Opinion ID: 438944
Heading Depth: 1
Heading Rank: 3

Heading: procedural and jurisdictional claims.

Text: 16 Tenneco argues that the district court disregarded the Federal Rules of Civil Procedure by granting the Receiver's application for an order to show cause, rather than requiring the Receiver to file a plenary action to recover the funds; that summary determination of the parties' contractual rights violated Tenneco's constitutional right under the Seventh Amendment to a jury trial; and that the Receiver lacked jurisdiction over the disputed funds because he did not comply with the filing requirements of 28 U.S.C. Sec. 754. 17
18 Tenneco argues that the district court improperly ordered the payment after summary proceedings ancillary to the main action, United States v. Arizona Fuels Corp. Instead, Tenneco argues, the Receiver should have sought to recover the funds by filing a plenary action against Tenneco, with all the procedural trimmings of the Federal Rules. See Fed.R.Civ.P. 66. 19 Rule 66 provides that the Rules apply to actions by or against the Receiver, but does not speak to the procedures that a court is to use in administering a receivership. Rule 66 neither authorizes nor precludes the use of summary proceedings rather than actions under the Rules in circumstances such as the present one. 20 Although precedents are few and far between, the traditional rule is that summary proceedings are appropriate and proper to protect equity receivership assets. Bien v. Robinson, 208 U.S. at 428, 28 S.Ct. at 381; McMullen v. Hurley, 8 Cir., 1923, 291 F. 374, 376; 2 Clark on Receivers Sec. 584 at 954 (3d ed. 1959). See also Republic Supply Co. v. Richfield Oil Co., 59 F.2d at 36 (not reviewing the propriety of the summary procedure because the appellant waived the issue by its general appearance in response to a petition, in a case involving an order to turn over property held as a setoff). A receiver may proceed summarily to recover money belonging to the receivership by petition to the appointing court for an order to show cause against a possessor not a party to the original action. 75 C.J.S. Receivers Secs. 319, 118 n. 57. Receivership courts have the general power to use summary procedure in allowing, disallowing, and subordinating the claims of creditors. 1B J. Moore, Moore's Federal Practice p 0.419[2.-1] at 600 (2d ed. 1983 rev.). 21 Tenneco cites cases holding that, in particular circumstances, a receiver must file a plenary action against a third party who possesses claimed receivership property, rather than invoking summary proceedings ancillary to the main action. 22 This is true when, for example, a receiver asks the court to determine the ultimate merits of the parties' claims to the property. In Dold Packing Co. v. Doermann, 8 Cir., 1923, 293 F. 315, the receiver filed an application and petition attacking the validity of a contract; the district court issued an order to show cause; Dold contested the procedure and lost, then contested the substance and lost. 293 F. at 320-21. The appellate court held that the summary procedure was improper to adjudicate the receiver's contractual claim against a non-party (to the main action) possessor of claimed receivership property. 293 F. at 331. Tenneco, as a non-party asserting a contractual right to setoff, argues that this case is similar. But here the district court did not decide the Receiver's and Tenneco's ultimate rights, i.e., the validity of Tenneco's contractual claims based on Arizona Fuels' alleged December and May deficiencies. Rather, the district court determined who was entitled to interim possession of the funds, under the rule against setoff of pre-receivership debts with receivership assets. 23 Similarly, American Brake Shoe & Foundry Co. v. New York Railways Co., 2 Cir., 1926, 10 F.2d 920, in which a receiver invoked summary proceedings to claim funds held by third party fiduciaries, recited the well settled rule that in such a situation a receiver must bring an ancillary plenary suit, rather than proceeding summarily. 10 F.2d at 921. Again, the present case differs because it did not ultimately resolve adverse claims to property. See McMullen v. Hurley, 291 F. at 376. 24 Moreover, Judge Learned Hand held in American Brake Shoe that summary proceedings were proper where the third person is made a party to the suit or where the third person becomes sufficiently involved in the receivership action, for example by intervening. 10 F.2d at 921. Here, Tenneco was no stranger to the receivership proceedings. As one of Arizona Fuels' two major creditors, Tenneco was specifically named in and served with the June 9 order of appointment [R. 210 at 5]. Tenneco was served with the June 15 order enjoining Arizona Fuels' being put into bankruptcy, and its counsel appeared at the June 15 preliminary injunction hearing. Tenneco did not oppose the appointment or continuation of the receivership [R. 354 at 5]. 25 Because Tenneco had ample notice of and opportunity to contest the Receiver's challenge to the claimed setoffs, there was no denial of due process. See Goss v. Lopez, 1975, 419 U.S. 565, 578-79, 95 S.Ct. 729, 738, 42 L.Ed.2d 725; Mullane v. Central Hanover Trust Co., 1950, 339 U.S. 306, 314, 70 S.Ct. 652, 657, 94 L.Ed. 865. 26 Tenneco argues that the use of summary proceedings improperly assumed that the funds were receivership property. But Tenneco's setoffs themselves presumed that the funds were Arizona Fuels', and thus available for setoff against Arizona Fuels' debts. As of June 9, all that had been Arizona Fuels' became the Receiver's [R. 210 at 1]. 27 Tenneco argues that the funds in its possession were presumptively Tenneco's. But possession is not determinative; summary proceedings are appropriate to determine right to possession, although not ultimate rights to title or ownership. See Bien v. Robinson, supra; McMullen v. Hurley, supra. Tenneco's argument would universally preclude summary proceedings to protect receivership assets from illegitimate but minimally articulate possessors. The authorities reviewed above are contrary. 28 The district court's order determined the Receiver's right to possession of the funds, based on adjudication of the right to setoff, without determining the validity of Tenneco's claims as a creditor of Arizona Fuels. We hold that summary proceedings were appropriate and proper for this purpose. 29
