Lexplug logoLexplug

Katchen v. Landy, Trustee in Bankruptcy

Supreme Court of United States
382 U.S. 323 (1966)
ELI5:

Rule of Law:

A bankruptcy court has summary jurisdiction to adjudicate a trustee's counterclaim for a voidable preference against a creditor who has filed a claim in the bankruptcy proceeding, and it can affirmatively order the surrender of such preference without violating the creditor's Seventh Amendment right to a jury trial.


Facts:

  • Petitioner Katchen was an officer of a corporation and an accommodation maker (co-signer) on two of its notes to local banks.
  • After the corporation suffered a fire, its funds were placed into a 'trust account' under Katchen's sole control.
  • From this trust account, Katchen made three payments to the banks on the corporate notes he had personally co-signed.
  • Within four months of these payments, the corporation was adjudicated bankrupt.
  • Katchen then filed two personal claims in the bankruptcy proceeding: one for rent the corporation owed him and another for a payment he made on a corporate note from his personal funds.

Procedural Posture:

  • Katchen filed two claims in the corporate bankruptcy proceeding.
  • The Trustee, Landy, filed a petition objecting to the claims and demanding surrender of alleged voidable preferences.
  • Katchen objected to the summary jurisdiction of the bankruptcy referee.
  • The referee overruled Katchen's objection and entered judgment for the Trustee, ordering surrender of the preferences.
  • The U.S. District Court sustained the referee's decision.
  • The U.S. Court of Appeals for the Tenth Circuit, sitting en banc, affirmed the judgment regarding the voidable preferences.
  • The U.S. Supreme Court granted certiorari to resolve a circuit split on the issue.

Locked

Premium Content

Subscribe to Lexplug to view the complete brief

You're viewing a preview with Rule of Law, Facts, and Procedural Posture

Issue:

Does a bankruptcy court have summary jurisdiction to order a creditor, who has filed a claim in the bankruptcy proceedings, to surrender voidable preferences asserted by the trustee as a counterclaim?


Opinions:

Majority - Justice White

Yes. The Bankruptcy Act confers summary jurisdiction on bankruptcy courts to compel a claimant to surrender voidable preferences. By filing a claim, a creditor submits to the bankruptcy court's equitable jurisdiction to resolve all issues related to that claim, including objections based on § 57g of the Bankruptcy Act, which prohibits the allowance of a claim until a preference is surrendered. Because the court must adjudicate the preference issue to allow or disallow the claim, the matter is res judicata, and it is a 'meaningless gesture' to require the trustee to file a separate plenary suit. As the entire claims-allowance process is inherently equitable, converting a creditor's legal claim into an equitable claim to a share of the bankrupt's estate, there is no Seventh Amendment right to a jury trial on the preference issue.


Dissenting - Justice Black and Justice Douglas

No. The dissenters adopted the reasoning of Judge Phillips' dissent in the Court of Appeals, which argued that the bankruptcy court should stay its own summary proceedings and direct the trustee to commence a plenary suit to recover the preference, thereby preserving the creditor's Seventh Amendment right to a jury trial on the legal issue of the preference.



Analysis:

This decision significantly strengthens the power and efficiency of bankruptcy courts by confirming their summary jurisdiction over preference actions when a creditor files a claim. It establishes that a creditor's voluntary submission to the court's jurisdiction for purposes of recovering a debt also acts as consent to that court's power to resolve counterclaims that are integral to the claims allowance process. This prevents creditors from using the system as a 'one-way street' and ensures a more rapid and less expensive administration of the bankrupt's estate, a key goal of the Bankruptcy Act. The holding clarifies the boundary between summary and plenary proceedings, reinforcing the equitable nature of bankruptcy and limiting the applicability of the Seventh Amendment right to a jury trial within that specific statutory scheme.

🤖 Gunnerbot:
Query Katchen v. Landy, Trustee in Bankruptcy (1966) directly. You can ask questions about any aspect of the case. If it's in the case, Gunnerbot will know.
Locked
Subscribe to Lexplug to chat with the Gunnerbot about this case.

Unlock the full brief for Katchen v. Landy, Trustee in Bankruptcy