Source: https://openjurist.org/262/us/77
Timestamp: 2019-04-19 06:53:53+00:00

Document:
LION BONDING & SURETY CO.
KARATZ.* DEPARTMENT OF TRADE AND COMMERCE OF STATE OF NEBRASKA et al. v. HERTZ et al.
These two cases arise out of the insolvency of the Lion Bonding & Surety Company, a Nebraska insurance corporation. They are here on writs of certiorari to the United States Circuit Court of Appeals for the Eighth Circuit. In the Karatz Case, it affirmed a decree of the federal court for Minnesota which appointed receivers in a suit brought by an unsecured simple contract creditor. See 280 Fed. 532. In the Hertz Case, it reversed a decree of the federal court for Nebraska, which dismissed a suit brought by those receivers for possession of the company's property. 280 Fed. 540. At the date of each decree the property of the company in Nebraska was held by the department of trade and commerce of that state, with the usual powers of a receiver, under a decree of a state court. The Circuit Court of Appeals directed, in the Hertz Case, that the lower court enjoin the department from doing any act in relation to the property, except to hold custody thereof subject to the further order of the federal court for Minnesota. Petitioners ask that the judgments of the appellate court be reversed and that the bills in the federal District Courts be dismissed. The grounds on which jurisdiction was asserted by the federal courts make necessary a fuller statement of the facts.
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.
On May 2, 1921, while the decree of the Nebraska court entered April 12, 1921, was in full force and the department was in actual possession thereunder of the property in that state, Karatz, a citizen of Minnesota, purporting to sue also on behalf of others similarly situated, filed a bill in equity against the company in the federal court for the district of Minnesota, Fourth division. No disclosure was made of the proceedings taken against the company in the state court of Nebraska, nor that under its decree the department was in possession of all the company property in that state, and, at least, of some of its property elsewhere. The bill alleged that the company had been admitted to do business in Minnesota; that through its operation there plaintiff had become an unsecured simple contract creditor to the amount of $2,100; that the company had ceased to do business and was insolvent; that it had assets within that district valued at $20,000; and that there was danger that the property of the company would be wasted. The bill prayed that the amount due plaintiff be ascertained and decl red a first lien upon all the assets of the company in Minnesota; that, for the purpose of protecting the general public, creditors, and stockholders, receivers be appointed to collect all its assets, wherever situated, and to realize upon and distribute the same; that the company be directed to deliver possession to them of all the 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.
On September 6, 1921, the Minnesota receivers filed in the federal court for the district of Nebraska, Omaha 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.
The decrees of the Circuit Court of Appeals in both cases must be reversed.
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. Hanssen, 261 U. S. 491, 43 Sup. Ct. 454, 67 L. Ed. ——, No. 431, decided April 9, 1923. But there was also the fundamental objection that the District Court was without jurisdiction as a federal court.
The only ground of jurisdiction alleged is diversity of citizenship. The facts specifically stated show that the amount in controversy was less than $3,000. Plaintiff's claim against the company was $2,100. He prayed that this debt be declared a first lien on the assets within the state. His only interest was to have that debt paid. The amount of the corporation's assets, either within or without the state, is of no legal significance in this connection. Nor is the amount of its debts to others. The case is not of that class where the amount in controversy is measured by the value of the property involved in the litigation. Hunt v. New York Cotton Exchange, 205 U. S. 322, 335, 27 Sup. Ct. 529, 51 L. Ed. 821; Western & Atlantic R. R. v. Railroad Commission of Georgia, 261 U. S. 264, 43 Sup. Ct. 252, 67 L. Ed. ——, No. 195, decided February 19, 1923. 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, 41, 32 Sup. Ct. 9, 56 L. Ed. 81. 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, 36 Sup. Ct. 217, 60 L. Ed. 469; Scott v. Frazier, 253 U. S. 243, 40 Sup. Ct. 503, 64 L. Ed. 883. 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, 36 Sup. Ct. 345, 60 L. Ed. 566; Eberhard v. Northwestern Mutual Life Ins. Co., 241 Fed. 353, 356, 154 C. C. A. 233.4 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, 18 Sup. Ct. 645, 42 L. Ed. 1111.
Second. In the Hertz Case, also, the motion to dismiss the bill should have been granted. Being dependent upon the decree in the Karatz suit appointing the receivers, the Hertz suit must necessarily fall with the dismissal of that bill. But there are other insuperable obstacles to the maintenance of the Hertz suit.
