author: ADLER, District Judge.

text:
    In re AVERBACH.
    No. 13252.
    District Court, W. D. New York.
    June 26, 1931.
    Frederick Wiedman, of Rochester, N. Y., for claimant.
    Isaac Adler, of Rochester, N. Y., for trustee in bankruptcy.
   ADLER, District Judge.

The referee in bankruptcy denied the petition of the claimant for leave to file its claim. The adjudication in bankruptcy in this ease was on January 27, 1928. The bankrupt had title to a building, and prior to the filing of the petition in bankruptcy, the claimant filed a mechanics’ lien against him for material furnished for bankrupt’s building. On February 24, 1928, an action was begun in tbe Supreme Court, Monroe County, by one Charles Bird against the bankrupt and the trustee in bankruptcy to foreclose two mortgages upon his property. The claimant was made a defendant in that action and filed an answer alleging that plaintiff’s mortgages were usurious and void. The action was tried, the mortgages were declared valid, and a judgment of foreclosure ánd sale was entered in the Supreme Court on March 20,1929, a little more than a year after the adjudication. The sale under this judgment did not occur until February 21, 1930. The referee’s report of sale was filed on April 12, 1930, and the order confirming the report of sale was entered on October 24, 1930.

The foreclosure and sale resulted in a deficiency judgment of $28,000 in favor of the mortgagee. ■

Within sixty days after the entry of the order of October 24,1930, confirming the sale of the property by the referee, the claimant herein petitioned for permission to file his .claim on the ground that it was a claim liquidated by litigation, and that therefore it could be filed at any time within sixty days after the final judgment in such liquidation.

The claimant filed his lien prior to the adjudication in bankruptcy and his claim had the status of a secured claim. Under the authorities it may be said to be an unliquidated claim. In re Southern Pharmaceutical Co. (D. C.) 286 F. 148.

The first question to be considered is whether it was liquidated by litigation. The litigation' in this matter was the foreclosure of a mortgage on the property of the bankrupt upon which the claimant had its lien. The foreclosure action was started subsequent to the adjudication in bankruptcy. The claimant was a necessary defendant in this action, as were also the other lienors. There were a number of lienors whose claims amounted altogether to more than $13,000 which preceded that of claimant. The claimant set up' in its answer the invalidity of the mortgage as did, I presume, the other defendants. The question litigated in the action was whether the mortgage was valid or void. The judgment in the action, which was the judgment of foreclosure and sale entered on March 20, 1929, decreed the validity of the mortgage. The subsequent proceeding in the action determined the amount for which the mortgagee was entitled to enter a deficiency judgment.

In this ease it was evident, at the time of the entry of the judgment of foreclosure and sale which decreed the mortgage valid, that the lien of the claimant was of no value. If the mortgage had been declared invalid, it is probable that the claimant’s security would have been good. Even then its allowance in bankruptcy does not follow as a necessary consequence. Powell v. Leavitt (C. C. A.) 150 F. 89. Under a recent decision of the United States Supreme Court, Isaacs v. Hobbs Tie & Timber Co., 282 U. S. 734, 51 S. Ct. 270, 75 L. Ed. 645, the question of the amount and validity of claimant’s lien- must be determined in the bankruptcy court.

It is a question here whether the litigation in this ease was the kind of litigation that would bring this claim within the provisions of section 57n of the Bankruptcy Law, 11 USCA § 93 (n). The opinion in Powell v. Leavitt, supra, states that the object of the exception is to allow the proof of a claim by a creditor who was engaged in litigation with the bankrupt’s estate concerning its liability to him. Collier on Bankruptcy, in discussing the exception, says: “The litigation referred to means litigation between the claimants and the bankrupt.” I have found no cases in which a claimant was permitted to prove his claim after the statutory period under this exception that were not eases in which the claimant was litigating his claim directly with the bankrupt’s estate. I am of the opinion that the litigation referred to in section 57n, 11 USCA § 93 (n) did not include a litigation in which the claimant’s rights were not primarily the subject. It is true that the decision in the mortgage fore^ closure here, in which claimant by virtue of its lien was a necessary party, might affect the value of claimant’s security; but it had the right to prove its claim in the first instance as a secured claim. In re Sampter (C. C. A.) 170 F. 938. It seems to me that a litigation which does not have as its primary object determining the status of the claimant’s claim and security, and which is not a litigation between claimant and the bankrupt’s estate, is not a liquidation by litigation within the meaning or intent of the words as used in the Bankruptcy Law.

The trustee in bankruptcy takes the position that even if this is a claim which, through the mortgage foreclosure, was liquidated by litigation, the judgment of foreclosure and sale in the action was the final judgment therein. The judgment of foreclosure and sale was entered on March 20,1929, and the claimant did not seek to file his claim until more than a year and a half later. He did, however, petition for the filing of his claim within sixty days after the order confirming the sale, the entry of which order had been long delayed for various reasons.

In Bondy v. Aronson & List Realties, Inc., 227 App. Div. 136, 237 N. Y. S. 444, the New York State Appellate Division, Fourth Department, distinctly held that in a foreclosure action the judgment of foreclosure and sale is the final judgment and is not interlocutory. The opinion cited section 1082 of the New York Civil Practice Act and reviewed Morris v. Morange, 38 N. Y. 172, and a number of other cases. It is urged that under the law of New York State where this mortgage was foreclosed, the judgment of foreclosure and sale is the final judgment in the action. The ease of In re Gutchess (D. C.) 31 F.(2d) 609, 610, was decided in the Northern District of New York, subsequent to the ease of Bondy v. Aronson & List Realties, Inc., supra. It involved the construction of the meaning of section 57n of the Bankruptcy Act, 11 USCA § 93 (n), and in the opinion written by Judge Cooper, he states that, “The order or judgment confirming the sale was the final judgment, within the meaning of section 57n of the Bankruptcy Law.” In that case, in a litigation between a claimant and trustee in bankruptcy, it was clear that the amount of petitioner’s liability could not be determined until the sale of the property, and the court there held that the order confirming the sale was the final judgment in that case. I am inclined to agree that the final judgment as meant by the Bankruptcy Law means that judgment or order in the action which finally determines the rights of the parties-in the subject-matter of the litigation.

In the instant case, the trustee urges that the judgment of foreclosure and sale, or at latest the sale itself which occurred shortly thereafter, definitely fixed the fact that the security of the claimant herein was of no value, and that as soon as that was determined, the claimant might have sixty days from that date to file its claim. That it was not entitled to count sixty days from the date of the entry of the order of confirmation which after having been erroneously entered was not finally properly entered until more than a year later.

Without passing definitely upon the question of whether the judgment of foreclosure and sale, or the sale itself, or the order eon-firming the sale, is the final judgment in the meaning of the Bankruptcy Law, the order of the referee herein is affirmed.


source: Caselaw Access Project

author: KERRIGAN, District Judge.

license: Public Domain

text:
    McCULLOUGH EGG EQUIPMENT CO. v. POULTRY PRODUCERS OF CENTRAL CALIFORNIA.
    No. 2402.
    District Court, N. D. California, N. D., Division 2.
    June 24, 1931.

      Young, Hudson & Rabinowitz, of San Francisco, Cal., for plaintiff.
    Chas. E. Townsend, Wm. A. Loftus, and Thos. G. Goulden, all of San Francisco, Cal., for defendant.
   KERRIGAN, District Judge.

The plaintiff in this case claims that defendant has infringed its patent rights to a “Machine for Treating Eggs” and seeks an injunction and damages. The defendant has moved to dismiss plaintiff’s bill of complaint on the theory that plaintiff has not alleged therein the ultimate facts required by law. The instant case raises the question in this district as to whether the so-called “long form” or “short form” of bill of complaint is proper. There is a square conflict of authority on this point in the United States courts. There are two Circuit Court eases on the point, one of which, Ingrassia v. A. C. W. Manufacturing Corporation, 24 F.(2d) ■ 703 (C. C. A. 2), holds that the “short form” is not sufficient, and the other of which, Moeller v. Seranton Glass Instrument Co., 19 F.(2d) 14 (C. C. A. 3), holds that the “short form” is sufficient. The District Courts are likewise divided. This court is of the opinion that‘the “short form” of the bill of complaint in patent infringement eases is sufficient. This view has heretofore been followed in several cases in this district without written opinion.

Before proceeding to discuss the reasons for this ruling, it is necessary to analyze the difference between the “long form” and the “short form” of bill of complaint. The “long form” is the modem survival of the cumbersome old-fashioned bill of complaint in use before the New Equity Rules were adopted in - the interest of simplified and concise pleading. It contains not only the allegations of the grant of the patent, the plaintiff’s ownership thereof, and the infringement thereof by defendant, but also the allegations negativing the existence of all facts which under sections 31 and 32 of 35 USCA (Rev. St. §§ 4886, 4887) would defeat an inventor’s application for a patent. In this form the plaintiff must plead as additional ultimate facts: (1) That the subject of the patent was not known or used by others in this country before the invention or discovery thereof by'the applicant; (2) that it had not been patented or described in any printed publication in this or any foreign country befort the invention or more than two years prior to his application; (3) that it was not in public use or on sale in this country for more than two years prior to the application, unless the same is proved to have been abandoned; (4) that the application for a foreign patent was not filed more than twelve ■months prior to the filing of the application •in this country. White v. Studebaker Corp. (D. C.) 30 F.(2d) 835; Bayley & Sons v. Braunstein Bros. Co. (D. C.) 237 F. 671; 35 USCA §§ 31 and 32. The “short form,” on the other hand, contains only the allegations respecting the issuance of the patent, the plaintiff’s ownership thereof, and the defendant’s infringement of plaintiff’s rights thereunder. The eases upholding each of these types of complaint agree that it is necessary to plead under Equity Rule 25 (28 USCA § 723) only the ultimate facts. With reference to this point the rule requires “a short and simple statement of the ultimate facts upon which the plaintiff asks relief omitting any mere statement of evidence.”

