B. Crouse & Co. The proofs of debt filed by Mr. Dennison were six of them from Utica, seven were from Syracuse, two from Earlville, one from Philadelphia, one from the city of Oneida, and one from Fairport, Monroe county, N. Y. That the twelve proofs of debt filed by said Dennison outside of Utica, or the power of attorney, are partially in the handwriting of said Dennison, and bear on their face conclusive evidence that said power of attorney was solicited by Dennison, and blanks forwarded by him therefor. On assembling after recess, I informed said Dennison that I would not appoint as trustee the person for whom he had voted. That he was a customer of said Crouse & Co. That he lived fifteen miles away from the estate of the bankrupt. That I had become fully satisfied that it was not for the interests of the creditors outside of said Crouse & Co. that such appointment should be made. I further suggested there were many good men in and about the village of Georgetown, and I would appoint any fair man in that community whom he might suggest. Said Dennison insisted that he would have no other man than Mr. Richardson. I therefore appointed as such trustee Mr. Eugene M. Perry, a reputable citizen of Georgetown, who has filed his bond, which I have approved and filed with the clerk." It thus appears that the referee ignored the appointment made by the creditors, and, without holding another election, proceeded to appoint Mr. Perry, favored by the bankrupt and some of the creditors,-how many does not appear. The statement quoted and reported to the referee by the bankrupt to have been made to him by Crouse is flatly contradicted by the affidavit of Mr. Crouse. The referee made no inquiry in court, or outside, so far as appears, into that alleged transaction, but seems to have accepted the ex parte statement of the bankrupt. Nothing against the character, standing, ability, or integrity of Mr. Richardson is shown. The referee states, as quoted, "Mr. Richardson, as appeared, was a large customer of C. B. Crouse & Co."

Geo. E. Dennison, for appellants..
M. H. Kiley, for Perry, trustee.

RAY, District Judge (after stating the facts). It is plain that the order appointing Eugene F. Perry trustee of the property of this bankrupt cannot be sustained and should not be sustained. Chapter 5 of the bankruptcy act [U. S. Comp. St. 1901, p. 3434] is devoted to "Officers, Their Duties and Compensation." Section 44 [U. S. Comp. St. 1901, p. 3438] reads as follows:

"Appointment of Trustees. (a) The creditors of a bankrupt estate shall, at their first meeting after the adjudication or after a vacancy has occurred in the office of trustee, or after an estate has been reopened, or after a composition has been set aside or a discharge revoked, or if there is a vacancy in the office of trustee, appoint one trustee or three trustees of such estate. If the creditors do not appoint a trustee or trustees as herein provided, the court shall do so."

This is plain, unequivocal, and imperative. The creditors at their first meeting (in the case at bar) were to appoint the trustee. This they proceeded to do. The creditors having appointed a trustee, there was nothing for the referee to do in that regard except approve or disapprove such appointment.

General Order 13 (32 C. C. A. xvii, 89 Fed. vii) says:

"The appointment of a trustee by the creditors shall be subject to be approved or disapproved by the referee or by the judge; and he shall be removable by the judge only."

"Judge" does not include the referee. Section I, subd. 16 [U. S. Comp. St. 1901, p. 3419].

It is plain that, the appointment by the creditors having been actually made, the referee was called upon to approve or disapprove the appointment. This he could not do by mental action or words alone. It was his duty to make an order in writing disapproving the appointment, if he disapproved, and on this the parties had a right to be heard before the judge, as "he (the trustee) shall be removable by the judge only." This general order confers no power on a referee to announce, as was done in this case, that he will not appoint the trustee already appointed by the creditors. It does authorize him to disapprove such appointment by order, and should this be done at the time the appointment is made by the creditors it is probable that the creditors might proceed at once to appoint some other person, as this would be an acquiescence in such disapproval; but should they not do this the matter should be reported to the judge, who may remove the trustee appointed by the creditors, and order another appointment by the creditors. In no event can the referee ignore the appointment made by the creditors, and proceed summarily to appoint the trustee without holding another election, as was done in this case. He cannot compel the creditors to vote, but he can give them an opportunity. If they do not vote, they have neglected to appoint or recommend.

