Petitioners Brief — Burnrite Coal Briquette Co. v. Riggs

Office Supreme Court, U-

FILED

FEB23 1927

IN THE

Supreme Court of the United States.

OCTOBER TERM, 1926.

No. 227.

BURNRITE COAL BRIQUETTE COMPANY,

A CORPORATION,

Petitioner,

vs.

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

DUFFY, AS RECEIVERS OF BURNRITE COAL BRIQUETTE COMPANY,

Respondents.

On WRIT OF CERTIORARI TO THE UNITED STATES CiRcuIT CouRT

OF APPEALS FOR THE THIRD CIRCUIT.

BRIEF FOR PETITIONER.

ROBERT H. McCARTER,

G. W. C. McCARTER,

Of Counsel with Petitioner.

The Evening Pom Joo Printing Office, Inc., 154 Fulton St., New York, N. ¥.

IN THE

Supreme Cot of the United States,

OCTOBER TERM, 1926.

No. 227.

SURNRITE COAL BRIQUETTE COMPANY,

a corporation,

Petitioner,

Vs.

Epwarp G. Rieces and ALFRED L. Kirpy

and Jounx P. Durry, as receivers of

Burnrite Coal Briquette Company,

Respondents.

ON WRIT OF CERTIORARI TO THE UNITED STATES CrrcvIT CoURT

OF APPEALS FOR THE THIRD CIRCUIT.

BRIEF FOR PETITIONER.

A.

SUBJECT INDEX.

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ereencmtt CAE Te ons oo ovo es secede wees cecn arse oe mend ees 1

Aasignments of Error Thelied OR... .o2.06ssccccsvcsneaseeracens |

ena ae Gane TOMES soa ie 5 31a cil o ee ho Oa eiw we eS ee ewe eee

RE AE OBS aia rans 7 5g bp oe aS oD Rw Ree ES Te

TABLE OF CASES AND STATUTES

Page of Bri:

Title of Case. Cited.

Atlantie Trust Co. rs. Chapman, 208 U. S. 360................. 2

Hooch va; Macon, Gc., Ca., 125 Nod. B19: «650052 caw sn sacs swine vee 1

Bertze cs. Abinedon, S Beavati. 52... <5... 0 ccc ces ccc ccs ecnseses 3

Brictson Mfg. Co. rs. Woodrough, 284 Fed. 484..............4.. 1

Central Trust Co. rs. Seasongood, 130 U. S. 482.........0222006 2

Chicago, &e., Co. vs. Newman, 187 Fed. 573... 2.0.0.0... 000 cee. l

Cheek: we Drs, BES Ded. BG. sod os once eee 8 oe ond oo ee ee eueeen 2

Coupee os, Giieley, 75 Bed. G00... occ 5 sae cci ere coed av ees ey se tes 1

Frver vs. Weakley, 261 Fed. 509....... ie aaa oe ete ee ee

Greenbaum vs. Lafayette, &e., Co., 128 Atl. 168........ 0.6... 00. ?

Hayden vs. Chicago Title, ete., Co., 55 Ill. App. 241........... 3

Hawes rs. First National Bank, 229 Fed. 51..........00-0-.008 2

enn oa, Eiaoetee, 146: TT. B60. 6566 ek vec tw unneseedas 3

Hernandez rs. Brookdale Mills, 134 N. E. 568..............0.. 3

In re Hhartburt Motors, Inc., 275 Fed. 42..... 2. ccccssecccee I

Knickerbocker Trust Co. rs. Oneonta, 94 N. E. 871.............. 2

Lion Bonding Co. vs. Karatz, 262 U. S. 640.............. eee eee 12,2

Wissdeaisal) wa, Fak, 186 T..B. SOO. cies sas wcowien ends arnd san 2

leet oh. Pe Ee es Ei ea hod ow ce ose esaavewbens sees 13,2

Reeves’ Appeal, 3 Walker (Pa.) 199.........2ccseccocccecccees 5

Silva vs. Pickard, 47 Pac. 144...... ; BS We bps a

Strauss rs. Casey Machine, ete., Co., 63 N. J. os 19. Soe Samaitelenen

: Thompson rs. Maxwell Land Co., 168 : . See eer re 5

fi Wakelee rs. Davis, 44 Fed. 532.. ; ie Gea

x White vs. Mechanics Securities aout. "969 wT GS. 203.5 .6%

7s Judicial Code § 240 as amended by § 1 of 43 St. L. 936...........

