Court Opinion

ID: 8865859
Source: CourtListenerOpinion
Date Created: 2022-11-26 18:05:16.109643+00
Date Added: 2024-06-11T17:05:59.627765
License: Public Domain

THAYER, Circuit Judge,
after stating the case as above, delivered the opinion of the court.
The order of the circuit court sustaining the demurrer to the complaint from which the present appeal was taken recites, in substance, that the demurrer was sustained because no leave of court was asked and obtained to sue Hugh C. Ward, the receiver, before the complaint was lodged by the plaintiffs in the clerk’s office, and from other recitals contained in the order it appears that no other questions presented by the demurrer wort; decided. The record further shows that the action of the trial judge in holding the demurrer to be well taken was founded largely, if not entirely, upon tbe ground (liat the pleading to which the demurrer was addressed was not intended as an intervention in a pending suit, but was in reality an original bill, which had been filed by tbe plaintiffs for the purpose of foreclosing the mortgage executed by John J. Mastín and wife; and that, being a bill of that nature, it could not be entertained, consistently with the rules of procedure in equity, without precedent leave of court, because the mortgaged property was then in custodia legis, being in the bands of a receiver theretofore appointed in the case of Julia Mastín against Thomas H. Mastín. If this view of the case was well founded,— that is to say, if the proceeding instituted by the plaintiffs was, in legal contemplation, an original bill to foreclose a mortgage, and was not an incidental proceeding in the last-mentioned suit to wind up the partnership estate of John J. Mastín & Co., — it might be conceded that it could not be properly brought without permission first obtained from the court which bad possession of the mortgaged property. Yo rule is better established than that a court having the custody of property through the agency of its receiver will not suffer that possession to be disturbed, either by a levy or sale under process issued by some other court, or by the bringing of an independent suit against its receiver to recover the possession of the res, or to enforce a lien thereon, or to establish any other claim thereto. In view of this rule it follows that, whenever a person desires to make a receiver a party defendant to an original bill or to an action at law, leave should be obtained to that effect from the court which appointed him, unless the case is one which falls clearly within the-provisions of the act of congress (24 Stat. 552, c. 373, § 3) which permits suits of a *738certain nature to be brought against receivers appointed by the federal courts without such previous leave. Wiswall v. Sampson, 14 How. 52; Barton v. Barbour, 104 U. S. 126-128; Davis v. Gray, 16 Wall. 203-218; In re Tyler, 149 U. S. 164, 13 Sup. Ct. 785; Porter v. Sabin, 149 U. S. 473-479, 13 Sup. Ct. 1008. We think, however, that the trial court- was mistaken in assuming that the complaint which is involved in the case at bar was an original bill to foreclose the deed of trust that had been executed by John J. Mastin and wife. The proceeding which was inaugurated by filing that complaint was of a dependent or ancillary character, since the power of the court to entertain it was derived, not from diversity of citizenship as between the parties thereto, or the existence of a federal question, but solely from the jurisdiction which it had already acquired in the pending case of Julia Mastin against Thomas H. Mastin. But for the pend-ency of that suit, it would have had no semblance of jurisdiction, and the proceeding in question would not have been instituted. The appointment of a receiver in the latter case had deprived the plaintiffs of the power which they would have otherwise possessed to choose a forum in which to assert their rights, and had compelled them to resort to the court in which the complaint was filed for relief which could not be obtained elsewhere. Beyond all controversy, therefore, the suit at bar is of an ancillary or dependent character. We think that it was not only a dependent suit, but that it was in effect, and that it should have been treated by the circuit court simply as, .an intervention in the case of Mastin against Mastin. The complaint alleged in proper form the nature and extent of the petitioners’ right to certain property then in the custody of the receiver; the pendency of the suit of Mastin against Mastin to liquidate the affairs of John J. Mastin & Co.; the fact that a receiver had been appointed in that suit, who had taken possession of all the partnership assets, including certain property to which the petitioners asserted a superior right by virtue of the deed of trust; the fact that the petitioners desired to subject said property to the payment