
leaving the determination of what intrinsically are merely local
questions to the "local courts of the state."
Bardes v.
Hawarden Bank, supra, at
178 U. S. 538.
The Court again referred to this purpose of the 1898 Act when it
gave full reconsideration to the legislation in
Schumacher v.
Beeler, supra, at
293 U. S. 374.
Emphasis was placed on the importance of ready accessibility to
litigants afforded by local courts as against the inconvenience
often entailed in bringing suitors to the federal courts,
particularly in Western States. By reference to an earlier decision
in which that consideration was treated as a controlling factor,
the Court indicated a guiding principle in deciding questions of
doubtful jurisdiction.
See Shoshone Mining Company v.
Rutter, 177 U. S. 505,
177 U. S. 511,
177 U. S. 513,
cited in
Bardes v. Hawarden Bank, 178 U.S. at
178 U. S.
538.
6. But we are now told that the
Bardes and
Schumacher cases misconstrued the Act of 1898 and its
relation to that of 1867. The opinions of Mr. Justice Gray and Mr.
Chief Justice Hughes were, according to this view, the products of
misreading of judicial history and of a faulty analysis of the Act
of 1898. Indeed, the foundation of the decision of the court below
and of the argument at the bar of this Court is the claim that the
construction placed upon the jurisdictional Act of 1898 by the
Bardes and
Schumacher cases was erroneous, and to
be rejected without compunction because, after all, merely the
expression of erroneous dicta. Whether the discussion of the whole
structure of an Act in order to find meaning for a particular part
more immediately in litigation constitutes dicta, in the technical
sense, is a nice exercise in legal
Page 331 U. S. 669
dialectics. The fact of the matter is that it was rationally
relevant to the problem calling for adjudication in the
Bardes cases to consider comprehensively the relation of
the Act of 1898 to that of 1867. The view that was taken had the
strength that comes not only from a unanimous Court, but one
contemporaneous with the legislation under scrutiny. And when the
construction so placed upon an Act is reaffirmed thirty-four years
later by a Court particularly strong in justices who had had
extensive experience in commercial law, it seems pretty late in the
day to suggest that such weighty constructions by this Court are
now to be found wrong. [
Footnote
2/1] The court below was driven to this drastic undertaking.
For if § 2 of the Act of 1898 is the source solely of summary
proceedings in bankruptcy, and jurisdiction for plenary suits, to a
limited extent, was granted solely by § 23, the elimination of § 23
for purposes of Chapter X cannot serve to put into § 2 a plenary
jurisdiction which was never there.
7. To reexamine the ground covered in the
Bardes and
Schumacher cases would, as it seems to me, be a work of
supererogation. And so I will content myself with some observations
pertinent to a proper view of the Act of 1898 as an entirety. The
different features of an organic statute
Page 331 U. S. 670
are not discrete parts. They cast light upon each other and
illumine the whole. The Act of 1898 was read as it was by this
Court because it established a comprehensive bankruptcy scheme.
Sections 2 and 23 were read in combination, for they drew a sharp
line between "proceedings in bankruptcy" and plenary "suits at law
or in equity." For fifty years, it has been the policy of Congress
that a bankruptcy trustee bringing an action like that before us
should sue in a State court. (This, of course, includes a federal
court sitting in the State where there is diversity of citizenship.
Erie R. Co. v. Tompkins, 304 U. S. 64;
Guaranty Trust Company v. York, 326 U. S.
99.) Howsoever any section of the Act of 1898 might have
been read had it existed by itself, on a view of the Act as an
entirety, it was settled that summary proceedings may be brought in
any federal court, whereas plenary suits at law and in equity,
distinguished as such from proceedings in bankruptcy, can be
brought only where they could have been brought between the
bankrupt and the opposing party had there been no bankruptcy.
Section 2 had an intrinsically limited scope in its setting with §
23. The scope continues so limited, and does not automatically
expand because § 23 is
pro tanto eliminated.
This jurisdictional differentiation was not a matter of
Congressional whim or judicial technicality. It was easy for this
Court to discern that the object of Congress
"may well have been to leave such controversies to be tried and
determined, for the most part, in the local courts of the State, to
the greater economy and convenience of litigants and
witnesses."