It appears to me that the better reasoning and practice support the contention that the pleading of the additional facts in the “long form” is unnecessary, in that it is a denial of anticipated defenses. Moeller v. Scranton Glass Instrument Co. (C. C. A. 3) 19 F.(2d) 14. It is true that the claims of plaintiff may be defeated after the issuance of the patent in proper form by showing that the holder of the patent was not entitled thereto under sections 31 and 32 of 35 USCA. The pleading by the defendant of the existence of such defensive matter is explicitly authorized. 35 USCA § 69 (Rev. St. § 4920). • It is therefore a duplication to require plaintiff to deny in anticipation any defense which defendant might plead. The case of Jost v. Borden Stove Co. (D. C.) 262 F. 163, in a well-reasoned opinion supports the following principles: That the plaintiff’s prima facie case requires proof only of the regular issuance of the patent to plaintiff or his predecessor in interest; that the defendant may defeat plaintiff’s right to recover by showing that the patent was improperly issued in that the provisions of 35 USCA §§ 31 and 32 were not in fact complied with; that the burden of pleading such want of compliance is upon the defendant; and further that the letter and spirit of Equity Rule 25 (28 USCA § 723) is violated by such redundant pleading. See, also, Zenith Carburetor Co. v. Stromberg Motor Devices Co. (D. C.) 205 F. 158; Moeller v. Scranton Glass Instrument Co., supra; Pittsburgh Water Heater Co. v. Beler Water Heater Co. (D. C.) 222 F. 950; General Bakelite Co. v. Nikolas (D. C.) 207 F. 111.

The motion to dismiss is denied.


author: MORTON, District Judge.

text:
    SWARTZ v. KAPLAN et al.
    No. 2478.
    District Court, D. Massachusetts.
    June 23, 1931.
    Mondlick & Weiner, Solomon Mondlick, James M. Morrison, and Elisha Greenhood, all of Boston, Mass., for plaintiff.
    Henry V. Cunningham, Francis M. Carroll, E. Mark Sullivan, and Romney Spring, all of Boston, Mass., for defendant.
   MORTON, District Judge.

In deciding the motion to set aside the verdict I said: “That the case reeks with perjury I do not doubt; and I shall call it to the attention of the United States Attorney. The motion is overruled; but without prejudice to the defendants’ right to renew it at a later date if investigation shall establish that the verdict was clearly wrong.”

It was plainly doubtful whether the trial court had power to reserve any control over its judgment if and after that judgment should be affirmed by the Court of Appeals. To meet this objection the plaintiffs stipulated that the court might entertain a renewal of the motion to set aside the verdict (and judgment) at any time up to one month after the termination of the ease in the Court of Appeals and after the mandate of that court.

The reservation and the stipulation were called to the attention of the Court of Appeals and are referred to in its opinion [41 F.(2d) 177, 178]. That court affirmed the judgment, and has sent down a mandate in the usual form, not reserving leave to the defendant to renew the motion to set aside the verdict. An application to the Court of Appeals to recall the mandate and amend it, granting such leave, was refused.

Aside from the plaintiff’s stipulation, the only present function of the District Court in this case is to carry out the mandate of the Court of Appeals. It has no other power or duty in the premises. This is settled law.

“When a case has been once decided by this court on appeal, and remanded to the circuit court, whatever was before this court, and disposed of by its decree, is considered as finally settled. The circuit court is bound by the decree as the law of the case, and must carry it into execution according to the mandate. That court cannot vary it, or examine it for any other purpose than execution ; or give any ether or further relief; or review it, even for apparent error, upon any matter decided on appeal; or intermeddle with it, further than to settle so much as Jbas been remanded.” Gray, J., in Re Sanford Fork & Tool Co., 160 U. S. 247 at page 255, 16 S. Ct. 291, 293, 40 L. Ed. 414.

“When the merits of a ease have been onee decided by this court on appeal, the circuit court has no authority, without express leave of this court, to grant a new trial, a rehearing, or a review, or to permit new defenses on the merits to be introduced by amendment of the answer. [Citing cases.] In this respect a motion for a new trial or a petition for a rehearing stands upon the same ground as a bill of review, as to which Mr. Justice Nelson, speaking for this court, in Southard v. Russell [16 How. 547, 14 L. Ed. 1052], above cited, said: ‘Nor will a bill of review lie in the ease of newly-discovered evidence after the publication, or decree below, where a decision has taken place on an appeal, unless the right is reserved in the decree of the appellate court, or permission be given on an application to that court directly for the purpose.’ ” Gray, J., in Re Potts, Petitioner, 166 U. S. 265 at page 267, 17 S. Ct. 520, 521, 41 L. Ed. 994.

The foregoing eases arose in equity, and the Supreme Court had the duty of deciding the facts as well as the law; but I do not see that this difference is significant on the present question which is as to the effect of a mandate from an appellate court.

In Delaware, Lackawanna & Western Railroad Company v. Rellstab, 276 U. S. 1, 48 S. Ct. 203, 72 L. Ed. 439, a verdict in favor of the plaintiff was set aside for newly discovered evidence; the case was tried again and resulted in a verdict for the defendant; it was then taken to the Court of Appeals which affirmed the judgment; it then went back to the District Court, and the District Judge undertook to set aside the verdict because convinced that it had been obtained by perjured testimony. It was held that he had no power to do so.

The only doubtful question is whether the plaintiff’s stipulation filed in this Court before judgment was entered saves to the District Court a power and jurisdiction which otherwise it clearly would not have. In my opinion it does not. It is well settled that no agreement of parties can confer jurisdiction. In Exporters v. Butterworth-Judson Co., 258 U. S. 365, 42 S. Ct. 331, 66 L. Ed. 663, it was held that the agreement of counsel to the allowance by the trial judge of a bill of exceptions after the prescribed time had expired gave no validity to the bill. Still less can it give validity to an attempted reservation of power under which the District Court could set aside the judgment which by the mandate it is ordered to carry out. See, too, Fairmont Creamery Co. v. Minnesota, 275 U. S. 70, 48 S. Ct. 97, 72 L. Ed. 168.

I rule as a matter of law that I have no power to allow this motion.

Motion denied.


author: HINCKS, District Judge.

text:
    In re LIPMAN.
    No. 11700.
    District Court, D. Connecticut.
    April 17, 1931.
    Hungerford & Saxe, of New Britain, Conn. (William C. Hungerford, of New Britain, Conn., of counsel), for bankrupt.
    Leo V. Gaffney, of New Britain, Conn., for Commercial Trust Co. of New Britain, a creditor.
    David L. Nair, of New Britain, Conn., for trustee.
    Julius Apter, of Hartford, Conn., for Acme Upholstery Co.
   HINCKS, District Judge.

In this matter a report of the special master sets forth that an offer was made by the bankrupt of a composition of 20 per cent, to common creditors and payment in full of preferred claims together with administration expenses, which offer was accepted by a majority in number and amount of creditors who had filed proofs of claim.

On hearing before the referee on the bankrupt’s application for a confirmation of said composition, objection was made by the Acme Upholstery Company, a creditor, on the ground that the terms of the offer were inadequate, and apparently by way of corroboration of this objection, this creditor made written offer, in the name of its counsel, to purchase the entire assets of the estate, paying therefor:

(a) All administration expenses;

(b) All preferred claims properly proved and allowed, in full; and

(c) “A dividend of 30% on each and every unsecured claim which may be properly proved and allowed against said estate.”

This offer was accompanied by a deposit of $2,000 on account.

The special master further reports that the Acme Upholstery Company was ready, willing; and able to deposit with the trustee a further sum of $14,000 to guarantee its performance of said offer. On these facts the special master recommends that the petition for the confirmation of the 20 per cent, composition be dismissed, and that the offer of the Acme Upholstery Company, set forth above, be accepted.

Counsel for the bankrupt have argued that the .offer of the Acme Upholstery Company should not be accepted because of the fact that it puts the purchaser in a position wherein it may speculate as to the administration of the estate. As I understand it, the claim is that the offer of purchase on terms expressed not in any specific amount, but only by a percentage of the provable and proved claims, puts the purchaser in such a position that it absorbs the entire benefit of every claim which shall ultimately be disallowed, in whole or in part, to the exclusion of other creditors who would ordinarily derive that benefit proportionately. And so this objection to the pending offer seems squarely to raise the question whether the assets of a bankrupt estate may be sold by acceptance of an offer expressed in terms of a percentage dividend to creditors instead of a specified amount.

It is obvious, of course, that an offer of purchase for a specified amount, for its intelligent consideration by the creditors, and, in turn, by the referee and court, requires only a consideration of the value of the assets, and, in such consideration, creditors, referee, and court alike have the benefit of the appraisal made under the Bankruptcy Act (11 USCA). On the other hand, an offer based on a percentage to creditors whose claims shall be proved and allowed involves the ‘further consideration (in cases such as this where the offer is made before all such claims have been proved) of a preliminary appraisal or analysis of all the claims. This is so because, unfortunately, experience proves that there often results a wide disparity between the claims as listed in the schedules and the claims as ultimately allowed. Consequently, the possibility of such a disparity must be considered if offers are to be entertained which are expressed in terms of percentage dividend on the total claims.

However, it is unquestionably the practice with regard to compositions to entertain offers based upon a percentage to creditors. And this practice prevails notwithstanding the absence of any express authority therefor in the Bankruptcy Act. Bankr. Act § 12 (11 USCA § 30). See also numerous cases cited in notes 13 and 14, title 11, USCA § 30, showing that offers of composition may be confirmed even though made on a basis other than cash.

Since such is the recognized practice in compositions, I fail to see why offers to purchase may not similarly be predicated upon the ultimate yield to creditors. Nothing contained in the Bankruptcy Act seems to prohibit the entertainment of such offers. To be sure, it is provided in section 70b of the act (11 USCA § 110(b): “Beal and personal property shall, when practicable, be sold subject to the approval of the court; it shall not be sold otherwise than subject to the approval of the court for less than 75 per centum of its appraised value.”