if Balai Caddie § G86... aoe ces cv ccscccecescsccrssereresseesves

i Foster’s Federal Practice, 5 ed. § 321...........cceceeeeeeceees

The opinion of the Cirenit Court of Appeals on the first

appeal is reported at 291 Fed, 754. The opinion of the

Cirenit Court of Appeals on the second appeal, namely, the

opinion sought to be reviewed is reported 6 Fed. (2nd) 226.

The District Court's opinion is not reported,

C.

Il. The judgment to be reviewed Was entered June 27

1923 (R., 582).

’

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

o82) is relied on as the basis of this Court's jurisdiction. This

Court's order allowing the certiorari appears at R. 587,

3. The statutory provision under Which such jurisdiction

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

as amended by Section 1 of an Act of Congress entitled “An

Act to amend the Judicial Code and to further define the

jurisdiction of the Cirenit: Courts of Appeals and of the

Supreme Court and for other purposes”, approved February

13,1925, 43 Statutes at Large, 936, 9238, 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-

qaire by certiorari, either before or after a judgement or

decree by such lower court, that the cause be certified

fo the Supreme Court for determination by it with the

“une power and authority, and with like effect, as if the

cause had been brought there by unrestricted writ of

error or appeal.”

4. White v. Mechanics Securities Corporation, 269 U. &.

283, sustains this court's jurisdiction under that act,

D.

Statement of the Case.

On May 11, 1922, Edward S. 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 (RR. 7). On tiling that bill and affidavits, the Court

er parte appointed Alfred L. Kirby and John P. Dutfy tem-

porary receivers of the petitioner, authorizing them to con-

duet the business theretefore conducted by your petitioner,

and authorizing them to borrow not more than Twenty-five

Thousand Dollars (S25.000.00) on receivers’ certificates, and

requiring the petitioner to show cause why the appointment

of receivers should not be continued during the pendency of

the snit (R19). On May IS, 1922, the petitioner pre.

sented its duly verified petition, praying that an order be

made directing the receivers to desist and refrain from admit-

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

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

removing or repairing the property of the petitioner, or

incurring any indebtedness or charge against that property,

or from disclosing any information secured by them as

receivers, and praying that the receivers and the complainant

show cause why the receivers should not be discharged (R,

23). On this petition, an order to shew cause was made

with an ad iiterim restraint (R., 40). Voluminous aftidavits

were filed on both sides, and both foregoing orders to show

cause were duly continued until June 5, 1922, on which date

there was filed the petitioner’s answer, which, among other

things, denied the jurisdiction of the Court (R., 69). After

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

trict of New Jersey, tiled an opinion (R., 249), pursuant to

which, on July 13, 1922, it made a decree continuing the

receivers and the injunctive relief previously granted in the

Qa ee

5

er parte order of May 11, 1922, until final hearing, and added

an injunction against the petitioner, its officers and agents,

from exercising any of its franchises or privileges (R., 252).

No appeal from this order was taken. The petitioner,

through its officers and directors, so far disregarded the

assumed jurisdiction of the Distriet Court of the United

States for the District of New Jersey, by facilitating an

adjudication in bankruptey pursuant to a petition filed

against the petitioner in the Distriet Court of the United

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

# petition was filed by the receivers praying that the officers

and directors be adjudged in contempt of the District Court

of the United States for the District of New Jersey (R., 2).

Upon the hearing on the contempt proceedings, the officers

and directors urged in the defense of their actions want of

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

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

fo appeal from the order of July 13, 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

fo vacate the orders of May 11th and July 13th, 1922, was

filed. The petitioner cousenting that final hearing be had

on the affidavits previously filed on both sides, final hearing

and the hearing on the last mentioned motion was had, upon

Which the Conrt, on December 22, 1922. made its final decree,

continuing the receivers with all powers theretofore granted,

and with all powers conferred upon receivers by an Act of

the Legislature of the State of New Jersey, entitled “An

Act Concerning Corporations ( Revision of 1896)", continued

all the injunctive relief previously granted; adjudged that

the business of the petitioner had been grossly mismanaged

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

adjudged that the petitioner was not insolvent (R., 254).