Bardes v. Hawarden Bank, supra, at
178 U. S. 538;
Schumacher v. Beeler, supra, at
293 U. S. 374.
Congress saw good reason for not infringing on the ordinary
jurisdiction of State courts where a suit is not really part of the
bankruptcy proceedings. It chose to leave such litigation to the
appropriate local practice and local rules
Page 331 U. S. 671
concerning jury trial in the local court, and at the same time
to relieve thereby an overworked federal judiciary.
8. These important considerations touching the interplay of
State and federal courts, as well as the effective administration
of justice in the federal courts, have not lost force with time.
Congress has continued to recognize their validity. As to
bankruptcy trustees generally, the Act of 1938 continues to require
that local suits like the present be brought in local courts. And,
in preparing for the Judiciary Committee of the House of
Representatives an analysis of a predecessor bill introduced by Mr.
Chandler, the National Bankruptcy Conference indicated that the
considerations relevant to a proper distribution of business as
between State and federal courts which underlay the restrictive
policy of the Act of 1898 were, more than ever, applicable:
"In
Taubel-Scott-Kitzmiller Co. v. Fox, 264 U. S.
426, Mr. Justice Brandeis declared
obiter that
Congress had power to confer on a bankruptcy court jurisdiction to
adjudicate the rights of trustees to property not in possession of
the bankruptcy court, either actually or constructively, but
adversely held by a third person; but that Congress had not as yet
exercised that power, or conferred such jurisdiction under any of
the provisions of the Bankruptcy Act."
"The proceedings of Congress prior to the enactment of the
Bankruptcy Law of 1898 show that the exercise of that power was
deliberately withheld because of the fear of flooding the federal
courts with a large volume of new litigation. That motive is even
stronger today [1936] than it was in 1898, and, for that reason, we
do not consider it wise to enlarge the jurisdiction at this time,
except as indicated to include receivers and so-called 'debtor
proceedings.'"
(Analysis of H.R. 12889, 74th Cong., 2d Sess., Committee Print
p. 134.)
Page 331 U. S. 672
The indicated exceptions do not touch the jurisdiction here
asserted. Yet the Court now concludes that as to Chapter X trustees
Congress implied an exception so as to allow the trustee to sue in
any federal district court in the country. If this be so, I see no
escape from the conclusion that not only have the federal courts
jurisdiction. but the State courts no longer have it. Consideration
of so destructive a consequence ought not to be postponed as though
it were not immediately relevant to the proper construction of the
legislation before us. If such suits are "bankruptcy proceedings"
[
Footnote 2/2] within the
jurisdictional grant of § 2 -- for it is necessary to find in some
language an explicit grant of jurisdiction, and only § 2 is invoked
-- how can the bankruptcy aspect of the proceeding evaporate when
it comes to "matters and proceedings in bankruptcy" as to which
"[t]he jurisdiction vested in the courts of the United States . . .
shall be exclusive of the courts of the several States"? Rev.Stat.
§ 711, Judicial Code, § 256, 28 U.S.C. § 371. No support can be
found for this shifting attribution of meaning to the same concept
in the history of proceedings under the Act of 1867. To be sure, it
was held under that Act that the State courts were not deprived of
jurisdiction of such plenary suits. But that was so far the
conclusive reason that the provision making federal jurisdiction
exclusive in bankruptcy proceedings came into the law much later
than the Act of 1867. Federal exclusiveness as to bankruptcy
proceedings, formally so-called, was brought in by § 711 of the
Revised Statutes of 1874. During the few years within which the
Bankruptcy Act of 1867 coexisted with the requirement of
exclusiveness of jurisdiction in the federal courts, the occasion
did not arise for applying the provision excluding the State
courts. But this Court was well aware of the problem, and carefully
put
Page 331 U. S. 673
it to one side.
See Claflin v. Houseman, 93 U. S.
130,
93 U. S. 133,
and
Wilson v. Goodrich, 154 U. S. 640.
Intrinsically, that question now presses for decision. If plenary
suits are "bankruptcy proceedings" within § 2 of the Act of 1898,
as the Court holds, how do they cease to be "proceedings in
bankruptcy" as to which the federal courts have jurisdiction
"exclusive" of the jurisdiction of the several States? [
Footnote 2/3] Only a forced disharmony can
avoid the grievous consequences of a construction equally forced as
to the relations between §§ 2 and 23 of the Act of 1898.