At first glance, the passage quoted might seem to indicate that sales are authorized only upon offers for specified amounts, thus readily comparable with the appraised value. On reflection, however, I cannot find anything in this or any other provision of the act which even implies a prohibition of sales on offers based on a percentage dividend to creditors. To be sure, the provision quoted may require the referee to estimate the total claims and, by computation, to translate the percentage offer to its equivalent sum, for purposes of comparison with the appraised value. Where claims are vague and uncertain, it may well be that the referee will find it impossible to ascertain whether or not a given percentage offer is the equivalent of 75 per cent, of the appraised value. In such cases he would doubtless withhold his approval of the sale, or possibly refer the offer to the court which, under'the provision quoted, may approve irrespective of the relation between the offer and the appraised value.

Nor do the cases seem to indicate that percentage offers may not properly be accepted. On the contrary, the case most nearly in point seems to approve such an ’ offer. In re Schloss (D. C.) 257 F. 876. In that case it appeared that a purchaser had offered for the assets a sum equal to 100 per cent, of all preferred claims and 20 per cent, “of the unsecured liabilities owing by the said bankrupts to their general creditors.” The referee certified to the court a question as to whether this offer required the purchaser to pay the specified dividend to creditors whose claims had not been filed and allowed. The court instructed the referee that the dividend was payable only to creditors whose claims had been filed and allowed. The propriety of the percentage offer had not apparently been questioned and received no discussion in the opinion. But it will be observed that the order of the court was such that the propriety of the offer was at least indirectly involved and approved.

It thus appears that neither the act itself nor the eases disapprove percentage offers on principle. Looking at the matter from the standpoint of practice, I can see nothing inherently unsound in such an offer. It is true that offers couched in such terms may require creditors and, in turn, the referee and the court, as in the usual ease of a composition, to scrutinize the list of liabilities for evidence of padding. Ordinarily, however, the examination of the bankrupt is sufficient to disclose fictitious or padded claims. And if such an offer involves the labor of a computation in order to obtain a check upon the value of the assets, on the other hand it has a certain convenience in that it enables creditors to know definitely what they will obtain upon their claims. This, it seems to me, is an item of considerable practicable importance, for I believe that, as a general rule, in considering any question of sale,' creditors want first of all to know just what the sale will bring them, and are only mildly interested in the question whether the terms are such that the purchaser is paying a fair price for the assets. And if, indeed, the creditors are interested in a comparison of the offer with the value of the assets, they can make their own comparison by the computation suggested above.

What I have already said indicates the answer to the specific objection to the percentage offer made in this case. True it is that where a percentage offer has been accepted and later one or more claims are disallowed the purchaser alone reaps the benefit. But all creditors and the referee as well, before the offer is accepted, have opportunity to examine and appraise the claims. If some of the claims are of doubtful validity, quite possibly and quite properly the percentage offer may discount such questions of validity by much the same theory as that which permits the trustee, with the approval of the referee, to compromise a doubtful claim. Instead of improper speculation, the question is rather one of ordinary business hazard. Nor are the hazards all in favor of the purchaser. Indeed in this very case, it was suggested on the argument that the purchaser here already repents his bargain.

And so, in practice as well as in principle, I find nothing fundamentally wrong with the basis of the offer in question. This is not to say that in many cases, and especially where there is suspicion of collusion between the bankrupt and the purchaser, the creditors and the referee on the hearing for confirmation may not properly object and conclude that the liabilities are so vague that a percentage offer might prove entirely inadequate. In such cases, doubtless, objections would ensue from the creditors, and confirmation would be withheld by the referee.

This however, is not such a ease. Here the creditors have already expressed themselves in favor of a 20 per cent, composition. Certainly it is to their advantage that the referee should dismiss the petition for a 20 per cent, composition and accept an offer netting 30 per cent, to common creditors. Since nothing in principle or practice prevents, the recommendation of the special master is approved, the petition for the composition is dismissed, and the offer in behalf of the Acme Upholstery Company is accepted. Ordered accordingly.


author: KENNEDY, District Judge.

text:
    BECK et al. v. OTERO IRR. DIST. et al.
    No. 8564.
    District Court, D. Colorado.
    May 29, 1931.
    C. R. Skinker and Pierpont Puller, both of Denver, Colo., for plaintiffs.

      Fred A. Sabin, of Pueblo, Colo., for'defendants La Junta Canal & Reservoir Co. and others.
    Smith, Brock, Akolt & Campbell, of Denver, Colo., for defendants Mary E. Wilcox and another.
    James H. Pershing, George L. Nye and Robert G. Bosworth, all of Denver, Colo., for defendants United States Nat Bank and another.
   KENNEDY, District Judge.

This suit in equity was before the court nearly two years ago upon motions to dismiss and special pleas raised by the answers of some of the defendants, which points were argued, later considered and disposed of, in a memorandum opinion under date of June 19, 1929, and on file in the cause under date of June 29, 1929. 38 F.(2d) 275. The motions to dismiss and special pleas in the answers having been overruled, answers were subsequently filed by the defendants who had interposed motions and the cause set for final hearing upon the merits. Evidence was taken on behalf of both plaintiffs and defendants, followed by arguments and the submission to the court upon trial briefs. The briefs are voluminous, and contain the citation of sufficient authorities to afford a trial judge reading material for a year should he attempt to review them all. The evidence taken does not in my opinion in any substantial degree change the issues upon which a decision in the cause must depend, and counsel must agree with this analysis because many of the points, and particularly the more important ones presented upon the former motions, are again raised in this final hearing.

Time forbids a complete history of and rehearsal of the facts leading up to the present litigation, but a sketch of the principal features may be sufficient to lend a degree of intelligence to the views of the court upon this extremely intricate, complicated, and important lawsuit.

The defendant the Otero Irrigation District was organized in 1902 under a statute of the state of Colorado relating to irrigation districts. (Laws 1901, p. 198.) Later in the same year, and in accordance with the provisions of-that statute, the district began the issuance of bonds. The following issues were made thereafter: In 1902, $300,000; in 1906, $160,000; in 1909, $40,000; and in 1910, two issues in the sum of $150,000 each, making in all a total of $800,000 in bonds. During this period the law was changed by legislative enactment at various times, but in no way which made a difference in the legal nature of the bonds. The bond issues were effected upon the vote of the qualified electors of the irrigation district, and were judicially confirmed by a court in accordance with the statute, declaring said bonds to be the legal indebtedness of the district. These bonds were sold in regular course upon the market, and the proceeds were used for the purpose of building the irrigation system, acquiring water rights and other necessary equipment for putting the system into efficient use. At least the greater portion of these bonds had been disposed of, for, when the purported dissolution of the district hereinafter referred to took place, there were outstanding of the face value of said bonds which had not been paid in excess of $650,000. It was provided in said bonds that the principal and interest thereon should be paid by revenue derived from annual assessments upon the real property within the irrigation district, and such assessment and the bonds were made a lien upon such real property. In 1915 the Legislature passed an act (Laws 1915, p. 307) providing for the dissolution of such statutory quasi public irrigation districts, which act provided for a court hearing in a state court upon a petition for such dissolution, after notice by publication in a paper to all persons holding claims of indebtedness against the district, and providing further that any one interested and holding such indebtedness might appear and test the validity of the proceeding. It was provided that the court should thereupon determine the indebtedness of the district, together with the rights and liabilities of all parties. The act further provided that the court might decree a sale or exchange of its assets in such manner as it might seem best, which in the opinion of the court should provide an adequate security for the ultimate payment or complete liquidation of all the indebtedness of the district. In 1923, by which time the district was in a precarious financial condition, with its principal and interest payments, or many of them, due and unpaid, although, assessments and levies having been made for such purpose and many certificates of tax sale having been bartered, exchanged, and sold among bondholders and others, the dissolution proceeding was instituted in a state court of Otero county, Colo., by officials of the irrigation district upon a proposal of the defendants Wilcox, holding a considerable portion of the bonds, interest coupons, and certificates against the district by which they were to turn in said evidences of indebtedness upon the turning over of the property of the district, including the irrigation system, to a corporation organized among the landowners and to receive a certain amount of bonds to be issued by the new irrigation company, which became the La Junta Canal & Beservoir Company, a defendant in this proceeding, the Wilcoxes receiving from the old irrigation district the cash on hand, approximating $13,000, and advancing to the new company cash out of which the system would be rehabilitated. A hearing was had upon the petition and the proposal looking to the dissolution of the old district, after notice was published as hereinbefore stated, advising all holders of outstanding indebtedness of the district of their right to appear.

After several adjournments, an adjudication was- made by the court to the effect that the indebtedness of the district consisted substantially of what the Wilcoxes had turned in of their bonds, coupons, and certificates, together with one other bondholder of a portion of his bonds, who is a plaintiff in the ease at bar, and a decree was made authorizing the transfer of the property of the district to the new company, approving in all respects the- arrangement between the district with the Wilcoxes, cutting off all owners of indebtedness who had not submitted their claims, and in substance winding up the affairs of the old district. Later, the Michigan Trust Company and one Dalton, having attempted to intervene with their claims based upon bonds, and being denied relief by the court of original jurisdiction, appealed their cause to the Supreme Court of the state of Colorado (76 Colo. 441, 232 P. 919; 76 Colo. 438, 232 P. 922), which court found error on the part of the trial court, in that the claims had not been recognized, and directed that the claims of the two appealing plaintiffs should be allowed and paid, or that the entire proceeding would be set aside. At various times from 1916 to 1926, the plaintiffs, all nonresidents of Colorado, holding unpaid and matured bonds and interest-bearing coupons of the defendant district, all claims being in expess of $3,009, went into the federal court, and prosecuted such claims to judgments against the district, which judgments, according to loose computation, aggregate in excess of $150,000, with costs, and with the credit of certain payments the amount due upon these judgments has been reduced in round figures -to something over $100,000. In addition, it appears that one of the plaintiffs holds interest coupons in excess of $600, which claim has not been reduced to judgment. While I do not have the record in the case before me, I am of the opinion that it is made to appear that statutory assessments had been made to cover such indebtedness, both of principal and interest, and levies made upon the lands of the district, which assessments and levies failed to produce the funds sufficient to liquidate the indebtedness and that these same claims are the ones upon which the judgments of plaintiffs are based. These judgment creditors, as joint plaintiffs in this court, now seek equitable relief. The defendants Tate, Beddiek, and Norton are former trustees of the irrigation district during the dissolution proceeding. The defendant Banks are joined because after the completion of the so-called dissolution proceeding, new bond issues were made in which the Banks became the trustees under such loans, supported by deeds of trust to them from the La Junta Canal & Beservoir Company.

