"ElEATH V. SHAFFER.

647

payment of the mortgage nens, or In other ways, perhaps, proted the interests of credlt<>rs; bl1t he cannot, by summary proceedings, compel the delivery of possession of property by third parties who hold the same as mortgagees, and whose possession antedates the filing of the proceedings in bankruptcy." . "The mortgagees cannot be comWlled to yield up possession of the property in their hands which passes Into their possession before the proceedIngs In bankruptcy were begun by an order entered in a summary proceeding of this character."

From this hasty review of the decided cases, it appears that no one of them is authority for the petitioner's contention in the case at bar, while several of them are direct authorities in support of the respondent. As was said in Marshall v. Knox, 16 Wall. 551, 556:
"We think that It could not have been the intention of congress thus to deprive parties ,claiming property, of which they were In possession, of the usual processes of law In defense of their rights."

If the petitioner desires so to modify his petition as to make it a bill in equity, he may apply forleave to, do so. See In re Evans, 1 Low. 525, 526, Fed. Oas. No. 4,55.1. Petition dismissed.

HEATH v. SHAF"FER et al. , (DIstrict Court, N. D. Iowa,E. D. May 5, 1899.) 1.
BANKnUPTCY-EN.l0INING PROCEEDINGS IN STATE COURTS.

WIIere the holder of a chattel, mortgage had taken possession of the mortgaged property before the ,institution of proceedings in bankruptcy against the mortgagor, and thereafter brought suit In a state court for foreclosure of the moI1gage against the bankrupt and his trustee in bankruptcy, held, that the court of bankruptcy would not, 011 a bill by such trustee alleging the mortgage to be voidable as an unlawful preference, enjoin the further prosecution of such suit, but the trustee must appear and assert hiS rights and title In the state court. The proper state courts have jurisdiction of suits by trustees in bankruptcy for the collection of debts due the estate of the banl,rupt, and of controversies between such trustees and adverse claimants with respect to property claimed as belonging to the estate.

2.

SAME-JURISDICTION OF8TATE COURTS.

In Equity. This was a bill in equity by complainant, as trustee in bankruptcy of the Buntrock Clothing Company, asking for an injunction to restrain the defendants from further prosecuting in a state court a suit brought by them for the foreclosure of a chattel mortgage executed by the bankrupt. F. F. Swale and D. E. Lyon, for complainant. Springer & Clary and Henderson, Hurd, Lenehan & Kiesel, for defendants. SHIRAS, District Judge. In the bill filed in this case it is averred that on the 13th day of December, 1898, the Buntrock Clothing Company, a corporation created under the laws of the state of Iowa, was adjudged to be a bankrupt by this court upon a petition filed by creditors, and that thereafter the present complainant was duly appointed and commissioned the trustee of the estate of said bankrupt corporation; that on the 31st day of August, 1898, the

648

93, FEDERAL ·REPOUTEJR.

Company,' beipg the' of stock g,C!ods, of of $10,000, executed a chattel mortgage there9n· to the defendants herein to secure certain indebtedness describedirt:thetnortgage, it beingeharged that this fransferwas made in order to giveto the defendants an unlawful over the other creditors Of said corporlltion, the knowing to fact" It .is further averred in the bill that, after tl}.eexecution bfthe!'ch'attel mortgage, the defendants. took possession of the 'propertytherein described, and refuse to yield possession thereof to the complaI'tiant as trustee in bankruptcy, and that have brought a suit in equity in the district of countY,Iowa, against the Buntrock (,IUthing' Company, and the pre'sent' complainant,. as trustee in bankruptcy, for the purpose of foreclosing the mortgage, obtaininga decree for the sale' of the mortgaged property, and for the application of the proceeds of the J?ayment of the debts secured by the- lll,ortgage sought to be .{foreclosed. The prayer of the bill now before this court is that the mortgage be decreed to be fraudulent and voidable, because in contravention of the provisions of the bankrupt act, and that thedefeudants be enjoined from the prosecution of the foreclosure suit pending in the state court. Under the 'provisions 'of the bankrupt act of 1867, it was uniformly held by the suprell1e court tliat the stateconrts had concurrent jurisdiction with the federal courts over contests between the bankrupt or his assigI1eeand parties who asserted rights in or to, any property claimed by the assignee to be part of the estate of the bankrupt. Thus, in Eysterv.Gaff, 91 U. S; 521, it was said by Justice Miller, speaking for the court, that:
"The opinion seems to have been quite prevalent in many quarters at one time that the moment a man is declared bankrupt the district court which has so adjudged draws to that act,not only all control of the bankrqp(s propeliy l;lnd credits, but that no litigate with the assignee contested rights in any other court, except in, so far as the circuit courts have concurrent jurisdiction, and that other courts can proceed no further in suits of which they had at that tinle full cognizance; and it was a prevalent practille to bring any person, who contested wnh the/l.ssignee any matter growing olit of disputed rigllts of pwperty or contracts, into the bankruptcy court by sen-ice of a rule to show cause, and to dispose of their rights in a summary \Yay. 'l'his court has steadily .set its face against this The debtor of a' bankrupt, or the man who"contests the right to real or personal property with him, loses none of those rights by tlie bankruptcy of his adversary. The same courts remain open to him in such contests, Rnd the statute has not devested those courts of jurisdiction in such action. If it has for certain classes of actions conferred ai jurisdiction for the benefit of the assignee in the circuit and district courts of the United States, it is concurrent with, and does not devest, that of the state courts." ,