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

Cirenit Court of Appeals for the Third Circuit, and the

assignments of error thereunder attacked the Court's taking

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

6

and July 13th, 1922. as well as the final decree directly

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

after argument, filed its opinion (R., 262) sustaining the

petitioner's contention and on August 11, 1925, sent to the

Dixtriet Court its mandate which provided ;

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

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

cause remanded to the said District Court with instrue-

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.”

Qn the coming down of that mandate, the petitioner

moved the District 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.

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

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

“and this Court being of opinion that the receivers

should account before the bill be dismissed,

It is, therenpon, on this 24 day of January, 1924,

okDERED that Alfred L. Kirby and John P. Duffy do

account to this Court, as receivers of the defendant above

named

om * * * * *

that all further equity abide the order of this Court upon

the hearing on the said account and exceptions thereto.”

The Receivers filed an account (R. 280) which was in

such an unintelligible form that the petitioner filed excep-

tions thereto R.. 300). On February 21st, 1924, after those

exceptions had been filed, the Court made an order referring

it toa Master to take and state the account of the receivers,

and reserving all further equity until the hearing on the

account and the exceptions thereto (R., 304). Hearings

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

filed his report stating the receivers’ account and, unwar-

rantedly, the petitioner contends, passing on the exceptions

taken to the account as filed originally by the receivers

7

(R., 423). Exceptions were filed by the petitioner to the

Master's report (R.. 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 which

decree the Distriet Court of the United States for the Dis-

trict of New Jersey, ordered, adjudged and decreed. as

follows:

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

special master herein be and the same is hereby ratitied

and confirmed, and the items contained in said account

and report as disbursements are hereby approved as

proper disbursements and as charges against (he Prop.

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

ness of the receivers, as stated in sid report and account,

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

proper lien and charge upon the property new in the

control of the receivers belonging to the defendant cor-

poration, and that the allowances herein made for foes

of the special master and the receivers and counsel be

and the same are hereby adjudged to be proper liens nud

charges upon the property in the control of the receivers

belonging to the defendant corporation.”

The deerce went cn to make allowances io the receivers

and their counsel, directed the petitioner to pay to the

receivers the amount of their indebtedness as diselosed by

their account and report, together with the allowances.

Within five days, and, upon such payinents being made, direct-

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

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

such payment that the property of the petitioner in the

possession of the receivers be sold. From this decree, as

modified by an order made January 5, 1924 (RL. 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. 1424

8

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

property to the petitioner, and in permitting the receivers

to hold possession of the petitioner's property pending their

accounting, and also the District Court's 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 the petitioner

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

to raise the indebtedness and allowances (R.. 569). After

argument, the Cirenit Court of Appeals for the Third Cireuit

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

PT, 1925, made its decree aflirming, with costs, the decree of

the District Court appeated from, namely, that of December

19, 1924 (R582). The mandate went down on July 27,

1925. This Court granted a certiorari November 23, 1925

(R., 587).

E.

The assignments of error relied on 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

9

are hereby adjudged to be proper liens and charges upon

the property in the control of the receivers, belonging

to the defendant corporation.”

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

nade 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 pre-

ceivers as disclosed by their account and report together

With the amount allowed to counsel for their COM pens:-

tion and to the special master for his services.”

32. The Court erred in deereeing 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 detendant. cor-

poration within the control of the receivers be soldat

such time and under such conditions as this court may

by subsequent order herein direct, upon aupplication to

be made to this court by either party Upon tive days’

notice to the solicitor of the other, to rmuise 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 Jess the expenses of sale, and

Whatever future allowances may be made by this court

to the receivers and counsel aud 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 aid

the payment of whatever balance there Mav be to the

corporation that the bill be dismissed,”

3. The Court erred in its decree made and entered on the

nineteenth day of December, L924. in finding that the aecount

filed by the receivers of the defendant is just and correct,

2s. The Court erred in decreeing in and by its decree

miaide and entered on December 19, 1924. as follows;

“The items contained in said account and report as

disbursements are hereby approved as proper dishurse-

ments and as charges against the property in the hands

of the receivers.”

