Before DUFFY and CASTLE, Circuit Judges, and MERCER, District Judge.
This appeal is taken from an order of the District Court of the Northern District of Illinois dismissing for lack of venue one of the defendants to a plenary action brought by the Trustee in Bankruptcy and is here pursuant to leave to appeal granted by this Court.
On October 29, 1958, the Trustee in Bankruptcy of Abraham M. Liebling commenced a plenary action against Esther Frank, daughter of the bankrupt, by filing his complaint in the District Court. The complaint alleged that the bankrupt began in 1942 to transact business in the name of his wife and daughter in order to defraud his creditors. The complaint sought, among other things, to compel the defendant to account for all the property taken in her name pursuant to the alleged fraudulent scheme, and that such conveyances and transfers of property as were found unlawful be set aside and the property turned over to the trustee for the benefit of creditors.
Federal jurisdiction of the trustee's cause of action was based on the diversity of citizenship existing by reason of the Illinois citizenship of the trustee and California citizenship of Esther Frank. On March 13, 1961 the trustee filed an amended complaint joining several additional defendants who were citizens of Illinois and as a consequence abandoned as a basis of federal jurisdiction the original parties' diversity of citizenship and proceeded instead against all defendants by virtue of Section 70 of the Bankruptcy Act of 1938, as amended, 11 U.S.C.A. § 110, and other relevant provision of said Act.
The defendant Frank moved to dismiss the amended complaint on the ground of improper venue. The District Court dismissed Esther Frank as a defendant. The District Court granted appellants leave to petition for rehearing of the order in their status of creditors, the Court having ascertained that the trustee did not intend to seek a rehearing of such order or appeal therefrom. After briefs and arguments, and submission of an affidavit listing property of Esther Frank located in the Northern District of Illinois, Eastern Division, the District Court adhered to its prior ruling and dismissed Esther Frank as a defendant but modified the order to provide that the:
"within order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from this order may materially advance the ultimate termination of the litigation."
This Court later granted appellants leave to appeal.
It is contended by the appellants that the District Court erred in ruling that the venue statute applicable generally to civil actions commenced in the Federal Courts requires the dismissal of a non-Illinois defendant in an action brought in Illinois by a Trustee in Bankruptcy under § 70 of the Bankruptcy Act to recover property located within the District of suit. The appellant also contends that the amended complaint was properly filed in the Northern District of Illinois for the additional reason that the cause of action stated is a local one within the meaning of title 28 U.S.C.A. § 1655 and sets forth a claim to property within the District.
The general venue statute (28 U.S.C.A. § 1391) provides in paragraph (b) as follows:
"(b) A civil action wherein jurisdiction is not founded solely on diversity of citizenship may be brought only in the judicial district where all defendants reside, except as otherwise provided by law." (Emphasis added.)
The Bankruptcy Act does "otherwise provide." In § 23 (11 U.S.C.A. § 46) it is provided:
"(b) Suits by the receiver and the trustee shall be brought or prosecuted only in the courts where the bankrupt might have brought or prosecuted them if proceedings under this Act had not been instituted, unless by consent of the defendant, except as provided in sections 60, 67, and 70 of this Act." (Emphasis added.)
Therefore actions brought under § 70 of the Act are excepted from the rule that suits by a trustee may be brought or prosecuted only in the courts where the bankrupt might have brought or ...