In Great Western Mining Mfg. Co. v. Harris, 198 U.S. 561, 577, 25 S. Ct. 770, 775, 49 L. Ed. 1163, the court said: "It is true that the ancillary receiverships are generally conducted in harmony with the court of original jurisdiction, but such receivers are appointed with a view of vesting control of property rights in the court in whose jurisdiction they are located."Summary of this case from In re Schulte-United
Argued April 14, 17, 1905. Decided May 29, 1905.
A receiver is an officer of the court which appoints him, and in the absence of some conveyance or statute vesting the property of the debtor in him, he cannot sue in courts of a foreign jurisdiction upon the order of the court appointing him, to recover the property of the debtor. Booth v. Clark, 17 How. 338. A receiver's right to sue in a foreign jurisdiction is not recognized upon principles of comity, as every jurisdiction in which it is sought by means of a receiver to subject property to the control of the court, has the right and power to determine for itself who the receiver shall be, and to control the distribution of the funds realized within its own jurisdiction. Where the receiver can not maintain an action to recover property in a jurisdiction other than that in which he was appointed, jurisdiction is not established because the action is authorized to be instituted by the receiver in the name of the corporation, if it appears that in case of a recovery the property would be turned over to the receiver to be by him administered under the order of the court appointing him.
Mr. Harlan Cleveland for petitioner as to the right of receiver to maintain the action:
The United States Circuit Court for Vermont had jurisdiction of the suit. The cases cited by the Circuit Court of Appeals simply decide that an ordinary receiver in whom no title has vested cannot in his own name maintain a suit in a court of another State to recover assets of a enforce double liability.
But the court in collecting the assets of a corporation is acting within its powers on behalf of the corporation, or as the successor of the officers of the corporation in directing suit to be brought by it and in its name.
When the United States Circuit Court for the District of Kentucky appointed a receiver of The Great Western Mining and Manufacturing Company, and by that act assumed charge of the assets and affairs of the corporation, it took the place, and could exercise the powers, of the directors. See authorities so holding as to calls or assessments on stockholders for the unpaid portion of the subscription price of stock. Scoville v. Thayer, 105 U.S. 143, 155; Hawkins v. Glenn, 131 U.S. 319, 329; Glenn v. Marbury, 145 U.S. 499, 510; Gt. W. Tel. Co. v. Purdy, 162 U.S. 329, 336; Hayward v. Leeson, 176 Mass. 310; Kentucky Codes, § 302.
The practice is entirely familiar to courts of chancery.
In Taylor v. Allen, 2 Atk. 213, a receiver to collect the assets of a testator was empowered to sue in the name of the executrix. Pitt v. Snowden, 3 Atk. 750; Yeager v. Wallace, 44 Pa. 291; Merritt v. Merritt, 16 Wend. 405; Freeman v. Winchester, 10 S. M. (Miss.) 577; Green v. Winter, 1 Johns. Ch. 60.
Even if the suit be treated as one brought by the receiver in his own name, it is maintainable on the principle of comity.
In Kentucky a receiver can bring an action in his own name. Codes, § 21.
The receiver could undoubtedly have maintained this suit in Kentucky in his own name. Kentucky allows foreign receivers to sue in that State by comity when there are no domestic creditors requiring protection or no infringement of the public policy of that State or no injustice would be done thereby to the citizens within its jurisdiction. Rogers v. Riley, (Ky.) 80 F. 759; Zacher v. Fidelity Trust Co., 106 Fed. Rep. 593; S.C., 59 S.W. 493; Kirtley v. Holmes, (Ky.) 107 F. 1, 9; Johnson v. Roger's Receiver, (Ky.) 43 S.W. 234; Weedon v. Association, (Ky.) 59 S.W. 758. This seems to be the general rule. Howorth v. Augle, 162 N.Y. 179; Howorth v. Lombard, 175 Mass. 570; Howorth v. Elwanger, 86 F. 54; Sands v. Greeley, 88 F. 130; Burr v. Smith, 113 F. 858; Lewis v. Naval Stores, 119 F. 396, 397; Metzner v. Bauer, 98 Ind. 425; Boulware v. Davis, 90 Ala. 207; Cooke v. Orange, 48 Conn. 401; Planters' Bank v. Bank, 2 La. Ann. 430; Comstock v. Frederickson, 51 Minn. 350; Hurd v. Elizabeth, 41 N.J.L. 1; Sobernheimer v. Wheeler, 45 N.J. Eq. 614; Runk v. St. John, 29 Borh. 585; Barclay v. Quicksilver Min. Co., 6 Lans. 25; Pugh v. Hurtt, 52 How. Pr. 22; Dyer v. Power, 60 Hun, 583; Merchants' Bank v. McLeod, 38 Ohio St. 174; Porter v. Stoughton Mill Co., 91 Wis. 174; Wyman v. Kimberly Clark Co., 93 Wis. 554.