.· In McKenna v. Simps'on, ,1.29 U. 'S. 506, 9 Sup. Ct. ,365, an assignee ip bankruptcy' filed a bill in the cbancerycourt of Shelby county, Tenn., to set aside certain, c()pveyances Of property executed by the baI1kruptas being in fraud Of the provisions of the bankrupt act of 1861, and it was objected thereto that the state court was without jurisdiction, but supreme court expressly held that there was nothing in the bankrupt act wlii'cn pi'ecluded the state court

UEATH V, SHAJrFER.

649

from entertaining the suit. If, undm; the provisions of, the ad of 1867, there existed in the state courts over cases wherein the assignee in bankruptcy and third parties contested the rights to certain property, certainly it must be held that. the state courts possess a like jurisdiction under the present act. If the trustee, complainant in this action, should not appear in the stat;e court, and that court should decree a foreclosure .of the mortgage given by the Buntrock Clothing Company and order a sale of the property, the title of the purchaser at sale could not be attacked collaterally. The state court is not bound to aSSUllle that its jurisdiction is' affected by the proceedings in bankl'uptey, uJ;lless the trustee presents the question in some proper form to that court. Thus, in Eysterv. Gaff, supra, the supreme court, referring to the state court, said:
"It was competent to administer full justice, and was proceeding. aceord· ing to the law whleh /!:overned sueh a suit, so to do. It eould not take judicial notice of the proceedings in bankruptcy in another eourt, however sel'iousl," they might have affected the rights of parties to the suit already. pending. It was the duty of that ('ourt to proceed to a deeree as between the parties hefon' it, until, by some proper pleadings in the case. it was informed of the ehanged relations of any of those parties to the subject-matter of the suit. Having sueh jurisdiction, and performing its duty, as the case stood. iu that comt. we are at a loss to see how its decree can be treated as void. It is almost ('ertain that if, at any stage of the proceedings, before sale or final confirmation, the assignee had intervened, he would have been heard to assert any rigbt he had or set up any defense to the suit."

Thus is stated the correct rule for the guidance of the trustee in cases of this eharacter. He should appear in the state court, and. by pleading the adjudication in bankruptey and his appointment al-! trustee, lay the foundation for the protection of his rights. If he questions the jurisdiction of the state court, he can plead thereto in proper form. If the case be one that is removable under the provisions of the judiciary act, he can make the requisite showing. If he does not dispute the validity of any lien asserted by the plaintiff, he can set up his title and rights as trustee, subject to the admitted lien, and the state court will protect his rights in the premises. If he wishes to contest the validity or extent of the adverse claim asserted by the plaintiff in the state court, he can do so by answ.el' or crossbill. If, upon the hearing, the state court holds and adjudges the plaintiff's claim or lien to be invalid and void either at the common law or under the provisions of the bankl'Upt act, that court would, undoubtedly, order the property to be delivered to the possession of the trustee. If the state court holds and adjudges the lien of the plaintiff to be valid, it would, upon the proper showing, also recogniz(' the title and rights of the trustee, subject to the lien of the plaintiff, and would enforce the same according to the true intent and meaning of the bankrupt act. In some of the discussions had upon this general subject, it seems to be assumed that the state courts cannot aid in carrying out the general provisions of the bankrupt act, and that tIH' trustee can only appeal to the courts of bankruptcy when seeking to secure a disposition of a bankrupt's ,estate under that aet;but this is a mistaken view of the law. The state COUl'tS, in all procel:'dings pending. before them, havethe. right to appl.}' and enforce the provi-

650

93 FEDERAL ltEPORTER,

sions of the bankrupt act in the determination of the questions at issue before them, and can give' full" pl'otection to the rights of the trustee.. ,The bankrupt act is the"law of the land, and the state courts have full.right to enforce itsma:i:ldate in all proceedings properly before tMm: Of course, it is not 'meant. by .this that a· state court can adjttdge a person to be ba'nkttIpt, or grant him a discharge, or control the distribution of the bankrupt's estate; but what is meant is that in all ,suits pending before them, wherein may be involved a contestbetw'een the trustee and a ,third party, which depends, in whole or in part, upon the provisions of the bankrupt act, the state courts must, of necessity, have fUll right and jurisdiction to apply and enforce the provisions of the bankrupt act, not only in deciding the question of right at issue, but in securing to the parties the proper protection accorded to them under the act. Thus, in the proceeding pendiIlg in the state court, even though the court should adjudge the lien of the mortgage .to be valid, it would undoubtedly recognize and proper:ly, protect the right, of the trustee in the mortgaged property, and in 'ordering a sale of the property would have due regard to the rights and equities of the mortgagees and the trustee alike. T'aking into cOl).sideration the en,tire provisions of the act, it cleflrly apthe state as well pears that it was the intent of. congress to as the federal courts in administering the law,at least incases wherein an: adversaty claiItlmay 'e:tist· between the trustee and third parties. In this respect the. state and. federal 'courts hold a position somewhat analogous to thitt existing with relation to the estate of deceased persons. The federal courts have not'probate jurisdiction, and therefore cMnot uti(Jeftake theadininistration of the estates of decedents, but ther'may; 'under proper circulllstan.ces;hear and adj-udge' controversies thix1l"paHies andP'the·executors or administrators of the e!iltate. YO,ri.ley·v. Lavender,'21 Wall.' 276; Hes!!! v. Reynolds, 113 -q.. 8.73,'5 Sup;iet.'377; 'Byeni'v.l\fcAuley, 149 U.S. 60S, 13 Sup. Ct.
906. ."

