Source: https://supreme.justia.com/cases/federal/us/262/77/
Timestamp: 2019-04-21 06:11:19+00:00

Document:
1. Insolvency of a corporation is not an equitable ground for appointing a receiver at the suit of a simple contract creditor. P. 262 U. S. 85. Pusey & Jones Co. v. Hanessen, 261 U. S. 491.
assets or liabilities, but is the amount of the plaintiff's claim as shown by the.bill. P. 262 U. S. 85.
3. Where the bill discloses that the amount in controversy is less than the jurisdictional amount, a general allegation to the contrary is of no avail. Id.
4. A suit in the district court which is dependent on a receivership in the district court of another district fails with the dismissal of the bill in that case. P. 262 U. S. 87.
5. The provision of Jud.Code § 56 extending the operation of a receivership to other districts in the same judicial circuit applies where there is fixed property extending, as a unit, into different states, like railroads or pipelines, but not where the assets are those of an insurance company, described as cash, mortgages, securities, bills receivable, real estate, stocks and bonds. P. 262 U. S. 87.
6. The general rule is that a receiver cannot sue in a foreign jurisdiction, and this is not overcome by an order of the court appointing him purporting to embrace in the receivership all property of the defendant wherever situate, and authorizing the receiver to apply to other courts in aid of the order. P. 262 U. S. 87.
7. Where a state court of competent jurisdiction has, by appropriate proceedings, taken property into its possession through its officers, the property is thereby withdrawn from the jurisdiction of all other courts. P. 262 U. S. 88.
8. Where a state court of Nebraska, under Comp.Stats. Neb.1922, §§ 7745-7748, first took possession of records and assets of a local insurance company through the State Department of Trade and Commerce for the purpose of conducting the business temporarily, and later, by a supplemental decree made on a supplementary application, ordered the Department to liquidate it, held that receivers appointed by a federal court in the interim were not entitled to possession of the res, and that their suit in a federal court against the company and the Department for the purpose of acquiring possession could not be maintained, and that the legality of the state court's action in continuing its control could not be thus questioned or attacked collaterally. P. 262 U. S. 89.
281 F. 1021, 280 F. 540, reversed.
brought by the receivers for the possession of the company's property.
federal district courts be dismissed. The grounds on which jurisdiction was asserted by the federal courts make necessary a fuller statement of the facts.
"Whenever any domestic company is insolvent, . . . or is found, after an examination, to be in such condition that its further transaction of business would be hazardous to its policy holders, or to its creditors, or to its stockholders, or to the public, . . . the Department . . . may apply to the district court . . . in the county . . . in which the principal office of such company is located for an order directing such company to show cause why the Department . . . should not take possession of its property, records, and effects and conduct or close its business, and for such other relief as the nature of the case and the interest of its policy holders, creditors, stockholders or the public may require."
court shall either deny the application or direct the Department . . . forthwith to take possession of the property, records and effects, and conduct the business of such company, and retain such possession . . . until on the application of the Department . . . or of such company, it shall, after a like hearing, appear to the court that the cause of such order directing the Department . . . to take possession has been removed, and that the company can properly resume possession of its property, records, and effects, and the conduct of the business."
rights of action of such company as of the date of the order so directing it to liquidate. . . ."
The supplemental petition prayed, among other things, that the orders theretofore made, so far as applicable and necessary to further the liquidation, remain in full force. The company filed an answer by which it admitted the material allegations contained in the supplemental petition and joined in the prayer thereof. On the same day, that court entered an order in accordance with the prayer of the supplemental petition, all action of the Department being made subject to the direction of the court.
property wherever situated; that the company and its officers be restrained from interfering in any way with such receivers, and for general relief. On the filing of this bill, the federal court, acting ex parte, appointed Hertz and Levin receivers of all the property of the company wheresoever situated, and authorized them to apply to any other district court of the United States in aid of the order so entered. The company (which was served on May 5 by process upon the Insurance Commissioner of Minnesota) moved on May 14, 1921, to dismiss the Karatz bill for want of federal jurisdiction and for want of equity. A motion was also made to discharge the receivers and to restore the property to the company or to the Department of Trade and Commerce. Both motions were denied on May 30, 1921.
