Petition for A Writ of Certiorari — Burnrite Coal Briquette Co. v. Riggs

IN THE

Supreme Court of the United States:

OCTOBER TERM, 1925. No. eem227

BURNRITE COAL BRIQUETTE COMPANY,

Petitioner,

v.

EDWARD G. RIGGS anp ALFRED L. KIRBY anv JOHN P.

DUFFY, as RECEIVERS OF THE BURNRITE COAL BRIQUETTE

ComPANY, Respondents.

PETITION FOR WRIT OF CERTIORARI TO THE UNITED STATES

CIRCUIT COURT OF APPEALS FOR THE THIRD CIRCUIT

AND

, ‘The Evening Post Job Printing Office, Inc., 154 Fulton 8t., New York, N. ¥.

IN THE

Supreme Court of the United States,

OCTOBER TERM, 1925.

No.

SURNRITE COAL BRIQUETTEH COMPANY,

a corporation,

Petitioner,

vs.

> Petition for Certiorari,

Epwarp G. Riccs and ALFRED L. Kirpy

and JouN P. Durry, as receivers of

Burnrite Coal Briquette Company,

Respondents.

To THE HONORABLE THE SUPREME Courr OF THE UNITED

STATES:

The petition of Burnrire CoaL BRIQueTTE COMPANY, a

corporation, respectfully shows:

1. On May 11, 1922, Edward 8. Riggs, a citizen and resi-

dent of the State of New York, filed in the District Court of

the United States for the District of New Jersey his bill of

complaint, verified by affidavit, against the petitioner, Burn-

rite Coal Briquette Company, a corporation of the State of

Delaware (K., 7). On filing that bill and affidavits, the Court

ex parte appointed Alfred L. Wirby and John P. Duffy tem-

porary receivers of the petitioner, authorizing them to con-

duct the business theretofore conducted by your petitioner,

and authorizing them to borrow not more than Twenty-five

Thousand Dollars ($25,000.00) on receivers’ certificates, and

requiring your petitioner to show canse why the appointment

of receivers should not be continued during the pendency of

the suit «8. 191. On May 18, 1922, your petitioner pre

sented it« duly verified petition, praying that an order be

made directing the receivers to desist and refrain from admit

ting any person into your petitioner's factory to examine its

hooks, processes or machinery, and to desist and refrain from

removing: or repairing the property of your petitioner, or

incurring any didebtediess or charge against that property,

or from disclosing any information xecured by them as

receivers, and praying Ghat the receivers and the complainant

show cate Why the receivers should not be discharged «R,,

os). Om this petition, an erder to show cause wir made

with an ad interim restraint CR, 40), Voluminous atidavits

were fileal on both sides, wand beth foregoing orders to shew

cause were duly continued until June 3, 1922, on which date

there wis fled your petitioner's answer, W hich, among other

things, dienied the jurisdiction ef the Court CR. G9), After

argument, the District Court of the United States for the Dis

trict of New Jersey, filed an opinion (R249), pursuant fe :

which, om July 12, 122, it made a decree continuing the

receivers aud the injunctive relief previonsly granted im the

cr parte ender of Mav 11, 1922, until final hearing. and added

an injunet ieee against your petitioner, its officers and agents

from exercising any of its franchises er privileges (RL, 20

No appeal Efrem this order was taken. Your petitione.

through its officers and divectors, so far disregarded th

assumed jurisdiction of the District Court of the United

States for the Distriet of New Jersey, by facilitating a

al judicat bee in bankruptey pursuant te a petition filed

against your petitioner in the Disxtriet Court of the United

States for the Distriet of Delaware, that on October 26, 1922,

a petition wis filed by the receivers praying that the officers

and directors be adjudged in contempt of the District Court

of the United States for the Distriet of New Jersey (RL, 2):

Upon the hearing on the contempt proceedings, the officers

and directors urged in the defense of their actions want of

ease rae: \. _

3

jurisdiction in the Court te make the orders, for the violation

of which they were sought to be held in contempt, The time

to appeal from the order of Nuly 1%, 1922, having expired,

the cause was, on November 7, 1922, placed on the calendar

for final hearing, On December 1, 1922, notice of a motion

to vacate the orders of May Pith and Jaty Path, 122, was

filed, Your petitioner consenting that final hearing be bad

on the affidavits previously filed on both sides, tinal hearing

vod the hearing on the lost mentioned motion wis had, upon

which the Court, on December 22, TH22, made Tis tinal deeree,

continuing the receivers With all powers theretofore granted,

and with all powers conferred upon reecivers by an Net of

the Legisletire of the Stute of New Jersey, entitled “An

Act Concerning Corporation (Revision of T8906)", continued

all the injunctive relief previously granted; adjudged that

the business of vour petitioner had been grossly mismanaged

and had been and was being conducted at a great loss, but

adjudged that your petitioner was net inselvent (RR. 254).

From this final decree, an appeal was promptly taken to the

Cirenit Court ef Appeals fer the Third Circuit, and the

assignments of errer thereunder attacked the Court's taking

jurisdiction of the suit and making the orders of May 11th

and Jaly 13th. 1922. as well as the final decree directly

appealed from «R. 256). The Cirenit Court of Appeals,

after argument. file! its opinion +R., 263) sustaining your

petitioner's contention and on August 11, 1923, sent to the

District Court itx mandate which provided:

“that the decree of the said District Court in this cause

be, and the same is hereby reversed with costs, and the

‘ause remanded te the said District Court with instruc-

tions to dismiss the bill on the ground that the company

in question being a solvent foreign corporation, the

Court had no jurisdiction to appoint receivers.”

On the coming down of that mandate, the petitioner

moved the Distreit Court to comply with the terms thereof

and to dismiss the bill, order the receivers to turn over the

property forthwith and to account with all convenient speed,

eT

Sawer errr" ~~

4

This the Court refused to do, bat on January 24th, 1924,

made an order (LL, 279) which provided, as follows:

“and this Court being of opinion that the receiver

should account before the bill he dismissed,

It is, therenpon, on this 21 day of Junmary, 1924,

one that Alfred L. Kirby and John V Dutly de

account to this Court, as receivers of the defendant above

that all further equity abide the order of this Court apoy

the hearing on the said account and exeeptions thereto” —

The Reeevivers Hed an account (R280) which was in sah

wn unintelligible form that vour petitioner filed exceptions

thereto CR 300), On Pebruary List, 1924, after thee

exceptions had been filed, the Court made an order referring

it te a Master te take and state the account of the receivers

and reserving all further equity until the hearing on th

account and the exceptions thereto (RR. 304). Hearings

were had before the Special Master, and in July, 1924, k

filed his report stating the receivers’ account and, unwar

rentedly, vour petitioner contends, passing on the exceptions

taken to the account ax filed originally by the receivers

(KR. 423). Exceptions were filed by your petitioner to th

Master's report (RL. 551). The exceptions to the receivers

account as originally filed, the exceptions to the Master's

report. and the equity reserved in the order of January 24

1924, were all brought on before the District Court of the

United States for the District of New Jersey, and that Court, —

on December 19, 1924, made a decree (R., 565), by whieh

decree the District Court of the United States for the Dis

trict of New Jersey, ordered, adjudged and decreed,

follows:

