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Local Loan Co. v. Hunt - 292 U.S. 234, 54 S. Ct. 695 (1934)

Rule:

A federal court of equity has jurisdiction of a bill ancillary to an original case or proceeding in the same court, whether at law or in equity, to secure or preserve the fruits and advantages of a judgment or decree rendered therein. A federal court has such jurisdiction irrespective of whether the court would have jurisdiction if the proceeding were an original one. The proceeding being ancillary and dependent, the jurisdiction of the court follows that of the original cause, and may be maintained without regard to the citizenship of the parties or the amount involved, and notwithstanding the provisions of 28 U.S.C.S. § 379. 

Facts:

The debtor filed a voluntary petition in bankruptcy and included in his liabilities schedule a loan from petitioner, which constituted a provable claim against the estate. The bankruptcy court adjudicated the debtor a bankrupt and entered an order discharging him from all provable claims. The lender then sued the debtor's employer in state court to enforce the wage assignment that the debtor gave as security for the loan as against post adjudication wages. The debtor brought an action in bankruptcy court to enjoin the lender from prosecuting its action or attempting to enforce its claim therein against the debtor under the assignment. The bankruptcy court found in favor of the debtor and enjoined the state court prosecution of the lender's suit from enforcing the debtor's assignment of future wages as security for a loan. On appeal, the appeals court affirmed. 

Issue:

Did the bankruptcy court have jurisdiction?

Answer:

Yes

Conclusion:

The Supreme Court of the United States affirmed the judgments below, explaining that the bankruptcy court had jurisdiction to entertain the debtor's action to enjoin the lender's state suit that threatened interference with its adjudication and order. The Court rejected state court decisions holding that an assignment of future wages was an enforceable lien, concluding that such assignment was either nonexistent or ineffective as against an adjudication and discharge in bankruptcy.

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