Hertz and Levin were not appointed ancillary receivers for Nebraska. They sue in the Nebraska district as Minnesota receivers, relying upon section 56 of the Judicial Code. That section, by its terms, applies only where, in a suit '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.' It relates to those cases where the fixed property is a unit, extending into several states, like interstate railroads and pipe lines.6 See Public Utilities Commission v. Landon, 249 U. S. 236, 243, 39 Sup. Ct. 268, 63 L. Ed. 577. It cannot be a umed that the assets of an insurance company are of that character. Those of this company, within the Minnesota district, specifically described in the Karatz bill, were alleged to consist of money and credits. The description of the property in Nebraska, given in the Hertz bill, is 'cash, mortgages and other securities, bills receivable, real estate, stocks, and bonds.' The provisions of section 56 extending the operation of a receivership to other districts of the same judicial circuit were therefore inapplicable to this case. The motion made, under that section, for disapproval of the order, so far as it may be operative outside the district of Minnesota, should have been granted. As Minnesota receivers merely, Hertz and Levin had no rights whatever in Nebraska. The general rule that a receiver cannot sue in a foreign jurisdiction applied. Great Western Mining Co. v. Harris, 198 U. S. 561, 25 Sup. Ct. 770, 49 L. Ed. 1163. 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, 39 Sup. Ct. 27, 63 L. Ed. 135.
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, 43 Sup. Ct. 79, 67 L. Ed. ——, No. 81, decided November 20, 1922), 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.
Where a 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. Wabash Railroad v. Adelbert College, 208 U. S. 38, 54, 28 Sup. Ct. 182, 52 L. Ed. 379. Compare Oklahoma v. Texas, 258 U. S. 574, 581, 42 Sup. Ct. 406, 66 L. Ed. 771. Possession of the res disables other courts of co-ordinate jurisdiction from exercising any power over it. Farmers' Loan & Trust Co. v. Lake Street Elevated R. R. Co., 177 U. S. 51, 61, 20 Sup. Ct. 564, 44 L. Ed. 667. 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, 126, 129, 29 Sup. St. 230, 53 L. Ed. 435.
This contention is opposed to the settled principles which govern the relations of courts of concurrent jurisdiction. It is inconsistent, also, with section 265 of the Judicial Code (Comp. St. § 1242) which prohibits courts of the United States from staying proceedings in courts of a state. Essanay Film Manufacturing Co. v. Kane, 258 U. S. 358, 42 Sup. Ct. 318, 66 L. Ed. 658. 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, 179, 4 Sup. Ct. 355, 28 L. Ed. 390; Byers v. McAuley, 149 U. S. 608, 614, 13 Sup. Ct. 906, 37 L. Ed. 867; Compare Laing v. Rigney, 160 U. S. 531, 16 Sup. Ct. 366, 40 L. Ed. 525; Metcalf v. Barker, 187 U. S. 165, 23 Sup. Ct. 67, 47 L. Ed. 122; Pickens v. Roy, 187 U. S. 177, 23 Sup. Ct. 78, 47 L. Ed. 128; Murphy v. John Hofman Co., 211 U. S. 562, 569, 29 Sup. Ct. 154, 53 L. Ed. 327. 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, 14 L. Ed. 322. 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, 159, 160, 23 Sup. Ct. 707, 47 L. Ed. 987. Nor could it be ignored. Shields v. Coleman, 157 U. S. 168, 15 Sup. Ct. 570, 39 L. Ed. 660. Lower federal courts are not superior to state courts.
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 jurisdicti n as a federal court. The appeal was dismissed on October 16, 1922, for lack of jurisdiction in this court. 260 U. S. 713, 43 Sup. Ct. 90, 67 L. Ed. ——.
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, 25 L. Ed. 885; Johnson v. Waters, 111 U. S. 640, 4 Sup. Ct. 619, 28 L. Ed. 547; Handley v. Stutz, 137 U. S. 366, 11 Sup. Ct. 117, 34 L. Ed. 706.
Compare O'Neil v. Welch, 245 Fed. 261, 267, 268, 157 C. C. A. 453; Ward v. Foulkrod (C. C. A.) 264 Fed. 627, 634. See, also, Relfe v. Rundle, 103 U. S. 222, 26 L. Ed. 331; Bernheimer v. Converse, 206 U. S. 516, 27 Sup. Ct. 755, 51 L. Ed. 1163; Converse v. Hamilton, 224 U. S. 243, 32 Sup. Ct. 415, 56 L. Ed. 749, Ann. Cas. 1913D, 1292.
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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