Katchen v. Landy

PETITIONER: Katchen
RESPONDENT: Landy
LOCATION: South Carolina General Assembly

DOCKET NO.: 28
DECIDED BY: Warren Court (1965-1967)
LOWER COURT: United States Court of Appeals for the Tenth Circuit

CITATION: 382 US 323 (1966)
ARGUED: Nov 08, 1965
DECIDED: Jan 17, 1966

Facts of the case

Question

Media for Katchen v. Landy

Audio Transcription for Oral Argument - November 08, 1965 in Katchen v. Landy

Earl Warren:

Number, 28 Louis Katchen versus Hyman D. Landy, Trustee in bankruptcy.

Fred M. Winner:

Mr. Chief Justice --

Earl Warren:

Mr. Winner?

Fred M. Winner:

– and may it please the Court.

We are here today on a very narrow question.

It is a question having to do with the summary jurisdiction of the referee in bankruptcy and involved in the question is the problem of whether the Seventh Amendment prevents the exercise of summary jurisdiction by a referee in bankruptcy where if a plenary action were filed a jury trial would be available.

We are before the Court on a question as to which there is difference of opinion among the circuits as to the extent of the summary jurisdiction which a referee in bankruptcy has or attempts to exercise.

The Tenth Circuit probably goes farther than any other circuit in its recognition of summary jurisdiction and it holds if I correctly understand the most recent decision of the Tenth Circuit that summary -- that in an instance where a creditor files a claim in a bankruptcy estate and where the trustee seeks to assert a preference by way of counterclaim back against that creditor, the Tenth Circuit apparently go host that the summary jurisdiction does exist if the counterclaim is either compulsory or permissive or would be under the Federal Rules of Civil Procedure if a preference or one or two other things are involved and if the matter is not wholly unrelated to the claim initially filed by the creditor.

Potter Stewart:

Mr. Winner that what you just said is what you draw from most recent decision of the Tenth Circuit?

Fred M. Winner:

Yes sir.

Potter Stewart:

And you're referring to a decision in this very case --

Fred M. Winner:

Yes sir in the Katchen case, yes sir.

I read the Katchen case to modify an earlier decision of the Tenth Circuit in Interstate, but I believe or I hope I have correctly summarized Katchen as decided by the Tenth Circuit.

I think that perhaps the problem can be best illustrated by a very brief recitation of the facts here.

Here a corporation was formed in April 1960 which had the name of Katchen's Bonus Corner Incorporated.

Contemporaneously with the formation of the corporation, Louis Katchen, the principle stockholder borrowed $40,000.00 from the American National Bank.

Now in fact, the note was signed by Katchen's Bonus Corner Incorporated and Louis Katchen was the accommodation maker.

A few months later, $10,000.00 was borrowed from the North Denver Bank.

Not very long thereafter, they had a disastrous fire which was uninsured.

Within four months of the date of bankruptcy, the corporation caused first $15,000.00 and later an additional of $10,000.00 to be paid on the American National Bank loan on which Louis Katchen was an accommodation maker and did also cause to be paid in full the note to the North Denver Bank on which Katchen was an accommodation maker.

Subsequent to that and prior to bankruptcy, but all within the four months, Katchen paid personally an additional $5,000.00 on the American National Bank note.

Following bankruptcy, Katchen filed a claim as a creditor of the bankrupt corporation for the last $5,000.00 I have mentioned, that is the $5,000.00 which he paid personally on the note and he filed a claim for approximately $4,500.00 worth of rent said to be due him by the corporation on real property he personally owned.

The trustee then asserted four counterclaims.

The four counterclaims were these; the first two involved the payments, the payments which had been made by the corporation on the American National Bank note.

The third one involved the payment made by the corporation on the North Denver Bank note and the fourth one involved a claim which -- in which the trustee said that Louis Katchen had failed to subscribe for his initial capital stock.

The Tenth Circuit held that the claim on the failure to subscribe for the capital stock was wholly unrelated to Katchen's claims and therefore, the trustee could not exercise summary jurisdiction over it.

But the Tenth Circuit held that the referee could exercise summary jurisdiction as to the three payments made by corporate funds on the notes.

It is undisputed that Katchen objected to the summary jurisdiction at the first available opportunity and as I have said the question we have here today is, can a referee in bankruptcy exercise that summary jurisdiction?

Now as we view it, the various circuits which have passed on the question and some of them saying they can exercise of just compulsory counterclaims some on permissive and some on -- or some on both permissive and counterclaim, an attempt seems to go all from a slightly different tension --

Potter Stewart:

Do the Federal Rules of Civil Procedure applied in the proceedings before referee in bankruptcy?