“that the account of the receivers and the report of the

special master herein be and the same is hereby ratified

and confirmed, and the items contained in said account

and report as disbursements are hereby approved as

proper disbursements and as charges against the prop

< 4 ee wan re oe

oe =

5

erty in the hands of the receivers, and that the indebted-

ness of the receivers, ax stated in said report and account,

not paid, be and the same is hereby adjudged to be a

proper lien and charge upon the property now in the

control of the receivers belonging to the defendant cor

poration, and that the allowances herein made for fees

of the special master and the receivers and counsel be

and the sume are hereby adjudged to be proper liens and

charges upon the property in the control of the receivers

belonging to the defendant corporation,”

The decree went on to make allowances to the reecivers

and their counsel, direeted your petitioner to pay to the

receivers the amount of their indebtedness ax disclosed by

their account and report, together with the allowances,

within five days, and. apen suc payments being made, direct-

ing the receivers to release vour petitioner's assets to it and

that the bill be dismissed, but providing that in default of

such payment that the preperty of your petitioner in the

possession ef the receivers be sold. Frem this decree, as

modified by an erder made January 5, 1924 (RR. 567), your

petitioner appealed again to the Circuit Court of Appeals

for the Third Circuit, assigning for error among other things,

the District Court's failure in its order of January 24, 19724.

to order the receivers forthwith to turn over your petitioner's

property to your petitioner, and in permitting the receivers

to hold possession of your petitioner's property peading their

accounting, and alxe the Distriet Courts decreeing, in the

decree directly appealed from, that the disbursements of

the receivers, their indebtedness, and the allowances, were a

proper charge or lien upon the property of your petitioner

in the receivers’ hands, and ordering a sale of that property

to raise the indebtedness and allowances (RL, 569). After

argument, the Civenit Court of Appeals for the Third Cireuit

filed a short opinion of affirmance (R., 579), and, on June

27, 1925, made its decree affirming, with costs, the decree of

the District Court appealed from, namely, that of December

19, 1924 (R., S82). The mandate went down on July 27,

1925.

—_—-- png te

2. Your petitioner is advised that the Circuit Court of

Appeals for the Third Circuit was in error in affirming the

decree of the District Court of the United States for the

District of New Jersey last appealed from, but, for the rea.

sons hereinafter stated, should have reversed the same, and

your petitioner is further advised, for the reasons herein.

after stated, that this cause is one in which it is proper for

this Court to issue a writ of certiorari,

3. On the first appeal, the Circuit Court of Appeals for

the Third Circuit held that the District Court of the United

States for the District of New Jersey had no jurisdiction to

appoint the receivers, and directed the District Court to dis.

miss the bill on the ground that your petitioner, being a sol-

vent foreign corporation, the District Court had no jurisdic.

tion to appoint receivers, Notwithstanding this adjudica-

tion, the Cireuit Court of Appeals, by its second decree, which

is now sought to be reviewed by this Court, sanctioned the

District Court in making the indebtedness of the receivers

and allowances to them and their counsel, charges upon your

petitioner's property, which the Cireuit Court of Appeals

had previously adjudged had been seized without jurisdic:

tion. The Circuit Court of Appeals attempts to justify this

decision on the ground that your petitioner acquiesced in the

District Court’s jurisdiction to make the appointment of

receivers by the interlocutory orders prior to the final decree

directly appealed from, The facts are not at all in dispute.

The record is clear as to what your petitioner did and did

not do. A brief resumé of that follows:

First: The bill on its face showed that the District Court

of the United States for the District of New Jersey was

without jurisdiction because neither the plaintiff nor the

defendant was a resident of that district. Pursuant to the

cr parte order made on this void bill, the receivers were

appointed and took possession of all of your petitioner's

property which they still hold.

7

Seconp: Your petitioner opposed the bill vigorously on

the facts, denying the insolvency alleged in the bill as the

ground for the appointment of receivers, and, therefore,

urging that the District Court should not appoint receivers.

Your petitioner’s then counsel did not specifically say that

the fact that vour petitioner was solvent deprived the Court

of jurisdiction to appoint receivers, but such counsel then

urged want of jurisdiction in the Court on other grounds.

Trp: After argument, the District Court agreed with

your petitioner that your petitioner was not then insolvent,

put, nevertheless, ruled that the lack of insolvency was no

bar to the appointment of receivers, overruled your peti-

tioner’s jurisdictional contention and made an order con-

tinuing the receivers until final hearing.

Fovrri: This order made in midsummer was not itself

appealed from, but your petitioner, through its Board of

Directors, passed a resolution to facilitate an adjudication

of your petitioner's bankruptey by the Court of its domicile

(Delaware), the necessary result) of which adjudication

would be the removal of vour petitioner's property from the

hands of the receivers. The passing of this resolution was,

undoubtedly, a violation of the terms of the injunctive pro-

visions of the order not so appealed from, and your peti-

tioner’'s directors opposed the contempt procedings imme-

diately brought against them, by urging that the District

Court was without jurisdiction because your petitioner was

solvent and a corporation foreign to the jurisdiction in which

the District Court sat. The time to appeal from the afore-

said interlocutory order having expired, your petitioner

facilitated an early final hearing, at which the District Court

made a decree making permanent the appointment of the

receivers, This final decree was promptly appealed from,

and was reversed with directions to dismiss the bill, on the

ground that the Distriet Court had no jurisdiction to appoint

receivers. After this decision, the District Court and the

8

Cirenit Court of Appeals both have ordered the tangible

property, real and personal, of your petitioner, still in’ the

receivers’ hands, to be sold to meet the indebtedness of the

receivership and allowances to receivers and counsel, with

out discrimination as to whether such indebtedness was

incurred before or after the appeal,

The error of the District Court and the Circuit Court

of Appeals is three-fold :

(a) The so-called acquiescence was an immaterial fact,

and the property of vour petitioner, having been seized with

out jurisdiction, must be returned. Tt cannot be sold to pay

expenses of the void receivership.

(b) When the record shows, and the Court finds that

the defendant corporation vigorously opposed the appoint

ment of receivers uninterruptedly from first to last, the Court

‘annot examine into the details of such opposition, and, on

any technical ground or reason not negativing the fact of

continued oppesition to the receivership, tind such acquies:

cence by the corporation as would charge it with the expense

of the receivership.

(©) When the Court, on examining into the details of

such opposition, purports to find acquiescence only for a

short time and in interlocutory orders, the Court cannot, on

this account, charge the corporation with the indebtedness of

the receivership incurred after: such acquiescence had ad:

mittedly ceased, and after the interlocutory orders had been

superseded by a final decree which admittedly was never

acquiesced in,

i. This decision of the Cirenit Court of Appeals is in

contlict with the decisions of other Circuit Courts of Appeals

on the same subject.

Couper vs. Shirley, TS Ped. 168 CCL CL A. 9, L896);

Beech Vs. Macon, &e., Co., 125 Ped. 518 (CL. CL A,

Dd, 1903) 5

9

Chicago, &e., Co. Vs. Newman, 183 Fed. 573 (C.

A., 7, 1911);

Hawes Vs. First’ National Bank of Madison, 229

Ped. 51 0. CL AL 8, 1915);

Frier vs, Weakley, 261 Fed. 509 (GC, CL AL 8, 1919) ;

Bricison Mfg. Co. vs. Woodrough, 284 Fed, 484 (€.

C. A., 8, 1922).

It is also probably in conflict with the decision of this

Court in the case of Lion Bonding Co. vs. Karate, 262 UL 8.

