Bothwell v. Fitzgerald

MORROW, Circuit Judge

(after stating the facts as above). [1] This case comes here by appeal, and also upon a petition for revision. The assignment of errors indicates that the appeal is taken under section 24a of the Bankruptcy Act. The petition for revision is under section 24b of that act. As each of these methods of procedure is exclusive of the other (In the Matter of Loving, 224 U. S. 183, 32 Sup. Ct. 446, 56 L. Ed. 725; In re Mueller, 135 Fed. 711, 68 C. C. A. 349), we must determine which of the two methods this court is authorized to entertain.

[2] We are of the opinion that the question at issue is a controversy arising in bankruptcy proceedings, and comes here for review under section 24a of the Bankruptcy Act. Hewit v. Berlin Machine Works, 194 U. S. 296, 24 Sup. Ct. 690, 48 L. Ed. 986; Coder v. Arts, 213 U. S. 223, 29 Sup. Ct. 436, 53 L. Ed. 772, 16 Ann. Cas. 1008: Mitchell Store Building Co. v. Carroll, 232 U. S. 379, 34 Sup. Ct. 410, 58 L. Ed. 650. In such case the appeal takes the course prescribed in the act establishing the Circuit Court of Appeals (Act March 3, 1891, c. 517, 26 Stat. 826; Mitchell Building Co. v. Carroll, supra). Section 7 of that act (section 129 of the Judicial Code) provides for an appeal to the Circuit Court of Appeals, where upon a hearing in equity in a District Court an injunction is granted, continued, refused, or dissolved by an interlocutory order. This is an appeal from an interlocutory order made and entered in the United States District Court of Idaho on May 4, 1914, vacating and setting aside a previous order made and entered in that court on April 17, 1914, enjoining and restraining the appellees, until the further order of the court, from proceeding further in their suit in the state court of Idaho against the American Falls Canal & Power Company, a corporation, bankrupt. The order of April 17, 1914, contained two separate and distinct orders. The first order directed that an interlocutory injunction issue restraining and enjoining Fitzgerald and West from proceeding further in 'their action in the state court against the bankrupt corporation; the second order directed that the trustee in bankruptcy should make application to the bankruptcy court in the district of Utah for authority to reconstruct and build lateral No. 33 in the manner therein directed. Both of these orders were set aside and vacated by the general order of May 4, 1914. The appellant, considering himself aggrieved by that part of the order of May 4, 1914, setting aside and vacating the previous order of April 17, 1914, granting the temporary injunction, appealed from that part of the order of May 4, 1914, to this court, and that is the appeal and order now under consideration. The remaining order of April 17, 1914, directing the trustee in bankruptcy to make application to the bankruptcy court in Utah for authority to reconstruct and build lateral No. 33, was also vacated and set aside by the general order of May 4, 1914; but from that part of the latter order nó appeal has been taken to this court.

[3] Appeals from orders or decrees not final are limited by statute to orders or decrees granting, continuing, refusing, dissolving, or refusing to dissolve interlocutory injunctions. Sections 128 and 129, Judicial Code. The order or decree of May 4, 1914, vacating and setting aside that part of the order of April 17, 1914, granting an interlocutory injunction, is appealable under the statute as an order dissolving an injunction; but that part of the order of May 4, 1914, vacating and setting aside that part of the order of April 17, 1914, directing the trustee in bankruptcy to apply to the bankruptcy court in Utah for authority to reconstruct and rebuild lateral No. 33, is clearly not appealable under any statute, unless the order be held to be a final order or decree, and appealable under section 128 of the Judicial Code. But whether- it is or is not a final order or decree is not material in the present inquiry, since no appeal has been taken from that order, and it is therefore not before us for review.