In the foregoing there has been no particular pretense of adhering strictly to dates, amounts, or detail of description concerning the various transactions involved, but the attempt has been merely to give a kaleidoscopic picture of the situation in which the litigants now find themselves.

The first point which suggests itself to the court as one of the determining factors in the analysis of the rights of plaintiffs is as to whether or not the plaintiffs were and are bound by the dissolution proceedings, because, if it should be determined that they were so bound, whatever rights they may have had are summarily cut off, and they have no standing in this court. The defendants assert, and strenuously maintain that the dissolution proceeding in the state court was a proceeding in rem which bound and cut off all claimants holding evidences of indebtedness against the irrigation district, unless they came in and submitted themselves to the jurisdiction of the state court. The law of 1915 providing for such dissolution specifically designated that it should be a proceeding in rem. (Laws 1915, p. 309, § 4.) Three reasons suggest themselves to my mind as to why this was not such a proceeding in rem as would bind the plaintiffs, despite the specific language of the law: First, I take it that merely because a statute may designate a proceeding as one in rem does not make it so. The principle of such a proceeding is one well known to the law from the earliest history of English and American jurisprudence. It usually has been considered as involving the custody of property by the court whose jurisdiction has been invoked by which the property itself is virtually brought into the possession of the court. Cooper v. Reynolds, 10 Wall. 308, 19 L. Ed. 931; Rose v. Himely, 4 Cranch, 241, 2 L. Ed. 608. Under the statute in question, as I read it, it was not contemplated that there should be any seizure of the property of the district through the process of a receivership, attachment, or otherwise, nor was there in fact any attempted bringing of the physical property into the possession of the court. The whole proceeding was simply one, in its final analysis, to determine the indebtedness of a quasi public irrigation district having substantially the same status as a municipality, and then authorizing the representatives of the district to sell or exchange its property. Second, as I read this statute, authority to the court is given to grant a sale or exchange of the assets when in the opinion of the court the proposed transfer “provides an adequate security for the ultimate payment or complete liquidation of all, the indebtedness of the district.” Certainly no provision was made for either the payment or liquidation of a substantial portion of the indebtedness of the district at the time the order of dissolution was made. The bonds in controversy had by a decree of the court been declared to be an indebtedness of the district. In passing, it may be observed that, when bonds and coupons to an amount of a little in excess of $425,000 only were turned in when the legal representatives of the district at the time knew that there were outstanding indebtednesses of the district in excess of $650,000 represented by the regularly issued and judicially declared legal bonds, the court issuing the order of dissolution must have been imposed upon by such officials if the full facts of the outstanding indebtedness were not brought to its attention; unless, of course, the theory were indulged that, when an assessment and levy had failed to produce funds for the payment of the bonds, they were no longer ■an indebtedness of the district, which will be later discussed. And, third, I am extremely in doubt as to the efficacy of a legislative aet purporting to compel nonresident bondholders to come into a state court which is given exclusive jurisdiction for the purpose and to submit their claims, when at the time they have the right to have those claims litigated under the acts of Congress in the federal court. The thought is expressed in Lincoln County v. Luning, 133 U. S. 529, 10 S. Ct. 363, 33 L. Ed. 766, where a portion of the syllabus reads as follows: “No state statute exempting a county in the State from liability to suit except in the courts of the county can defeat the jurisdiction of suits given by the Constitution to the Federal courts.”

In Chicot County v. Sherwood, 148 U. S. 529 at page 533, 13 S. Ct. 695, 697, 37 L. Ed. 546, the opinion of the court says:

“If, therefore, the presentation of a demand to the county court under the Arkansas statute is not the commencement of a suit against the county, then, under the rule stated in Delaware County v. Diebold Safe Co. [133 U. S. 473, 10 S. Ct. 399, 33 L. Ed. 674], just quoted, the court to which such demand may be carried after allowance or rejection receives and determines it as an original cause. In either ease the suit is so maintainable in the state courts as to be cognizable by original process in a federal court, where the parties have the proper citizenship' to confer jurisdiction. Any other view of the subject would prevent citizens of other states from resorting to the federal courts for the enforcement of their claims against counties of the state, and limit them to the special mode of relief prescribed by the aet of February 27,1879. The jurisdiction of the federal courts is not to be defeated by. such state legislation as this. In Hyde v. Stone, 20 How. 170, 175 [15 L. Ed. 874], it is said: ‘But this court has repeatedly decided that the jurisdiction of the courts of the United States over controversies between citizens of different states cannot be impaired by the laws of the states, which prescribe the modes of redress in their courts, or which regulate the distribution of their judicial power. In many cases state laws form a rule of decision for the courts of the United States, and the forms of proceeding in these courts have been assimilated to those of the states, either by legislative enactment or by their own rules. But the courts of the United States are bound to proceed to judgment and to afford redress to suitors before them in every ease to which their jurisdiction extends. They cannot abdicate their authority or duty in any case in favor of another jurisdiction. Suydam v. Broadnax, 14 Pet. 67 [10 L. Ed. 357]; Union Bank v. Jolly’s Administrators, 18 How. 503 [15 L. Ed. 472].’ This principle has been steadily adhered to by this court.

“In the ease under consideration the state statute relied on to defeat the jurisdiction of the United States circuit court was passed after the bonds sued on were issued and put in circulation, and if its requirement of presenting the bonds to the county court of Chi-cot county ‘for allowance or rejection’ was binding upon citizens of other states holding such bonds, * * * it would present a very grave question whether it was not such a substantial and material change in the remedy in force when the contract was made as to impair its obligation. But it is not necessary to consider and determine that question, as the objection is merely to the jurisdiction of the circuit court, and, for the reasons already stated, is not Well taken.”

In this connection, it will be noted that the bonds in controversy were all issued pri- or to the enactment of the Colorado statute under which the purported dissolution was attempted. In Mercer County v. Cowles, 7 Wall. 118, at page 122, 19 L. Ed. 86, the court said: “The power to contract with citizens of other States implies liability to suit by citizens of other States, and no statute limitation of suability can defeat a jurisdiction given by the Constitution. We cannot doubt the constitutional right of the defendant in error to bring suit in the Circuit Court of the United States upon the obligations of the County of Mercer against the plaintiff in error.”

In Brooklyn v. Insurance Co., 99 U. S. 362, at page 370, 25 L. Ed. 416, Mr. Justice Harlan, speaking for the court, says: “The suit commenced and determined in the Circuit Court of Lee County was a proceeding wholly in personam, against the holders and owners of bonds and coupons which had been issued in the name of the town, and delivered to the railroad company. Upon principle' and authority, no decree therein rendered could bind any one not personally served with process, or who did not appear. It could not affect the rights of non-resident holders of bonds and coupons, proceeded against by constructive service. Such service, as to them, was ineffective for any purpose whatever. Pennoyer v. Neff, 95 U. S. 714 [24 L. Ed. 565], and authorities there cited.” (

These cases are but an indication of the many decisions of the federal courts upon this subject. Even the Supreme Court of Colorado in Michigan Trust Co. v. Otero Irrigation District, 76 Colo. 441, 232 P. 919, very strongly indicated its view that the plaintiffs holding evidences of indebtedness against the district which had not been liquidated, or in regard to which adequate security for ultimate payment had not been provided, were entitled to protection. Likewise in the Dalton Case, 76 Colo. 438, 232 P. 922, if the non-appearing claimant had been successfully eut off by the dissolution proceeding, there was no particular legal right which he had to later come into the proceeding and under the decision of the court secure a modification of the original judgment to include his claim. If this reasoning is sound, the matter of the mere knowledge of some of the plaintiffs of the dissolution proceeding through counsel, but without formal appearance, as suggested by the evidence here, would not affect their position in this suit. For the reasons stated, I arrive at the conclusion that the plaintiffs in this respect were not bound nor eut off by the dissolution proceeding.

Another important point upon which counsel hold widely divergent views is as to whether or not, the district and county officials having had assessments and levies made under the statutes upon the lands comprising the irrigation district for the payment of plaintiffs’ bonds and coupons, and plaintiffs having failed to avail themselves of the purchase of certificates of sale, their remedy for the collection of the indebtedness is exhausted. This apparently is an extremely controversial question upon which the courts are seemingly divided. The Supreme Court of Colorado, in the ease of Thomas v. Henrylyn Irrigation District, 79 Colo. 636, 247 P. 1059, strongly indicates that the only source of payment of the bonds is in the assessment of the adequate amount to meet the accruing payments of principal and interest. Likewise the ease of Interstate Trust v. Montezuma Valley Irrigation District, 66 Colo. 219, 181 P. 123, would seem to so hold. Then arises the question as to whether or not, a levy having-been made and failing to produce the funds sufficient to liquidate the indebtedness, the holder of the bonds is remediless, unless they take the lands at tax sale or the certificates of such sale, or whether additional levies may be enforced for the purpose of liquidating the indebtedness.

