U.S. Supreme Court
Metcalf v. Barker, 187 U.S. 165 (1902)
Metcalf v. Barker
Argued October 30, 1902
Decided December 1, 1902
187 U.S. 165
The question in this case was whether, under § 67f of the Bankruptcy Act of 1898, where a final decree recovered within four months of the petition, but which was based on a judgment creditors' bill in equity filed long prior thereto, the creditor had a lien on the assets involved in the action which was superior to the title of the trustee in bankruptcy, or whether (as was held by the district court) § 67f prevented the complainant from acquiring any benefit from the lien, or the fund attached except through the trustee in bankruptcy pro rata with other creditors. Held that while the lien created by a judgment creditors' bill is contingent in the sense that it may possibly be defeated by the event of the suit, it is in itself, and so long as it exists, a charge, a specific lien, on the assets not subject to being divested save by payment of the judgment sought to be collected, and a judgment or decree in enforcement of an otherwise valid preexisting lien is not the judgment denounced by the bankruptcy statute which is plainly confined to judgments creating liens.
When, therefore, a judgment creditor files his bill in equity long prior to the bankruptcy of the defendant, thereby obtaining a lien on specific assets, and diligently prosecutes it to a final judgment, he acquires a lien on the property of the bankrupts which is superior to the title of the trustee, and a district court of the United States does not have jurisdiction to make an order in bankruptcy proceedings against the defendants enjoining him from enforcing such lien.
See also Pickens v. Roy, decided this term, p. 187 U. S. 177, post.
The certificate in this case is as follows:
"This matter came before this court upon a petition of Metcalf Brothers & Co. to superintend and revise in matter of law certain proceedings of the District Court of the United States for the Southern District of New York wherein an order was made by said district court enjoining the petitioners, Metcalf Brothers & Co., from taking any further proceedings under any judgment obtained by them in the Supreme Court of the State of New York in a judgment creditors' action wherein certain transfers made by the bankrupts had been set aside as to them
as fraudulent and void, and wherein receivers of the property of the bankrupts appointed by the said supreme court had been directed to pay to them the amount of their judgments at law upon which their said judgment creditors' action was founded."
"For its proper decision of the matter, this court desires the instruction of the Supreme Court upon the questions of law hereinafter stated, and hereby certifies the same to the Supreme Court of the United States for that purpose."
"Statement of Facts"
"On the 2d of October, 1896, Lesser Brothers, subsequently adjudged bankrupts, who were copartners, being then insolvent, transferred all their property, copartnership and individual, to certain favored creditors. All their outstanding accounts, being copartnership property, they transferred by instruments of assignment to Marcus A. Adler and others. They confessed various judgments in the supreme court of the State of New York in favor of Bernhard Moses and others, upon which executions were at once issued to the Sheriff of the County of New York, who levied thereunder on all their tangible personal property, consisting of clothing material and stock in trade. This also was copartnership property, and, with the book accounts, comprised all their property except a piece of real estate owned by Israel Lesser individually and a ground lease of another piece of real estate owned by Tobias Lesser individually. These two pieces of real estate the individuals owning them conveyed to Joseph Lilianthal."
"After making these transfers, and after the levy by the sheriff under the executions issued upon the confessed judgments, and on the same day, by a fraud upon the court, in a collusive action in the Supreme Court of New York to dissolve the partnership, they procured the appointment of a receiver of the partnership property, Morris Moses, who was nominated by and in collusion with them. Subsequently a receiver nominated by certain creditors, James T. Franklin, was associated with Mr. Moses by the same court."
"Various creditors of the bankrupts immediately commenced
actions of replevin to recover portions of the goods in the hands of the sheriff. Their claims were conflicting with each other and with those of the confessed judgment creditors, and in an action brought in the supreme court of New York by the receivers an order was made restraining the sale by the sheriff under the executions, directing a sale by receivers (Mr. Moses and Mr. Franklin being also appointed such receivers in that action), and that the latter should hold the proceeds of the sale subject to the claims of all parties, such claims to be determined in that action. Pursuant to this order, the goods were sold, and the receivers so appointed now hold the proceeds thereof. This order was made November 23, 1896. The action is still pending, undetermined."
"On the 22d day of October, 1896, and the 29th day of October, 1896, Metcalf Brothers & Co. procured judgments in the Supreme Court of the State of New York against the Lessers for $930.21 and $2,547.80 respectively, upon which executions were issued and returned unsatisfied."
"On the 17th day of December, 1896, Metcalf Brothers & Co. commenced a judgment creditors' action in the Supreme Court of the State of New York, which came to trial on the 17th day of December, 1897, and as a result of which the transfers to which reference has been made and the proceedings for the appointment of the receivers were adjudged fraudulent and void as to them. The court, however, set aside the transfers of the copartnership property, not only in favor of Metcalf Brothers & Co., but also in favor of the receivers. It set aside the transfer of the real estate in favor of Metcalf Brothers & Co. alone. Judgment was entered on this decision April 6, 1898."
"This judgment determined that the proceeds of the sale of the tangible property then in the hands of the receivers and the outstanding accounts or their proceeds in the hands of the transferees (to be accounted for under the judgment to the receivers) were to be administered by the receivers for the benefit of all the creditors of the copartnership equally, including Metcalf Brothers & Co., while the real estate transferred
became subject to the lien of the judgments of Metcalf Brothers & Co. on October 22d and 29th, 1896."
