(dissenting). Plaintiff brings this action in equity to obtain a decree that certain stocks and bonds are being held by defendants pursuant to a fraudulent transfer thereof at the instance of the defendant Levi S. Chapman in fraud of the rights of the creditors of said Levi S. Chapman. Two causes of action are set forth in the complaint. The first cause of action is against Levi S. Chapman, Lucia L. Chapman, Ella Louise Cady and *284George H. Maxwell, and it is therein alleged that plaintiff is a judgment creditor of the defendants Levi S. Chapman and Charles R. Chapman; that Charles R. Chapman and Lucia L. Chapman and Ella Louise Cady are respectively the son, wife and daughter of said Levi S. Chapman. It is further alleged in the first cause of action that said Levi S. Chapman, being at the time insolvent and indebted to plaintiff in the sum of $40,000, caused certain moneys to be sent to the defendant Maxwell to be used for the purchase of certain stocks and bonds described in the complaint; that said defendant Levi S. Chapman fraudulently arranged that the said stocks and bonds should be deemed to be owned by the defendants Lucia L. Chapman and Ella Louise Cady, the wife and daughter of said Levi S. Chapman; that said moneys were sent to said Maxwell without any consideration whatever and with intent to hinder, delay or defraud the creditors of said Levi S. Chapman, including plaintiff; that the defendants Lucia L. Chapman and Ella Louise Cady, wife and daughter respectively of said Chapman, were used merely as dummies in order to cover up the true ownership of said moneys, stocks and bonds; that an execution on the judgment held by plaintiff was returned unsatisfied.
In the second cause of action plaintiff alleges that the said judgment debtors transferred and conveyed to the defendant Ella Louise Cady certain stocks and bonds without any consideration and with intent and purpose of hindering and delaying and defrauding the creditors of said defendants. In his prayer for relief plaintiff seeks judgment declaring that the said stocks and bonds are being held for the defendants Levi S. Chapman and Charles R. Chapman, the judgment debtors, and that the same should be applied in payment of the indebtedness due plaintiff upon which he has obtained said judgment. The defendant Maxwell has not been served with process. All of the other defendants have been served with the summons and complaint herein. At the time of the commencement of this action plaintiff moved for the appointment of a receiver and to enjoin the defendants from interfering with the said bonds and stocks pending the determination of this action. Plaintiff’s motion was granted by default and an order entered appointing a receiver and restraining the defendants during the pendency of the action. The receiver thus appointed has duly qualified. Thereupon the four defendants made the motion resulting in the order appealed from to dismiss the complaint pursuant to rule 107 of the Rules of Civil Practice.
The defendants contended, first, that the court was without jurisdiction in regard to the person of the defendant George H. Maxwell; second, that the court had no jurisdiction of the subject-*285matter of the action; and, finally, that the plaintiff had no legal capacity to sue. Defendants also prayed for an order vacating the appointment of the receiver. The defendants claimed, as the basis of their motion to dismiss, that the defendants Levi S. Chapman and Charles R. Chapman had filed voluntary petitions in bankruptcy in February, 1929, after plaintiff had obtained his judgment against them; that in said proceedings a trustee for each of the bankrupts was elected, and that after numerous hearings said trustee filed his report and was discharged; that thereafter the bankrupts applied for their discharge, plaintiff herein objecting thereto. It appears from the replying affidavit of the attorney for the plaintiff herein that in the hearings before the referee in bankruptcy on the question of the discharge of the bankrupts, the plaintiff learned the facts upon which the present action was brought. Said hearings have been closed. It is the contention of defendants that by reason of the bankruptcy and despite the fact that there had been a trustee appointed who had duly accounted and had received his discharge, no creditor has any right to institute an action to impress a trust upon the assets which the creditor claims were owned by third parties in favor of the judgment debtors, and that only the trustee in bankruptcy can bring such action, and that if such action is taken it must be by a new trustee to be elected. In the answering affidavit of the attorney for plaintiff herein it appeared that the trustee elected in said bankruptcy proceedings had duly accounted and was duly discharged about two years prior to the commencement of the present action, and that the only matter pending in the bankruptcy court was the question as to whether the bankrupts were entitled to their discharge; that no action or proceeding was ever instituted in the Federal court to set aside any fraudulent conveyances or to impress a tiust on the assets set forth in the complaint, and which plaintiff claims were owned and held by the defendants Lucia L. Chapman and Ella Louise Cady for and in the interest of said bankrupts, and that the present action is the first to be instituted relating to said assets. In the reply affidavit of the attorney for plaintiff, respondent, it is also stated that the facts upon which this action was based were within the knowledge of the trustee in bankruptcy while he acted as such trustee and within the knowledge of the attorneys who helped to select the trustee and the attorney for the trustee; that “ with knowledge of the facts as aforestated, or with means of knowledge of the facts aforestated, [the trustee] refused to institute any action to recover any of the assets described in the complaint and therefore abandoned the same.” It is plaintiff’s contention that said facts set forth in the answering affidavit over*286come the objections contained in the moving papers,-and conclusively show the capacity of plaintiff to bring the present action, and that the New York Supreme Court has jurisdiction of the subject-matter of the action. In their reply affidavit served by defendants there is no denial of plaintiff’s allegations regarding the trustee’s knowledge of the facts upon which the present action was based, or of his refusal to institute the action, or of his abandonment of any claim based upon such facts. Indeed, the appellants seem to ignore entirely plaintiff’s answering affidavit.
