Source: https://caselaw.findlaw.com/us-supreme-court/293/67.html
Timestamp: 2019-04-19 09:44:11+00:00

Document:
McCandless, a citizen and resident of Pennsylvania, suing as ancillary receiver of the Duquesne Gas Corporation, appointed by the federal court for Southern New York, brought this suit in that court. The bill alleged that he had been appointed receiver of all the assets of the corporation in a consolidated suit in the federal court for Western Pennsylvania originally brought by Frank T. Harrington against the Duquesne Gas Corporation, and later consolidated with one brought by the Central Hanover Bank & Trust Company, as trustee under the corporation's mortgage; that upon his petition as primary [293 U.S. 67, 69] receiver filed in the federal court for Southern New York he had by an order 'duly made' been appointed ancillary receiver there; that he had 'duly qualified and is now acting as such ancillary receiver;' and that the 'order duly authorized' him as such receiver to bring this suit. The bill then set forth at great length facts on which it charged that the defendants, or some of them, acting in a fiduciary relation to the corporation, came into the possession of funds arising from the sale of its securities and had misappropriated more than $2,500,000. An accounting and the recovery of these sums were prayed for. Furlaud, a citizen and resident of New York, and three corporations organized under the laws of states other than Pennsylvania were the defendants. Each filed an answer which denied most of the allegations of the bill.
The Court of Appeals, without passing upon the merits of the controversy, reversed the decree. 68 F.(2d) 925, 927. It did so, solely on the ground that, under the rule of Booth v. Clark, 17 How. 322, the 'appointment of the plaintiff as ancillary receiver was void, and he did not acquire, in any of the proceedings, a status to warrant the institution of this suit.' Its decision was based upon the following facts which were shown by the copy of the record of the proceedings in the federal court for Southern New York by which McCandless was appointed an [293 U.S. 67, 70] cillary receiver, and which he had introduced at the hearing in this cause: The papers in the proceeding for such appointment were entitled 'Frank T. Harrington, Complainant against Duquesne Gas Corporation, Defendant'; but, in fact, no independent bill against the corporation had been filed in the Southern District of New York by Harrington, or by any other person. The papers filed consisted merely of a petition by McCandless as primary receiver praying that he be appointed ancillary receiver; and the order entered thereon. Annexed to his petition was a copy of the proceedings of the federal court for Western Pennsylvania by which he was appointed primary receiver. The record does not show that the corporation was represented when the appointment of the ancillary receiver was made. So far as disclosed by the record, the order of the District Court for Southern New York appointing him was made ex parte.
The importance of reviewing that rulling-in view of an established practice, said to prevail in perhaps a majority of the state courts, of permitting foreign receivers [293 U.S. 67, 71] to sue,1 and a common practice, said to obtain in federal courts, of appointing ancillary receivers on the ex parte application of the primary receiver-was the reason principally urged for granting the petition for certiorari. The order allowing certiorari was 'limited to the questions pertaining to the validity of the appointment of the petitioner as ancillary receiver, and his right as such to maintain this suit.' In the abbreviated record prepared for use here, only those portions of the original record which were supposed to bear upon those questions were included. The rest were omitted in printing pursuant to stipulation. The briefs filed on the argument of the case in this Court were directed solely to the question whether the appointment of the ancillary receiver as made was void and open to collateral attack. But statements of counsel made at the oral argument in this Court, in answer to inquiries, and confirmed by examination of the original record, enable us to dispose of the case without passing on the specific question whether in a federal court an ancillary receiver may be appointed otherwise than as an incident of an independent bill in equity.