Division, a bill in equity (called the Hertz suit) against the company, the Department of Trade and Commerce, and others. It charged that there was a conflict of authority between the Federal Court for Minnesota and the Nebraska state court concerning the administration of the company's property; that the Department threatened to liquidate the company under the order of the state court entered May 28, 1921; that its rights were limited to the temporary possession and listing of the property authorized by the order of April 12, 1921, and that it had no longer any right to the possession or control of the property either for the administration of the affairs of the company under direction of the state court or otherwise. The bill prayed that defendants be restrained from interfering with the Minnesota receiver's possession and control; that they be directed to surrender possession to plaintiffs, and for other relief. A motion of defendants to dismiss the bill for want of jurisdiction and for want of equity was granted, and the receivers appealed to the circuit court of appeals.
"from removing, secreting, or disposing of the moneys, books, papers, records, assets, property, accounts, or choses in action of or derived from the Lion Bonding & Surety Company, and from doing any other act in relation thereto, except to hold the custody thereof subject to the further order of the United States District Court for the District of Minnesota, Fourth Division. [Footnote 3]"
First. In the Karatz case, the motion to dismiss the bill should have been granted. There was want of equity, for it was brought by an unsecured simple contract creditor. Pusey & Jones Co. v. Hanessen, 261 U. S. 491. But there was also the fundamental objection that the district court was without jurisdiction as a federal court.
is measured by the value of the property involved in the litigation. Hunt v. New York Cotton Exchange, 205 U. S. 322, 205 U. S. 335; Western & Atlantic R. Co. v. Railroad Commission of Georgia, 261 U. S. 264. Nor is it like those cases in which several plaintiffs, having a common undivided interest, unite to enforce a single title or right, and in which it is enough that their interests collectively equal the jurisdictional amount. Troy Bank v. G.A. Whitehead & Co., Inc., 222 U. S. 39. In the case at bar, if several creditors of the company, each with a debt less than $3,000, had joined as plaintiffs, the demands could not have been aggregated in order to confer jurisdiction. Rogers v. Hennepin County, 239 U. S. 621; Scott v. Frazier, 253 U. S. 243. Nor can Karatz's allegation that he sued on behalf of others similarly situated help him. Compare Title Guaranty Co. v. Allen, 240 U. S. 136; Eberhard v. Northwestern Mutual Life Ins. Co., 241 F. 353, 356. [Footnote 4] Since the bill in this case discloses that the amount in controversy was less than the jurisdictional amount, the general allegation that it exceeds this amount is therefore of no avail. Vance v. W. A. Vandercook Co. (No. 2), 170 U. S. 468.
"in which a receiver shall be appointed the land or other property of a fixed character, the subject of the suit, lies within different states in the same judicial circuit."
sue in a foreign jurisdiction applied. Great Western Mining Co. v. Harris, 198 U. S. 561. The express authorization (contained in the order of appointment) to apply for aid to other courts could not aid them in this respect. Sterrett v. Second National Bank, 248 U. S. 73.
Moreover, even if the Federal Court for Minnesota would have had jurisdiction to appoint the receivers, and these receivers had secured ancillary appointment in the Nebraska district, the Hertz bill should still have been dismissed, because the property was then in the possession of the state court. What the federal court undertook to do was not to adjudicate rights in personam (as the state court did in Kline v. Burke Construction Co., 260 U. S. 226), but to take the res out of the possession and control of the state court and to enjoin all action on its part except as directed by the Federal Court for Minnesota. It sought to do this although the state court alone had jurisdiction of the parties and of the subject matter at the time when the proceeding before it was begun at the time its decree directing the Department to take possession was entered, and at the time possession was taken thereunder. Moreover, the proceeding in the state court was confessedly an appropriate one, the possession taken was actual, and it has been continuous. All this occurred before any suit was begun in any federal court. The federal court did not seek to gain possession and control of the Nebraska property until three months after entry of the decree of the state court directing the Department (which had possession of the res) to proceed with the liquidation. The case is thus free of those features which sometimes create difficulty in determining conflicts between courts of concurrent jurisdiction.