Pee |

ete e sce.

10

F.

ARGUMENT.

SUMMARY.

a.

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,

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 opposition, and,

on any technical grounds or reason not negativing the fact of

continued opposition to the receivership, find such acquiescence

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

receivership.

1. The facts.

The authorities.

Authorities relied on by the respondents.

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

The alleged delay in intimating lack of jurisdiction.

wh

Ill.

Acquiescence cannot possibly justify indebtedness incurred

after the acquiescence ceased.

IV.

Refutation of certain arguments that may be advanced by

the respondents.

V.

A consideration of the Receivers’ Account.

1. Disbursements of Receivers.

2. Receivers’ obligations.

3. Allowances to Receivers and Counsel.

4+. Master’s fee.

I.

The Court having no jurisdiction to appoint

receivers had no jurisdiction to make the in-

debtedness of and allowances to the receivers

and their counsel charges upon the petitioner's

property seized without jurisdiction.

The situation cannot be better stated than it was in the

opinion of the Cirenit Court of Appeals on the first appeal

(R., 263):

“The appointment of receivers for a corporation is

avmatter 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 so to

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, a corporation of the

State of Delaware, which Company that Court at the

same time found was not insolvent. Such being the case,

the basie 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 se holding is that the law of

New Jersey, as interpreted by its highest tribunal, has

viven 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 Circnit Court

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

“It thus appearing that under the decisions of the

highest tribunal of New Jersey, courts of that State had

ho statutory authority to appoint receivers for a solvent

foreign corporation, it follows the United States District

12

Court of New Jersey had no such authority and should

have refused to entertain this bill.

This basie jurisdictional question being determinative

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

the Court made in a case when the Court had ne power

to 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 bill

on the ground that the company in question being a

solvent foreign corporation, the Court below had no

jurisdiction to appoint receivers.”

Pursuant to this opinion, there was made by that Court

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

The case, therefore, is che in which the Distriet Com

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. Naratz, 262 U.S. 640. In that case, the

District Court appointed a receiver and its action was

affirmed by the Cireuit Court of Appeals. On Certiorari,

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

out jurisdiction, ordered a reversal and directed that the bill

be dismissed (262 U.S. 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 receivership, 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, ./., for the Court said:

“This Court is without power to grant any part ol

the relief sought. The District Court was without juris

diction as a federal court to appoint receivers in, oF

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,

they are necessarily without power to make any charge

upon, or disposition of, the assets within their respective

districts. Even where the court which appoints 4

ei

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 bankruptey court.

Where a case is dismissed for want of jurisdiction as a

federal court, there is not even power to award costs

against the defeated party. The case at bar is unlike

Palmer vy. 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 Circuit 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 jurisdie-

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, by reason of the non-residence of both parties.

That particular jurisdictional defect was cured, but the lack

f power to seize the property of the petitioner remained

hroughout. Jurisdiction is power and power is jurisdiction.

arties cannot confer power on the federal courts where it

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

vyholly immaterial.

14

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 11 with the expenses

of the receivership.

1.

The Facts.

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

depended solely upon diversity of citizenshiy Che bill of

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

a citizen and resident of New York, and the defendant a cor-

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

this bill of complaint, which, under Section 815 of the Judicial

Code, showed that the Court was without jurisdiction, the

Court, ex parte, made its order of May 11, 122 ¢R., 14),

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., 28), praying for the discharge of

the receivers, and, on this petition, obtained a temporary lin:

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 argument, the District Court

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

15

excellently summarized by the Circuit Court of Appeals in

its first opinion (R., 2638) 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 13th, although appealable, was not appealed from,

but 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

decree (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 Circuit 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 in-

debtedness of the receivership and allowances to the receivers

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

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

directly in the teeth of numerous decisions in the Federal

Courts.

2.

The Authorities.

