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PARKE, DAVIS & COMPANY v. HARRY D. MEWHIRTER. E. J. YOUNG AND ANOTHER, GARNISHEES. ANDREW G. DUNLOP, RECEIVER

Minnesota Supreme Court1921-11-04No. No. 22,392
150 Minn. 234

Summary

Holding. The court reversed the trial court's order dismissing the garnishment proceeding, holding that garnishment actions must be resolved through formal trial procedures with evidence presentation rather than summarily on affidavits, and that the receiver's bankruptcy status did not authorize the trial court to summarily extinguish the creditor's garnishment rights.

Parke, Davis & Company initiated a garnishment action against Mewhirter on December 24, 1920, with two garnishees holding property belonging to the defendant. After Mewhirter was adjudged bankrupt and a receiver was appointed in January 1921, the receiver moved to dismiss the garnishment proceeding based on the bankruptcy adjudication and his appointment. The trial court granted the motion and dismissed the garnishment in a summary proceeding on affidavits.

The appellate court reversed, holding that the dismissal was improper. While the court acknowledged that bankruptcy courts possess ancillary jurisdiction to determine claims against property in their custody, it found that the general trial court lacked authority to summarily dismiss garnishment proceedings without full adjudication of the parties' rights. Under state statute, when a third party claims an interest in garnished property, that claimant must become a party to the proceeding and the matter must be resolved through formal trial procedures with evidence presentation, not through summary affidavit proceedings.

The court emphasized that the bankruptcy court's potential summary jurisdiction was not relevant here because the property was not yet in the bankruptcy court's custody when the motion to dismiss was filed. Accordingly, the receiver's showing of the bankruptcy adjudication and appointment alone was insufficient to warrant summary dismissal of the garnishment action.

Summary generated by law.co from the public-domain opinion. The opinion text itself is public domain.

Key issues

  • Whether a trial court may summarily dismiss a garnishment proceeding upon a receiver's motion based on bankruptcy adjudication
  • The scope of ancillary jurisdiction in state trial courts over property claims versus bankruptcy court jurisdiction
  • Statutory requirements for garnishment proceedings when third parties claim interests in garnished property

Procedural posture

The plaintiff appealed from a trial court order that dismissed a garnishment proceeding in summary fashion upon the bankruptcy receiver's motion.

Authorities cited

No cited authorities resolved to law.co cases yet.

Opinion

majority opinion

Hallam, J.

On December 24, 1920, plaintiff sued defendant and commenced garnishment proceedings. The garnishees were at that time in possession of property belonging to defendant. On January 6, an involuntary petition in bankruptcy was bled against defendant and on January 29, 1921, he was adjudged bankrupt and a receiver appointed. On January 31 the garnishees made their disclosure. Thereupon the receiver made application to the court, showing the adjudication of bankruptcy and his appointment as receiver, and representing that the possession of this property was withheld from the receiver by the gamisheeá and asked that the garnishment proceedings be dismissed. The hearing was upon affidavits. Plaintiff objected that the court could not properly dismiss the garnishment proceeding before plaintiff’s rights acquired thereunder had been adjudged void in a plenary suit. The court dismissed the garnishment and made a finding, that the receiver “is in possession of the property against which this garnishment lien is being claimed and asserted.” On what showing this finding was made does not appear.

We think the contention of plaintiff should have been sustained. Our statutes very clearly outline the practice in garnishment proceedings. If the plaintiff desires to take issue on the disclosure of the garnishee, he may file a supplemental complaint for that purpose. G. S. 1913, § 7870. If there be a claimant of the fund or property garnished, the claimant is made a party to the proceeding. G. S. 1913, § 7869. In both cases the statute contemplates a trial, not in a summary manner upon affidavits, but upon evidence taken as in ordinary litigated actions. G. S. 1913, § 7870; Donnelly v. O’Connor, 22 Minn. 309; Wildner v. Ferguson, 42 Minn. 112, 43 N. W. 794, 6 L.R.A. 338, 18 Am. St. 495. We think plaintiff’s objection was sufficient to preserve its rights in these particulars.

Eeference is made to the Federal decisions holding that, where property is in custody of a bankruptcy court, the court may in a summary manner determine the validity of claims asserted against it. First Nat. Bank v. Chicago Title & Trust Co. 198 U. S. 280, 25 Sup. Ct. 693, 49 L. ed. 1051; Stone-Ordean-Wells Co. v. Mark, 227 Fed. 975, 142 C. C. A. 433. It is a well-settled principle that any court, having custody of property, has an ancillary jurisdiction to hear and determine all questions respecting the title, possession or control of the property. This does not arise out of any provision of the bankrupty act. The principle is applicable to all courts, Federal and state. Murphy v. John Hofman Co. 211 R. S. 562, 569, 570, 29 Sup. Ct. 154, 53 L. ed. 327. The fact that, under the bankruptcy act, this jurisdiction may be exercised in the bankruptcy court in a summary manner, is not very important here. That court has not acted in the premises, and, until it does do so, the question of its power to act does not concern us here, nor does the question of proper practice in that court concern us.

It may be noted that the property was not in the custody of the bankruptcy court at the time the motion to dismiss the garnishment was made. It is at least doubtful whether the summary jurisdiction of that court could be exercised under those conditions. Fountain v. 624 Pieces of Timber, 140 Fed. 381; In re New England Breeder’s Club, 175 Fed. 501.

In-this view of the case some of the questions argued become immaterial. . We may say, however, that plaintiffs contention that the receiver fathed to make a prima facie showing of insolvency of defendant at the time the garnishment proceeding was commenced is not well taken. The affidavits submitted, taken altogether, were, in our opinion, sufficient for that purpose.

Order reversed.