30 Tenneco argues that the Receiver's claim was a contract action whose legal elements, in addition to any equitable elements created by the receivership context, generated a right to jury trial. Cf. Ross v. Bernhard, 1970, 396 U.S. 531, 537, 90 S.Ct. 733, 737, 24 L.Ed.2d 729 (general right to jury trial of legal issues). Thus, Tenneco argues, the summary proceedings deprived it of the jury trial that it could have had under Fed.R.Civ.P. 38 and the Seventh Amendment to the Constitution. 31 But whether Tenneco would have been entitled to a jury trial if the Receiver had brought a plenary action against it is not relevant here. No right to jury trial attaches to equitable proceedings in the administration of a receivership. See Bien v. Robinson, supra; Burnham v. Todd, 5 Cir., 1943, 139 F.2d 338, 342. Accord Katchen v. Landy, 1966, 382 U.S. 323, 336-38, 86 S.Ct. 467, 476-78, 15 L.Ed.2d 391 (no right to jury trial in equitable action in administration of bankruptcy estate); Barton v. Barbour, 1881, 14 Otto (104 U.S.) 126, 133-34, 26 L.Ed. 672 (same). Tenneco's conclusion that it would have been entitled to a jury trial in a plenary action, even if correct, does not support its claim that otherwise proper summary proceedings violated any existing right. We have already held that summary proceedings were proper, so the jury trial argument fails. 32
33 A receiver achieves jurisdiction and control of property in districts other than that of appointment by filing copies of the complaint and order of appointment in the district court where the property is located. 28 U.S.C. Sec. 754. The Receiver did not file these documents in the Southern District of Texas, which encompasses Houston, where Tenneco claims that it held the funds in question. Tenneco argues that the Receiver, not having complied with Sec. 754, lacked statutory jurisdiction over the claimed funds, so that the funds could not qualify as receivership assets that the district court could proceed summarily to protect. 34 When there is no other basis of jurisdiction, a receiver appointed in one district must file under Sec. 754 to attain jurisdiction over property in other districts. See S.E.C. v. Equity Service Co., 3 Cir., 1980, 632 F.2d 1092, 1095 (allowing a receiver to reassume jurisdiction after a late Sec. 754 filing, when there was no prejudice to other claimants). In this case, however, three factors weigh against applying Sec. 754 preemptively. 35 First, Tenneco had actual notice of the complaint and the appointment. It was served with the order appointing the Receiver [R. 210 at 5], and was notified of and participated in various receivership proceedings before the Arizona district court [R. 354 at 5]. To the extent that the purpose of Sec. 754 is to provide notice, see S.E.C. v. Equity Service Co., 632 F.2d at 1095, Tenneco had more notice than a Sec. 754 filing would have provided. Tenneco claims no prejudice and we can imagine none under the circumstances. 36 Second, as Tenneco concedes [Brief at 23-24], the district court had personal jurisdiction over Tenneco. If the Receiver had filed a plenary action against Tenneco to recover the funds, the district court for the District of Arizona would have had subject matter jurisdiction ancillary to the main action and personal jurisdiction over Tenneco as an active and continuing participant in the receivership proceedings. See Haile v. Henderson National Bank, 9 Cir., 1981, 657 F.2d 816, 822; United States v. Franklin National Bank, 2 Cir., 1975, 512 F.2d 245, 249; Tcherepnin v. Franz, 7 Cir., 1973, 485 F.2d 1251, 1255-56. Failure to file under Sec. 754 would not have divested the court of existing jurisdiction. See Franklin National Bank, 512 F.2d at 249. The order to show cause and the subsequent order to repay the funds were in personam decrees directed to Tenneco, over which the court clearly had jurisdiction. 37 Third, the intangible nature of the property in question favors a pragmatic view of the Sec. 754 requirement. Although its historical predecessors covered only physical property, Sec. 754 has been said to cover all types of property, including money. See Revisers' Note to 28 U.S.C.A. Sec. 754; 7 J. Moore, Moore's Federal Practice p 66.08 at 1948-50 (2d ed. 1972 rev.). But where the property is essentially in the form of a monetary credit, held by a party over whom the court already has jurisdiction, who has actual notice of the receivership and has previously appeared in the receivership court, there is no purpose served in requiring the Receiver to trace the funds to Houston and make a Sec. 754 filing there. The functions served by a Sec. 754 filing where property, such as a parcel of land or tangible personal property, is located in a particular district, or where the possessor of the property is not otherwise aware of the receivership, do not apply here. 38 In these circumstances and where, as we have already held, summary proceedings are otherwise proper, the lack of a Sec. 754 filing in the Southern District of Texas does not bar the district court from proceeding summarily to determine whether Tenneco's setoffs against receivership funds were legal and to order refund of the setoff amounts. 39 The judgment is affirmed.