VIRGINIA IRON, COAL & COKE CO. et al. v. OLCOTT, 197 F. 730

PRITCHARD, Circuit Judge (after stating, the facts as above). It is insisted by counsel for the respondent that we cannot treat this proceeding as a petition to superintend and revise the proceedings in the court below because the record does not contain a statement of finding of fact, and that it does not show whether the court determined the question sought to be reviewed as one of law or fact.

Without entering into an extended discussion of this phase of the case, we deem it only necessary to say that, after a careful examination of the record, we are impelled to the conclusion that this contention is without merit, and will, therefore, consider the petitioners’ assignments of error.

It is insisted by cpunsel for the petitioners that the court erred in modifying the order by virtue of which the petitioners had instituted suit in the superior court of Eorsyth county against the receiver and against the Winston-Salem Southbound Railway Company. , That the District Court, sitting as a court of bankruptcy, properly assumed jurisdiction of the subject-matter of this controversy, does not seem to be controverted, and that the court in the exercise of its discretion had the power to authorize petitioners to institute suit in the state court in the first instance is not denied by the petitioners.

Therefore we are brought face to face with the question as to whether the court below had the right to modify the original order, or whether, in the exercise of its discretion, there was anything contained in said order that deprived the petitioners of the privilege of asserting any right to which they may have been entitled in the bankruptcy proceeding.

If the court below had jurisdiction, it necessarily follows that such jurisdiction was exclusive, in so far as the administration of the affairs of the bankrupt is concerned, and the court, in the exercise of its discretion, had the power to stay any proceedings in the state court instituted four months prior to the proceeding in bankruptcy.

Once a District Court assumes jurisdiction of a bankruptcy proceeding (as in this instance), it has the power .by proper orders to prevent the doing of anything that will at any stage of the proceeding tend to embarrass it in the equitable distribution of the assets of the bankrupt.

It being within the discretion of. the court to either grant or deny the order of October 25, 1910, such court, in the exercise of its discretion, had the power to modify said order, provided in so doing it did not deprive the petitioners of the privilege of asserting any right to which they may have been entitled in the bankruptcy proceeding. In the case of the New River Coal & Land Co. v. Ruffner, 165 Fed, 881, 91 C. C.

A. 559, the court, among other things, said: “The jurisdiction of courts of bankruptcy in the administration of the affairs of insolvent persons and corporations is essentially exclusive, and a District Court in bankruptcy has the- power to stay a suit in the state court instituted within four months prior to the bankruptcy proceedings, which involves practically all of the property of the bankrupt, and to administer such property itself, even though, said suit is for the enforcement of liens.” ' ' , ■ The case of Willcox, Receiver, v. Jones, 177 Fed. 870, 101 C. C.

A. 84, which was a suit in equity, where a receiver of a railroad had been appointed, is analogous to the case at bar in so far as it relates to a court of original jurisdiction having the power to control the distribution of assets in its hands. The court, in that case, in referring to the case of Central Trust Co. v. St. L., A. & T. R. R. Co. (C. C.) 41 Fed. 551, said: “In the absence of a provision of this character this statute would lead to interminable confusion and conflict of jurisdiction.

Therefore Congress has wisely provided that the courts of the United States in such cases shall have ample power to settle and adjust all equities arising in such suits without hindrance by providing that they shall be subject to the general equity jurisdiction of such courts, thus, among other things, giving a court of the United States the power to say whether the judgment thus obtained is a first lien on the property in the hands of the receiver, to determine when the same shall be paid, the order of its payment, and cases might occur in which it would he necessary for the court to determine as to whether the court wherein the judgment was rendered had jurisdiction.

Thereby the courts of the United States are clothed with ample power, by injunction, to prevent judgment creditors from harrassing a receiver or interfering with the property in his possession. The final settlement and adjustment of all claims and Ihe payment of all moneys are to be made subject to the decree of .the court appointing the receiver. To this extent, the power of such court is supreme.

The contention that it is contemplated by this statute that the United States courts should at all times have jurisdiction over such suits in the state courts to such an extent as to review the action of such courts cannot he sustained upon principle, nor is there anything in the statute to warrant such contention.” In that case the court held that a court 'of original jurisdiction had ample power to settle and adjust all equities arising in such suits by providing that they should be subject to the general equity jurisdiction of such court, and, among other things, that it had the power to determine whether the judgment thus obtained was a first lien on the property in the hands of the receiver, and, as such, was entitled to priority; also when the same should be paid, the order of its payment, and that cases might occur in which it would be necessary to determine as to whether the court wherein the judgment was rendered had jurisdiction.

From the very nature of things a court of bankruptcy necessarily has the power to preserve, protect, and insure an equitable distribution of the assets of the bankrupt in a proceeding like the one now under consideration. We now come to consider the question as to whether the order complained of, which, as we have said, modifies a former order of the court, contains anything that is inconsistent with the rule that we have announced.

Among other things, the court below, in its order, provided : “ * * * The cement company and others are allowed the right, privilege, and power in their suits heretofore brought in the superior court of Forsyth county to maintain suit, or suits, as required by the laws of North Carolina, to ascertain the amount of their several and respective claims, and perfect such liens as they may claim to have upon the property of the bankrupt of the said railway company, the validity and extent of the liens, when perfected, to be determined by the court of bankruptcy, and that the said cement company and others shall take no action, or do anything inconsistent with, or beyond the scope of, this order,” etc.

We think that the lower court exceeded its authority when it undertook to reserve the right to determine the validity and extent of the liens. We assume that the court in using the phrase “extent of the liens” intended to refer to the amount of the liens. Under the well-established rule of this circuit as well as other circuits, a court of original jurisdiction has only the power to determine the priorities of claims and adjust equities, but it does not possess the power to determine the validity or amount of liens that may be established in the state court.

To rule that the court had this power would be, in effect, to hold that it had the power to review the action of the state court as respects that question. It would be a work of supererogation in the first instance to permit the receiver to go into a state court and contest the validity of liens if that matter had to be tried again in a court of bankruptcy. As was said in the case of Willcox; Receiver, v, Jones, supra, there is no provision in the federal statutes which authorizes a federal court to review the action of a state court in a proceeding like this.

There can only be a review of the proceedings of a state court on a writ of error by the Supreme Court of the United States. As we have already stated, we are clearly of the opinion that the court below had the right in the first instance to malee the order that it did, and in the second instance it had the right to modify the order in question to a. limited extent; but the court, undoubtedly, exceeded its authority when it undertook to reserve to itself the right to determine the validity and extent of the liens adjudicated by the state court. In this respect the lower court was in error.

Therefore the decree of the lower court will be modified and affirmed in accordance with the views herein expressed.