9. The Court finds a reversal in the policy of contraction of
federal jurisdiction which began with the end of the Reconstruction
era, found expression in cases culminating in
Gully v. First
National Bank, 299 U. S. 109, and
undoubtedly furnished the momentum for the radical reversal of
historic policy initiated by
Erie R. Co. v. Tompkins,
304 U. S. 64. The
Court extends the jurisdiction of the federal courts and, I cannot
escape concluding, withdraws it from the State courts. It resolves
whatever ambiguity may be found in § 102 of Chapter X by
interpolating an exception which effects a break with the past and
creates difficulties for the future. One would naturally expect
that such an innovation in a matter of vital concern to the scope
of federal jurisdiction, with its resulting effect upon the
relations between the State and federal courts, would be explicitly
stated, and not depend for discovery upon intricate exegesis. One
would suppose that some indication at least of Congressional
awareness of the problem could be found. Diligence of counsel has
not unearthed the remotest hint that such shift in jurisdiction was
contemplated, or that the need for it was asserted. Our own
investigation has been equally fruitless. There is nothing in
Chapter X, in its terms,
Page 331 U. S. 674
its antecedents, its history, its advocacy, that gives the
remotest hint of a purpose calling for a different policy for
reorganization trustees in this respect from other trustees in
bankruptcy, or any intimation that the district courts, other than
the particular reorganization court, would play a special role as
to plenary suits in reorganization proceedings. Nor do the purposes
of the Chandler Act bear upon this aspect of jurisdiction. Chapter
X provided new facilities for reorganization of bankrupt estates
and extended the scope of reorganizations. But it is hardly
relevant to the purpose of easier and more comprehensive methods of
reorganization to establish a claim through the federal courts,
rather than the State courts, when the basis of recovery is State
law, calling for application of State law and procedure. The Court
draws support for its conclusion from the fact that other powers
are conferred upon the Chapter X trustee which were not possessed
by other bankruptcy trustees. But the powers to which attention is
called are all explicitly conferred and are not derived by
roundabout inference. And, unlike the extension of jurisdiction
here claimed, the additional powers conferred on the trustee all
bear directly upon the very process of reorganization and the
purposes for which Chapter X was designed.
The result has been spun largely out of words in the Act of 1898
by disregarding the controlling facts of its history and its long
judicial and practical construction. The other source from which
the argument is spun is the provision making § 23 inapplicable to
proceedings under Chapter X. As we have seen, our decisions ruled
that § 23 was not an exception to § 2, but an emphasis of the
limited scope of § 2, together with a grant, of little importance,
of consent jurisdiction. [
Footnote
2/4] If § 2 did not grant
Page 331 U. S. 675
jurisdiction to the district courts over a plenary suit like the
one before us, merely eliminating § 23 could add no new head of
jurisdiction to § 2. And yet the Court finds that the purpose of
making § 23 inapplicable to Chapter X was to throw all the federal
courts open to plenary suits in Chapter X proceedings, although, as
we have seen, not a clear expression either of such purpose, or an
assessment of its consequences, is to be found in all the
literature on this subject prior to this litigation. If a perfectly
reasonable explanation can be given to the elimination of § 23 from
Chapter X proceedings, we ought not lightly to attribute to
Congress a radical change affecting the jurisdiction of the federal
courts, without even an indirect mention of the need or
desirability for such a change in the thousands of pages of
legislative hearings, debates, and reports on the various bills
leading up to the Chandler Act.
10. There is an adequate explanation for the provision making §
23 inapplicable that amply accounts for it, without using it as a
springboard for a wholly unforeseen result out of harmony with
established jurisdictional considerations.
The provision to make § 23 inapplicable did not appear in the
earlier drafts of Chapter X, and was not in the bill as it came
from the House. It came into the Act through amendments proposed
before the Judiciary Committee of the Senate by the National
Bankruptcy Conference through its spokesman, Mr. John Gerdes. His
statement is all we have by way of legislative history for
Page 331 U. S. 676
the amendment. [
Footnote 2/5] It
will be noted that Mr. Gerdes intimated nothing regarding the need
for extending federal jurisdiction, nothing of the desirability of
granting
Page 331 U. S. 677
plenary jurisdiction to all federal courts, nothing to the
effect that a Chapter X trustee needed such greater freedom,
nothing to indicate that the plan of that Chapter required a
different rule as to ordinary plenary suits from that which was
reaffirmed as to suits by other bankruptcy trustees. Yet the court
below seemed to find in his statement warrant for its result. And
it sought to reenforce its conclusion by appeal to an article by
Mr. Gerdes elucidating the Chandler Act after its passage. Gerdes,
Corporate Reorganizations: Changes Effected by Chapter X of the
Reorganization Act, 52 Harv.L.Rev. 1, 21.
