JAFFE et al. v. PYLE et al. In re STEELE, MILLER & CO.

JAFFE et al. v. PYLE et al. In re STEELE, MILLER & CO. (Circuit Court of Appeals, Fifth Circuit. April 26, 1917.) No. 2955. Bankruptcy <Sr=>292 — Actions Against Trustee — Jurisdiction. A trustee in bankruptcy brought ancillary proceedings in the Eastern district of Louisiana, claiming ownership of certain cotton, and obtained a preliminary injunction against its removal from the court’s jurisdiction. Thereafter the cotton was delivered to certain foreign banks on forthcoming bonds. Plaintiffs sued the trustee and the parties to such ancillary proceeding to impress a trust on the cotton, on the ground that it was purchased with money obtained from them by the bankrupt by fraud, and the jurisdiction was sustained on the theory that it was in the nature of an ancillary suit affecting property within the custody of the court. Held that, while this had probably become the law of the case, the court’s jurisdiction could not be sustained, where the ancillary proceeding by the trustee had terminated adversely to the trustee; the bond having only been intended to take the place of the cotton, and the foreign defendants having done nothing to subject themselves personally to the court’s jurisdiction. [Ed. Note. — For other cases, see Bankruptcy, Cent. Dig. §§ 410, 410, 415, 416.] Appeal from the District Court of the United States for the Eastern District of Rouisiana; Rufus E. Eoster, Judge. Suit by Max Jaffe and others against J. A. E. Pyle, trustee in bankruptcy of Steele, Miller & Co., and others. From a decree dismissing the bill, complainants appeal. Affirmed. The following is tire decision of the trial judge on demurrer: In this case the plaintiffs set out in their bill that by certain fraudulent practices the bankrupt firm of Steele, Miller & Co. got from them upwards of $68,000; that same constituted a trust fund in the hands of the said bankrupts ; that subsequently, out of the trust fund, they purchased certain cotton; and that this same cotton came into the possession of this court by virtue of ancillary proceedings in the said bankruptcy. The bill prays that the cotton be impressed with a trust in their favor to the extent of their claim. In the other proceedings in this court, referred to in plaintiffs’ bill, the trustee of Steele, Miller & Co-, proceeded against the identical cotton, claiming the ownership, and a preliminary injunction against the transportation company issued, preventing its removal out of the jurisdiction of this court. This proceeding was in the nature of a stoppage in transitu, enforced by injunction, and to all intents and purposes the res was in the exclusive jurisdiction of this court, through its officer, the trustee in bankruptcy. Thereafter the cotton was delivered to certain French banks on forthcoming bonds. On plaintiffs’ bill, subpoenas issued by order of the court and were served on the solicitors of record of the trustee and of the French banks, and on the transportation company and its agent, all of whom were parties in the other proceedings. Service was made on the American Surety Company, surety on the forthcoming bond, through its resident vice president. The American Surety Company has filed a demurrer to the jurisdiction of the court ratione materise, and all other parties defendant have filed limited appearances, and subsequently pleas to quash the services, on the ground that they are not residents of, nor represented in, the district. Plaintiffs are seeking to impress certain property in the custody of the court with a trust, and their bill is therefore in the nature of an ancillary suit. Consequently this court has jurisdiction to hear and determine the issues with regard to the property in question, and the subpoenas issued and served upon the solicitors for other claimants to the said cotton are purely in the nature of notices, and ample, in view of the specific relief prayed for. Nor does it matter that the actual property has been removed out of the jurisdiction of the court, as the forthcoming bond stands in its place. Krippendorf v. Hyde, 110 U. S. 276, 4 Sup. Ct. 27, 28 L. Ed. 145; Murphy v. John Hofman Company, 211 U. S. 562, 29 Sup. Ct. 154, 53 L. Ed. 327. The demurrer of the American Surety Company and the pleas of the other defendants will be overruled. The opinion of the trial judge, dismissing the bill, is as follows: In this matter I entertained jurisdiction originally only on the theory that if Pyle, trustee, recovered in the suit then pending, entitled Pyle, Trustee, v. Texas Transport & Terminal Co. (No. 14,240, D. C.) 192 Fed. 725, the court would have ancillary jurisdiction by virtue of constructive possession of the res. While it is probable that my decision has become the law of the case, notwithstanding, I have had occasion to change my views. See Knauth, Nachod & Kuhne v. Latham & Co. et al., 219 Fed. 721, 135 O. O. A. 419. That litigation having terminated adversely to the trustee, the court has nothing tangible to support its ancillary jurisdiction. Complainant contends, however, that he is not concluded by the decision against the trustee, and can obtain relief against the bond and the foreign defendants if he proves his case. With these views 1 cannot concur. The bond was only intended to take the place of the cotton, and the foreign defendants have done nothing to subject themselves personally to the jurisdiction o-f the court. The defendants have shown that they are at heavy expense to pay the continuing premium on the bond, and equity requires that the litigation he promptly terminated. The bill will he dismissed without prejudice. The foregoing are the papers mentioned in the pracipe filed by the complainants. George T. Hogg, of New York City, and W. O. Hart, of New Or - leans, La., for appellants. Geo. Denegre, Victor Leovy, Henry H. Chaffe, and Geo. H. Terri-berry, all of New Orleans, La., for appellees. Before PARDEE, WALKER, and BATTS, Circuit Judges. [MAJORITY — PER CURIAM.] PER CURIAM. We concur with the trial judge in the disposition of this case. The decree appealed from is affirmed.