of the mortgage indebtedness, and were powerless to do so, without the court’s consent, because of the existence of the receivership; and it concluded in due form with a prayer that, in view of the premises, the possession of the lands conveyed by the deed of trust might be surrendered to the petitioners. It is manifest, therefore, both from the allegations of the complaint- and the prayer for relief, that the primary purpose of the petitioners was to obtain an order directing the receiver to surrender the possession of the mortgaged property to their custody, to the end that, as trustees in the deed of trust, they might administer the same as they deemed best, consistently with the provisions of that instrument. This is the object which is disclosed by certain allegations of the bill, and is also clearly stated in the first prayer for relief; and while the complaint also contained a second prayer that the mortgaged lands might be sold, subject to the supervision of the court, for the satisfaction of the mortgage indebtedness, yet this request was made in the alternative, and indicated a form of relief which was not desired by the petitioners unless the court should refuse to relinquish its hold upon the mortgaged property. We think, therefore, that *739neither the second prayer for relief, nor the fact that in its caption the complaint was not entitled in the case of Mastin against Mastin, nor the fact that it concluded with a request for a subpoena, is of sufficient importance to change the inherent nature of the pleading in question, and transform it into an original bill for the foreclosure of a mortgage. When its more essential features are considered, it must he regarded as an intervening petition in a pending cause, which was hied for the purpose of obtaining possession of certain property then in the court’s custody, to which the petitioners asserted a paramount right. The trial court should have so regarded it, and acted accordingly.
It is urged, however, that, even though the complaint be regarded as an intervening petition in the case of Mastin against Mastin, and not as an original bill, yet the mere lodgment of the petition in the clerk’s office without precedent leave of court rendered it vulnerable ¡o a demurrer, and necessitated a dismissal of the proceeding. We are not able to assent to that conclusion. It may be conceded that when, in a pending ease, a receiver is appointed to take possession of property, the court or chancellor by whom the appointment is made is not always hound to permit a third party to file an intervening petition, and become a party to Hie case, because he asserts some interest in the pending controversy or in the property which is thereby affected. It may be that the interest asserted by the intervener will be wholly unaffected by the proceedings which are liable to he taken in the pending case; or that his rights, whatever they may he, are subordinate to the rights of the parlies thereto; or that he is already well represented in the principal case; or that there are other adequate remedies within his reach, and at his disposal, which render it unnecessary to burden the case with the collateral issue which is tendered by the intervener. In cases of the latter sort it is usually held to he discretionary with the court or chancellor to whom an application io intervene is addressed to allow or reject the intervention, and leave to intervene should he obtained. Credits Commutation Co. v. U. S., 62 U. S. App. 728, 31 C. C. A. 12, and 91 Fed. 570; Hamlin v. Trust Co., 47 U. S. App. 422, 427, 24 C. C. A. 271, and 78 Fed. 664; In re Streett, 8 U. S. App. 645, 648, 30 C. C. A. 446, and 62 Fed. 218; Jones & Laughlins v. Sands, 51 U. S. App. 153, 25 C. C. A. 233, and 79 Fed. 913; Ex parte Cutting, 94 U. S. 14. There are other cartes, however, where the right of a third party to intervene in a pending case is so imperative, resting, as it does, on grounds of necessiiy. and the inability of the party to obtain relief by other means, that the right cannot be said to be dependent upon judicial discretion. For example, a court cannot lawfully refuse to permit an intervening petition to be filed when the petitioner shows a title to or a lien upon property in the custody of a receiver, and a present right to its possession, which is superior to any right or title that is or may be asserted by the parties to the suit in which the intervention is filed, and at whose instance a receiver was obtained. The case at bar falls within the class of cases last described. The plaintiffs showed by their intervening petition that they were trustees in a deed of trust or mortgage which was executed by John J. Mastin *740.and his wife, Julia Mastin, in the lifetime of the former; that the mortgage debt thereby secured was overdue and unpaid, and that under the provisions of the deed of trust