40, The Cireuit: Court of Appeals, by the decree com-

plained of, decides an important question of general law in

away probably untenable and in contliet with the weight of

authority. That the question of how far the property of a

corporation, seized by ao receiver, shall be responsible for

the expenses of a receivership, is an important question of

general law is obvious. This Court has in the past so held,

by issuing its certiorari to Circuit Courts of Appeals to bring

up such questions,

See

Atlantic Trust Co. vs. Chapman, 208 UL 8. 360;

Palmer vs. Teras, 212 US. 118:

Lion Bouding Co. vs, Naraty, 260 U.S. 640.

To show that the decision of the Cireuit Court of Appeals

is untenable and in contliet with the Weight of authority,

your petitioner refers to the brief hereunto annexed. For

the same reason the Cirenit Court of Appeals, by affirming

the decision of the Distriet Court complained of, has so far

sanctioned such a departure by the District Court from the

accepted and usual course of judicial proceeding as to eall

for an exercise of this Court's power of supervision,

® Your petitioner presents herewith, as part of this peti-

tion, a brief and a transcript of the record in the Circuit

Court of Appeals,

10

Your PETITIONER RESVECTFULLY PRAYS that a writ of certi:

orari issue out of and under the seal of this Court directed

to the Cireuit Court of Appeals for the Third Cireuit, con.

manding the said Court to certify and send to this Court on

a day certain to be therein designated, a full and complete

transcript of the record and all proceedings of the said Cir

t cuit Court of Appeals in this case, which was entitled in thar

; Court, to the end that the said cause will be reviewed and

determined by this Court, as provided by law, and that vour

petitioner may have such other and further relief or remedy

in the premises as to this Court may seem appropriate and

that the said judgment of the said Circuit Court of Appeals

may be reversed by this Honorable Court. ;

—

BURNRITE COAL BRIQUETTE COMPANY

By Ronerr TH. MeCarrer, and

G. W. CL McCARTER

Solicitors and Counsel.

11

) IN THE

SUPREME COURT OF THE UNITED STATES

——_—__—- —_— _— —s

' Bernxrivp Coal BRiquETrTh COMPANY,

a corporation,

Petitioner,

- On Petition for

Epwarp G@, Rigcs and ALFRED L. Kirpy Certiorari.

and JouNn P. DUFFY, as receivers of

Burnrite Coal Briquette Company,

Respondents.

BRIEF IN SUPPORT OF PETITION.

o

&

Re

12

A.

SUBJECT INDEX.

pA. RR a ene nee 1

IIINOS - CE Rag oc ks chk oe ced bees oeuess lj

Assignments of Error Relied on................... li

pUamencnaeet OF CREE OBIE oss Chas de awaeeeavcers 3

SE UE IN uae he ade os ak oe se Cob I !

TABLE OF CASES AND STATUTES

Page of Brie

Title of Case Cited

Atlantic Trust Co. vs. Chapman, 208 U.S. 360. ..9, 13, 27,28

Beech cs. Macon, &e., Co., 125 Fed. 518.............. 82

Brictson Mfg. Co. rs. Woodrough, 284 Fed, 484...... 9,3

Central Trust Co. rs. Seasongood, 130 U.S. 482...... 31

Chicago, &e., Co. rs. Newman, IST Ped. 573 0 2... 9,2

Cine&:- vs, Brown, 110 Fed: 800. 0. vcsseciiccssccuass a

Couper ve. Dikiriey, 15 Fed, 166. 0... 56escccacsnase 8,2

Fryer cs. Weakley, 261 Fed. 500. ........cccceecces 9, 4

Greenbaum vs. Lafayette, &e., Co. 128 Ath 168.2... 3b

ITawes rs. First National Bank, 229 Ped. 51........ 9, 24,27

Henning rs. Eldredge, 148 TIL 805..............05. 36

Hernandez vs. Brookdale Mills, 134 N. BE. 568....... 33

Jn re Hurlburt Motors, Inc., 275 Fed. 62............ %

Knickerbocker Trust Co. vrs. Oneonta, 94 N. E. S71.. 30

Lion Bonding Co, rs. Karatz, 262 UL S. 640..... 9, 13, 18,27

Mendenhall rs. Hall, 134 U.S. 559.2... ee eee 31

Palmer ve. Texas, 212 U. B. 118... 0.50 ccees 9, 13, 19, 28, 29

Siiva vs. Piobard, 47 Pac. 244. 26 cc cvcceecess vewnas 36

Thompson rs. Maxwell Land Co,, 168 U.S. 451...... 36

Wakelee vs. Davia, 44 Fed. 632. ...... ccc ccc veccces 36

Judicial Code § 240 as amended by § 1 of 43 St. L. 936 13

Judicial Code § 813.........cccceves ptahawncnerer

13

The opinion of the Circuit Court of Appeals on the first,

appeal is reported at 291 Ped. 754. The opinions of the Dis-

triet Court and of the Circuit Court of Appeals on the second

appeal, namely, the opinion sought to be reviewed have not

heen reported,

C.

1. The judgment to be reviewed was entered June 27,

1925 (R., 582).

2. The making of the said decree of June 27, 1925 (R.,

582) is relied on as the basis of this Court's jurisdiction.

The statutory provision under which such jurisdiction

is invoked is subdivision a, Section 240 of the Judicial Code,

as amended by Section tof an Act of Congress entitled “An

Act to amend the Judicial Code and to further define the

jurisdiction of the Cireuit Courts of Appeals and of the

Supreme Court and for other purposes”, approved F ebruary

138, 1925, 43 Statutes at Large, 936, 938, which reads:

“(a) In any case, civil or criminal, in a circuit court

of appeals or in the Court of Appeals of the District of

Columbia, it shall be competent for the Supreme Court

of the United States, upon the petition of any party

thereto, whether Government or other litigant, to re-

quire by certiorari, either before or after a judgment or

decree by such lower court, that the cause be certitied

to the Supreme Court for determination by it with the

same power and authority, and with like effeet, as if the

‘ause had been brought there by unrestricted writ of

error or appeal.”

1. We know of no reported cases under the Act of Feb-

ruary 13, 1925, but, among the many cases under pre-existing

law, refer to Atlantic ages Co. vs. Chapman, 208 U.S. 360;

Palmer vs. Teras, 212 U. 8. 118, and Lion Bonding Co. ys.

Karatz, 262 U.S. 640.

2, Serre Lee ae SR ree er tee

sigs

a

SANA Reece

Pte TRS

4

3

14

D.

For a concise statement of the case, we refer to para.

graph 1 of the petition for certiorari, hereunto annexed.

The assignments of error relied on for this application

are:

1. The Court erred in its order made and entered the

twenty-fourth day of January, 1924, in not ordering the

receivers of the defendant forthwith to turn over the defend.

ant’s property to defendant, and in permitting the receivers

to hold possession of the defendant's property pending their

accounting.

29. The Court erred in decreeing, in and by its decree

made and entered on December 19, 1924, as follows:

“That the indebtedness of the receivers as stated in said

report and account, not paid, be and the same is hereby

adjudged to be a proper lien and charge upon the prop:

erty now in the control of the receivers belonging to the

defendant corporation.”

30. The Court erred in decreeing, in and by its decree

made and entered on December 19, 1924, as follows:

“That the allowances herein made for fees of the Special

Master and the receivers and counsel be and the same

are hereby adjudged to be proper liens and charges upon

the property in the control of the receivers, belonging

to the defendant corporation.”