,!, ' ; ,

, So,. of thesever:ll states are ll6t created :courts of bankrhptcy, aniltlifrefore they parties to be bankrupts under the act of con'gress, nor. cl:tn theY' graht a discharge to a bankrupt, call, the .asSl(tB 'cO'lllmg into'the hands Jof thetrustee,but they have JurlsdlCtlOn to collect"at thes.uit' of the 'ttmstee,.tM· debts due the estate, and have als'o jurisdiction" oyer' controversies'. between the; trustee and third parties to' the' property clahned by the trustee to belong . ,. to the estate.· ,Upon the taceof the present bill, it dppears ,that theinortgage executed, .andRossession Of'!he property prevlOus to 'the filmg of the was taken, by tI:le defendantlilherem, petition in,. bahkruptcy: . deSiring' to foreclose the ll1ortgage,broughtsuit to that ,end in 'the state conrt; that being the onlycourtinwh'i:ch, ther could institute foreclosure proceedings. The mortgaged property was riot in possession of the trustee or of the c()urt in bankrup,tcy, ahd the foreClosure proceedings were not brought for the purpose 'Of taking the' property away from the trustee, or from iJi any mode interfering with the control of any property in the actual

DmCKERHOFF 'v. MILLER.

651

custody of the court in bankruptcy; and I can see no ground for hold-_ ing that the state court was without jurisdiction to entertain'the suit originally, or that the suit should be' stayed by an injunction from this court. Furthermore, there is very grave doubt whether this court has jurisdiction over this proceeding, viewed as a bill bI'ought to test the validity of the mortgage sought to be foreclosed in the state court. The bankrupt, the trustee, and the mortgagee ar,e all citizens of the state Iowa, and the question is whether, under the provisions of the second clauseof section 23 of the Bankrupt Act of 1898, jm:iSflictioncanbe maintained, except with the consent of the defendants. In terms, this clause enacts that suits by the trustee shall only be brought or prosecuted in the courts where the bankrupt might have brought the same, if proceedings in bankruptcy had not been instituted. If this limitation applies to the district courts of the United States, it is clear that this court is without jurisdiction over the present bill, and I am greatly inclined to the view that this clause is a limitation upon the jurisdiction of the district court. In the case of In re Sievers, 91 Fed. 366, is to be found a very strong argument by Judge Adams in support oUhe view that this clause of section 23 is intended to apply only to the circuit courts. The contrary view is held by .Judge Bellinger in Burnett v. Mercantile Co., Id. 365, and by Judge Buffington in Mitchell v. McClure, Id., 621. As this case is now before me solely upon the application for a preliminary injunction, and as I hold that, assuming that this court might have jurisdiction, the showing for the issuance of an injunction is not sufficient, it is not necessary to finally decide this question of the extent of the jurisdiction of this court, although, as already stated, I incline to the view, that the jurisdiction does not exist in a case of this character. The application for an injunction is refused.

DIECKERHOFF et al.v. MILLER et al. (Circuit Court of Appeals, Second Circuit.
No. 154. 1.

CUSTOMS DU'J'IES-PROTESTS.

April 4, 1890.)

Act Congo Feb. 26, 1845, relating to protests on Imports of goods, was repealed by Act Congo June 30, 1864, which substituted for the commonlaw action of the importer against the collector a Statutory remedy, and regulated its incidents. 'l'he provisions of both acts were Incorporated into the Revised Statutes approved June 22, 1874; those of the act of 1864 being reproduced in section 2931, and those of the act of 1845 in section 3011. Held, that the provisions of the act of 1845 did not affect the rights of an importer which accrued between December 1, 1873, and .June 22, 1874; and; if the importer's protests were made in the manner provided by the act of 1864, they were valid.

2. SAME-HAIRCLOTH GOODS.

Importations of bindings, braids, and buttons made between the 6th day of February and the 15th day of .June, 1874, all made of mobair, should have been classified for duty under Act July 14, 1870, § 21, as corrected by joint resolution of January 30, 1871, providing tbat tbe duty "on hair--cloth known as crinoline cloth, and on all otber manufactures ot hair not otherwise berein provided for, 30 per cent. ad valorem," and not under the act of :\farch 2, 1867.