Upon this point the courts also seem to have differed, as I view the decisions. In Norris v. Montezuma Valley Irrigation District, 248 F. 369 (C. C. A. 8), the Circuit Court of Appeals of the Eighth Circuit reversed the United States District Court of Colorado, and held, in substance, that an irrigation district, existing as in the ease at bar, is required to make a sufficient assessment, levy, and collection of taxes to actually pay the debt, and that provisions of the state Constitution and statutes are not violated when an additional levy is made on all the property in the district because of the failure of some of the taxpayers to pay their proportion of the first levy. The holding of the court in this case is fairly set forth in the third, fourth, and fifth paragraphs of the syllabus, which read as follows:

“A statutory obligation of a municipal or quasi municipal corporation to pay its debt, or to fix a rate of levy necessary to provide the amount of money required to pay its debt, is not satisfied by an assessment and rate of levy sufficient to pay the debt if the taxes are collected, but requires that there be a sufficient assessment and levy and collection of the taxes as levied actually to pay the debt.
“Provisions in state Constitution and statutes that assessments or levies for taxation shall be uniform upon the same class of subjects, or by value, are not violated when, after lapse of a reasonable time, and after reasonable efforts have been made to collect the first levy, as for the cost of an irrigation improvement, an additional levy is made on all the property in the district, because of the failure of some of the taxpayers to pay their portions of the first levy.
“Where the debt of an irrigation district to its bondholders had not been paid, when they sued for mandamus to compel a levy of assessment against lands of the district to pay a judgment on interest coupons, about 18 months after the coupons became due, and the lands delinquent under a prior assessment had been offered for sale for taxes, but had only been struck off to the county for lack of other buyers, and only a small number of such sales had been redeemed, the number of taxpayers who refused to pay increasing year by year, so that no further collection of any substantial sums from prior levies was to be expected, the bondholders were entitled to mandamus to compel levy of assessment against the lands of the district to pay the judgment on the interest coupons.”

I shall content myself with adhering to this construction of the rights of bondholders of an irrigation district organized under the general law of Colorado. It may be noted that the decisions of state courts and others to the contrary were handed down a considerable time after the bonds in controversy were issued. It may also be noted that a certiorari was denied by the Supreme Court in the Norris Case, as recorded in 248 U. S. 569, 39 S. Ct. 10, 63 L. Ed. 425.

Other contentions of the defendants were largely disposed of upon the motion to dismiss and answers there presenting the same points. This includes the defense of laches, and to my decision indicated in the former memorandum I shall adhere.

As it appears to me, if the plaintiffs were not cut off by the dissolution proceedings, and if they have the right to a continuing assessment and levy upon the lands in controversy until their indebtedness is actually paid, which it is admitted never has been paid, they are entitled to some remedy at the hands of a court of equity. Certainly it does not seem equitable to hold that, by some manipulation of the irrigation system by which it is found in the hands of a private corporation made up of the landowners, the plaintiffs should be left standing with their bare judgments ineffectual under the present condition to be in any wise enforced, while the lands upon which they were given a lien and the machinery under which they stood to have their indebtedness liquidated have slipped from under them through a so-called reorganization with new obligations, and in the meantime plaintiffs’ demands in the premises are entirely ignored. It would not seem that there is any adequate remedy for the plaintiffs at the present time and under the present circumstances for the plaintiffs to secure relief while the irrigation system itself has passed into other and independent hands, to which the landowners under said project are paying allegiance.

Nor does it occur to me that the rights of the plaintiffs under their contract fairly presume a lien upon the irrigation system and physical property thereof itself which would entitle them to a sale of said irrigation system for the liquidation of their indebtedness. Their contract as it has been construed provides that they shall have a continuing lien upon the real property within said district, and by no method of transfer of the district irrigation system should they, be defeated in such continuing right. Assuming, then, that the indebtedness of the plaintiffs has not been wiped out by the dissolution proceeding, and that their existing claims represented by the judgments are liens upon such lands, and that they have the right to have continuing assessments and levies made until such indebtedness is paid, as stated in the Norris Case, supra, it would appear to be the duty of a court of equity to set in motion such machinery as would fairly tend to discharge such obligations. Manifestly, as before stated, this could not be done with the irrigation system itself in the hands of independent holders, feeling themselves no doubt free and clear of such outstanding indebtedness, with the landowners securing their water from the new company whose officials are in no way bound to make the necessary assessments contemplated by the bond contract. In this complicated situation it would seem that only a reconstruction of the irrigation district, in so far as it may be necessary to carry out the obligations of the district, will be the only remedy available. It is truly a deplorable situation with landowners struggling under the new organization to make both ends meet, and likewise a hardship upon new bondholders who have invested their money in the bonds of the reorganized irrigation district, but all took their chanees with imputed knowledge of the frailties of the reorganization plan. Neither does this feeling afford relief to plaintiffs from the inequalities and inequities of the situation which confront them, of having been knowingly left out in the calculations of the promoters of the new enterprise while holding valid and subsisting claims. I see no un-surmountable obstacle for a court of equity in carrying out the views herein expressed. Nor example, three commissioners or receivers may be appointed by the court to take charge of the irrigation system and administer the affairs of the district for the use and benefit of the creditors whose claims have not been liquidated at the time of the dissolution proceeding; said commissioners may administer the affairs of the district under the rules and regulations which prevailed at the time the Otero irrigation district was functioning, and such levies as they may make upon the lands shall be first and superior liens to all other claims which arose subsequent to such dissolution proceeding; and that for the purpose aforesaid a lien shall exist in favor of the plaintiffs upon the system until sueh time as such indebtedness shall be liquidated. There is no reason apparent to the court that any person or organization should be unduly penalized for anything done in the premises. The only equitable action which seems possible under the circumstances is for the court, as nearly as possible through its duly constituted representatives, to restore the system to its original condition as near as may be pending the liquidation of plaintiff’s indebtedness. This may involve the restoration of sueh assets of the district as have found their way into the hands of the defendants in this ease and likewise the restoration of the other indebtedness which was then held by some of the defendants or others, to the end that the entire unliquidated indebtedness of the district existing at the time of the dissolution may be recognized and discharged in the manner provided by law.

This conclusion will give ample opportunity for both plaintiffs and defendants to take this proceeding by cross-appeals to a higher court, where I am strongly impressed it rightfully belongs. The personnel of sueh commissioners or receivers to be appointed by the court may be selected through collaboration of court and counsel, and findings of fact and conclusions of law, together with an appropriate decree, may be presented within thirty days from the date of this memorandum, in which it may be provided that, unless within ninety days of the date of sueh decree the obligations of the plaintiffs shall be paid or otherwise discharged, sueh commissioners shall proceed to take charge of and administer sueh irrigation district and system under the direction of the court until such time as such indebtedness may be discharged, with the jurisdiction of the court over the matter to continue for the general purpose of securing relief to plaintiffs. To counsel is assigned the task of assembling for finding figures, dates, and facts in detail, the same to comport as near as may be with the general views of the court herein expressed. The costs of this case shall be awarded to plaintiffs, and exceptions may be reserved to the parties in sueh manner as they may deem meet and proper.


author: KNIGHT, District Judge.

text:
    THE MISTRAL. In re KELLOGG.
    District Court, W. D. New York.
    June 2, 1931.
    Brown, Ely & Richards, of Buffalo, N. Y. (John B. Richards and David S. Jackson, both of Buffalo, N. Y., of counsel), for petitioner.
    John H. Clogston, of Buffalo, N. Y., for claimants.
   KNIGHT, District Judge.

This is a proceeding for limitation of liability under sections 183, 184, 185, 188, of title 46 USCA (Revised Statutes §§ 4283, 4285, 4289).

On March 27, 1928, petitioner’s yacht Mistral lay at anchor in the Niagara river at Buffalo, N. Y. Claimant David N. Scott, by guardian, on February 16, 1929, commenced an action in the Supreme Court, Erie county, against Donald Kellogg, petitioner herein, to recover damages for injuries sustained in an explosion on such yacht on the date first mentioned. After the commencement of such action, and on March 11, 1929, petitioner instituted proceedings in this court for limitation of liability, and obtained an order restraining the continuance of any proceedings in the action aforesaid and the commencement' of any other action or actions by any other parties. By stipulation of the parties in proceedings to appraise the Mistral, its value was fixed at $7,509.

A monition for claims was issued and separate claims were filed by and on behalf of several parties; Edgar N. Scott, individually, in the amount of $28,157.64; Miriam C. Scott, $50,000; George P. Seott, by Edgar N. Scott, his guardian, $15,000; and the plaintiff aforesaid, David N. Scott, by Edgar N. Scott, his guardian, in the sum of $50,000. Answers were interposed to the petition by ■each of the aforesaid claimants, and objections were filed by the petitioner against each' of such claimants.

No claim was filed by Sunblom, captain of the Mistral, whose injuries arose out of the same cause on which the claims herein-before mentioned were based. An order was subsequently entered noting the default of all persons other than the said claimants.

David N. Seott, by guardian, moved to vacate the injunction restraining further prosecution of his action in the state court on the ground that the limitation of liability statute did not apply to a boat such as the Mistral. This motion was denied, and the exceptions to the petition and libel herein dismissed.

Thereafter trial of the issues proceeded before Hon. John R. Hazel, District Judge, and, upon his retirement as District Judge, were continued before him as special commissioner. The taking of evidence was concluded and briefs of respective parties submitted. While decision of the trial judge was pending, the motion now before this court to vacate the injunction against proceeding in the state court was made.

The claimant relies upon the recent decision of Langnes v. Green, 282 U. S. 531, 51 S. Ct. 243, 247, 75 L. Ed. 520, in support of this motion. As I read the ease, it is not an authority for his contention. The ease involved a single claim. There had been conflict in the lower courts in such eases. The Lotta (D. C.) 150 F. 219, 221; Quinlan v. Pew (C. C. A.) 56 F. 111. Langnes v. Green settled the law that, where there is only one possible claimant, the state court has jurisdiction under the reserve clause of section 24 (3) of the Judicial Code (28 USCA § 41, subd. 3). The opinion, however, emphasizes the fact that it was concerned with a single claim, and that the case was one in which no other claim could be legally made.

The Langnes opinion quotes with approval the language in Carlisle Packing Company v. Sandanger, 259 U. S. 255, 42 S. Ct. 475, 66 L. Ed. 927: "In a state court, where there is only one possible claimant and one owner, the advantage of this section (4283 [46 USCA § 183]) may be obtained by proper pleading.”

In The Lotta, supra, also cited and copiously quoted, the court said: “Obviously, when there are several claimants who may proceed in rem against a vessel, and the aggregate of their claims may be greater than its value, and there is need of an apportionment among them, this court alone has the requisite jurisdiction.”