31. The Court erred in decreeing, in and by its decree

made and entered on December 19, 1924, as follows:

“That the said defendant corporation do pay to the said

receivers the amount of the indebtedness of the said re

ceivers as disclosed by their account and report together

with the amount allowed to counsel for their compensa:

tion and to the special master for his services,”

r

15

2” The Court erred in decreeing in and by its decree

made and entered on December 19, 1924, as follows:

“That if said payments be not made within the time

aforesaid then that the property of the defendant cor-

poration within the control of the receivers be sold at

such time and under such conditions as this court may

by subsequent order herein direct, upon application to

be made to this court by either party upon five days’

notice to the solicitor of the other, to raise and pay said

moneys aforesaid to the receivers, and upon such money

being raised and paid what shall remain of the assets of

the said corporation shall be paid or delivered to the said

defendant corporation less the expenses of sale, and

whatever turue allowances may be made by this court

to the receivers and counsel and whatever indebtedness

the receivers may be obliged to incur approved by the

court, and that upon the consummation of said sale and

the raising and payment of said moneys aforesaid and

the payment of whatever balance there may be to the

corporation that the bill be dismissed.”

The “Court” referred to in the assignments of error is,

of course, the District Court. Additional assignments of

error will be relied on at final hearing should the Court

decide to issue its certiorari.

16

F.

ARGUMENT.

SUMMARY.

L.

The Court having no jurisdiction to appoint receivers had

no jurisdiction to make the indebtedness of and allowances to

the receivers and their counsel charges upon the petitioner's

property seized without jurisdiction.

Se REE ae Se

‘ ~ pA TRE SET SAE ns SR Ge.

oe

-

a When the record shows and the Court finds that the

cs defendant corporation, the petitioner, vigorously opposed the

‘ appointment of receivers uninterruptedly from first to last, the

if Court cannot examine into the details of such opposition, and,

3 on any technical grounds or reason not negativing the fact of

id continued opposition to the receivership, find such acquiescence

# by the corporation as would charge it with the expenses of the

& receivership.

i 1. The facts.

\ Pre

oe oe

2. The authorities.

3. Authorities relied on by the respondents.

4. The failure to appeal from the order of July 13th, 1922.

5. The alleged delay in intimating lack of jurisdiction.

III.

Acquiescence cannot possibly justify indebtedness incurred

after the acquiescence ceased.

IV.

Refutation of certain arguments that may be advanced by

the respondents.

17

I.

The Court having no jurisdiction to appoint

receivers had no jurisdiction to make the indebt-

edness of and allowances to the receivers and

their coumsel charges upon the petitioner's

property seized without jurisdiction.

The situation cannet be better stated than it was in the

opinion of the Cirenit Court of Appeals on the first appeal

(R.. 268) -

“The appeintment of receivers for a corperation is

a matter of grave concern, because it takes its property,

and the management thereof, out of the hands of those

in whom the law vested it. It follows, therefore, that

when a court exercises this power, its warrant se te

do must be shown. Such action, over the protest and

objection of the company, the District Court of New

Jersey took in the appointment of receivers for the

Burnrite Coal Briquette Company, # corporation of the

State of Delaware, which Company that Court at the

sume time found was not insolvent. Such bewng the case,

the basic and controlling question here involved is: Did

the District Court of the United States for the District

of New Jersey have jurisdiction to appoint receivers for

a solvent foreign corporation? In our opinion, it had

not, and the reason for so holding is that the law of

New Jersey, as interpreted by its highest tribunal, has

given no such power over foreign corporations to its own

local courts, and the jurisdiction of the Court below

was in that particular determined by that of the State

courts.”

After discussing the New Jersey cases, the Circuit Court

of Appeals in their opinion concinded (R., 266):

“It thus appearing that under the decisions of the

highest tribunal of New Jersey, courts of that State had

no statutory authority to appoint receivers for a solvent

ar ke i ee ee ee -

+

18

foreign corporation, it follows the United States District

‘ourt of New Jersey had no such authority and should

have refused to entertain this bill.

This basic jurisdictional question being determinative

of the case, it follows that the terms of the order, whic

the Court made in a case when the Court had no power

te make any order at all, constitute matters to which we

need not advert. The case will, therefore, be remanded

to the Court below, with instructions to dismiss the Mi

on the ground that the company ip question being 2

solvent foreign corporation, the Court below had no

jarisdiction to appoint receivers.”

Pursuant te this opinion, there was made by that Court

the decree of August 11, 1923 ( R_. 267).

The case, therefore, is one in which the District Court

had no power to make any order at all. It is in principle,

therefore, covered by the decision of this Court in Lion Bond.

ing Company vs. Karatz, 262 U.S. 640. In that ease, the

District Court appointed a receiver and its action was

affirmed by the Circuit Court of Appeals. On Certiorari,

however, the Supreme Court held that the District was witb-

out jurisdiction, ordered a reversal and directed that the bill

be dismissed (262 U. 8. 77). Before the mandate issued, the

receivers applied for modification of the decrees of the

Supreme Court. They asked for approval of disbursements

or expenses of the reecivership, paid by them out of moneys

realized from the assets of the corporation. They asked that

they and their counsel be paid and that the creditors who filed

their claims only in the Federal Court be protected by the

order of the Supreme Court on the receiver in the State

Court to take proceedings to protect such creditors. In

denying the motion Brandeis, J., for the Court said-

ae

“This Court is without power to grant any part of

the relief sought. The District Court was without juris

diction as a federal court to appoint receivers in, or

otherwise to entertain, the Karatz suit. For this reason,

among others, the Hertz suit, a dependent bill, was dis

missed. As the lower federal courts lacked jurisdiction,

19

they are necesarily without power to make any charge

upon, or disposition of, the assets within their respective

districts. Even where the court which appoints a

receiver had jurisdiction at the time, but loses it, as

upon supervening bankruptcy, the first court cannot

thereafter make an allowance for his expenses and com-

pensation. He must apply to the bankruptcy court.

Where a case is dismix=«] for want of jurisdiction as a

federal court. there ix not even power to award costs

against the defeated party. The case at bar is unlike

Palmer ¥. Teras, 212 U.S. 118, 132, upon which the

receivers rely. In that case the costs and expenses of a

receiver erroneously appointed by the federal court were

directed to be paid out of funds realized in that court.

There the Cireuit Court had jurisdiction as a federal

court: but the decree appointing the receiver was

reversed, because it was erroneous.

Obviously, the Court has no power to direct the

Department of Trade and Commerce of Nebraska to

apply to the state court for the order allowing creditors

to prove their claims in that court. Our jurisdiction is

limited in this proceeding to the correction of the errors

committed by the lower federal courts in taking jurisdic-

tion and in granting relief. The only course open to

the creditors, as to the receivers and their counsel, is

to apply to the state court.”

In the case at bar, at the time of the original appointment,

the District Court for New Jersey had no jurisdiction as a

federal court, hy reason of the non-residence of both parties.

That particular jurisdictional defect was cured, but the lack

of power to seize the property of the petitioner remained

throughout. Jurisdiction is power and power is jurisdiction.

Parties cannot confer power on the federal courts where it

does not exist. The question of acquiescence, therefore. is

wholly immaterial.