Couper vs. Shirley, 75 Fed. 168 (C. C. AL, 9, 1896). In

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

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

16

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 order, which was

affirmed, the court saving 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 was 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.”

Beech vs. Macon, ete., Co., 125 Fed. 513 (C. C. A, 5,

1903). A petition in involuntary bankruptey was filed

against Beech. The petitioning creditors procured ex parte

the appointment of a receiver, who took possession of live

stock, some of which was in the possession of D, who claimed

to 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 Circuit 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

should pay to B and D the amounts theretofore allowed and

17

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

cost of the receivership, including the receiver's compensation,

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. B and D then filed a petition

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

District Court entered on the mandate. The Cireuit 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-

tinues to contest it to a successful termination, any

compensation which 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 517:

“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.

* * * * * *

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

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

18

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 needs 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 the receiver him-

self should sustain the loss or expenses of the receiver-

ship paid by him than that they should be taxed to

the suecessful defendants.

Chicago, ete., Co. vs. Vewman, 187 Fed. 573 (C. C. A,

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

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

eral court, which dsmissed 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 back all prop-

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

ceiver sought to obtain compensation for himself and attor-

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

the defendant, and look to the complainant for reimburse

ments. The receiver appealed, and the Circuit Court of

Appeals affirmed the Circuit Court.

Fryer vs. Weakley, 261 Fed, 509 (C. CG. AL, 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 //aires Vv. First National Bank,

299 Fed. 51, 143 CC. 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 al] 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

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

expenses of the receiver against the plaintiff below. The

~~

19

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 Mfy. Co. vs. Woodrough, District Judge, 284

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

defendant for a mandamus to the District Judge to comply

with the mandate of the Circuit 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

he 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 In re: Hurl-

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

tion in bankruptey was filed against the respondents. and a

receiver appointed. The respondents unsuccessfully 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,

and directing the receiver to turn over the assets. Judge

Hand said, at page 63:

“1 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

tebe tein.

20

realized or improvements arising through profits. * * *

As to anything more, the receiver and his creditors have

the responsibility only of the plaintiffs or petitoners,

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

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 against the petiiioners for the

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 would be kept out of their property,

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

present 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

cia] master, who will tix his profits, state his unpaid

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

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

21

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 ix 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, furt hermore,

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

tion of the business was shown,

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

(ONS ES. In this case the District Court appointed

a receiver but the Circuit 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. It held that the receiver was iNegally appointed,

therefore, and reversed the Distriet 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

case a 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. 560, 28 Sup. Ct.

106, 62 L. Ed. 528, 13 Apn. 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 Vs.

Naratz, 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.

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

22

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. [t 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 Cireuit Court of Appeals

as erroneous. The case was then brought to the Supreme

Court by certiorari, after the Cirenit Court of Appeals had

assessed the costs of the receivership against the plaintilf,

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

of costs is the following (p. 182):

“We think the Cirenuit 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

ussessed 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, however (p, 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

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

23

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 carrving 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-

eney 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,

und the expenses ought not to be saddled on the plaintitf

Without an inquiry.”

Among the differences between Palmer vs. Terus 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

plaintit? 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

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

cipal questions litigated after the coming down of the first

mandate from the Cirenit 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 capenses of the seizure and the fees of

the receivers and their counsel.

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

as showing what facts were held to constitute sufficient

wequiescence to prevent the corporation from objecting to

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

cuit Court of Appeals said:

“Moreover, hotwithstanding 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

24

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

defendant did not directly consent to the 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

to the right of said defendant to a review upon appeal

of the order of the Circuit Court appointing said. re-

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 regu-

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 Vs.

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

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

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:

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

jurisdiction to make the appointment, the costs and

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

» 5

undoubtedly possessed of jurisdiction to make the

appointment, even though the jurisdiction was im-

providently exercised, and, for the revsons given in the

vase 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 Distriet Court ( R., 266, 278)

and by the Cireuit Court of Appeals (R., S80, 581, 582). as

constituting acquiescence, The order of May Lith, 192.

