Court Opinion

ID: 8864575
Source: CourtListenerOpinion
Date Created: 2022-11-26 18:00:28.591668+00
Date Added: 2024-06-11T17:05:57.085870
License: Public Domain

TAFT, Circuit Judge
(after stating the facts as above). We think the decree of the circuit court must be affirmed on the authority of the decision of the supreme court of the United States in Blake v. McClung, 19 Sup. Ct. 165, announced December 12, 1898, Mr. Justice Harlan delivering the opinion. That was a writ of error to the supreme court of Tennessee from a decree entered in the latter court upon a creditors’ bill exhibited against an insolvent foreign mining and manufacturing corporation authorized to do business under the laws of Tennessee in that state, and having assets therein. The writ of error was sued out by certain of the creditors, who were nonresidents of Tennessee and residents of other states, to reverse so much of the decree as accorded priority of payment out of the assets to creditors resident in Tennessee, in accordance with a statute of Tennessee, which, after providing that such foreign corporations should be subject to the same process for the collection of debts due from them as natural persons, enacted as follows:
“Nevertheless, creditors who may be residents of this state shall have a priority in the distribution of assets, or subjection of the same or any part thereof, to payment of debts over all simple contract creditors, being residents of any other country or countries.”
Two of the plaintiffs in error, it appeared, were residents of Ohio, and did business in that state. In the intervening petitions of those *439Creditors, it was averred that the plaintiffs in the general creditors’ bill, residents of Tennessee, claimed priority of right in the distribution of the assets of the insolvent corporation over other creditors of the corporation, “citizens of the United States, but not of the state of Tennessee.” The plaintiffs in error attacked the validity of the Tennessee statute on the ground that it was in violation of the provision of the second section of article 4 of the constitution of the United states, declaring that the citizens of each state shall be entitled to all privileges and immunities of citizens in the several states. The court considered the preliminary objections — First, that, as the statute only referred to residents, there was no occasion to consider whether it was repugnant to the provision of the national constitution relating to citizens; and, secondly, (hat it did not sufficiently appear that the complaining plaintiffs in error were citizens of other slates,, so that they could raise the question. The court said that although the allegations might not be sufficient to show that the individual plaintiffs in error were citizens of Ohio, within the meaning of the statute regulating the jurisdiction of the circuit courts of the United States, (hey might be accepted as sufficient for that purpose in the present case, no question having been made in the state court that the individual plaintiffs in error were not citizens, but only residents of Ohio. Coming, then, to the other preliminary objection, the court said:
“.Looking at the purpose and scope of the Tennessee statute, it is plain that the words ■residents of this slate’ refer to those whose residence in Tennessee was such as indicated that their permanent home or habitation was there, without any present intention of removing therefrom, and having the intention. when absent, from that state, to return thereto; such residence as appertained to or inhered in citizenship. And tlxe words, in the same statute, ‘residents of any oilier country or countries.’ refer to those whose respective habitations were not in Tennessee, but who were citizens, not simply residents, of some other state or country. It is impossible to believe that the statute was intended to apply to creditors of whom it could be said that they were only residents of other states, but not to creditors who were citizens of such states. The state did not intend to place creditors, citizens of oilier states, upon an equality with creditors, citizens of Tennessee, and to give priority only to Tennessee creditors over creditors who resided in, hut were not citizens of. other states. The manifest purpose was to give to all Tennessee creditors priority over all creditors residing out of that state, whether the latter were citizens or only residents of some other state or country. Any other interpretation of the statute would defeat the object for which it was enacted.”
After discussing the meaning of the words “privileges and immunities,” and pointing out that citizens of oilier states might legally do business with a foreign corporation domesticated in the state of Tennessee, the court said;
“If a state should attempt by statute regulating the distribution of the property of insolvent individuals among their creditors, to give priority to the claims of such individual creditors as were citizens of that stare over the claims of individual creditors, citizens of other states, such legislation would be repugnant to the constitution, upon the ground that it withheld from citizens of other stares, as such, and because they were such, privileges granted to citizens of the state enacting it. Can a different principle apply, as between individual citizens of the several states, when the assets to be distributed are the assets of an insolvent, private corporation lawfully engaged in business and having the power to contract with citizens residing in states other *440than the one in which it is located? It is an established rule of equity that, when a corporation becomes insolvent, it is so far civilly dead that its property may be administered as a trust fund for the benefit of its stockholders and creditors (Graham v. Railroad Co., 102 U. S. 148, 1G1), not simply of stockholders and creditors residing in a particular state, but all_ stockholders and creditors of whatever state they may be citizens. * * *' These principles obtain, no doubt, in Tennessee, and will be applied by its courts in all appropriate cases between citizens of that state, without making any distinction between them. Yet the courts of that state are forbidden by the statute in question to recognize the right in equity of citizens residing in other states to participate upon terms of equality with citizens of Tennessee in the distribution of the assets of an insolvent, foreign corporation lawfully doing business in that state. We hold such discrimination against citizens of other states to be repugnant to the second section of the fourth article of the constitution of the United States, although, generally speaking, the state has the power to prescribe the conditions upon which foreign corporations may enter its territory for purposes of business. Such a power cannot be exerted with the effect of defeating or imparting rights secured to citizens of the several states by the supreme law of the land. Indeed, all the powers possessed by a state must be exercised consistently with the privilege and immunities granted or protected by the constitution of the United States. * * * We adjudge that, when the general property and assets of a private corporation lawfully doing business in a state are in course of administration by the courts of such state, creditors who are citizens of other states are entitled, under the constitution of the United States, to stand upon the same plane with creditors of like class who are citizens of such state, and cannot be denied equality of right simply because they do not reside in that state, but are citizens residing in other states of the Union. The individual plaintiffs in error were entitled to contract with this British corporation lawfully doing business in Tennessee, and deemed and taken to be a corporation of that state; and no rule in the distribution of its assets among creditors could be applied to them as resident citizens of Ohio, and because they were not residents of Tennessee, that was not applied by the courts of Tennessee to creditors of like character who were citizens of Tennessee.”