Chapter 2 of the bankruptcy act [U. S. Comp. St. 1901, p. 3420] creating the courts of bankruptcy, and defining their jurisdiction, being section 2 of said act, provides (subdivision 17) that courts of bankruptcy have power to, "pursuant to the recommendation of creditors, or when they neglect to recommend the appointment of trustees, appoint trustees, and, upon complaints of creditors, remove trustees for cause upon hearings and after notices to them." This confers no power to disregard the recommendation of the creditors. Nor have they failed to recommend when they have, so far as voting at all, unanimously appointed a trustee, and the referee disapproves such action. The referee cannot control the action of the creditors in any such arbitrary manner. The law places, and was intended to place, the appointment of the trustee in the hands of the creditors, subject to the power of the judge to remove the person so appointed in case the referee disapproves, or for cause shown on application by other interested persons. This is a plain and a sensible construction of the act and general order, taken together. There is no failure to appoint when the referee disapproves the appointment. The trustee is appointed, and may be removed by the judge on the disapproval of the ref

eree.

But, even if we assume that there is a vacancy in the office of trustee where the creditors appoint and the referee disapproves (which this court denies, but see In re Lewensohn [D. C.] 98 Fed. 576), the act itself is plain and explicit that the creditors shall make the appointment to fill the vacancy. It is only when the creditors fail or neglect, after full and fair opportunity, to appoint a trustee that the court or referee may step in and make an appointment. The return of the referee states that "said Dennison insisted that he would have no other man than Mr. Richardson." This, if true, was no justification for the appointment made by the referee. Even if the referee had power to make an appointment at that meeting, on the failure of the creditors to make an appointment that should meet his approval, a proposition to which this court cannot assent, this statement of Mr. Dennison was not in execution of his power, nor did it constitute a failure by the creditors to appoint, and it is probable that had the referee taken another vote on the election of a trustee Mr. Dennison would have cast the votes represented by him for some one, perhaps some other person. In any event, that was the only proper and legal course to pursue, assuming the referee had the power to take any action other than report the appointment and disapproval to the judge.

It is unnecessary to comment on the insufficiency of the objections to Mr. Richardson. If he was not a proper person, because he resided 15 miles from the bankrupt stock and had dealings with one of the creditors, how forcible are the objections to Perry, who evidently was the choice of the bankrupt himself, and was not voted for by any creditor? Nor is it necessary to more than suggest the impropriety of conferences between the bankrupt and referee or creditors and the referee outside of court, and in the absence of other interested parties, as to the personality, fitness, etc., of the trustee appointed. The parties having objections to Mr. Richardson should have come into court, and there presented the objections which the referee states were made to him outside. Had this been done, the bankrupt could have been examined as to the truth of the charge made, and Mr. Crouse and other creditors would have had an opportunity to reply. Again, the seven creditors residing at Syracuse, the six residing at Utica, the two residing at Earlville, the one residing at Philadelphia, the one residing at Oneida, and the one residing at Fairport had equal rights with all others, and quite likely and quite properly they objected to a trustee suggested, it would seem, by the bankrupt, and residing in his town and village. In this case the interests and wishes of the creditors who took interest enough in the proceedings to avail themselves of the law made for the protection of creditors were improperly disregarded.

The order of the referee appointing Eugene M. Perry trustee of the bankrupt, William A. Hare, must be vacated and set aside, and an order to that effect will be entered.

POST v. BUCKLEY et al.

(Circuit Court, S. D. New York. October 3, 1902.)

1. JURISDICTION OF FEDERAL COURTS-DIVERSITY OF CITIZENSHIP-NOMINAL PARTIES.

A defendant who is substantially charged in the bill with conspiracy to defraud, and against whom a large judgment is asked on the ground that he refused to surrender on demand property which had been conveyed to him as trustee by complainant, but permitted the same to be sold under foreclosure, cannot be considered a merely nominal party, and the fact that he is a citizen of the same state as complainant deprives a federal court of jurisdiction.

In Equity. Argument on plea.
William Blaikie, for complainant.
John Brooks Leavitt, for defendants.