[4] This brings us to the consideration of the only question involved in this appeal: Was the lower court right in dissolving the interlocutory injunction? The rule that the granting or refusing of a preliminary injunction ordinarily rests in the sound discretion of the trial court, and a review thereof by an appellate court is limited to the inquiry whether there was an abuse of discretion in granting the writ, is based largely upon the consideration that the object and purpose of the preliminary injunction is to preserve the existing state of things until the rights of the parties can be fairly and fully investigated and determined upon strictly legal proofs according to the course and principles of equity. Blount v. Société Anonyme du Filtre Chamberland Systeme Pasteur, 53 Fed. 98, 3 C. C. A. 455; Kings County Raisin & Fruit Co. v. United States Con. Seeded Raisin Co., 182 Fed. 59, 104 C. C. A. 499. But no such consideration obtains where the trial court dissolves a preliminary injunction. The granting of an injunction to preserve the status quo may be a substantial and persuasive reason for continuing it in force. It follows that when a preliminary injunction has been dissolved the appellate court will not be limited to the question whether the trial court has abused its discretion in dissolving the injunction, but may inquire into all of the circumstances connected with the proceedings as they appear of record, and the effect the dissolution of the injunction may have on the rights of the parties.

In the brief of the appellees there is a statement of what transpired in the court below when that court made its order of April 17, 1914, and how that order came to be vacated, as provided in the order of May 4, 1914. The statement was repeated upon the oral argument of this case. The proceedings referred to relate to a supposed understanding between the parties as to the petition to be presented to the Utah court relating to the reconstruction and rebuilding of lateral No. 33, and the failure of the appellant to comply with that understanding in his petition to the Utah court is stated as the reason for the order of May 4, 1914. The proceedings are not contained in the record, and it seems superfluous to state that an appellate court cannot inquire into and determine facts relating to a supposed verbal understanding-concerning orders of a trial court in determining a controversy relating to such orders. Such an understanding should be. made of record, either by written stipulation, or by an order to which the consent of the parties is made to appear. The matter referred to is not available in this case, in the manner presented, to determine the question involved in this appeal.

[5] The effect of dissolving the interlocutory order granting the injunction was to permit the state court, in a suit brought subsequent to the commencement of bankruptcy proceedings, to proceed with the suit in that court, appoint a receiver with power to complete the irrigating system of the bankrupt corporation, collect sufficient moneys due and owdng, or to become due and owing, from the holders of water rights entered into with the bankrupt corporation, and to expend the moneys so collected, or so much thereof as should be necessary to complete the irrigating system of the bankrupt corporation, and especially to complete lateral No. 33, so that the plaintiffs in'that suit might be supplied with water to be delivered to them pursuant to the provisions of their deeds. The result of such proceedings in the state court would he to withdraw from the bankruptcy court all questions relating to the rights of Fitzgerald and West, as against the estate of the bankrupt corporation, and to remit those questions to the state court for determination.

The object of the Bankruptcy Act was to establish a uniform system of bankruptcy, and with that end in view to take from the state courts the decision and determination of all such questions and controversies as are by the act placed within the jurisdiction of the bankruptcy courts. Under the provisions of section 2 of the act, the District Courts of the United States, as courts of bankruptcy, are invested with jurisdiction:

“ * * * (2) To allow claims, disallow claims, reconsider allowed and disallowed claims, and allow or disallow them against bankrupt estates; (3) appoint receivers, * * '* for the preservation of estates, to take charge of the property of the bankrupts after the filing of the petition and until it is dismissed or the trustee is qualified; * * * (7) cause the estates of bankrupts to be collected, reduced to money and distributed, and determine controversies in relation thereto; * * * (19) transfer cases to other courts of bankruptcy; and (20) exercise auxiliary jurisdiction over persons or property within their respective territorial limits in aid of a receiver or trustee appointed in another bankruptcy proceeding pending in any other court of bankruptcy.”

“The bankruptcy law is paramount, and the jurisdiction of the federal courts in bankruptcy, when properly invoked, in the administration of the affairs of insolvent persons and corporations, is essentially exclusive.” In re Watts & Sachs, 190 U. S. 1, 27, 23 Sup. Ct. 718, 724 (47 L. Ed. 933).