20

II.

When the record shows and the court finds

that the defendant corporation, the petitioner,

vigorously opposed the appointment of receivers

uninterruptedly from first to last, the court

cannot examine into the details of such opposi-

tion, and, on any technical ground or reason not

negativing the fact of continued opposition to

the receivership, find such acquiescence by the

corporation as would charge it with the ex-

penses of the receivership.

1.

The Facts.

The jurisdiction of the District Court, as a federal court,

depended solely upon diversity of citizenship. The bill of

complaint, on its face, showed that the plaintiff, Riggs, was

a citizen and resident of New York, and (he defendant a cor

poration, and, therefore, a citizen of Delaware (RL, 7). On

this bill of complaint, which, under Section S13 of the Judicial

Code, showed that the Court was without jurisdiction, the

Court, er parte, made its order of May 11, 1922 (R., 19),

appointed receivers, directed them to conduct the petitioner's

business, and authorized them to issue receivers certificates,

Unfortunately, the petitioner, instead of appearing specially,

presented its petition (R., 23), praying for the discharge of

the receivers, and, on this petition, obtained a temporary lim-

itation of their activities. The bill of complaint charged that

the petitioner was insolvent. The voluminous affidavits on

both sides were directed largely to this question, and the

answer filed for the petitioner (R., 69) challenged the juris-

diction of the Court. After argumeit, the District Court

made its order of July 18, 1922 (R., 252). This action was

21

excellently summarized by the Circuit Court of Appeals in

its first opinion (R., 263) as follows:

“Such action, over the protest and objection of the com-

pany, the District Court of New Jersey took in the ap-

pointment of receivers for the Burnrite Coal Briquette

Company, a corporation of the State of Delaware, which

Company that Court at the same time found was not

insolvent.”

Hitherto, there was certainly no acquiescence, The order

of July 18th, although appealable, was not appealed from,

put the directors of the petitioner so far disregarded it that

they were cited for contempt. After the time to appeal had

expired, the petitioner facilitated an early final hearing, at

which it moved to discharge the orders of May 11th and July

13th, 1922. On the final hearing, the Court made its final

deeree (R.. 254) which was promptly appealed from, under

assignments of error challenging all of the action of the

Court from beginning to end (R., 256). It was this decree

that the Cirenit Court of Appeals reversed. After the decree

of dismissal and with the mandate directing the District

Court to dismiss the bill for want of jurisdiction, that Court,

nevertheless, permitted its receivers to hold on to the peti-

tioner’s property (which they still hold) and made the indebt-

edness of the receivership and allowances to the receivers

and counsel a charge on that property, which it ordered sold

to make the same. The Distriet Court, in so doing, acted

directly in the teeth of numerous decisions in the Federal

Courts.

y &

The Authorities.

Couper Vs. Shirley, 7 Fed. 168 (C. C. A. 9, 1896). Tn

this case, the Circuit Court had er parte appointed a receiver

in foreclosure, relying upon a stipulation in this mortgage

authorizing such appointment, Such appointment, however,

was directly prohibited by a statute in Oregon, where the

Sie site oo

22

land lay, so that, upon this being ‘alled to the court's atten-

tion, the appointment was held to be contrary to public

policy, and the receiver was discharged, and ordered to pay

over to the defendant all the defendant's money and property

in his hands, without deduction for allowances to the receiver

or counsel. The receiver appealed from this erder, which was

aflirmed, the court saying at page 171:

“Appellant claims that it was inequitable for the court,

after appointing Couper receiver, to dismiss him without

making some provision to pay him for his services and

for the expenses by him incurred, The answer is that

the court had no authority to make the appointment. It

was made er parte, without discussion, When the ques-

tion properly came before the court, the receiver was

removed, It may be that some provision ought to have

been made for his pay, but it is clear to our minds that,

upon the facts presented in this case, the party who

improperly procured the appointment of the receiver

should have been required—if the receiver wis entitled

to anything—to pay his expenses and services, Certain

it is that the appellees, not being responsible for his ap

pointment, could not be held liable; and, as against them,

appellant is not entitled to any relief, The judgment of

the circuit court is affirmed, with costs.”

Reech vs. Macon, ete., Co, 125 Fed. 5138 (Cot AGS

1908). A) petition in’ involuntary bankruptey was filed

against Beech, The petitioning creditors procured er parte

the appointment of a receiver, who took possession of live

stock. some of which was in the possession of I, who claimed

te own it. The court made an order for the sale of the live

stock, at which sale D bought in the stock, which she claimed

to own, and obtained possession of it. This sale was con

firmed by the District Court. On petitions by B and D to

superintend and revise the orders appointing the receiver,

and confirming the sale, the Cirenit Court of Appeals ordered

the money returned to D, and that the petitioning creditors

pay all costs, including the compensation of the receiver. A

mandate to this effect went down. On receipt of that man-

date, the District Court directed the petitioning creditors

23

should pay to B and D the amounts theretofore allowed and

paid out by the receiver out of the funds in his hands, the

cost of the receivership, including the receiver's compensat ion,

and his expenses, but permitted the receiver to deduct from

the fund in his hands the expenses of the receivership in the

necessary preservation and keeping of the estate, adjudging

that to be a proper charge against the fund. This was the

cost of keeping the live stock. Band D then filed a petition

with the Circuit Court of Appeals to revise the order of the

District Court entered on the mandate. The Circuit Court of

Appeals held that the District Court should not have de-

ducted the cost of keeping the live stock, saying on page 515:

“It is a principle of general application that, if the

appointment of a receiver is erroneous or void, and

the adverse party does not acquiesce in it, but con-

tinnes to contest it to a successful termination, any

compensation whieh may have accrued to the receiver in

the meantime, and his expenses incurred in the adminis-

tration of the estate, should be taxed to the parties who

applied to have the appointment made.”

and at page O17:

“If it should be held that, although the defendant: sue-

ceeded in having reversed and set aside the order appoint-

ing the receiver, he was responsible for the expenses of

the receiver in buying feed for the stock, the application

of such sale, it seems to us, would lead in many cases to

the greatest injustice. If the litigation was protracted,

and some considerable time elapsed before the order ap-

pointing the receiver was vacated the expenses would

often more than equal the value of the property,

* x * * * *

The property having been taken from = the defendants

against their consent under an erroneous order, which

they resisted successfully in an appellate court, the only

proper course is to return the property without charge

of any kind against it or against the successful defend-

ants. The defendants should be put in their former con-

dition as nearly as possible. Instead of any sum being

taxed against the defendants under such circumstances,

they would be entitled in some jurisdictions to recover

24

damages, in a proper action, for being deprived of the

use of the property. The petitioners who instituted the

proceedings and secured the appointment of a receiver

are properly and equitably chargeable with the costs

expenses incurred by their wrongful application. In

the event of their insolvency, any expenses incurred by

the receiver should fall on him, and not on the defend,

ants. He need not become receiver unless he chooses, or

he may require a bond of indemnity before accepting the

position. In a case, therefore, where the receiver has

been wrongfully appointed, and the order subsequently

vacated, it would be more equitable that (he receiver hin-

self should sustain the loss or expenses of the receiyer-

ship paid by him than that they should be taxed: to

the successful defendants.