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, (o attack the validity of

the ex parte seizure. This attack was there made, Vigerously,

but unsuecessfully, and the order of July 18th, 1922. was

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

Was appealed from, that, under federal practice, conld have

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

Stituting the Cirenit Courts of Appeal, that order was Whap-

pealable There is nothing, however, in the statute per:

mitting an appeal from that order, or in’ the decisions

thereunder, which make 2 failure to appeal therefrom an

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

appeal from the final decree, whieh Was taken in this case,

the appellant may complain of interlocutory orders,

Central Trust Company Vs, Neasonqood, 130 0. Ss.

482;

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

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26

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 18th, 1922, seven days after the original er parte order

appointing receivers, until the present, the receivers have

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 all

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

Pé6th, 1922, the District Court has known from its own

records that this active opposition was persisted in. Dur.

ing that last 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.. 3871, 374

376), April 11th, 1924 (R., 410)). Moreover, the receivers

contend that this bankruptcy proceeding actively hindered

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

1924, annexed to the Master's report, is the following item

for which the receivers claim credit; Demurrage cost by

bankruptey 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):

o* * * 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

commenced 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 bankruptcy 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

13, 1922? The bankruptcy proceedings far more etfectively

27

interfered with the progress of the receivership than an

appeal taken in midsummer,

Of course, if there is something magie 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 direct ly con-

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

Hernande: vs, Brookdale Mills, 232. N.Y. 552. 134 N. E.

DOS (1921).

S.

The Alleged Delay in Intimating Lack of Jurisdiction.

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

says, as the reason for affirming the District Court:

“Though vigorously opposing the receivers in other Ways,

the corporation did not intimate a lack of jurisdiction

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 Conrt’s jurisdiction than by taking the action

Which bought its directors up for contempt of the order not

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

sion of the Cirenit 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 solveney was urged upon the Court as a reason

for not appointing the receivers and Why the ex 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 District Court as depriving it of jurisdiction,

It was, however, always Urged as a reason why the er parte

appointment should he revoked, wthough not on jurisdic:

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

28

notice at all times that the validity of the appointment was

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

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

veney, in facet, 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 bevond 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 magic

cabalistie 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 (R., 254), say

that the Court had no jurisdiction to appoint receivers.

29

Admittedly, from that date, the attack on the jurisdiction

Was made. Neither of the Courts below contend that. the

aequiescence continued thereafter, Much of the receivers’

indebtedness was, however, thereafter ineurred. kor ex:

wuple, the receivers’ certificates of S25,000, with interest, all

post-date not only the decree appealed from, but the appeal

itself. These certificates were authorized by the er parte

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

Master's report (RL 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 urgued before the

Circuit Court of Appeals (R.. 262). 4 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, 201 N.Y. 379,

94 N. E. 871.

What more could the petitioner do than it had then done

to prevent: further enceumbering of its property and what

equity is there in preferring the receivers or the person who

lent money on 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

“Upport 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 aflirmed the appointment of the

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

euit Court of Appeals put an end to the receivership as a

going concern. The respondents could have asked this Court

to review that decree by certiorari. Not having done so, they

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30

have acquiesced, and that decree of the Circuit Court of

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

questioned.

Thompson vs. Marvell Land Grant Co., 168 T.8,

451;

Wakelee vs. Davis, 44 Fed, 582;

Henning vs. Eldredge, 148 Ill. 305, 33 N. E. 754;

Nilra vs. Pickard, 47 Pac. 144 (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., 263).

Counsel for the respondents in his brief in the Circuit

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 13th, 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 te

appoint a receiver while it was inquiring into the fact o!

solvency. Whether this be legally valid or not, the fac!

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

(R., 263), points out, that when the order of July 1th.

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

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

wholly fails.

31

We

The Receivers’ Account.

1, Disbursements of Receiver.