First. The holding of the Court of Appeals that the legal sufficiency of the appointment of the plaintiff as ancillary receiver had been put in issue by the answer rests solely upon the provision in Equity Rule 30 (28 USCA, 723), which declares that a statement in the answer that the defendant is without knowledge as to facts alleged in the bill 'shall be treated as a denial.' 2 This constructive denial did [293 U.S. 67, 72] not suggest that there was a legal objection to the manner of the appointment or to its validity. The proceedings at the hearing and later show that there was no intention to deny the validity of the appointment of the ancillary receiver,3 nor was it in fact questioned in the District Court. 4 On the appeal, sixty-five alleged errors were as [293 U.S. 67, 73] signed. One of them was directed to an alleged holding that the order entered in the Southern District of New York 'constituted a due and valid appointment' of McCandless as ancillary receiver. But the record does not show that the District Court did so rule, or that it was requested to rule on the subject. Moreover, the petitioner stated that the objection to the validity of the appointment had been made for the first time in the Court of Appeals; and counsel for the respondent, in his oral argument in this Court, said that the objection to the validity of the appointment was not urged by him because he desired to have a decision on the merits.
The rule that a federal appellate court must, of its own motion, dismiss the suit if it appears that the trial court was without jurisdiction, Mansfield, C. & L.M. Ry. Co. v. Swan, 111 U.S. 379, 382 , 4 S. Ct. 510, is not applicable to the situation presented here. In the case at bar, the District Court confessedly had jurisdiction of the subject-matter and of the parties. The objection sustained goes not to the jurisdiction of the District Court in this suit, but to the legal capacity of the plaintiff as ancillary receiver.
[ Footnote * ] Rehearing denied 295 U.S --, 55 S.Ct. 830, 79 L.Ed. --.
[ Footnote 1 ] It is stated by petitioner that a foreign equity receiver is permitted to sue in 21 states; and that the highest courts of 7 other states have indicated approval of that view.
[ Footnote 3 ] McCandless, after testifying without objection to his appointment in Pennsylvania, was asked: 'Thereafter did you apply for and obtain authority from the Court to bring this suit?' Defendants' counsel objected, stating: 'The ground of my objection is that the order itself is the best evidence of what is contained therein. I might say at this point that I intend to raise the point in the course of this trial that the trustee had no authority to bring the suit in the particular action under which he was appointed.' The court directed that the order be introduced. Thereupon McCandless was asked: 'Were you thereafter appointed ancillary receiver by this District Court?' Without objection, he answered 'Yes.' Then he was asked: 'Were you there also authorized to bring suit?' Defendants' counsel then made 'the same objection,' which was sustained. The plaintiff then, without objection, introduced in evidence a copy of the proceeding appointing him the ancillary receiver. That record, including a copy of the proceedings in the Pennsylvania suit, occupies 35 pages of the printed record in this Court.
[ Footnote 4 ] The careful opinion of the District Judge (which occupies 14 pages of the printed record of this Court) makes no mention of any such objection or defense.
[ Footnote 5 ] Paauhau Sugar Plantation Co. v. Palapala (C.C.A.) 127 F. 920.
[ Footnote 6 ] Buckingham v. Estes (C.C.A.) 128 F. 584, 585, 586.
[ Footnote 7 ] St. Louis Southwestern R. Co. v. Henson (C.C.A.) 58 F. 531.
[ Footnote 8 ] Dahl v. Montana Copper Co., 132 U.S. 264 , 10 S.Ct. 97.
[ Footnote 9 ] McLaughlin v. United States, 107 U.S. 526 , 528, 108 U.S. 510 , 2 S. Ct. 802, 862, 806.
[ Footnote 10 ] Northwestern S.S Co. v. Cochran (C.C.A.) 191 F. 146, 149; Mayor, etc., of City of Helena v. United States (C.C.A.) 104 F. 113, 115.
[ Footnote 11 ] Texas & Pacific Ry. Co. v. Lacey (C.C.A.) 185 F. 225, 227, error dismissed 229 U.S. 628 , 33 S.Ct. 773.
[ Footnote 12 ] Compare McAleer v. Clay County (C.C.A.) 38 F. 707; Leahy v. Haworth (C.C.A.) 141 F. 850, 4 L.R.A.(N.S.) 657.
[ Footnote 13 ] Compare O'Reilly v. Campbell, 116 U.S. 418, 420 , 6 S.Ct. 421.
[ Footnote 14 ] Compare Coal & Iron R. Co. v. Reherd (C.C.A.) 204 F. 859.

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