In re New York Harbor Tow-Boat Company (The Rosa) 53 F. 132, 134 (D. C.), it was said that: “Where there are several damage claimants, * * * the common-law remedies are inappropriate and inadequate.”

Yide, also, Delaware River Ferry Co. v. Amos (D. C.) 179 F. 756; The S. A. McCaulley (D. C.), 99 F. 302; The Hoffmans (D. C.) 171 F. 455.

I find no ease as an authority for vacating the injunction. Loughin v. McCaulley, 186 Pa. 517, 40 A. 1020, 48 L. R. A. 33, 65 Am. St. Rep. 872, is not in point. The question there was the right of the shipowners to plead and prove in the state court their respective interests in the vessel in question.

Quoting again from Langnes v. Green, supra : “Needless to say that, if the ease for a limitation of liability assumes such a form that only a federal court is competent to afford relief, the jurisdiction of that court is exclusive.”

It seems to me that in the ease at bar, where several claims have been presented, following all the authorities, a federal court only is “competent to afford relief,” and that “the jurisdiction of that court is exclusive.”

In view of this determination, it is not necessary to pass upon any other point raised by petitioner.

Motion denied.


author: ATWELL, District Judge.

text:
    SOUTHWEST NAT. BANK et al. v. FARRACY et al.
    No. 3321—576.
    District Court, N. D. Texas, Dallas Division.
    June 10, 1931.
    Touchstone, Wight, Gormley & Price and Grace Fitzgerald, all of Dallas, Tex., and Bullington, Humphrey & King, of' Wichita Falls, Tex., for complainants.
    John Davis, of Dallas, Tex., for respondents.
   ATWELL, District Judge.

The Southwest National Bank, of Dallas, Tex., in the process of liquidation, 'and Gordon West, its agent, seek an injunction against Harry D. Farraey, trustee of L. H. Lewis Company, bankrupt, and Hal Hood, sheriff of Dallas county, and John Moffitt, and all other deputies of .said sheriff, to restrain them from selling certain real property that has been seized under execution issued out of a state court judgment.

All of the parties, plaintiff and defendant, are Texas citizens. Jurisdiction is asserted under section 2 of the Bankruptcy Act (11 USCA § 11), and under subdivisions a and b of section 68 (11 USCA § 108 (a) (b), of said act, on the ground that the judgment recovered by Farraey is subject to an offset for a lesser amount, in the form of a claim proven and allowed in the estate of the Lewis Company; and because the bank is in process of liquidation under and by virtue of the provisions of section 181, title 12 of USCA.

The bank is the successor of the Security National Bank. The latter institution made a loan of $50,000 to the Lewis corporation. Later it made another loan of $50,000 to officers of that corporation. When the bank was in stress, the officers of the bank induced the officers of the Lewis corporation to execute notes of that corporation in lieu of their individual notes for the second $50,000. Later the Lewis corporation went into bankruptcy. The successor of the Security National proved in the bankruptcy proceedings the first $50,000 note, and a remaining balance of $20,000 on the second note. Seventy per cent, dividends have been paid upon those claims. The trustee in bankruptcy, after payment of such dividends, discovered the facts with reference to the substitution of the corporation note for the individual note, and thereupon brought suit in the state court for the payments that had- been made thereon as well as for the dividends that had been paid by him upon the remainder thereof. The litigation finally reached the Supreme Court of the state (29 S.W.[2d] 1073), which reversed the judgments of the lower courts, and rendered a decision for him, which aggregates, with interest, the sum of $53,700, and he has secured an execution and levied it upon certain real assets.

It is claimed in the pleadings that the bank has been in the process of liquidating since 1925. That it has assets of $165,000, and liabilities of approximately $65,000.

The complainants pray that the trustee and the sheriffs levying such execution be restrained.

Our system of government demands the utmost care lest one court impinge upon the territory of another. National courts are not only cautioned by this consideration, but are forbidden by a plain statute to enjoin the state courts. R. S.. § 720 (28 USCA § 379). Important exceptions are when it is necessary to preserve and continue jurisdiction or to save from spoliation a national utility.

The first ground of jurisdiction urged by the complainant does not seem to be well taken. The affairs of the Lewis corporation are being administered in the bankruptcy court. If the complainants have anything to offer as a set-off, they should seek entry there. Whether there is an obligation to go there or into the court which rendered the judgment against the bank, this court is not, at the present time, called upon to decide. It is certain that there is no right to come here under the present situation. See, also, Tootle-Weakley Millinery Co. v. Billingsley, 74 Neb. 531, 105 N. W. 85; In re Petrich (D. C.) 43 F.(2d) 435; 34 C. J. 701; Cumberland v. DeWitt, 237 U. S. 447, 35 S. Ct. 636, 59 L. Ed. 1042; Wallace v. Ohio Bank (C. C. A.) 2 F.(2d) 53.

Secondly, thé complainants assert their right to seek an injunction from this court because this court has general jurisdiction to afford such relief by virtue of the laws of the United States.

The elaborate provisions for the incorporation, supervision, and control of national banking associations, include power to issue circulating notes, to go into voluntary dissolution (section 181, 12 USCA), and general grounds for appointment of receivers (section 191, tit. 12, USCA).

Section 5,220 of the - Revised Statutes, which is now section 181, of title 12, USCA, provides that, “Any association may go into liquidation and be closed by the vote of its shareholders owning two-thirds of its stock.” This provision may be advantaged by either a solvent or an insolvent institution. Green v. Bennett (Tex. Civ. App.) 110 S. W. 108; Planten v. National Nassau Bank, 93 Misc. Rep. 344, 157 N. Y. S. 31, affirmed 174 App. Div. 254, 160 N. Y. S. 297; Planten v. Earl, 220 N. Y. 677, 116 N. E. 1070; see also King v. Pomeroy (C. C. A.) 121 F. 287, generally as to liquidation and receivership.

Voluntary liquidation is a preservation of the corporate existence. Nebraska National Bank v. Union Stock Yards National Bank, 108 Neb. 417, 187 N. W. 883; Brown v. Deposit National Bank, 125 Misc. Rep. 247, 211 N. Y. S. 366; Fagan v. Texas Co. (Tex. Civ. App.) 220 S. W. 346; Merchants’ National Bank v. Gaslin, 41 Minn. 552, 43 N. W. 483. And the bank continues to exist during the process of liquidation and is capable of suing and being sued for the purpose of winding up its business and until its affairs are eoifepletely settled. Central National Bank v. Connecticut Mutual Life Insurance Co., 104 U. S. 54, 26 L. Ed. 693; Chemical National Bank v. Hartford Deposit Co., 161 U. S. 1, 16 S. Ct. 439, 40 L. Ed. 595; Standard Trust Co. of New York v. Commercial National Bank (C. C. A.) 240 F. 303.

The Supreme Court, in Central National Bank v. Insurance Co., 104 U. S. 54, 74, 26 L. Ed. 693, pointed the way to the power of such continuing corporation while thus liquidating. “If there are claims made which the directors of the association are not willing to acknowledge as just .debts, there is nothing in the statute which is inconsistent with the right of the claimant to obtain a judicial determination of the controversy by process against the association, nor with that of the association to collect by suit debts due to it.”

That course up to this point has been followed-by the parties here. See Warner v. Citizens’ Nat. Bank (C. C. A.) 267 F. 661. The bank has finally been cast in the litigation and the successful creditor having been unable to realize upon the judgment is pursuing legal steps for its collection. May such an effort be halted?

The tangible assets and the potential liability of the‘stockholders of the liquidating bank is a trust fund in the hands of the liquidating agent for the benefit of creditors. George v. Wallace (C. C. A.) 135 F. 286, affirmed Wyman v. Wallace, 201 U. S. 230, 26 S. Ct. 495, 50 L. Ed. 738; Merchants’ National Bank v. National Bank (D. C.) 231 F. 556.

It may be assumed that the government is no longer interested in the outstanding circulation of the bank, since under section 5,222 (12 USCA § 183), the association is required within six months from the date of the vote to go into liquidation, to deposit with the treasury of the United States, lawful money of the United States sufficient to redeem all of its outstanding circulation. Six years having passed since this bank so voted and that provision has probably been complied with. But other creditors and the shareholders have the right to rest upon the orderly settlements and conclusion of the business of the association provided for and guaranteed by the national statutes. The fixing of a lien against the assets of the corporation attempted after voluntary liquidation was denied in Merchants’ Bank v. National Bank, supra. Section 191 of title 12, USCA, seems to support this thought: “Whenever any national banking association shall be dissolved, and its rights, privileges, and franchises declared forfeited, as prescribed in section 93, or whenever any creditor of any national banking association shall have obtained a judgment against it in any court of record, and made application, accompanied by a certificate from the clerk of the court stating that such judgment has been rendered and has remained unpaid for the space of thirty days, or whenever the comptroller shall become satisfied of the insolvency of a national banking association, he may, after due examination of its affairs, in either case, appoint a receiver who shall proceed to close up such association, and enforce the personal liability of the shareholders, as provided in section 192.” There is no direct negation of the right to collect a judgment after haying obtained it, but the remedy offered in this section would seem to be persuasive that the Congress intended that the course here outlined should be followed. The relief is speedy, effective, and prevents the securing of advantage. The entire body of assets drawn together in the liquidation remains responsive to the charge of every creditor, and the liability of the shareholders is an added bulwark. The courts treat voluntary liquidation as a form of assignment, not in the sense that the institution is insolvent, always, or unable to meet its obligations, but in the sense that such a course saves all that is available in law, for creditors, and presents a satisfactory method for the distribution of the balance among the shareholders. Such a course would be thwarted if creditors were permitted to secure priorities or liens, or if they could dissipate by execution sales. ,

A restraining order may be drawn, without prejudice to the .right of the trustee to proceed in a statutory way either in court or through the comptroller.


author: CUSHMAN, District Judge.

text:
    DAVIS v. COLUMBIA RIVER PACKERS’ ASS’N, Inc.
    No. 400.
    District Court, W. D. Washington, S. D.
    June 5, 1931.