We think the case at bar is governed bj the principles adjudicated in the case from which we have quoted. It appears quite as clearly from the record in this case that the nonresident shareholders of Tennessee are citizens of other states in the Union as it did in the Blake Case that the individual plaintiffs in error were citizens of Ohio. The expression “stockholders and creditors in this state,” contained in the Michigan statute, must be given the same construction as the words “creditors resident of the state of Tennessee,” in the Tennessee statute, were given by the supreme court, and for the same reasons. Indeed, it is not denied, but it is expressly claimed by counsel for the complainant, that it was the intention of the statute. to give a preference to citizens of the state of Michigan over citizens of other states. The Blake Case concerns a discrimination between -resident and nonresident creditors. The statute whose validity is at issue in the case at bar concerns not only, creditors, but shareholders. We do not see, however, that this creates any sound distinction. The parties in interest here are really creditors of the association to which they belong. It is a mutual association with respect to which shareholders occupy the relation both of stockholders and creditors. But, even if it were not so, the principles announced by the supreme court in the Blake Case necessarily cover the case of stockholders as well as creditors. Any one in any state had the right to become a stockholder or shareholder in the defendant cor*441poration. There was no restriction attempted by the law of Michigan or the law of any other state upon the residence of stockholders. The ecpiity of stockholders to share in the assets of the corporation when it is being wound up is junior to that of creditors, but it is none the less to be protected as a privilege and immunity under the constitution of the United States. Mr. Justice Harlan, in referring to the equitable principle that requires the assets of a corporation civilly dead to be administered as a trust fund, says that it is a trust fund for the benefit, not simply of stockholders and creditors residing in a, particular state, but of all stockholders and creditors of whatever state they may be citizens. Nor is the present case within the exceptions and qualifications of the rule which the supreme court; deemed it wise to state in the Blake Case. Mr. Justice Harlan said:
“It may be appropriate to observe that the objections to the statute of Tennessee do not necessarily embrace enactments that are found in some of the states requiring foreign insurance corporations, as a condition of their coming inio the state for purposes of business, to deposit witli the state treasurer funds sufficient to secure policy holders in its midst. Legislation of that character does not present any question of discrimination against citizens forbidden by ihe constitution. Insurance fluids set apart in advance for the benefit of home policy holders of a foreign Insurance company doing business in the slate arc a trust fund of a specific kind to be administered for the exclusive benefit of certain persons. Policy holders in other states know that those particular funds are segregated from the mass of property owned by the company, and that they cannot look to them, to the prejudice of those for whose special benefit they were deposited. The present case is not one of that kind. The statute of Tennessee did not make it a condition of the right of the British corporation to come into Tennessee for purposes of business that it should at the outset, deposit with the state a fixed amount, to stand exclusively or primarily for the protection of its Tennessee creditors. It allowed that corporation, after complying with the terms of the statute, to conduct its business in Tennessee as it saw fit, and did not attempt to impose any restriction upon its making coni facts with or incurring liabilities to citizens of other states. It permitted tliur cot poration to contract with citizens of other states, and then, in effect, provided that all such contracts should be subject to the condition (in case the corporation became insolvent) that’creditors residing in other states should stand aside, in the distribution by the Tennessee courts of the assets of the corporation, until eral Hors residing in Tennessee were fully paid, — not out of any funds or property specifically set aside as a trust fund, and at the outsel put into the custody of the state, for the exclusive benefit, or for the benefit primarily, of Tennessee creditors, but out of whatever assets of any kind the corporation might have in that state when insolvency occurred." In other words, so far as Tennessee legislation is concerned, while this corporation could lawfully have contracted with citizens of other states, those citizens cannot share in its general assets upon terms of equality with citizens of that stare. If such legislation dot's not deny to citizens of other states, in respect, of matters growing out of the ordinary transactions of business, privileges that are accorded to it by citizens of Tennessee, it is difficult to perceive what legislation would effect that result.”
So, in this case, had the legislation of Michigan provided that, as a condi lion of the defendant association’s doing business in the state of Michigan, it should deposit a fund with the state treasurer or other state officer to be used for the security of resident stockholders or creditors of the state of Michigan, such a provision would not have been in violation of the fourth article of the federal constitution. Such, indeed, was the character of the legislation adjudged to be valid in the case of Lewis v. Association, 98 Wis. 203, 73 N. W. *442793, where a foreign building association was required bj the law of Wisconsin to deposit $100,000 of its security with, the state treasurer in trust for the redemption of the obligation of the association to persons residing in Wisconsin; those obligations including the payment of shareholders in the building association.
We hold, therefore, that, in its operation against, the other shareholders of the defendant association, residents and citizens of other states than Michigan, the section of the Michigan statute relied on is invalid, because it violates the second section of the fourth article of the constitution of the United States. We further hold that, in a case where the whole corporation is being wound up in the state of its incorporation, the collection of the Michigan assets by a Michigan receiver, and the direction to him to turn the same over to the New Hampshire assignee, less the cost of .collection, on the latter’s giving a sufficient bond to secure to Michigan shareholders their pro rata of the total assets, fulfills the requirements of the Michigan statute in so far as the same is valid. The decree of the circuit court is affirmed.