Chicago, ete., Co. vs. Newman, 187 Fed. 873: (C. ©. A,

7.1911). This case was commenced in the siate court where

a receiver was appointed, and then was removed to the fed-

eral court, which dismissed the bill on the ground that the

court would not interfere with the internal affairs of a foreign

corporation, and ordered the receiver to turn baek all prop

erty, and to present his account within three days, The re

ceiver sought to obtain compensation for himself snd attor

ney. The court held that the receiver must pay over ail to

the defendant, and look to the complainant for reimburse

ments. The receiver appealed, and the Circuit: Court of

Appeals affirmed the Cirenit Court.

Fryer vs. Weakley, 61 Fed. 509 (C. C. A. 8, 1919). The

court’s decision on our point appears from the following

quotation of the opinion on page 514:

“The conclusion is that this case falls clearly without

the jurisdiction of this court, under the opinion of

Judge Carland in Hawes v. First National Bank,

29g Ped, 51, 143 C. C. A. 645. The order of the court

below appointing the receiver must therefore be reversed,

and the case must be remanded to the District Court, with

directions to cause all the moneys and property and all

the proceeds of the property seized or collected by the

receiver to be paid over and delivered to the defendants

25

W. S. Fryer and G. L. Fryer, and to tax the costs and

expenses of the receiver against the plaintiff below. The

court, being without jurisdiction, has no property to

pay them, As was well said by Judge Carland in the

Hawes Case: ‘Where a receivership is procured illegally,

the costs of the receivership may be taxed against the

complainant procuring the appointment, * * * Courts

may not seize property without jurisdiction, and then

claim jurisdiction over the property because it is in the

possession of the court.”

Brictson Mfg. Co. vs. Woodrough, District Judge, 284

Ped, 484 (C. CG. AL 8, 1922). This was a petition by the

defendant for a mandamus to the District Judge to comply

with the mandate of the Cireuit Court of Appeals. The

decision appears from the following quotation from the head-

note:

“Where appointment of receiver in stockholders’ suit

was reversed for lack of jurisdiction of the trial court

and case remanded with directions that the receiver be

required to return all property in his hands to those

from whom he received it and that the bill of complaint

be dismissed, it was error for the trial court to dismiss

the complaint but to order that property in the receiver's

hands be impounded in his hands pending further pro-

ceedings on an intervention petition; for, where pos-

session of property is acquired, without jurisdiction,

such possession will not itself confer jurisdiction, * * *.°

A problem somewhat similar to that before this court

was before Judge Learned Hand in the case of Jn re: Mir:

burt Motors, Ine, 275 Fed. 62 (1920). In that case, a peti-

tion in bankruptey was filed against the respondents, and a

receiver appointed. The respondents mnsuccessfully moved

to vacate the receivership. The receiver had conducted the

business at a profit of some $2,900, pending the proceed-

ings in which a jury found the respondents solvent. The

respondents applied for an order dismissing the petition,

ba mas oa ~"q

26

and directing the receiver to turn over the assets. Judge

Hand said, at page 63:

“I think that the rule is that the defendant's or

respondent's estate is not liable for the receiver's debts

or his compensation beyond the amount of the profits

realized or improvements arising through profits. * * *

As to anything more, the receiver and his creditors have

the responsibility only of the plaintiffs or petitioners.

Therefore, if the receiver had in his hands no more

than the original value of the property seized, he would

be obliged to turn back everything to the respondents

and look wholly to the petitioners for his compensation

and so would his creditors. The respondents not only

did not consent, but actively opposed the seizure; they

could not be required to pay the expenses. It appears,

however, that the receiver has now in his hands more

than the amount of property received by about. three

thousand dollars. This is obviously not a profit till his

debts and his own allowances are paid, and there is no

oe propriety in paying it over to the respondents. True,

their own profits might have been as much or more, and,

if so, they have recourse againts the petitioners for the

x loss; but as against the receiver and his creditors they

must vield. The proper result, if all could be worked

out, would be this: The receiver and his creditors should

be entitled to the profits, when ascertained, in payment

of their claims, and the petitioners should pay any bal-

ance; the respondents should be entitled to collect from

the petitioners the allowance of their counsel and any

profits they could show they have lost by reason of the

mistaken seizure.

Unfortunately, this would take time, and meanwhile

the respondents woud be kept out of their property, which

they need at once, if it is to be saved at all. Some pres-

ent solution must be found, if only provisional. The best

which I can devise is this: The receiver's accounts show

an estimated profit of $3,000; they are in evidence and

can be referred to. So much of the assets he should be

allowed to retain against his debts and his allowances.

He will turn over the other assets forthwith to the

respondents. Then he will state his accounts to a spe-

cial master, who will fix his profits, state his unpaid

debts, and fix his allowance and that of his attorney,

27

At the same time the respondents will have the allow-

ance fixed of their counsel, and prove what, if any, profit

they have lost during the period of the receivership.

When these figures are found, an order may pass di-

recting the petitioners to pay to the respondents their

counsel fee and the profit lost by them by reason of the

seizure, also to the receiver and his creditors any unpaid

balance, the respondents shall be liable to an amount

equal to the difference between the profits as found and

the sum retained by the receiver.”

That case is a stronger one for the receiver than the

case at bar, because, on the face of the original papers, the

court had jurisdiction to appoint receivers, and, furthermore,

because by accounts filed in the cause, a profit in the opera-

tion of the business was shown.

Hawes vs. First National Bank of Madison, 229 Fed. 51

(CLC. A. 8, 1915). In this case the District Court appointed

a receiver but the Cirenit Court of Appeals reversed the

appointment on the ground that the District Court was with-

out jurisdiction by reason of the absence of an indispensable

party. Tt held that the receiver was illegally appointed,

therefore, and reversed the District Court. In disposing of

the receiver's contention that the costs of the receivership

should be paid out of the property, the Court said, “In the

ease at bar, the court, being without jurisdiction, has no prop-

erty with which to pay any one, and hence is not ruled by

Atlantic Trust Co, v. Chapman, 208 U.S. 360, 28 Sup. Ct.

406, 52 L. Ed. 528, 13 Ann. Cas. 1155. Courts may not seize

property without jurisdiction, and then claim jurisdiction

over the property because it is in the possession of the court.”

A most important decision is Lion Bonding Company Ys.

Karatz, 262 U.S. 640, cited under Point [ hereinabove.

3.

Authorities Relied on by the Respondents.

There are only four cases relied on by the respondents

which deserve comment.

uy

esses

Jae

28

Atlantic Trust Company vs. Chapman, 208 U. 8. 360. In

this case, a receiver in foreclosure had been appointed and

performed his duties. No attack on the receivership or on

the jurisdiction of the Court was made, but the property did

not bring sufficient to meet the expenses incurred by the

receiver. An attempt was made to charge these expenses

against the complainant, which the Circuit Court of Appeals

sustained. This Court, on certiorari, reversed the Circuit

Court of Appeals. The case, therefore, decided only that the

costs of a valid receivership, which realized a deficiency, can-

not be charged against the complainant. It decided noth-

ing else.

Palmer Vs. Teras, 212 U.S. 118. A state court of Texas

had appointed a receiver for a corporation, which appealed

from the appointment, and made the appeal a supersedeas,

so that, pending that appeal, the state receiver relinquished

possession, The action in question was then commenced in

a federal court in Texas, and a receiver appointed, which

appointment was reversed by the Circuit Court of Appeals

as erroneous. The case was then brought to the Supreme

Court by certiorari, after the Circuit Court of Appeals had

assessed the costs of the receivership against the plaintiff.