      Welsh & Welsh, of South Bend, Wash., and F. T. Merritt, of Seattle, Wash. (E. W. Anderson, Asst. Atty. Gen., of Washington, on the brief), for plaintiff.
    Kelly & MacMahon, of Tacoma, Wash., Jay Bowerman, of Portland, Or., and G. C. & A. C. Fulton, of Astoria, Or., for defendant.
   CUSHMAN, District Judge.

It has been contended upon the part of the plaintiff that since the decisions in the case of Washington v. Oregon, supra, there have been such changes in the river at this point that the north channel is now south of Sand Island; that the island, while maintaining at all intermediate times its identity, somewhat like a raft has, by the withdrawal of the waters from the north to the south channel, been moved north and across the north channel. These changes include a furthér shoaling to the north of Sand Island than that noted in Washington v. Oregon, supra. The water north of Sand Island is generally known and shown upon the exhibits as Baker’s Bay. ’

There is evidence tending to show that at present there is no river channel north of Sand Island, that is, there is not a continuous flow of any part of the river seaward; that from about midway of the length of Sand Island there extends across the bed of Baker’s Bay toward the Washington shore a crest; that as the tide comes into the mouth of the river it flows around the west end of Sand Island to the easterly towards this crest and at the same time around the easterly end of the island then westward toward the crest to meet the first-mentioned flow and that with the ebb the water flows both ways from the crest; that barnacles are found of late upon the piling in lower Baker’s Bay; that at low tide men have walked along this erest from the main land in Washington to the north shore of Sand Island.

Defendant, in its brief, says: “Commerce in and out of Baker’s Bay is controlled by controlling depth of water of about six inches at mean low tide.”

Such changes have been caused by processes of erosion and accretion, and, while they may have obliterated the north channel, neverthless the boundary remains to the north of Sand Island. The following, in addition to the foregoing decisions, establish this: Indiana v. Kentucky, 136 U. S. 479-509, 10 S. Ct. 1051, 34 L. Ed. 329; Commissioners, etc., v. United States (C. C. A.) 270 F. 110-113 and 114; Davis v. Anderson-Tully Co. (C. C. A.) 252 F. 681-683 et seq. See, also, Veatch v. White (9th C. C. A.) 23 F.(2d) 69.

The fact that Sand Island at no time sinee the admission of Oregon has entirely disappeared distinguishes this ease from that of the recent ease of Louisiana v. Mississippi, 282 U. S. 458, 51 S. Ct. 197, 200, 75 L. Ed. 459, decided by the Supreme Court February 2, 1931, a case where Tullos Island had not existed as an island at all of the times in question. The court in that case found: “The preponderance of the evidence supports the master’s finding that from 1882 to 1894 the river moved eastwardly, caving away Tullos Island along its western shore, until it had wiped out that island.”

The location of the boundary at the place in question will next be considered; that is, at the location of the traps which, as already stated, are to the east and not north of Sand Island.

While the determination of this precise question may not demand a finding as to the boundary location north of the island, yet, on account of the fact that in some respecta a river channel is a unit and because of its physical relation, as it exists, or, if no longer existing, as it last existed, to the boundary, it is not out of place to here consider that matter.

In this lower course of the river its flow is almost directly from the east toward the west.

The north jetty at the mouth of the river was begun in 1913 or 1914. Plaintiffs Exhibit No. 6; maps or charts No. 19 and No. 11 for such years, forming a part of such exhibit.

To aid the scows carrying, from up the river into Baker’s Bay, the rock for the jetty,' a channel to eleven feet was dredged north of Sand Island, whieh channel is shown upon the chart of this exhibit for the year 1914 (sheet No. 11). This dredged channel, while it would not ehange the channel so as to affect the location of the boundary between the states, yet the court finds that its course for the length of Sand Island approximates the location of the channel of actual navigation through the waters of Baker’s Bay. At the time it was dredged and prior thereto there was no deeper or better channel for purposes of navigation through the waters of this bay than that along its course. It was the most direct course for vessels passing through Baker’s Bay, and for that reason, as noted in the ease of Minnesota v. Wisconsin, 252 U. S. 273, 40 S. Ct. 313, 64 L. Ed. 558, was doubtless determinative of the short direct course taken by vessels. That it still so remains is shown by the United States coast and geodetic survey chart made upon the authority of the survey of 1926 and the survey of the United States engineers to May, 1928 (1929?). Plaintiff’s Exhibits 16, 31 and 41.

There still remains for consideration the location of the boundary immediately above Sand Island; that is, to the eastward.

The boundary of Oregon was, so far as here material, fixed by section 1 of the Act of Feb. 14, 1859 (11 Stat. 383), as follows: “Beginning • * * thence. * * * to a point due west and opposite the middle of the north ship channel of the Columbia River; thence easterly, to and up the middle channel of said river, and, where it is divided by islands, up the middle of the widest channel thereof, * * * ”

The words “middle channel,” in relation to the river above Sand Island, were further considered by the court upon rehearing in the ease of Washington v. Oregon, 214 U. S. 205-214, 215, and 216, 29 S. Ct. 631, 53 L. Ed. 969. Concerning this, the court said:

“There are practically two matters presented : One, whether the boundary near the mouth of the Columbia river was and is the channel north of Sand island. We held that it was, and with that conclusion we are still satisfied. * * *
“The other question arises in this way. The act admitting Oregon, after naming as the commencement of the boundary ‘a point due west and opposite the middle of the north ship channel of the Columbia river,’ ■ adds ‘thence easterly, to and up the middle channel of said river, and, where it is divided by islands, up the middle of the widest channel thereof to a point near Fort Walla-Walla.’ (11 Stat. at L. 383, c. 33.) With reference to this we said: ‘The testimony fails to show anything calling for consideration in respect to the last clause in the quotation from the boundary of Oregon. * * *
“While sixteen islands and sands are mentioned, yet, in the brief filed by the plaintiff on the application for a rehearing, it is stated that outside of Sand island, the title to which is, as shown in the former opinion, settled by the decision of the first question, only two, Desdemona sands and Snag island, can be called islands, the remainder being entirely submerged and only visible at low tide. These two, therefore, are all that can come within the definition in the boundary. That speaks of ‘the middle channel of said river/' and counsel contend that there is no pretense of three channels, and therefore the language should properly he construed as the middle of the main channel of staid rimer, and we are inclined to think that that is the true construction. But it must he remembered that the boundary in the first instance passes around the north of Sand island, in what was known as the north channel, and it does not strike any channel which deserves to he called the main channel until it has passed to the eastward of Sand island. While the testimony is not satisfactory as to the point, at the time of the admission of the state of Oregon, at which this north channel, <after passing Sand island, touched any other channel, we are of the opinion that it must have been at a point east, and north of D'esdemona sands. Of course, in considering this matter, we assume that the contention of the state of Washington is correct, — that Desdemona sands could have then properly been termed an island.” (Italics that of this, not the Supreme Court.)

Plaintiff’s contention is that the deeper, better, and most frequently used channel or route out of Baker’s Bay passes around the east end of Sand Island between it and the traps in question.

The defendant denies not only that there is deeper water between the traps and Sand Island, but also denies that, if it is deeper, it furnishes a better channel or the one most frequently used by vessels going in and out of Baker’s Bay at its easterly entrance. The burden of showing that the “middle of the main channel” marking the boundary is now between the traps and the eastern end of Sand Island reste upon plaintiff.

There have been no changes in the eastern end of Sand Island with relation to this part of the river since the time of the conditions considered by the Supreme Court in the ease of Washington v. Oregon, supra; that is, no change of a nature to substantially affect the boundary location. While the jetties at the river mouth may have contributed to the .shifting to the north, toward the Washington shore, of Sand Island, there is nothing in the evidence showing that they have in any way affected the channel above Sand Island.

The island is about a mile north of its location at the time the state of Oregon was admitted to the Union. Upon rehearing of the case of Washington v. Oregon, supra, the court held the main channel to he not only north of Desdemona Sands but of Snag Island.

The most direct route from Baker’s Bay to the lower end of Woody Island channel leading to the Cordell channel north of Snag Island is close to Ft. Columbia and off Point Ellis (Elice), both in Washington. On account of the controlling depth of water in Baker’s Bay, any vessel passing through that bay will find at all times ample water on this route, without obstruction of any kind, save fish traps, of which there are a considerable number between the east entrance to Baker’s Bay and the Ft. Columbia wharf. The number and location of these traps.are shown upon Plaintiff’s Exhibit No. 3. As to such vessels (that is, those passing through Baker’s Bay) there is no preponderance of the evidence showing that their course generally (that is, most often) is between Sand Island and the two traps here in question, rather than to the north and east of both such traps, nor that the former affords for them the better channel.

There still remains for consideration the question of whether the first-mentioned channel is the deeper and the better in other respects.

At present, and for many years, the main channel for the purpose of navigation by large vessels has been south of Sand Island, whether they were proceeding up the river by the channel north or that south of Desdemona Sands.

Above Sand Island and up the river to the foot of Desdemona Sands and the channel entrance north of Desdemona Sands there is one wide channel; that is, the river is not, because of shoals or because of any other obstruction or for any other reason, divided into more than one channel nor was it, as shown by the river soundings, at and prior to the admission of Oregon. Sir Edward Belcher’s Survey, 1839 (Plaintiff’s Exhibit No. 19, sheet 2); Wilkes’ Survey of 1844 (Plaintiff’s Exhibit No. 19, sheet 3); Two Bache Surveys of 1851 and 1854 (Plaintiff’s Exhibit No. 19, sheets 4 and 5 respectively).

Because of the throat in the river between the bluffs above Chinook Point in Washington and those opposite and above Point Adams there is no reason to believe that at any of the times in question and long before that it has been otherwise.