Nothing in the public policy or decisions of Vermont precludes a foreign receiver from suing in the courts of that State, under the circumstances of this case. No creditor in Vermont has intervened to prevent the prosecution of this suit. The Harris estate alone objects to this suit being maintained.
The right to recover on the one hand property of a corporation or its proceeds which have been misappropriated by officers and directors, or on the other hand damages for its misappropriation, is in the corporation. Porter v. Sabin, 149 U.S. 473; Hawes v. Oakland, 104 U.S. 450; Davenport v. Dows, 18 Wall. 626; Van Weel v. Winston, 115 U.S. 228.
Mr. Brainard Tolles, with whom Mr. Julien T. Davies was on the brief, for respondents as to the right of receiver to maintain action:
The order of the Circuit Court for the District of Kentucky was not effective to authorize the receiver to maintain a suit in the name of the mining company, in the Circuit Court for the District of Vermont. The receiver was a mere instrument of the court which appointed him, for the exercise of its ordinary jurisdiction in equity.
No assignment or transfer of its property to the receiver was ever made by the mining company and no authority was ever given to the receiver to file this bill in the name of the mining company. The receiver has no statutory title to the property of the corporation, nor any statutory right to sue in its name. The only justification of his action in making use of the name of the corporation for the purpose of this suit is found in the order of the Circuit Court.
There were both stockholders and directors of this corporation in the District of Kentucky at the time that order was made, no proceedings were instituted in said District, in pursuance of said order. But in the District of Vermont a bill was filed in the name of the mining company, not authenticated by its seal nor verified or signed by any of its officers.
To sign the name of another, without his consent, to a bill of complaint or to an appeal bond, is an act which requires affirmative justification. When the act is done in the District of Vermont, and the object of the act is to get possession of property having a situs in said District, and the official character of the receiver and the Circuit Court for the District of Kentucky had no power to authorize such act for such a purpose outside of the District. The order was one which could have been acted on only within the District.
As to comity this court is not constrained, by judicial precedent, or by any settled course of practice in this country, to adopt the English rule. Booth v. Clark, 17 How. 322.
In the Federal courts it has never been doubted that Booth v. Clark, supra, was conclusive against the right of receivers to sue in the courts of the United States, outside the State or District in which they were appointed. Brigham v. Luddington, 12 Blatchf. 237; Kittel v. Augusta c. R. Co., 78 F. 855; Hazard v. Durant, 19 F. 471; Philadelphia c. Iron Co. v. Daube, 71 F. 583; Wigton v. Bosler, 102 F. 70.
The only Federal case to the contrary, Hale v. Hardon, 95 F. 747, was overruled in Hale v. Allinson, 188 U.S. 56, and Hilliker v. Hale, 117 F. 224 (certiorari refused, 188 U.S. 739).
Constrained by the authority of Booth v. Clark, supra, the courts of the United States have built up a system of procedure for dealing with the affairs of insolvent corporations, which rests upon firmer ground than that of comity, and which avoids the practical objections pointed out in Booth v. Clark, while securing to foreign creditors reasonable facilities for the collection of their debts. The system which has thus been evolved has the spirit of comity, but is made effective through the exercise by each court of its own jurisdiction, rather than by the abdication of jurisdiction on the part of any court in favor of another. Parsons v. Charter Oak Life Ins. Co., 31 F. 305; Mercantile Trust Co. v. Kanawha c. R. Co., 39 F. 337; Platt v. Philadelphia R.R. Co., 54 F. 569; Central Trust Co. v. East Tennessee c. R. Co., 69 F. 658; Ames v. Union Pacific R. Co., 60 F. 966; Bayne v. Brewer Pottery Co., 82 F. 391; Sands v. E.S. Greeley Co., 88 F. 130; Reynolds v. Stockton, 140 U.S. 254; In re Brant, 96 F. 257; Shinney v. North American Savings c. Co., 97 F. 9; Coltrane v. Templeton, 106 F. 370; Lewis v. American Naval Stores Co., 119 F. 391; Conklin v. U.S. Shipbuilding Co., 123 F. 913.