All that appears in the opinion of this Court on the question

of costs is the following (p. 132):

“We think the Circuit Court of Appeals was right in

reversing the order of the Circuit Court appointing the

receiver. In that court the costs of the receivership were

assessed against Palmer, the original complainant. The

receivership has gone on pending the proceedings upon

appeal and we are of Opinion that justice will be done if

the costs of the receivership are paid out of the fund

realized in the Federal Court, and it is so ordered;

* *®

In the argument for the petitioners, the following facts

appear, how ver cp. 120):

“The Court of Appeals was also wrong in directing that

the costs of the receivership be taxed against the com-

plainant. That was a question between the parties to

29

the suit, and was not involved in the appeal of the State

of Texas and Eckhardt from the orders refusing their

application, and the materials necessary for determining

how the costs of the receivership should be borne were

not before the court. Those costs were not part of the

costs of the appeal. By the effect of the supersedeas, the

property and business of the company remained in its

hands in the same manner as if there had been no judg-

ment or order of the state court. The expenses of the

receivership were a part of the expenses of carrying on

the business, and should be dealt with accordingly. If

the State should ever be in a position to call for an

account of the business of the company during the pend-

ency of the appeal in the state courts, the question how

the expenses of the receivership should be borne may

arise. But it does not arise upon the appeal in this case,

and the expenses ought not to be saddled on the plaintiil

without an inquiry.”

Among the differences between Palmer ys. Teras and this

case, are the following:

In that case, the receivership was erroneous. In this case,

the Court had no jurisdiction to seize the property through

its receivers. In that case, the costs were saddled on the

plaintiff without an inquiry, and without the Court having

before it the materials necessary for determining how the

costs of the receivership should be borne. In this case, the

bearing of the costs of the receivership was one of the prin-

cipal questions litigated after the coming down of the first

mandate from the Circuit Court of Appeals. In that case,

the receivership, although erroneous, had realized a fund in

the Federal Court, out of which the costs could be and were

paid. In this case, the receivership has not realized any

fund, and the decree sought to be reviewed will, if not re-

versed, permit the petitioner's property, seized without right,

to be sold to pay the expenses of the seizure and the fees of

the receivers and their counsel.

Clark vs. Brown, 119 Fed. 130. This case is important

as showing what facts were held to constitute sufticient

acquiescence to prevent the corporation from objecting to

30

paying for the costs of an erroneous receivership. The Cir.

cuit Court of Appeals said :

“Moreover, notwithstanding the recital in the stipula-

tion for the sale of the flax by the receiver that he had

been appointed ‘over the objection and opposition of the

defendant,’ it fully appears from the record that, while

defendant did not directly consent tothe appointment, he

made no objection to it having color of seriousness or

force. His answer to the order to show cause why a

receiver should not be appointed was irrelevant. It was

merely a statement that he was willing to pay com-

plainant what the Court should find him entitled to on

a contract with another for sale of the land, if com-

plainant would execute to defendant a warranty deed

of the land. * * * And although, in the stipulation men-

tioned, it was recited that it should be ‘without prejudice

cs to the right of said defendant to a review upon appeal

a of the order of the Cirenit Court appointing said re

2 ceiver, it appears from the assignment of errors on the

appeal which followed to this Court, and which are set

forth in the present record, that no question was raised

or presented on that appeal as to the appointment of the

receiver. As the appointment of the receiver was a pro-

ceeding in the cause prior to that appeal, the failure to

question it upon that appeal was an acquiescence in the

receivership, and no dispute as to the propriety or rega-

larity of the appointment when made could afterwards

be considered. * * * Here the appointment of the receiver

was proper, when made. No showing to the contrary

was attempted by the defendant, whose proceedings and

conduct showed acquiescence in the receivership through:

out.”

We consider that case favorable to us in that it shows what

must exist to constitute acquiescence. Greenbaum V8.

e Lafayette & Co., 128 Atl. 168 (New Jersey Court of Errors

a and Appeals, 1925). This case, and some other recent

i decisions of the New Jersey Courts, cited therein, have been

relied on by the respondents. How different that case is

from this case appears from the following quotation of the

opinion of the Court of Errors and Appeals, at page 168:

ee Ras

“* * * where a receiver is appointed by a court having

jurisdiction to make the appointment, the costs and

31

expenses of the receivership are a first claim on the

assets of the corporation of which he is the receiver, and

may by the court be placed ahead of mortgages and other

liens. In the present case the Court of Chancery was

undoubtedly possessed of jurisdiction to make the

appointment, even though the jurisdiction was im-

providently exercised, and, for the reasons given in the

case cited, the order to pay the fees of the receiver and

auditor will be affirmed.”

In our case, as the Cirenit Court of Appeals in its first

opinion said (R., 263-266), the District Court had no juris-

diction to appoint receivers, and should have refused to

entertain the bill.

4.

The Failure to Appeal from the Order of July 13, 1922.

This is relied on both by the District Court (R., 266, 278)

and by the Circuit Court of Appeals (R., 580, 581, 582), as

constituting acquiescence. The order of May 11th, 1922,

pursuant to which the receivers seized the petitioner's prop-

erty, was er parte and required the petitioner to show cause

before the District Court. That Court, therefore, was the

proper place, in the first instance, to attack the validity of

the er parte seizure. This attack was there made, vigorously,

but unsuccessfully, and the order of July 13th, 1922, was

entered. This is the only order before the final decree, which

was appealed from, that, under federal practice, could have

been appealed from. Prior to the original Act of 1891, con-

stituting the Circuit Courts of Appeal, that order was unap-

pealable. There is nothing, however, in the statute per-

milting an appeal from that order, or in the decisions

thereunder, which make a failure to appeal therefrom an

acquiescence. On the contrary, it is elementary that on an

appeal from the final decree, which was taken in this ease,

the appellant may complain of interlocutory orders.

Central Trust Company vs. Seasongood, 130 U. 8.

482;

Mendenhall ys. Hall, 134 U. 8. 559.

32

The conduct of the petitioner, between the making of the

order of July 13th and the final decree which was appealed

from, negatives the idea of acquiescence. At all times from

May Isth, 1922, seven days after the original e+ parte order

appointing receivers, until the present, the receivers haye

known that the defendant was far from acquiescing in and

was actively contesting their appointment and right to

possess the property and assets of the defendant. At al]

times, except the period betwen July 13th, 1922 and October

26th, 1922, the District Court has known from its own

records that this active opposition was persisted in. Dar.

ing that les! mentioned interval, the bankruptey proceedings

in Delaware were being prosecuted. Those proceedings were

actively opposed by the receivers (see the testimony taken

before the Special Master, March 22nd, 1924 (R., 371, 374

576), April 1ith, 1924 (R., 410)). Moreover, the receivers

contend that this bankruptcy proceeding actively hindered

their prosecution of their trust. In Exhibit I of April 11,

124, annexed to the Master's report, is the following item

for which the receivers claim credit: Demurrage cost by

hankruptey action, $1,987. It appears from the testimony

that this demurrage was due to the receivers’ inability to un-

load incoming cars of material, pending bankruptey action

(Master's testimony, March 19th, R., 352). Moreover, the

receivers, in their report and account said (R., 288):

“* * * the result is entirely due to the continuous

opposition of the corporation itself * * *."

