# Petitioners Brief — Burnrite Coal Briquette Co. v. Riggs

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petitioners Brief
- **Published:** January 1, 1927
- **Citation:** 274 U.S. 208

## Text

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.

PaG
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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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386006_0670%3A3. Public record. Not legal advice.