The Circuit Court of Appeals, it seems to me, finds in Mr.
Gerdes' observations what he did not put into them. Nowhere is
there the remotest suggestion that, in this roundabout and
undisclosed way, he sought to throw all litigation by or against a
reorganization trustee into federal courts, other than the
reorganization court, because the federal courts might be a more
convenient forum. He was concerned with various provisions, of
which § 23 was one, which either were intrinsically in conflict
with the new provisions of Chapter X or might be deemed to be in
conflict with them. He used the terms "inconsistent" and "not
applicable" interchangeably. He was concerned with removing all
limitations in the existing Bankruptcy Act that were inconsistent
with provisions in Chapter X, limitations which might impair the
new scheme for bankruptcy reorganization. While Mr. Gerdes was not
explicit as to possible inconsistency between § 23 and Chapter X, a
controversy which had arisen in regard to § 23 prior to
Page 331 U. S. 678
the Chandler Act, and with which he was thoroughly familiar,
fully explains why Mr. Gerdes deemed it desirable that § 23 be made
inapplicable to Chapter X.
The matter in controversy was this. Section 77B(a) granted the
reorganization court the power possessed by an equity court with
regard to equity receiverships. The question arose whether a 77B
trustee could bring a plenary suit in the reorganization court
without regard to diversity citizenship, as could an equity
receiver in his home court.
White v. Ewing, 159 U. S.
36. That the reorganization court had such jurisdiction
and that § 23 was no bar, was Mr. Gerdes' view. But other
bankruptcy specialists and some lower federal courts were of
opinion that § 23 precluded such suits.
Compare 2 Gerdes,
Corporate Reorganizations, 1478,
with Finletter,
Principles of Corporate Reorganization, 186-87,
and see In re
Standard Gas & Electric Co., 119 F.2d 658;
Tilton v.
Model Taxi Corp., 112 F.2d 86;
In re Prima Co., 98
F.2d 952.
To remove doubt as to this effect of § 23 -- namely its possible
limitation upon the power of the reorganization trustee to sue in
his home court -- is the full purpose and scope of its elimination
from Chapter X. It was not to give the reorganization trustee
roving authority for plenary suits in all federal courts that § 23
was made inapplicable. It was a desire to remove the danger that §
23 might be deemed to deprive a reorganization trustee of the power
which he ought to have in his reorganization court, that was
implicit in the short statement of Mr. Gerdes on behalf of the
National Bankruptcy Conference. It is this purpose that prevailed,
and it is this purpose that should be enforced, and not a radical
departure upsetting the distribution of jurisdiction between State
and federal courts, for which there is not a vestige of a claim by
anybody in the history that led up to the legislation. The article
of Mr. Gerdes to which the court below refers seems to leave no
doubt as to the limited purpose of making
Page 331 U. S. 679
§ 23 inapplicable. "The bankruptcy provision restricting plenary
jurisdiction," he wrote,
"has been expressly excluded from application so that the equity
receivership jurisdiction over plenary actions which are ancillary
to the main proceedings is still available, even though the
controversy involves less than $3,000 and even though there is no
diversity of citizenship."
52 Harv.L.Rev. 1, 21. [
Footnote
2/6] Section 23 was eliminateed, then, to make clear that when,
in § 115 of the Act of 1938, Congress gave to the reorganization
court equity powers like those which had been conferred in §
77B(a), it authorized the trustee-receiver to bring plenary suits
in his home court. Such also is the view of another important
witness in the hearings on the Chandler Bill,
see
Weinstein, The Bankruptcy Law of 1938, pp. 63-64, 193-94.
Compare the analysis of the Chandler Act in 11 U.S.C.A. p.
xxx.
This construction gives scope to the provision making § 23
inapplicable in Chapter X proceedings. It is consistent with the
policy of the whole Bankruptcy Act, and gives effect to the grant
of equity powers to the reorganization court. On the other hand,
nothing in the policy of the Chandler Act, in its language, in its
history, or in any other factor relevant to its construction,
justifies a
Page 331 U. S. 680
finding that Congress, by implication and indirection, without
comment or discussion, changed the meaning which this Court had
given to its legislation for fifty years, and expanded a federal
jurisdiction which is already overburdened and which Congress has
tended to contract; that it upset the relation between federal and
State courts which demands that, even in bankruptcy, claims created
by State law be litigated in local courts, applying local law under
local rules of procedure and trial practice, "to the greater
economy and convenience of litigants and witnesses."