"All parties except the receivers appealed from this judgment to the appellate division of the supreme court of New York; that court affirmed the judgment of the trial court as to the fraud, but reversed it insofar as it granted relief in favor of the receivers. It directed the payment by the receivers to Metcalf Brothers & Co. of the amount of their judgments out of the money in the receivers' hands, and, since Metcalf Brothers & Co. were to be so paid, it reversed the judgments in their favor against Adler, one of the transferees of the accounts. Upon the ground that there was no proof of fraud, it also reversed it against the transferee of t Adler, one of the transferees of the accounts. Upon the ground that there was no proof of fraud, it also reversed it against the transferee of t Adler, one of the transferees of the accounts. Upon the ground that there was no proof of fraud, it also reversed it against the transferee of the real estate."
"This decision was embodied in an instrument made the 30th day of December, 1898, entitled an 'order,' but which, after reciting the necessary facts, 'ordered and adjudged' that the judgment of the trial term be modified as stated, and also 'ordered and adjudged' that the transfers in question, except the transfer of the real estate, were fraudulent and void as to Metcalf Brothers & Co.; that the receivers be, and they were thereby, directed to pay to Metcalf Brothers & Co. the amount of their judgments, with costs, and that final judgment should be entered in accordance therewith. This instrument was filed in the office of the clerk of the appellate division of the supreme court of New York, and was the only paper signed by that court or kept in its records. A certified copy of it was transmitted to the clerk of the supreme court, upon which, after the costs had been taxed, a final judgment was entered by the latter clerk on the 31st day of January, 1899, following in all essential respects its verbiage. The delay in the entry of final judgment was caused by various motions before the appellate division for reargument."
"On the 12th day of May, 1899, Lesser Brothers filed in the District Court of the United States for the Southern District of New York a petition to be adjudged bankrupts, and they were adjudicated bankrupts on that day. Subsequently, and
on the 7th day of June, 1899, Benjamin Barker, Esq., was appointed their trustee in bankruptcy."
"From the judgment of the appellate division in the action brought by Metcalf Brothers & Co. all parties except Lilianthal, the transferee of the real estate, appealed to the Court of Appeals of the State of New York. That court affirmed the judgment of the appellate division in favor of Metcalf Brothers & Co., and also restored to them the rights awarded them by the judgment of the trial court, of which they had been deprived by the appellate division. The final result of the litigation was that the transfers in question were declared fraudulent and set aside in favor of Metcalf Brothers & Co. only; that as to all other persons they were (until impeached in a proper action) valid; that the receivers were directed to pay out of the funds in their hands to Metcalf Brothers & Co. the amount of their judgments, and that those creditors could also proceed for the collection of their judgments, if necessary, against the transferees of the accounts and real estate."
"The decision of the Court of Appeals was made on the 6th of February, 1900. The remittitur from that court to the supreme court was received and filed on the 12th day of March, 1900. On the 8th day of March, 1900, the bankrupts' trustee, upon affidavits of himself and his counsel, procured from the District Court of the United States for the Southern District of New York an order, entitled in the bankruptcy proceeding, requiring Metcalf Brothers & Co. to show cause on the 13th day of March, 1900, why a writ of injunction should not issue enjoining them from taking any further proceedings under any judgment in their creditors' action, and so enjoining them in the interim. This order provided for its service upon the members of the firm of Metcalf Brothers & Co., but it was not in fact served upon anyone but their attorneys in their judgment creditors' action. Metcalf Brothers & Co. appeared specially upon the return day of the order to show cause, and filed a written objection that the district court was without jurisdiction, power, or authority over them in the premises; that no action or other proceeding was pending or had ever been begun against them in any way relating to the subject matter of the
proposed injunction; that they had not appeared in or been made a party to any proceeding founded upon the petition of Lesser Brothers to be adjudged bankrupts, and that they had not been brought into court on any process, or been given any notice of the order to show cause, except that their attorneys in their creditors' action had received a copy thereof, and especially that no statute conferred upon the district court jurisdiction, power, or authority to issue any writ of injunction in the premises."
"Their objection was overruled, and after an argument of the merits of the application, the injunction was continued."
"Subsequently Metcalf Brothers & Co. presented a petition to this court to superintend and revise in matter of law the said proceedings of the district court."
"Upon the facts above set forth, the questions of law concerning which this Court desires the instruction of the Supreme Court for its proper decision are:"
"1. Had the District Court of the United States for the Southern District of New York jurisdiction to make the injunction order in question?"
"2. If said court had jurisdiction to restrain Metcalf Brothers & Co. from receiving the fund in question, could such jurisdiction be exercised by summary proceedings?"
"3. Did Metcalf Brothers & Co. by the commencement of their creditors' action acquire a lien on the property of the bankrupts superior to the title of the trustee thereto?"
"4. If the lien acquired by the commencement of the creditors' action was inchoate merely, was it perfected by a judgment obtained more than four months prior to the filing of the petition of the Lessers in bankruptcy, within the meaning of the provisions of the act of Congress of July 1, 1898, known as the Bankruptcy Act?"
"5. If the lien acquired by the commencement of the creditors' action was inchoate merely, was the judgment in the creditors' action, whenever obtained, one which is avoided by
any of the provisions of the act of Congress of July 1, 1898, known as the Bankruptcy Act?"