The contempt proceedings against the president and certain

directors of the petitioner, which the docket entries show com-

menced October 26th, 1922, and the order on which was not

entered until December 26, 1922, after the decree first

appealed from, were based on action taken by those directors

which facilitated the bankruptey proceedings. In the face

of all this, how can it possibly be said that the petitioner

acquiesced because it did not appeal from the order of July

33

13, 1922? The bankruptey proceedings far more effectively

interfered with the progress of the receivership than an appeal

taken in midsummer.

Of course, if there is something magic about the taking

of an appeal, that is the end of it, but no authority to that

effect is adduced, and such a holding would be directly con-

trary to the decision of the New York Court of Appeals in

Hernande: Vs. Brookdale Mills, W34 N. FE. 568 (1921).

5.

The Alleged Delay in Intimating Lack of Jurisdiction.

The Cireuit Court of Appeals, in its opinion (R., 581)

says, as the reason for aflirming the District Court:

“Though vigorously opposing the receivers in other ways,

the corporation did not intimate a lack of inrisdiction

on the part of the Court to appoint receivers until,

months after the appointment, a proceeding for contempt

was instituted, * * *,”

Just how the corporation could more thoroughly have denied

the Distriet Courts jurisdiction than by taking the action

Which brought its directors up for contempt of the order not

appealed from is hard to see, but the objection to the deci-

sion of the Circuit Court of Appeals goes deeper. That Court

admits, in both its opinions (R., 263, 580, 582). that the

appointment of the receivers was vigorously opposed at all

times. This opposition was based, among other things, on

the ground that the corporation was solvent. At all times,

the fact of its solvency was urged upon the Court as a reason

for not appointing the receivers and why the er parte appoint-

ment and seizure pursuant thereto should be set aside. It is

true that it cannot be said that the solvency of the corpora-

tion was, prior to the contempt proceedings in October, 1922,

urged upon the Distriet Court as depriving it of jurisdiction.

It was, however, always urged as a reason why the cr parte

appointment should be revoked, although not on jurisdie-

tional grounds. The Court, therefore, and the receivers, had

notice at all times that the validity of the appointment was

34

attacked. The Court is supposed to know the law and is

supposed, therefore, at all times, to have known that the sol-

vency, in fact, of the corporation deprived the Court of juris.

diction to seize its property, The only possible relevancy of

acquiescence in any case can be only one of equity and fair

dealing. A Court might say that where a corporation, in fact,

stands by and permits its property to be seized and managed

by receivers, without objecting to such seizure or such man

agement, that corporation cannot later be heard to say that

the Court has no right to charge its property with the

expenses of the receivership; but where, at all times, the cor-

poration actively opposes the receivership and takes such

steps as it is from time to time advised by counsel to take to

get its property out of the wrongful grip of the Court, there

is nothing unfair or inequitable in the corporation, when it

finally succeeds in obtaining an adjudication that the seizure

was beyond the jurisdiction of the seizing Court, in demand:

ing that its property be returned unencumbered by the

expenses of the receivership. [It is not intellectually honest

to say that such a corporation acquiesced in the seizure, and

it is technical, and inconsistent with enlightened jurispra-

dence or modern ideas to say that although the corporation

did not acquiesce, that because it did not utter the magie

cabalistic word “jurisdiction”, it must, notwithstanding its

continued opposition, have its property charged with the

expenses of the void receivership.

III.

Acquiescence cannot possibly justify indebt-

edness incurred after the acquiescence ceased.

The Courts below justify their decisions because the peti-

tioner did not, prior to the argument on which there was

made the final decree of December 22, 1922 (RR. 254), say

that the Court had no jurisdiction to appoint receivers.

Admittedly, from that date, the attack on the jurisdiction

was made, Neither of the Courts below contend that the

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acquiescence continued thereafter. Much of the receivers’

indebtedness was, however, thereafter incurred. For ex-

ample, the receivers’ certificates of $25,000, with interest, all

postdate not only the decree appealed from, but the appeal

itself. These certificates were authorized by the er parte

order of May Ttth, 1922. Tt appears, however, from the

Master's report CR. 430) that the certificates originally bor-

rowed were all paid back December 18, 1922. and no new

certificates were issued until May 3, 1923. This was after the

appeal was taken and after it had been argued before the

Circuit Court of Appeals (R., 262). A party lending money

on receivers’ certificates is bound to take notice of the state

of the record and of the authority or want of authority of

the receivers to issue them.

Nnickerbocker Trust Co. vs. Oneonta, 94 N. BE. 871

(New York Court of Appeals, 1911),

What more could the petitioner do than it had then done

to prevent: further encumbering of its property and what

equity is there in preferring the receivers or the person who

lent money ou these certificates over the diligent petitioner?

Iv.

Refutation of certain arguments that may be

advanced by the respondents.

It has been intimated that the respondents may urge in

support of the decree sought to be reviewed that. the first

decree of the Circuit Court. of Appeals was erroneous and

that that Court should have affirmed the appointment of the

receivers by the District Court. That first decree of the Cir-

cuit Court of Appeals putan end to the receivership as a

going concern, The respondents could have asked this Court

to review that deeree by certiorari, Not having done so, they

have acquiesced, and that deeree of the Circuit Court of

“vee

les

‘pan pe Att

36

Appeals has become the law of the case and cannot now he

questioned,

Thompson vs. Mariwell Land Grant Co, WS USS,

451;

Wakelee vs. Davis, 44 Fed. 582;

Henning vs. Eldredge, 1AS UL 305, 33 N. BL 154;

Nilra vs. Pickard, 47 Pac. 44 (Utah).

In the second place, the first decree of the Circuit Court

of Appeals was clearly right. We cannot put the case any

better than that Court has done in its opinion (R., 265),

Counsel for the respondents in his brief in the Cireuit

Court of Appeals used as a basis for his argument of acquies:

cence certain statements alleged to have been made by the

then counsel for the petitioner in the argument before the

District Court, pursuant to which that Court made the order

of July ith, 1922. These alleged statements are without

foundation in the record and we doubt if they will be relied

on in this Court, but as relied on in the Court below they

did not amount to an admission that the Court then had

jurisdiction to appoint receivers on the application then pend:

ing. That jurisdiction was denied, but the alleged statement

contained an admission that on final hearing which stage the

Court was not then in—the Court would have jurisdiction

so toappoint. The lack of jurisdiction to appoint in the then

pending proceeding was consistently urged,

Counsel may urge that the District Court had power to

appoint a receiver while it was inquiring into the fact of

solvency, Whether this be legally valid or not, the fact

remains, as the Cireuit Court of Appeals, in its first opinion

(RR. 263), points out, that when the order of July bth,

1922. was made, the Court found that the corporation was

not insolvent. The factual basis for this argument, then,

wholly fails.

We have not adverted to any of the details of the receivers

account or eriticized at all the Courts below in allowing cer

tain items of disbursements and indebtedness, which were in

37

the Courts below specifically objected to. We feel that such

details are not matters which would interest this Court on an

application for certiorari, Should that writ be allowed, we

shall have something to say on this subject. What we have

discussed we are contident will show this Court that the

action of the Court below has not only caused a grave

injustice to the petitioner, but has established a very danger-

ous precedent.

Respectfully submitted,

Roperr H. MCCArRTER

G. W. CC. MCCARTER

Of counsel with Petitioner.

Qsvat