11. This decision overturns the analysis which has guided the
Court in construing the distribution of jurisdiction between the
federal and State courts which Congress devised by the Bankruptcy
Act of 1898, and attributes to the Act of 1938 a big change in this
distribution, although there is not a glimmer of a hint in its
entire legislative history that Congress was aware that it was
doing so. Important shifts in jurisdiction ought to be the product
of something more persuasive than what is made to appear as a fit
of Congressional absentmindedness. It ought not to be deemed
natural that Congress took from the State courts long established
jurisdiction and transferred it to the federal courts when there is
nothing to indicate that Congress wanted to do so, or knew that it
was doing it.
When Congress has not, by plain language, extended the
jurisdiction of the district courts which are the feeders of the
Circuit Courts of Appeals and of this Court, an unexpressed purpose
to swell the dockets of the federal judiciary ought not to be
attributed to Congress by considering in isolation the desirability
of allowing a particular class of litigation to be brought in a
federal court. Any advantage of giving jurisdiction to the federal
courts must be balanced against the disadvantages of taking away
from the State courts causes of action rooted in State law.
Page 331 U. S. 681
And, in considering the advantages of absorption by the federal
courts of jurisdiction theretofore vested in the State courts, it
should be our special concern to be mindful that the district
courts are part of a single judicial system. Increase in the scope
of the business of the district courts inevitably reflects itself
in the business of the Circuit Courts of Appeals and of this Court.
It is a truism, but vital to keep in mind, that increase in the
quantity of the Court's business affects the quality of its work.
[
Footnote 2/7]
Where Congress has clearly enlarged the jurisdiction of the
district courts, it cannot be withheld no matter what the effect
upon the dockets. But, where Congress has not manifested its
purpose with clarity -- more particularly, where such purpose is
derived by way of elaborate argumentation
Page 331 U. S. 682
-- resolution of jurisdictional doubts properly takes into
account the strong policy of Congress, expressed through a series
of judiciary acts, not to cast burdens upon the federal courts
which interfere with the effective discharge of their functions.
See, for instance, American Security and Trust Co. v. District
of Columbia, 224 U. S. 491, and
Phillips v. United States, 312 U.
S. 246,
312 U. S.
250-251. These are considerations that will seem far
afield to the issues of this case only if its decision is not
related to the workings of the federal judiciary in the light of
its history.
[
Footnote 2/1]
In view of his extensive commercial experience on matters of
bankruptcy, any observation by Mr. Justice Brandeis carries great
weight. But neither in
Kelley v. Gill, 245 U.
S. 116, nor elsewhere did he state that § 2 of the
Bankruptcy Act was a grant of plenary jurisdiction to all the
courts, and that § 23 merely operated as a curtailment of such
grant. What is significant is that when, in
Schumacher v.
Beeler, supra, upon a full-dress consideration of the problem,
a contrary analysis was made, Mr. Justice Brandeis joined in
it.
In another bankruptcy case, this Court said:
"Only compelling language in the statute itself would warrant
the rejection of a construction so long and so generally accepted,
especially where overturning the established practice would have
such far-reaching consequences as in the present instance."
Maynard v. Elliott, 283 U. S. 273,
283 U. S.
277.
[
Footnote 2/2]
The Act of 1938 substituted "proceedings under this Act."
[
Footnote 2/3]
Note that, with regard to the exceptions to § 23, Congress
deemed it necessary to confer jurisdiction on the State courts
explicitly.
See §§ 60(b), 67(e), and 70(e)(3).
[
Footnote 2/4]
If the provisions rendering § 23 inapplicable to Chapter X
proceedings also withdrew jurisdiction by consent, it is not an
important matter. In resolving what is at best, a jurisdictional
ambiguity, a result which closes the doors of the federal courts to
consenting parties is of minor consequence compared with opening
wide the door to a jurisdiction theretofore barred to the federal
courts, when Congress manifested no consciousness of such a new
grant of jurisdiction.
[
Footnote 2/5]
See hearings before a subcommittee of the Senate
Committee on the Judiciary, on H.R. 8046, 75th Cong., 2d Sess., p.