The receivers, whe without right, have been in possession

since May 11, 1922, have by their own statement received

cish amounting to S40249.33 (Account, Analysis cash re-

ceipts, R. 297). Through their dealing without right with

the property of the appellant, they have received this vast

sum. What have they done with it? They attempt to tell

us in their analysis of cash disbursements (RR. 296). All of

the disbursements are an unwarranted use of the appellant's

money, for which the receivers should be surcharged,

ror example, consider the following item on the analysis

of cash disbursements (R., 296):

A. Auditing and Investigating. ............. S251 1.86

A reference to the Master's report and to the sehedule

thereunto annexed, headed : “Analysis of anditing and inves-

ligating itemized to set forth each separate invoice and

voucher” (R. 431) and the vouchers thereunto annexed, will

show that this sum ef $2,511.86 was disbursed for secret

service work ilvestigating the labor at the factory, and

retaining a member of the Delaware Bar to act for the

receivers in opposing hankruptey proceedings in Delaware.

a payment to the Mashek Engineering Company for the in-

spection of the plant and report to the receivers on advisable

repairs, and the balance to certified public accountants for

wnditing the corporation's books and making reports to the

receivers, investigating the minutes of the corporation, and

the stock holdings of its president, and preparing lists of

transfers of stock by him and generally assisting the receiy-

ers in making reports and statements: which were used by

them in opposing the corporation's efforts. to have the re-

ceivership set aside,

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The item of executive salaries, SS8,150., represents pay-

ments received by the receivers on account of their allowance

as made in and by the decree appealed from. The item,

Legal and P rofessional Expenses, 83, 480.07, as it is itemized

in the Master's report in schedule headed, “Analysis of Legal

and Professional expenses itemized to set forth each separate

invoice and voucher” (R. 505). Reference to this schedule

and to the vouchers thereunto annexed will show that this

disbursement, with one exception, item No. 13 of SPIO, repre:

sents legal services rendered to the receivers by Messrs,

Smith and Lane, their counsel in this suit, the disbursements

of their counsel paid by them, stenog ‘“aphic, typewriting and

printing expenses of this suit, O. K'd by the receivers’ conn

sel and paid directly ly the receivers, expenses going to

Delaware to oppose the bankruptey there, and services of

counsel in opposing that bankruptey. [In other words, the

receivers seek to charge the appellant's property with the

cost of their vain effort in opposing the appellant in opposing

the receivership and showing this court that the court below

had no jurisdiction to appoint receivers and in other litigious

activities, namely, opposing the Delaware bankruptey,

Merely to discuss the purpose of these disbursements is to

make plain how ridiculous it is to consider that they are

proper disbursements out of the moneys of the appellant,

received by the receivers. Other items are equally ridiculous,

for example, the item of demurrage, S19N7.00., but sufficient

has been shown to illustrate our point.

2. Receivers’ Obligations.

Not only do the receivers claim credit for their disburse

ments. but they seek to charge the appellant with unpaid

obligations ine arred by the receivers. These are of two

kinds.—first, those appearing in their account under the

head of, “Analysis of accounts payeble” (R., 298), and see

ondly, the receivers’ certificates, Included among the a

alysis of accounts payable is an item of taxes. Those, of

course, are due and can be enforced by the State in accord

33

ance with law. None of the other obligations incurred by

the receivers in any way bind the appellant or its property.

The receivers were appointed without jurisdiction and there

is no way by which the law can or should impose upon or

impute to, the appellant or its property, the obligations

incurred by the receivers. Both principle and the cases above

cited, unite in support of this, It is unnecessary, therefore,

to consider the accounts payable in detail. Suffice it to say

that the same can be said of those items as has been said of

the same items included in the cash disbursements.

The receivers’ certificates are in no different situation.

The only order authorizing the issne of receviers’ certificates

is the ex parte order of May 11, 1922. One who lends moneys

on receivers’ certificates, like every one else, is presumed to

know the law. On the face of the record, before there was a

general appearance by the defendant, there was no jurisdic-

tion to make an order awuthorizing certificates, After the

general appearance, as we have shown, the jurisdiction to

appoint receivers has been attacked steadily until the present,

Moreover, and this is very important, it appears from the

Master's report, under the schedule headed. “Analysis of re-

ceivers’ certificates showing actual amount so borrowed and

renewals” (RR. 430), under explanation “B° as follows ;

“Item 1. $10,000, was paid back to the bank. $5000 in No-

vember 25, 1922. and SO.000, in December 1S, 1922. There-

fore there were no certificates outstanding between December

IS, 1922 and May 3, 1923." The first appeal, that from the

decree appointing the receivers, on which appeal this court

held that there was no jurisdiction to appoint receivers, was

perfected January 12, 1923. The outstanding certificates

Were not issied then until almost five months after the decree

of the District Court appointing receivers was attacked by

appeal on jurisdictional grounds and not until. if our mem-

ory is correct, after the argument of. that appeal in’ this

court, Anyone lending money on such certificates, acted at

his peril of a reversal and is certainly not to be preferred

over the innocent and always diligent appellant.