While the sands which are carried down the river have been crowded into the upper entrance of this throat as far as Desdemona Light, yet for a mile or more below there has been at all times one wide channel of ample depth for vessels of any draft using the river at the time of the admission of Oregon as a state. However, if, because of the greater width of the river here as compared with the distance between the head of Sand Island and the foot of Desdemona Sands, it is to be considered that this channel “is divided by islands” that the south channel through this one wide channel to the Clatsop channel is to be viewed as one channel and the north ship channel through this one wide channel to the channel north of Desdemona Sands is to be viewed as another channel, yet, in view of the fact that Sand Island has, since the admission of Oregon, moved or been moved, nearer to the Washington shore, it does not affect the determination of this question, for, in the early charts referred to, the deeper water of the then north channel, if it is to be considered as extending as a north channel up the river beyond the east end of Sand Island, was well off the Washington shore to the south toward the Oregon shore from what is now the upper end of Sand Island. As this has remained the deeper water through the intervening years the moving of Sand Island toward the Washington shore, with the shoaling of Baker’s Bay destroying the north channel as a ship channel, cannot alone be given the effect of having carried with its movement towai’d the Washington shore the practically unchanged deeper channel above Sand Island’s eastern end; for to give such movement such an effect would be allowing the greater to be controlled by the lesser, and would be depriving the state of Washington of equality in the matter of the navigation of this part of this important waterway. Iowa v. Illinois, 147 U. S. 1, 13 S. Ct. 239, 37 L. Ed. 55; Arkansas v. Mississippi, 250 U. S. 39-45, 39 S. Ct. 422, 63 L. Ed. 832. Under circumstances such as those here existing, effect cannot be given to the purpose and intention of providing for this equality between states with a river boundary unless it be held that, where a shallowing channel forming a part of a boundary merges into a deeper channel of the boundary stream, the center of such main and deeper channel is the actual boundary rather than some shallower portion of such channel. Louisiana v. Mississippi, 202 U. S. 1-50 and 51, 26 S. Ct. 408, 50 L. Ed. 913.

It has been contended on behalf of defendant that in this particular the proper determination of this ease is controlled by the decision of the Supreme Court in the case of Minnesota v. Wisconsin, 252 U. S. 273, 40 S. Ct. 313, 64 L. Ed. 558, in which that court decided that the boundary from off Grassy Point in Minnesota ran on a direct course to a point off Big Island in upper St. Louis Bay rather than by the deeper channel closer to the Minnesota shore. That case is to be distinguished frpm the present in that no vessels drawing more than eight feet could reach Upper St. Louis Bay from Lake Superior and that, on the direct median eourse through Upper St. Louis Bay found by the Supreme Court to be the principal channel of navigation, there was ample water for such vessels. A further important difference in the two cases is that the channel nearer the Minnesota shore was a narrow winding channel, as is shown by the following portion of the opinion of the Supreme Court in the foregoing case (page 289 of 252 U. S., 40 S. Ct. 313, 318): “Lower St. Louis Bay was shallow, with a ruling depth of 8 feet, and had no well-defined channel. From the deep water at the southern tip of Grassy Point a vessel drawing less than 8 feet bound north of Big Island and beyond could have turned northwest and followed the narrow winding channel near the Minnesota shore with a ruling depth of 19, possibly 8, feet, or it could have proceeded westward, approximately one mile, over a more direct course with a depth of 8 feet or more, until it came to the deeper channel about seven-eighths of a mile northeast of Big Island. * 5 * ”

There still remains for consideration the question of fact as to whether the stream bed between the east end of Sand Island and the traps of plaintiff and defendant is lower, making a deeper channel, than on the more direct course out of the east entrance of Baber’s Bay toward the channel entrance north of Desdemona Sands.

The clear preponderance of the evidence shows that it is. Plaintiff’s Exhibit No. 42.. Testimony was offered on behalf of defendant to impeach the accuracy of this exhibit. While such testimony may have rendered uncertain the sounding’s shown thereon at certain points, yet as a whole the situation, soundings, and contour lines of the river bottom at the exact place in question are found to be substantially as shown by this exhibit.

This map shows a scour beginning in Baker’s Bay to the north of the line along which the channel was dredged about 1914 through Baker’s , Bay already mentioned, which scour extends around the east end of Sand Island, deepening towards and to the main channel of the river to the south.

While the course of this .dredged channel is not marked on Exhibit 42, yet a comparison of it with Plaintiff’s Exhibit 6 (sheet 11) and Exhibits 3, 4, 16, 31, 33, 41, and 43, shows the foregoing to be true.

There is nothing in the evidence to indicate that the dredging of this channel caused the scour or brought it nearer the east end of Sand Island. If this dredging shifted in any way the location of the scour, it is reasonable to conclude that, as the dredging extended to the southeast and out of Baker’s Bay and north of the two traps, the influence of an ebbing tide would be to deflect the fieour further to the east than it otherwise would be, as such tide would, to some extent, tend to follow the straight line of the dredged course. This scour has doubtless been formed by the strength of the ebbing tide out of Baker’s Bay. As shown by the exhibit (Plaintiff’s Exhibit No. 42), all of the plaintiff’s trap is in Washington, easterly of this scour. The greater part of defendant’s trap is in Washington to the easterly of the center of this scour, although the northern portion of the lead is almost in the center of the scour and the west end of the trap proper at the north end of the lead extends across the scour into Oregon.

It has been contended by defendant that, on account of the swiftness of the tide around the eastern end of Sand Island, the channel west of the traps and along this scour is not as good for purposes of navigation as the course to the east and north of the traps in question. It is sufficient to say that, even if this fact, if established, would affect the determination of this case, a preponderance of the evidence shows that, notwithstanding the flow of the tide, this course is safe and suitable for purposes of navigation, and that substantially tbe only advantage that the course north of the traps has over it is that the more northern course is the more direct one ¡up the river or into Baker’s Bay for a boat coming down the river by the channel north of Desdemona Sands.

The court finds that the plaintiff is entitled to the injunction prayed. Sufficient evidence has been taken to show that the plaintiff has been damaged by the wrongful placing, by defendant, of its trap as alleged, but the briefs have not discussed the amount of damages. The ease will therefore be noted for further hearing upon the question of plaintiff's damages, on Monday, June 22, 1931, at 2 o’clock in the afternoon.

If either party desires and will defray the expenses of a copy of Exhibit No. 42 to be secured by the clerk and attached to this opinion and the decree in order to make their meaning more clear, such will be the order, which order and any injunetional order or decree will be settled upon notice.

The clerk will notify the attorneys for the parties and the Attorney General of the state of Washington of this ruling.


author: THACHER, District Judge.

text:
    In re WORCESTER SILK MILLS CORPORATION.
    District Court, S. D. New York.
    Dec. 17, 1927.

      Gilbert & Gilbert, of New York City, for petitioner.
    Dreehsler, Orenstein & Leff, of New York City, for respondent.
   THACHER, District Judge.

This is a proceeding under the United States Arbitration Act of February 12, 1925, c. 213, § 4, 43 Stat. 883, U. S. C. Title 9 (9 USCA § 4), in which the petitioner seeks to compel the respondent to submit to arbitration a dispute arising under a contract for the sale of 200 pieces of georgette. ' In May of this year a dispute arose between the parties concerning the merchantable quality of 80 pieces of merchandise delivered under the contract. The respondent claimed that the merchandise was not in accordance with the contract and that he was entitled to a credit by reason of the return thereof. The petitioner disputed this claim, asserting that the merchandise was in accordance with the contract when delivered, but was spoiled by the dyer and finisher to whom respondent delivered the same, and that the respondent was not entitled to a credit by reason of the return thereof. The petitioner alleges failure and refusal to arbitrate under the agreement, which contains a clause for arbitration, and prays an order directing that such arbitration proceed in the manner provided for in the agreemeent. The respondent has answered under oath, setting forth in particularity negotiations between the parties which resulted in an adjustment and settlement of the entire controversy, and in this connection has set forth an agreement to settle the controversy, confirmed by correspondence, pursuant to which the merchandise claimed to have been defective in quality was to be ■returned and credited to the respondent, a credit allowed to the petitioner on account of its claim of damage by; the dyer, and the balance of the- account paid by the respondent. The answer further shows payment of the balance thus adjusted, by cheek which upon its face recites the transaction and states ■that the indorsement of the payee will con- ■ stitute a receipt in full. It is alleged that •this check was accepted and deposited by the petitioner, and the amount thereof paid to the petitioner by the respondent’s bank on which it was drawn. None of these allegations in the answer, all of which are verified by the respondent’s oath, have been denied by the-petitioner. If true, these facts constitute a complete settlement, and an accord and satisfaction, and no dispute between the parties remains to be adjusted under the arbitration clause contained in the agreement.

The statute requires such an application as this to be heard in the manner provided by law for the making and hearing of motions. Section 6, Title 9, U. S. C. (9 USCA § 6). The petition and answer must therefore be regarded as affidavits submitted in support of a motion, and, there being no denial of any of the statements contained in the answer, I must accept these statements as true, and accordingly deny the application.

On Reargument of Petitioner’s Application for an Order Requiring Arbitration.

Upon reargument of the-above motion upon additional affidavits, I have concluded that the denial of the motion must stand. Section 4 of the Arbitration Act of February-12,1925, c. 213, 43 Stat. 883, U. S. C. Title 9 (9 USCA § 4), contemplates the summary-trial of two issues only. These are: (1) The making of the arbitration agreement; and (2) the failure, neglect, or refusal to perform the same. Neither of these issues is presented here. Respondent confesses the making of the arbitration agreement and his refusal to arbitrate, but alleges that all disputes which he agreed to arbitrate have been-settled •by agreement under which there has been accord and satisfaction. Petitioner, in turn, confesses the agreement to settle, and payment thereunder, but alleges by way of confession and avoidance that the settlement was induced by fraud and has been rescinded. Respondent denies fraud and rescission.

The issue thus presented cannot be summarily tried under section 4 of the Arbitration Act, which provides: “If the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof.” Thus the statute authorizes a special statutory proceeding in which the issues to be tried are quite narrowly defined, and the court is entirely without jurisdiction to summarily try issues other than those defined. The issues of fraud and rescission raised at bar are quite clearly beyond the court’s jurisdiction as defined by the statute. There has been no agreement to arbitrate the dispute which now arises over the right to rescind, and the respondent is entitled to insist that the issues raised by the assertion of any such right be tried and determined in a plenary suit.

The petition must therefore be dismissed.