“It is the purpose of the bankruptcy law, passed in pursuance of the power of Congress to establish a uniform system of bankruptcy throughout the United States, to place the property of the bankrupt under the control of the court, wherever it is found, with a view to its equal distribution among the creditors. The filing of the petition is an assertion of jurisdiction with a view to the determination of the status of the bankrupt and a settlement and distribution of his estate. The exclusive jurisdiction of the bankruptcy court is so far in rem that the estate is regarded as in custodia legis from the filing of the petition.” Acme Harvester Co. v. Beekman Lum. Co., 222 U. S. 300, 307, 32 Sup. Ct. 96, 99 (56 L. Ed. 208).

It was not intended by Congress that after the passage of this act the determination of controversies arising thereunder, or growing out of proceedings instituted pursuant to its provisions, should be submitted to tribunals other than those especially designated in the act. In United States Fidelity & Guaranty Co. v. Bray, 225 U. S. 205, 217, 32 Sup. Ct. 620, 625 (56 L. Ed. 1055) the Supreme Court of the United States, in construing the provisions of section 2 of the Bankruptcy Act, said:

“We think it is a necessary conclusion from these and other provisions of the act that the jurisdiction of the bankruptcy courts in all ‘proceedings in bankruptcy’ is intended to be exclusive of all other courts, and that such proceedings include, among others, all matters of administration, such as the allowance, rejection, and reconsideration of claims, the reduction of the estates to money and its distribution, the determination of the preferences and priorities to be accorded to claims presented for allowance and payment in regular course, and the supervision and control of the trustees and others who are employed to assist them. * * * A distinct purpose of the Bankruptcy Act is to subject the administration of the estates of bankrupts to the control of tribunals clothed with authority and charged with the duty of proceeding to final settlement and distribution in a summary way, as are the courts of bankruptcy. Creditors are entitled to have this authority exercised, and justly may complain when * * * an important part of the administration is sought to be effected through the .slower and less appropriate processes of a plenary suit in equity in another court, involving collateral and extraneous matters with which they have no concern.”

The merits of the controversy respecting the reconstruction and rebuilding of lateral No. 33, as claimed by Fitzgerald and West, and the method of meeting the expense to be connected with such reconstruction and rebuilding, if ordered, .should be determined upon the issues presented by the trustee in bankruptcy in his petition to the District Court of Idaho, invoking the ancillary jurisdiction of that court in the administration of the bankrupt estate -in Idaho, or the questions should be presented to and determined by the bankruptcy court of original jurisdiction in Utah. In the order of April 17, 1914. it was provided that the expense of reconstructing and rebuilding lateral No. 33 should be paid as directed by the bankruptcy court of Utah. That order has been vacated, but the questions are still presented by the petition of the trustee in bankruptcy whether the deferred payments due to the bankrupt corporation in the amount necessary to reconstruct and rebuild lateral No. 33 are or are not assets of the bankrupt estate for the payment of that expense, and whether the application of such deferred payments in that amount would constitute a preference in favor of Fitzgerald and West under the bankruptcy act. These questions call for decision prior to the entry of any order by either the Utah court in the exercise of its original jurisdiction, or the Tdaho court in the exercise of its ancillary jurisdiction providing for the reconstruction and rebuilding of lateral No. 33. The creditors of the bankrupt corporation are clearly entitled to have this controversy dealt with under the Bankruptcy Act and by a bankruptcy court authorized to cause the estate of the bankrupt corporation to be collected, reduced to money, and distributed, and all controversies determined in relation thereto, and pending such determination the temporary injunction should be continued in force, enjoining and restraining Fitzgerald and West from proceeding further in the action in the state court respecting the same subj ect-matter.

The order of this court will therefore be that the order of the District Court of Idaho of May 4, 1914, dissolving the temporary injunction provided in the order of April 17, 1914, be reversed, and that the temporary injunction issued, and heretofore continued by supersedeas, be further continued in force until the further order of the District Court, and that the court take such further proceedings in the matter as are not inconsistent with this opinion. The petition for revision will be dismissed.