4

=

a

a4

a

34

3. The Allowances to Receivers and Counsel.

Everything that has been said with respect to the dis-

bursements of the receivers and their indebtedness, applies

a fortiori to the allowances to receivers and counsel. As

to these allowances, the case is, if possible, plainer and

stronger thar it is as to the disbursements and indebtedness

of the receivers.

4. The Master’s Fee.

The Court below directed the receivers to account. In

purported compliance with that order, the receivers pre-

sented their report and account. The report is a long self

serving statement. The account as filed by the receivers is

not only misleading, but insufficient. It consists in the first

place of an alleged comparative balance sheet, which, if

correct, would be useful as a summary or recapitulation of

a proper account. In addition to the balance sheet, instead

of a proper account charging themselves with an inventory

and all subsequent receipts and praying credit for disburse

ments. in other words, an account in the form of debtor and

creditor as contemplated by Equity Rule 45, the receivers

submitted five statements.—1. Analysis of cash receipts, 2.

Analysis of cash disbursements, 3. analysis of accounts re

ceivable by them at January 31, 1924, 4. awhalysis of accounts

payable by them at January 31, 1924. and 5. a statement of

receivers’ certificates, loans and trade acceptances payable

at January 31, 1924. No vouchers in support of the dishurse-

ments are shown or tendered, The appellant had no way ¢!

testing the accuracy of the account and the court had no way

of ascertaining whether or not any of the disbursements for

which credit is claimed should be treated differently and

perhaps entitled to a credit as against the appellant to whieh

other disbursements were not entitled, without the taking

of testimony, the production of the vouchers and the restate

ment of the account by the Master. Nothwithstanding the

phraseology of the order of reference, which directed the

35

Master to take and state the receivers’ account, the Master's

report purports to say the account as filed was sufficient.

Notwithstanding this white wash, the Master's report does,

in effect, restate the account. (See the schedules thereto

and supporting vouchers thereunto annexed. ) Moreover,

the testimony taken before the master analyzes and explains

the disbursements. It was before the Master that. for the

first time, the supporting vouchers were produced. The re-

ceivers, therefore, notwithstanding their duty to account,

made necessary the reference to the Master. The receivers

therefore should be personally charged with the Master's fee.

It is well settled that it is the duty of an accounting re-

ceiver to state his account with such particularity that the

parties in interest may be sufficiently informed to be able to

assent to the correctness thereof, and avoid the necessity of

a reference. Bertie vs. Abingdon, & Beavan 5st >; Hayden vs.

Chicago Title, ete., Co., 55 WL App. 241: Reeres’ Appeal, 3

Walker (Pa.) 199. Foster's Federal Practice 5th dition,

section 821. Furthermore, vouchers should be produced with

the account. Ntrauss vs, Casey Machine and Supply Co.,

fi No 4. Eg. 19 In as much as the receivers’ account did not

comply with these requirements and made necessary the

reference, they should be charged with the cost of the ref

erence. Bertie vs. Abingdon, Reeves’ Appeal, Supra,

36

Conclusion.

The decree under review, therefore, is wrong in every

particular as to each error assigned thereon, It should be

reversed with directions that the property be forthwith

turned back to the petitioner, free and discharged from any

lien by reason of any obligations incurrea by or for the

receivers or their counsel, and with a further direction that

the receivers’ account be restated and they be sur-charged

as receivers with all disbursements, and the bill forthwith

dismissed.

Respectfully submitted,

Rornert LH, McCarter,

G. W. CL. McCarter,

Of Counsel with Petitioner.

R2373