The real issue on this appeal is as to whether the complaint and plaintiff’s answering affidavit show sufficient facts to entitle plaintiff to sue, and to show that the court has jurisdiction of the subject-matter involved.
At the outset, the law is well settled that all of the facts set forth in the complaint and the plaintiff’s answering affidavit must be deemed to be true, and plaintiff is entitled to every reasonable inference to be drawn therefrom. The papers on appeal show a dispute upon the facts, and to settle the same there must be a trial of the action and that, of itself, is sufficient ground for denying the motion to dismiss the complaint under rule 107 of the Rules of Civil Practice. Plaintiff also contends, and it is undenied, that the trustee in bankruptcy, before his discharge as trustee, was in possession of all the facts upon which this present action was brought, and having failed and neglected to bring action to set aside said transfers, the trustee is deemed to have abandoned and waived his right so to do. On such abandonment any creditor may sue on such cause of action. It is, further, the contention of plaintiff that the bankruptcy court never acquired jurisdiction over the dioses in action described in the complaint; that a bankruptcy court has exclusive jurisdiction only of proceedings in bankruptcy as distinguished from controversies arising in bankruptcy proceedings; that as to the latter the bankruptcy court and the State courts have concurrent jurisdiction. The appellants also contend that the plaintiff is stayed by reason of an ex parte order made by the referee in bankruptcy.
It seems to me that the trustee of the bankrupts, having full knowledge of the facts upon which plaintiff bases his present action, and failing to institute such action, must be deemed to have abandoned and waived his right so to do, and that upon such abandonment any creditor has the right to bring action. In the answering affidavit of the attorney for plaintiff herein it is also stated that after the judgment debtors were adjudicated bankrupts, a trustee was elected of their assets; that numerous hearings were held by the trustee before the referee in the bankruptcy *287proceeding, and that “ no action of any kind was instituted by the trustee; that thereafter the trustee made his accounting and was duly discharged. This took place about two years ago.” The affidavit further states that “ The only matter pending before the Referee in Bankruptcy and the United States District Court is the question as to whether the bankrupts are entitled to their discharge.
“ No action or proceeding was instituted in the Federal Court to set aside any fraudulent conveyances or to impress a trust upon the assets described in the complaint.”
The affidavit further shows that the present is the first action or proceeding to be instituted in any court concerning the bonds and stocks alleged to have been fraudulently held. The affidavit further states that the facts upon which this action is based “ were brought to the knowledge of the trustee in bankruptcy above referred to, or his attorney, and to the knowledge of the attorneys for creditors who participated in the election of the trustee and the designation of the.attorney for the trustee.
“It is the contention of the plaintiff that the trustee in bankruptcy, with knowledge of the facts aforestated, or with means of knowledge of the facts aforestated, refused to institute any action to recover any of the assets described in the complaint and therefore abandoned the same.”
Undoubtedly, under the decisions of the Federal and State courts a trustee in bankruptcy, in his discretion, has the right to refuse go bring an action or to take over property of the bankrupt when, in the judgment of the trustee, such property or choses in action would be unprofitable and calculated to burden rather than benefit the estate in his keeping. If he does not bring action to take over property or to enforce a right of recovery, he will be deemed to have elected not to proceed against such estate or avail himself of such chose in action, if it appears that he has knowledge of the facts or blindly refused to act thereon. A leading case upon the subject is that of Dushane v. Beall (161 U. S. 513). In that case Chief Justice Fuller, writing for the Supreme Court of the United States, said (at p. 516): “ If with knowledge of the facts, or being so situated as to be chargeable with such knowledge, an assignee, by definite declaration or distinct action, or forbearance to act, indicates, in view of the particular circumstances, his choice not to take certain property, or if, in the language of Ware, J., in Smith v. Gordon [6 Law Rep. 313], he, with such knowledge, ‘ stands by without asserting his claim for a length of time, and allows third persons in the prosecution of their legal rights to *288acquire an interest in the property/ then he may be held to have waived the assertion of his claim thereto.
