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LOCAL LOAN CO. v. HUNT

decided: April 30, 1934.

LOCAL LOAN CO
v.
HUNT



CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE SEVENTH CIRCUIT.

Hughes, Van Devanter, McReynolds, Brandeis, Sutherland, Butler, Stone, Roberts, Cardozo

Author: Sutherland

[ 292 U.S. Page 238]

 MR. JUSTICE SUTHERLAND delivered the opinion of the Court.

On September 17, 1930, respondent borrowed from petitioner the sum of $300, and as security for its payment executed an assignment of a portion of his wages thereafter to be earned. On March 3, 1931, respondent filed a voluntary petition in bankruptcy in a federal district court in Illinois, including in his schedule of liabilities the foregoing loan, which constituted a provable claim against the estate. Respondent was adjudicated a bankrupt; and, on October 10, 1932, an order was entered discharging him from all provable debts and claims. On October 18, 1932, petitioner brought an action in the municipal court of Chicago against respondent's employer to enforce the assignment in respect of wages earned after the adjudication. Thereupon, respondent commenced this proceeding in the court which had adjudicated his bankruptcy and ordered his discharge, praying that petitioner be enjoined from further prosecuting said action or attempting to enforce its claim therein made against respondent under the wage assignment. The bankruptcy court, upon consideration, entered a decree in accordance with the prayer; and this decree on appeal was affirmed by the court below, 67 F.2d 998, following its decision in In re Skorcz, 67 F.2d 187.

Challenging this decree, petitioner contends: That the bankruptcy court was without jurisdiction to entertain

[ 292 U.S. Page 239]

     a proceeding to enjoin the prosecution of the action in the municipal court; that, assuming such jurisdiction, the rule is that an assignment of future wages constitutes an enforceable lien; but that, in any event, the highest court of the State of Illinois has so decided, and by that decision this court is bound.

First. The pleading by which respondent invoked the jurisdiction of the bankruptcy court in the present case is in substance and effect a supplemental and ancillary bill in equity, in aid of and to effectuate the adjudication and order made by the same court. That a federal court of equity has jurisdiction of a bill ancillary to an original case or proceeding in the same court, whether at law or in equity, to secure or preserve the fruits and advantages of a judgment or decree rendered therein, is well settled. Root v. Woolworth, 150 U.S. 401, 410-412; Julian v. Central Trust Co., 193 U.S. 93, 112-114; Riverdale Mills v. Manufacturing Co., 198 U.S. 188, 194 et seq.; Freeman v. Howe, 24 How. 450, 460. And this, irrespective of whether the court would have jurisdiction if the proceeding were an original one. The proceeding being ancillary and dependent, the jurisdiction of the court follows that of the original cause, and may be maintained without regard to the citizenship of the parties or the amount involved, and notwithstanding the provisions of § 265 of the Judicial Code (R.S., § 720), U. S. C., Title 28, § 379.*fn1 Julian v. Central Trust Co., supra, 112; Dietzsch v. Huidekoper, 103 U.S. 494, 497; Root v. Woolworth, supra, 413; M'Donald v. Seligman, 81 Fed. 753; St. Louis, I. M. & S. Ry. Co. v. Bellamy, 211 Fed. 172, 175-177; Brun v. Mann, 151 Fed. 145, 150.

[ 292 U.S. Page 240]

     These principles apply to proceedings in bankruptcy. In re Swofford Bros. Dry Goods Co., 180 Fed. 549, 554; Sims v. Jamison, 67 F.2d 409, 410; Pell v. M'Cabe, 256 Fed. 512, 515-516; Seaboard Small Loan Corp. v. Ottinger, 50 F.2d 856, 859. Petitioner relies upon a number of decisions where other federal courts sitting in bankruptcy have declined to entertain suits similar in character to the present one, on the ground that the effect of a discharge in bankruptcy is a matter to be determined by any court in which the discharge may be pleaded. See, for example, Hellman v. Goldstone, 161 Fed. 913; In re Marshall Paper Co., 102 Fed. 872, 874; In re Weisberg, 253 Fed. 833, 835; In re Havens, 272 Fed. 975. To the extent that these cases conflict with the view just expressed they are clearly not in harmony with the general rule in equity announced by this court. And we find nothing, either in the nature of the bankruptcy court or in the terms of the bankruptcy act, which necessitates the application of what would amount to a special rule on this subject in respect of bankruptcy proceedings. Courts of bankruptcy are constituted by §§ 1 and 2 of the bankruptcy act (U. S. C., Title 11, §§ 1 and 11), and are invested "with such jurisdiction at law and in equity as will enable them to exercise original jurisdiction in bankruptcy proceedings," etc. The words "at law" were probably inserted to meet clause (4) of § 2, which empowers such courts to arraign, try and punish certain designated persons for violations of the act. Bardes v. Hawarden Bank, 178 U.S. 524, 534-536. But otherwise courts of bankruptcy are essentially courts of equity, and their proceedings inherently proceedings in equity. Bardes v. Hawarden Bank, supra, 535; In re Rochford, 124 Fed. 182, 187; In re Siegel-Hillman Dry Goods Co., 111 Fed. 980, 983; Swarts v. Siegel, 117 Fed. 13, 16; Dodge v. Norlin, 133 Fed. 363, 368-369; In re Swofford Bros. Dry Goods Co., supra, at p. 553; In re Lahongrais, 5 F.2d 899, 901; French v.

[ 292 U.S. Page 241]

     amount in suit is small, and, as pointed out by Judge Parker in Seaboard Small Loan Corp. v. Ottinger, supra, at p. 859, such a remedy is entirely inadequate because of the wholly disproportionate trouble, embarrassment, expense, and possible loss of employment which it involves.

Second. Whether an assignment of future earned wages constitutes a lien within the meaning of § 67 (d) of the bankruptcy act,*fn2 is a matter upon which the decisions of the state and federal courts are not in complete accord; although by far the larger number of cases and the greater weight of authority are in the negative. We do not stop to review the state decisions. Among those which deny the existence of the lien are Leitch v. Northern Pacific Ry. Co., 95 Minn. 35, 38; 103 N. W. 704; Levi v. Loevenhart & Co., 138 Ky. 133, 136; 127 S. W. 748; Public Finance Co. v. Rowe, 123 Ohio St. 206; 174 N. E. 738; Hupp v. Union Pac. R. Co., 99 Neb. 654; 157 N. W. 343. The only state cases definitely to the contrary which have been called to our attention are certain Illinois cases, mentioned later, and Citizens Loan Assn. v. Boston & Maine R. Co., 196 Mass. 528; 82 N. E. 696. The lower federal courts which have had occasion to consider the question concur in ...


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