from the jurisdiction of all other courts. Wabash Railroad v. Adelbert College, 208 U. S. 38, 208 U. S. 54. Compare Oklahoma v. Texas, 258 U. S. 574, 258 U. S. 581. Possession of the res disables other courts of coordinate jurisdiction from exercising any power over it. Farmers' Loan & Trust Co. v. Lake Street Elevated R. Co., 177 U. S. 51, 177 U. S. 61. The court which first acquired jurisdiction through possession of the property is vested, while it holds possession, with the power to hear and determine all controversies relating thereto. It has the right, while continuing to exercise its prior jurisdiction, to determine for itself how far it will permit any other court to interfere with such possession and jurisdiction. Palmer v. Texas, 212 U. S. 118, 212 U. S. 126, 212 U. S. 129.
"its right to the possession by its receivers is superior to that of the state court. It follows that the receivers appointed by it are entitled to the possession of the company's records and assets as against the Department of Trade and Commerce."
staying proceedings in courts of a state. Essanay Film Manufacturing Co. v. Kane, 258 U. S. 358. The Nebraska court was confessedly a court of competent jurisdiction. While it was in possession of the res, it entered a supplemental decree directing the Department to liquidate the company. The statute of the state expressly provides for such liquidation. The original petition of April 12, 1921, clearly contemplated it, and contained a prayer for general relief. The claim is that the application for liquidation is a new and independent proceeding, and that jurisdiction over the res had terminated before entry of the supplemental decree, although the court's possession of the res continued. The claim is groundless. But, if the legality of the state court's action was to be questioned, it could be done only by laying the proper foundation through appropriate proceedings in that court. Covell v. Heyman, 111 U. S. 176, 111 U. S. 179; Byers v. McAuley, 149 U. S. 608, 149 U. S. 614; compare Laing v. Rigney, 160 U. S. 531; Metcalf v. Barker, 187 U. S. 165; Pickens v. Roy, 187 U. S. 177; Murphy v. John Hofman Co., 211 U. S. 562, 211 U. S. 569. If such action had been taken and relief had been denied there, resort could then have been had to appellate proceedings. Wiswall v. Sampson, 14 How. 52. But the judgment of the state court, which had possession of the res, could not be set aside by a collateral attack in the federal courts. Mutual Reserve Fund Life Association v. Phelps, 190 U. S. 147, 190 U. S. 159-160. Nor could it be ignored. Shields v. Coleman, 157 U. S. 168. Lower federal courts are not superior to state courts.
"That the right of said receivers to the possession of such of the property of said company as is situated in the District of Nebraska shall be subject to such right of possession thereof in the Department of Trade and Commerce of Nebraska as had accrued to it, under proceedings in the District Court of Douglas County in that state, when the right of the receivers arose under the laws of the United States."
The decree in the Karatz case directly under review here is that entered by the circuit court of appeals on July 7, 1922, pursuant to its per curiam opinion of June 30, 1922, in which it affirmed the final decree of the district court entered August 11, 1921, for reasons stated in the opinion in that cause, of April 28, 1922, affirming the "interlocutory order appointing a receiver."
In accordance with this decree of the circuit court of appeals, the Federal District Court for Nebraska entered a decree for an injunction. From the decree of the district court, the Department appealed directly to this Court, on the ground that the district court was without jurisdiction as a federal court. The appeal was dismissed on October 16, 1922, for lack of jurisdiction in this Court. 260 U.S. 713.
Where a creditors' bill has been entertained by this Court, the amount of a single plaintiff's claim has been large enough to satisfy the jurisdictional requirement. Compare Hatch v. Dana, 101 U. S. 205; Johnson v. Waters, 111 U. S. 640; Handley v. Stutz, 137 U. S. 366.
Compare O'Neil v. Welch, 245 F. 261, 267-268; Ward v. Foulkrod, 264 F. 627, 634. See also Relfe v. Rundle, 103 U. S. 222; Bernheimer v. Converse, 206 U. S. 516; Converse v. Hamilton, 224 U. S. 243.
The scope and effect of this section was stated by Mr. Moon (who introduced it) to be this: "It applies to a case where a receiver is to be appointed by a district judge covering property that runs across an entire circuit." Cong.Rec. 61st Cong.3d Sess. pp. 566, 3998.

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