they had a paramount lien on the mortgaged property, and a right to the immediate possession thereof, inasmuch as it was only held in judicial custody at the instance and request of the members of the firm of John J. Mastín & Co. for the purpose of aiding in the adjustment of the unsettled affairs of that co-partnership. We entertain no doubt, therefore, that the plaintiffs had a right to file an intervening complaint in the case of Mastín against Mastín, which was not dependent upon the exercise of any discretionary power vested in the trial court; and, having such right, we are furthermore of opinion that the mere lodgment of the complaint in the clerk’s office without precedent leave of court was not sufficient cause for sustaining the demurrer thereto. If the complaint was not properly entitled by the clerk in the main case, an order should have been made to that effect, since it was, in all of its essential features, a pleading in that case, and not an original bill, as we have heretofore held. Moreover, if leave of court was a necessary step in the orderly course of procedure, then we perceive no reason why the action of the lower court, when it was held by a different judge, in overruling the pleas to the jurisdiction and directing the defendants to plead further, should not be regarded as sufficient leave to sue the receiver. In their pleas to the jurisdiction, the receiver and Thomas H. Mastín averred as a reason why their pleas should be sustained that no permission had been obtained to prosecute the action against the receiver in his official capacity, and, as the matter was thus called to the attention of the court, and the pleas were overruled, with directions to the defendants to plead to the complaint, we can perceive no substantial reason why such action should not be regarded as tantamount to the necessary leave. To hold otherwise would be to attach more importance to form than to substance.
In conclusion we deem it necessary to say that the record now before us discloses the singular fact that five years have elapsed since the suit to wind up the partnership estate of John J. Mastin & Co. was instituted, and that during that period no substantial progress has been made in adjusting the accounts between the co-partners, and in bringing that litigation to an end. So far as the record shows, the issues which were presented by the bill of complaint in that case remain untried, and no steps have been taken to bring them to a trial. In the meantime, however, a large amount of real property which was incumbered by a mortgage in favor of third parties has remained in judicial custody, by which means the trustees in the mortgage have been deprived of the care, custody, and control of the mortgaged property, and have been rendered powerless to enforce the mortgage lien, although it is clearly superior to any equitable claim which is or can be asserted, either by the creditors of the firm of John J. Mastin & Co. or by the individual members of that firm. It goes without saying that the parties to a suit ought not to be permitted to thus jeopardize the rights of others who are not parties thereto, or to obstruct them in the enforcement of their rights by such dilatory proceedings as appear to have been resorted to in the case at *741bar. When a receiver has been appointed to bold property in which third parties have an interest, it is incumbent on the persons who have secured the appointment to prosecute the litigation effectively, and without unnecessary delay; and it is equally incumbent upon a court which has acquired the possession of property through the agency of a receiver to' discharge it from judicial custody at the earliest practicable moment, to the end that it may not be held in such custody at the instance of one suitor or suitors to shelter it from the just claims of others. In accordance with those views, the order sustaining the demurrer to the intervening complaint, and the subsequent order dismissing the same, will each be reversed, and the case will be remanded to the circuit court with the following directions, namely: That at the first rule day which shall occur at least 10 days after the mandate is filed the defendants be required to take; issue by answer with any allegations of the intervening petition which they may desire to controvert, and to interpose by way of plea or answer any defense to the relief sought which they may elect to interpose, and that, when the issues are thus framed, a period of not exceeding BO days be allowed for the taking of such testimony as either party may deem essential, and that the case be brought to a hearing upon the merits of the intervening coinplaint with all convenient speed. And, inasmuch as undue delay has already ensued, it is ordered that a mandate in conformity herewith be issued at the expiration of 10 days after the opinion is filed.