“ In Sparhawk v. Yerkes [142 U. S. 1] we held that as the conduct of the assignees was such as to show that they did not intend to take possession of the assets in controversy; as they avoided assuming any liability in respect thereof; * * * and that as the assignee did not appear to have intervened in the matter until, as is stated, .December 11, 1890, although the litigation began in the summer of 1882, he must be held to have elected to abandon the claim, and could not come in at so late a day and share in the fruits of litigation carried on by others; and on that view of the facts this conclusion would seem to be correct if the record showed on the part of Tinstman’s [bankrupt’s] assignee knowledge of the facts or wilful blindness in relation to them.” (Italics are the writer’s.)
In Dewey v. Moyer (72 N. Y. 70) it was held that when an assignee in bankruptcy refuses to act or to bring suit to reclaim property fraudulently transferred by the bankrupt, creditors of the bankrupt are permitted to bring such action to reach the property. I think where, as in the case at bar, it clearly appears and it is undenied that when the trustee in bankruptcy was acting he had full knowledge of all of the facts upon which plaintiff herein seeks to recover and failed to act thereon, obtaining his discharge without proceeding to recover the securities mentioned for the benefit of the estate, that then a creditor would have a right to move to recover said assets. It seems to me beyond question that the bankruptcy court never acquired any jurisdiction or possession of the securities described in the complaint. This property was not in the hands of the bankrupt at the time of the filing of the petition in bankruptcy, and, therefore, did not come into the hands of the trustee. The bankruptcy court had exclusive jurisdiction only of the proceedings before it. It took no exclusive jurisdiction as to controversies arising out of said proceedings.
That the exclusive jurisdiction of the bankruptcy court does not extend to all suits at law or in equity, affecting a bankrupt’s estate, is apparent from section 23, paragraph a, of the Bankruptcy Act (U. S. Code, tit. 11, § 46, ^ a), which provides that “ The United States District Courts shall have jurisdiction of all controversies at law and in equity, as distinguished from proceedings in bankruptcy, between trustees as such and adverse claimants concerning the property acquired or claimed by the trustees, in the same manner and to the same extent only as though bankruptcy proceedings had not been instituted and such controversies had been between the bankrupts and such adverse claimants.” ( United States Fidelity Co. v. Bray, 225 U. S. 205.)
*289It seems to me there is nothing to the claim that the plaintiff was stayed by the ex parte order of the referee in bankruptcy. Certainly the referee had no jurisdiction to grant the order affecting matters without the territorial limits of his jurisdiction, which in the present case was the Northern District of New York. Any order attempting to stay an action pending outside of its territorial limits is null and void. (Babbitt v. Dutcher, 216 U. S. 102; Acme Harvester Co. v. Beekman Lumber Co., 222 id. 300.) The present case is based upon a fraud on the part of the bankrupts prior to their bankruptcy. The action is not any proceeding in the bankruptcy court. In the case of Matter of Vadner (259 Fed. 614) the court said (at p. 638), with reference to actions to set aside fraudulent conveyances: “ Obviously, suits for the recovery of fraudulently or preferentially conveyed property of the bankrupt in the possession of third parties claiming adversely are not proceedings in bankruptcy, but controversies at law or in equity. Neither do they come within the provisions of section 11, authorizing a court of bankruptcy to stay a pending suit against a bankrupt upon a claim from which a discharge in bankruptcy would be a release.” (Citing cases.)
I think there is no merit whatever in the appeal of defendants. A good cause of action was stated in the complaint, and the rights of the parties can only be determined upon a trial.
If plaintiff is able to establish the allegations of the complaint, a barefaced fraud will be revealed whereby the defendants, appellants, have -attempted to defeat the honest and just claims of creditors. Courts should be slow to countenance such an attempt. The granting of the defendants’ motion would probably result in the loss to plaintiff of his claim, to the enrichment of the perpetrators of the fraud.
The order appealed from should be affirmed, with ten dollars costs and disbursements to plaintiff, respondent, against defendants, appellants.
Maktin, J., concurs.
Order reversed, with ten dollars costs and disbursements, and motion granted, with ten dollars costs.