These decisions show a system of procedure which, while perhaps not complete or incapable of improvement, is far superior to that which this court was urged to adopt in Booth v. Clark. It is a system now universally understood. It works smoothly in practice. It effectively protects the rights of possible creditors in each jurisdiction where assets are found, by compelling the foreign receiver to give reasonable security and to submit himself to the orders of the local court before removing assets which may be needed to meet the claims of domestic creditors. It provides a convenient forum in which such creditors may prove their claims. It enables the receiver appointed by a foreign court, without delay or publicity or unreasonable expense, to qualify himself to collect or impound assets properly forming part of the estate under administration. It avoids unseemly conflicts of judicial authority. It provides a central tribunal for the determination of those questions of general policy which must be decided with reference to a great system of railways of a great business undertaking, while leaving to local tribunals full power over questions of a local nature. The courts of the several States and the legal profession throughout the United States are gradually conforming their practice to the standard thus established.
As to the claim that the right of the court appointing the receiver to authorize him to sue in the name of a party is absolute, and does not rest on comity, the court can no more invest the receiver with the name, identity and citizenship of a party for the purpose of suit in a foreign jurisdiction than it can confer on him a defendant's complexion, reputation, chirography or good health. In re Sawyer, 124 U.S. 310.
The theory of the complainant's case seems to be that the transfers of the stock of the defendant and other directors and stockholders, paid for out of the proceeds of the bonds, in view of the allegations of the bill as to the condition of the company and the purposes in view by the defendant and associates, amounted to a breach of duty upon the part of the defendant and other directors, and a conversion to their own use of the property of the company, for which they should be held to account in an action brought by the company through its receiver, under the order of the Circuit Court of Kentucky. The particulars of the suit in which the receiver was appointed are not very fully set forth, but enough appears to show that he was appointed in a suit to adjudicate and enforce liens and subject the property to the payment of the claims of creditors. In the brief of the learned counsel for complainant, it is styled a "general creditors' and foreclosure suit." It does not appear that by order of the court or otherwise there has been any conveyance of the property and assets of the company to the receiver, nor has the corporation been dissolved, and the receiver made its successor, entitled to its property and assets. The minute books of the company in evidence do not show any authority by the corporation for the filing of this bill in the name of the Great Western Mining and Manufacturing Company or otherwise, although meetings were held after the appointment of the receiver. Nor is our attention called to any statute vesting the title of the corporation in the receiver. So far, then, as the receiver is concerned, his right to prosecute the action must depend upon his powers as such officer of the court and the order of the court, set forth in the statement of facts, authorizing him to bring suit against the stockholders and directors for the purpose of realizing the assets, either in his own name or that of the corporation, as may be proper. This condition of the record brings up for consideration at the threshold of this case the question of the extent of the power of the receiver to maintain this action under the order of the court, either in his own name or that of the company. As to the power of the court to authorize the receiver to sue, we think the case is ruled by Booth v. Clark, 17 How. 322, 338, in which case the authority of the court to authorize a receiver appointed in one jurisdiction to sue in a foreign jurisdiction was the subject of very full consideration. In that case it was held that a receiver is an officer of the court which appoints him, and, in the absence of some conveyance or statute vesting the property of the debtor in him, he can not sue in courts of a foreign jurisdiction upon the order of the court which appointed him, to recover the property of the debtor. While that case was decided in 1854, its authority has been frequently recognized in this court, and as late as Hale v. Allinson, 188 U.S. 56, it was said by Mr. Justice Peckham, who delivered the opinion of the court:
"We do not think anything has been said or decided in this court which destroys or limits the controlling authority of that case."
In that case the following language, as to a receiver's powers, from Booth v. Clark, supra, is quoted with approval:
"He has no extraterritorial power of official action; none which the court appointing him can confer, with authority to enable him to go into a foreign jurisdiction to take possession of the debtor's property; none which can give him, upon the principle of comity, a privilege to sue in a foreign court or another jurisdiction, as the judgment creditor himself might have done, where his debtor may be amenable to the tribunal which the creditor may seek."
Mr. Justice Wayne, who delivered the opinion of the court in Booth v. Clark, stated, among others, the following reasons for refusing to recognize the powers of a receiver in foreign jurisdictions:
"We think that a receiver could not be admitted to the comity extended to judgment creditors, without an entire departure from chancery proceedings, as to the manner of his appointment, the securities which are taken from him for the performance of his duties, and the direction which the court has over him in the collection of the estate of the debtor, and the application and distribution of them. If he seeks to be recognized in another jurisdiction, it is to take the fund there out of it, without such court having any control of his subsequent action in respect to it, and without his having even official power to give security to the court, the aid of which he seeks, for his faithful conduct and official accountability. All that could be done upon such an application from a receiver, according to chancery practice, would be to transfer him from the locality of his appointment to that where he asks to be recognized, for the execution of his trust in the last, under the coercive ability of that court; and that it would be difficult to do, where it may be asked to be done, without the court exercising its province to determine whether the suitor, or another person within its jurisdiction, was the proper person to act as receiver."