77:
"Chapter X is not intended to be self-sufficient. All provisions
of the general bankruptcy act are applicable to proceedings under
chapter X except such provisions are inconsistent with express
provisions in chapter X. Some provisions of the general act are
clearly inconsistent with the corporate reorganization provisions,
and are therefore inapplicable. Other provisions are clearly
applicable. However, there are certain sections which, by their
nature, permit of doubt as to whether or not they are applicable.
Section 64 of the general bankruptcy act, for example, provides for
a fixed priority in the payment of claims. This section deals
solely with unsecured claims, only unsecured claims being affected
by bankruptcy. To apply it in corporate reorganizations -- where
secured as well as unsecured claims are dealt with -- would cause
great confusion. To make it clear that section 64 does not apply,
we propose this amendment, which expressly provides that 64 shall
not be applicable to chapter X. The priorities under chapter X
would therefore be those used in equity receiverships. That is the
present practice under 77B, which expressly provides that section
64 shall not be applicable. When we adopt the same provision here,
we merely adopt the practice which is already in existence under
section 77B."
"In this enumeration of sections and subsections which are not
applicable, we include only those as to which there may be
reasonable doubt. The sections which we enumerate are 23, 57(h),
57(n), 64, and 70(f). We propose that section 102 be amended to
provide that these sections and subsections shall not be applicable
to proceedings under chapter X."
Another amendment, proposed to the Committee by Mr. Heuston,
representing the Special Committee on Bankruptcy of the Association
of the Bar of the City of New York, would have made inapplicable to
Chapter X some thirty sections of the Act, among them § 23.
"The proposed amendment excludes from a reorganization procedure
all sections now expressly excluded by § 77B, subdivision (k), as
well as many additional sections which have no applicability to a
reorganization procedure."
The statement makes no reference to plenary suits.
"The sections excluded by the proposed amendment include those
which would permit ancillary receiverships, the appointment of
receivers before the approval of the petition . . . , the
bankruptcy provisions relating to priorities, etc."
Hearings on H.R. 8046, before a subcommittee of the Senate
Judiciary Committee, 75th Cong., 2d Sess., p. 37.
[
Footnote 2/6]
The discussion in bankruptcy literature of the effect of the
provision eliminating § 23 is not only meager, but ambiguous.
Conflicting arguments can be drawn by giving variant meanings to
language susceptible of them, but this only serves to indicate
that, on such tenuous materials ought not to be based a reversal of
jurisdictional policy of far-reaching import.
It is worthy of note that Mr. Gerdes, in his article, cites as
the effect of the elimination of § 23 only the clarification of the
jurisdiction of the reorganization court itself over plenary suits.
He does not note any expansion of the jurisdiction of the other
district courts, although, under § 77B, when § 23 was not made
expressly inapplicable, it had been his view that other district
courts would have plenary jurisdiction as ancillary to the
receivership jurisdiction of the reorganization court.
See
2 Gerdes, Corporate Reorganization, 1480, 1513-14.
[
Footnote 2/7]
If the Court works under too much pressure, because of the
excessive volume of its business, the process of study and
reflection indispensable for wise judgment is bound to suffer.
Before he became its head, but speaking from close acquaintance
with the work of the Court, Chief Justice Taft gave warning that,
if this Court's business
"is to increase with the growth of the country, it will be
swamped with its burden, the work which it does will, because of
haste, not be of the high quality that it ought to have. . . ."
Taft, Attacks on the Courts and Legal Procedure (1916) 5 Ky.L.J.
No. 1, p. 18. As is well known, it was largely through the
leadership of Chief Justice Taft that the Judiciary Act of February
13, 1925, 43 Stat. 936, was passed to enable the Court to keep its
business within manageable limits by cutting off the flow of
litigation at its various sources. The total number of petitions
for certiorari is the most significant index of the Court's
business. In the 1927 Term, the first Term during which the
influence of the Act of 1925 was fully operative, the total number
of such petitions was 587. In the 1946 Term, through June 9, 1947,
1,144 such petitions were considered. Since most of the petitions
come from the lower federal courts, any enlargement of their
jurisdiction is inevitably reflected in attempts to review those
courts here. If it be suggested that the volume of business that
will flow from the new head of jurisdiction established by this
decision is, in itself, not likely to be very heavy, it is
pertinent to say that it is true of the Court's business also that
many a mickle makes a muckle.