
    No. 337
    In Re BY-PRODUCTS CO.
    U. S. Appeals, 6th Circuit
    Nos. 4192, 4193.
    Decided Nov. 3, 1924.
    For full opinion, see 2 Fed. (2d) 664.
    127. BANKRUPTCY—Court of, has power to permit a state court to adjudicate rights against the bankrupt, and may refuse to enjoin the adverse parties from proceeding with the suit.
   MACK, J.

These are appeals from U. S. District Court N. D. Ohio, from an order dissolving an injunction theretofore issued on petition of a creditor of the bankrupt, restraining Chas. Mabee and the Long Point Creameries Co. from further prosecuting in the court of appeals of Lucas County in an action of the ByProducts Recovery Co. against Mabee and the Creameries Co. until the further order of the court.

Several years previous to the filing of the voluntary petition in bankruptcy, the By-Products Co. had brought suit in the state court, and soon after in the federal court, restraining Mabee and the Creameries Co. from interfering with certain patents in the possession of the By-Products Co. and Mabee perfected an appeal to the Lucas Court of Appeals. The Federal District Court held that the matters in controversy had been adjudicated in the state court; and the petition of the By-Products Co. in the federal court was dismissed.

The Lucas Appeals, in the meantime, states that a decree would be entered reversing the lower court and a conveyance to Mabee by the Recovery Co. of all rights in the said patents would be in order. Before such decree was entered, the Recovery Co. filed a petition in voluntary bankruptcy and the court stayed further proceedings.

Subsequently the injunction staying proceedings by the Bankruptcy Court and the Trustee in Bankruptcy brings the appeal. The Circuit Court of Appeals heid:

1. The District Judge sitting in bankruptcy acted wisely in dissolving the ex parte injunction, which wouhj have prevented the state court from effecting the conclusion reached and expressed by it in a controversy in which its aid had been invoked by the bankrupt itself.

2. The rights in the patents, of the Recovery Co., under the Bankruptcy Act, vested in the Trustee; and subject to the obligations in respect thereto the Recovery Co. had incurred.

3. The only effect of the dissolution of the injunction will be to enable the state court to correct what has been held by the state court of appeals to be an erroneous decree of the lower state tribunal.

On both, the appeal of the original creditor on whose petition the injunction was granted, and an appeal of the trustee in bankruptcy, the order of the Bankruptcy Court dissolving the injunction will be affirmed.

Attorneys—Marshall and Fraser, Ritter & Schminck for Recovery Co.; Allen J Seney, for Mahee; all of Toledo.  