It will thus be seen that the decision in Booth v. Clark rests upon the principle that the receiver's right to sue in a foreign jurisdiction is not recognized upon principles of comity, and the court of his appointment can clothe him with no power to exercise his official duties beyond its jurisdiction. The ground of this conclusion is that every jurisdiction, in which it is sought by means of a receiver to subject property to the control of the court, has the right and power to determine for itself who the receiver shall be, and to make such distribution of the funds realized within its own jurisdiction as will protect the rights of local parties interested therein, and not permit a foreign court to prejudice the rights of local creditors by removing assets from the local jurisdiction without an order of the court or its approval as to the officer who shall act in the holding and distribution of the property recovered. In Quincy c. Railroad Co. v. Humphreys, 145 U.S. 82, the powers of a receiver were under consideration, and the following language was quoted with approval (p. 98): "The ordinary chancery receiver, such as we have in this case, is clothed with no estate in the property, but is a mere custodian of it for the court; and, by special authority, may become an officer of the court to effect a sale of the property, if that be deemed necessary for the benefit of the parties concerned." There are exceptional cases, such as Relfe v. Rundle, 103 U.S. 222, in which the entire property of the insolvent company was vested in the superintendent of insurance of the State, where his authority did not come from the decree of the court, and his right to sue was maintained. In Hawkins v. Glenn, 131 U.S. 319, it appeared that Glenn had derived title by assignment and deed and he was permitted to sue. In the case now before us it does not appear that the receiver had any other title to the assets and property of the company than that derived from his official relation thereto as receiver under the order of the court. In such a case we think the doctrine of Booth v. Clark is fully applicable. It is doubtless because of the doctrine therein declared that the practice has become general in the courts of the United States, where the property of a corporation is situated in more than one jurisdiction, to appoint ancillary receivers of the property in such separate jurisdictions. It is true that the ancillary receiverships are generally conducted in harmony with the court of original jurisdiction, but such receivers are appointed with a view of vesting control of property rights in the court in whose jurisdiction they are located. If the powers of a chancery receiver in the Federal courts should be extended so as to authorize suits beyond the jurisdiction of the court appointing him, to recover property in foreign jurisdictions, such enlargement of authority should come from legislative and not judicial action.
Nor do we think the jurisdiction is established because the action is authorized to be instituted by the receiver in the name of the corporation. Such actions subjecting local assets to a foreign jurisdiction and to a foreign receivership would come within the reasoning of Booth v. Clark. If a recovery be had, although in the name of the corporation, the property would be turned over to the receiver, to be by him administered under the order of the court appointing him.
It is urged that jurisdiction in this case is sustained by the case of Great Western Tel. Co. v. Purdy, 162 U.S. 329, in which it was held that the assets and affairs of an insolvent corporation being in the hands of a receiver, the court might direct the calls or assessments upon delinquent shareholders who had not paid for their shares, thereby using the authority the directors might have exercised before the appointment of the receiver. In that case, a receiver appointed by the Circuit Court of Cook County, in Illinois, under the direction of that court brought an action in the name of the Great Western Telegraph Company, an Illinois corporation, by its receiver, against Purdy, a citizen of Iowa, to recover a sum alleged to be due from him upon an assessment upon his stock subscription, and it was held that the Illinois court might make the assessment and calls necessary to collect the stock which would be binding in another court. The jurisdiction of the Iowa court was not called in question in the state court of Iowa, where the original action was brought, nor was the question of jurisdiction raised in this court, or passed upon in deciding the case. While not detracting from the authority of that case as to the matter decided, we see nothing in it to indicate that had the question herein presented been made it would have been decided otherwise than herein indicated.
There are numerous and conflicting decisions in the state courts as to the rights of a receiver to sue in a foreign jurisdiction upon principles of comity, which it is not necessary to review here. In this court, since the case of Booth v. Clark, supra, we deem the practice to be settled, and to limit a receiver, who derives his authority from his appointment as such, to actions, either in his own name, or that of an insolvent corporation, to such as may be authorized within the jurisdiction wherein he was appointed.
We think the Circuit Court of Appeals was right in holding that the Circuit Court had no jurisdiction of this action.
This view of the case renders it unnecessary to consider the other questions made in the record.
MR. JUSTICE BREWER concurs in the decree.