TOWNSEND, Circuit Judge. The complaint alleges: that complainant is a citizen and an inhabitant of New York, and that the defendants are citizens and inhabitants of the state of New Jersey; an agreement between complainant and the defendant Charles that Charles should loan money to the complainant to buy real estate, and that, to secure defendant, 150 acres of land owned by complainant in Linden township, N. J., was transferred to William, the other defendant, as also the real estate purchased; that, as a bonus, complainant gave a note for $3,000 to Charles, and for $1,000 to William, which were afterwards returned, and acknowledgments for the same amounts for sums due for services substituted; that on January 4, 1894, Charles agreed to loan complainant $10,000, or so much as he might require to pay interest upon the mortgages and taxes on said lands, until he could dispose of the whole or repay the loans, and that to secure said $10,000, or so much as might be loaned, complainant conveyed two other farms, of 154 acres, to said William; that said 154 acres were then worth over $150,000, and are now worth more than $200,000, and were only incumbered for about $10,200, and that, if said Charles had kept his agreement to loan money to complainant until complainant by sale could pay up the loans and incumbrances, the mortgages on the property could have been continued; that whenever Charles made loans he demanded and required bonus notes in addition to the amount loaned; that after January, 1894, 500 acres and upwards having been conveyed to William in trust as aforesaid, Charles refused to loan any more money unless complainant would give him a bonus of 100 per cent. on each of said loans; and that in June, 1894, complainant demanded from defendants a return of said 154 acres, and that later complainant notified defendants that he had a party ready to advance the money to pay interest and taxes, if he could secure him with said lands, and defendants refused to reconvey any part of them; that defendants were at all times able to carry out their agreements, and that by reason of their failure so to do, and to advance the money, 300 acres have been sold at forced sale, worth more than $200,000, at a loss to complainant of over $150,000; that on September 15, 1900, defendants returned to complainant all of his notes, except one for $1,380, and reconveyed all of the land then held by said William, subject to three mortgages held by said Charles for $5,000, and that thereupon complainant executed his bond for $33,325 to the defendants, secured by a mortgage on the land so reconveyed, and that on the same day defendants gave consents for the discontinuance of three actions on their notes pending in the supreme court of New York, and for three other actions pending in chancery in New Jersey for foreclosure of mortgages on parts of said lands; that all transactions and dealings between complainant and defendants said to be released and satisfied by said agreement of September 15, 1900, were made while defendants were attorneys and counsel of complainant; that complainant only assented to said settlement of September 15, 1900, because he was unable in any other way to save even the remaining 250 acres, or any part thereof, and because defendants told him just before he signed the agreement that unless he did sign it they would let the whole of said land go. Defendants file a plea alleging: First. That the defendant William at the time of the filing of the bill was, and long before had been, a citizen and resident of the state of New York. Second. That on September 15, 1900, there were pending actions at law and in equity between the parties in New York and New Jersey, in which all matters set forth in the complaint were in litigation, and could have been fully tried and determined; that it was agreed between the parties that they should settle the same out of court, and that an accounting was had, and settlement made, the complainant acting under the advice of his counsel, George T. Werts, whereby defendant William reconveyed the lands to complainant, and complainant executed his bond and mortgage for $33,325. The agreement is set out in full, is witnessed by said George T. Werts, and includes a full satisfaction and discharge by the complainant of all and every claim and demand or cause of action, legal or equitable, arising or growing out of any agreements made or transactions had between him and the defendants, or either of them. The plea is not denied.

The first question is that of jurisdiction. Complainant claims that said William is a mere stakeholder, a nominal party, and that, although he may in fact reside in New York, there are only two real parties to the case, complainant and defendant Charles, and therefore the court has jurisdiction. Even if it be so that a defendant from whom a judgment for a conveyance was claimed could be considered as a nominal party, so as not to oust the jurisdiction of the court, it appears from the complaint that William has not now a large part of the real estate, the conveyance of which is demanded, but that it has been sold, apparently under foreclosure; and complainant claims judgment against him, that the agreement discharging him from all claims be declared void by reason of fraud, deception, and breach of fiduciary relations, menace and duress, practiced by defendants, and that the defendants, and each of them, be decreed to cause said 300 acres to be conveyed to complainant, or in lieu thereof to pay $200,000. A defendant who is substantially charged with conspiracy to defraud and against whom it is purposed to obtain a judgment of $200,000, on the ground that he did not surrender the property on demand, can hardly be considered a merely nominal defendant. It appears, also, from the whole complaint that William, also, has some claim for services on his part included in the bond for $33,325 which complainant seeks to have declared void. It must be held that he is not a mere nominal defendant, and that the court has no jurisdiction.

Defendants urged upon the court that by reason of the charges made against them personally, and their position as attorneys, there should be a decision on the merits, as shown by the pleadings. If the court has no jurisdiction, such judgment could have no legal effect. But as the matter has been fully argued, and counsel for complainant united in the request for such decision, it may not be amiss to observe that, although the value of the real estate in question is alleged in hundreds of thousands of dollars, there is no allegation as to the amount actually invested by complainant, other than what might be