Opinion — Burnrite Coal Briquette Co. v. Riggs

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SUPREME COURT OF THE UNITED STATES.

No. 227.—Ocroser Term, 1926.

Burnrite Coal Briquette Co., en On Certiorari to the United

! States Cireuit Court of

Appeals for the Third

Edward G. Riggs, et al. Cireuit.

Vs,

[May 2, 1927.]

Mr. Justice Branpets delivered the opinion of the Court.

This suit was brought in the federal court for New Jersey against

the Burnrite Coal Briquette Company, a Delaware corporation,

by Riggs, a stockholder. The bill charged gross misinanagement ;

prayed for the appointment of a receiver to conserve the assets; and

wked, that ‘‘if deemed advisable’’ the court ‘‘proceed under the

statutes of the State of New Jersey . . . and that the receiver

te given all the powers and be charged with all the duties imposed

upon such a receiver by the statutes.’’ Upon the filing of the bill,

receivers were appointed, action by the corporation was enjoined,

and an issue of receivers’ certificates was authorized, all er parte.

After an elaborate hearing upon an order to show cause, the re-

ceivers were continued until final hearing. Upon final hearing,

the charges of mismanagement were sustained and the receivership

was again ordered continued,

“with all the powers vested in them by previous orders by this

court made, and with all of the powers conferred upon receivers by

an act of the State of New Jersey, entitled ‘An act concerning cor-

porations,’ revision of 1896, its amendments and supplements

thereto, and that the receivers continue to operate the business of

said defendant corporation upon a re-organization or re-adjustment

of the affairs of said corporation or such disposition as may be

hereafter directed to be made of the affairs of said corporation by

this court.”’

The Court of Appeals reversed the decree entered upon the final

hearing and directed that the bill be dismissed for want of juris-

diction. The decision was not rested upon the ground that a State

cannot enlarge the remedial right to proceed in a federal court

Beerrerenseeier rem errareserm ere

2 Burnrite Coal Briquette Co, ys. Riggs et al.

Sitting in equity, see Pusey d& Jones Co. v. Hansen, 261 U.S. 491.

nor upon the ground that a State cannot modify the substantive

rights of a stockholder as against a foreign corporation merely he.

cause it happens to have property within the State. Compare Ma.

guire v. Mortgage Co., 203 Fed. 858. The reversal was placed solely

upon the ground that the corporation had been found by the Dis.

trict Court solvent at the time of the filing of the bill; that the

Statute of New Jersey, as interpreted by its courts, conferred no

power upon its own eourts to appoint receivers of foreign corpora-

tions unless they were insolvent : and that the jurisd ction of the

federal court was determined by that of the state courts, 291 Fed,

TOA.

After the coming down of the mandate. directing dismissal for

Want of jurisdiction. the District Court allowed the account of

the receivers who had been active during a Period of nearly two

years; directed payment by the corporation of the receivers’ ob.

ligations then outstanding, their expenses, the costs, and ¢om.

pensation for their own services and those of their counsel,

amounting in all to nearly $80,000: declared these amounts a

lien upon the corporation's property; and ordered that, in de.

fault of payment, the property be sold to satisfy the charges,

Upon a second appeal, that decree was affirmed by the Court of

Appeals. 6 F. (24) 226. The corporation contended that since

the District Court was held to be without jurisdiction, it had no

power to allow the account and order the payment out of the fund.

Lion Bonding and Surety Co. v. Karats, 262 U. S. 640, 642. This

Court granted 4 writ of certiorari. 269 U. 8. 547.

The main question for decision js whether, in view of the Court

of Appeals’ direction to dismiss the bill for want of Jurisdiction,

it was error to allow thereafter the receivers” account and direct

the payment. There Was an objection to the jurisdiction. which,

if it had heen Seasonably taken, must have prevailed. Camp v.

Gress, 250 U.S. 308. The plaintiff was a citizen of New York:

the defendant a Delaware corporation; the federal jurisdiction

rested wholly on diversity of citizenship; and neither party was a

citizen of New Jersey. Thus, there was a sound objection to

the venue. If that objection had been duly made, and had

been insisted upon, an error of the lower court in overruling it

could not justify charging the corporation now with payment of

any charge on account of the receivership. But that objection to

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Burnrite Coal Briquette Co, vs. Riggs et al. 3

(o.¥. McGeorge, 151 U.S. 129; Kreigh y. Westinghouse & Co., 214

U. 8. 249, 252-253. And, before it was taken by the answer, it

had been waived by a general appearance and other action. This

was conceded.

The reversal with direction to dismiss for want of jurisdiction,

ordered on the first appeal, was put upon an entirely different

ground. The Court of Appeals held that there was lack of juris-

diction of the subject matter. It assumed that the jurisdiction of

the federal court was dependent upon the state statute. This

was error. A federal district court may, under its general equity

powers independently of any state statute, entertain a bill of a

stockholder against the corporation for the appointment of at least

atemporary receiver in order to prevent threatened diversion or

loss of assets through gross fraud and mismanagement of its of-

frers.' There were allegations in the bill adequate to support a suit

of that character: and there was nothing in the bill inconsistent

with its being entertained as such. The only reference in the bill

o the state statute was in one of its eleven prayers. After the

waiver of the objection to the venue, there was federal jurisdiction

wer the parties and of the subject matter; and there was equity

jurisdiction,

The fact that a bil} seeking appointment of a receiver of a cor.

pration is brought in a State other than that of the incorporation

may lead the court to decline to interfere 4s a matter of comity

for want of equity; or it may require the court to limit the

ope of the relief granted.” But the fact of incorporation under

the laws of another State does not preclude jurisdiction.° If

ISee Dodge t. Woolsey, IX How. 331, 341 O44; Zeekendorf vr. Steinfeld, 225

U. 8 445, 459: Citizens’ Savings & Trust Co. vr. TH. Cent. R. R, Co., 205

C84; Clark ¢. National Linseed Oil Co., 105 Fed. 787; New Albany

Waterworks Co. r. Louisville Banking Co., 122 Fed, 776; Collins vt. William-

“0, 229 Fed, 59,

See Leary y, Columbia River Nay, Co., 82 Fed. 775; Sidway v. Missouri

Land Co., 101 Fed, 481; Parks r. Bankers’ Corporation, 140 Fed, 160; Pearce

- Sutherland, 164 Fed, 609; Maguire ry, Mortgage Co,, 203 Fed, S58,

Compare Central Trust Co, tr MeGeorge, 15] U.S. 129: Lewis r. Ameri-

(aa Naya] Stores, 119 Fed. 391; Seattergood rv, Ameriean Pipe Co., 249 Fed,

3; Ward ¢, Foulkrod, 264 Fed. 627; Kynerd ". MeCarthy, 3 FP, (2d) 32;

Se & Depew, Ine. Fisheries Products Co., 9 F, (2d) 235, Compare also

North American Land Co, ¢, Watkins, 109 Fed. 101,

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4 Burnrite Coal Briquette Co. vs. Riggs et al.

jurisdiction of the cause, based the order of payment solely on a

Supposed exception to the rule which denies to a court lacking

jurisdiction the power to allow receivers’ charges, According to

the supposed exception, a party who has acquiesced and has

thereby joined in misleading the Court into an erroneous eXer-

cise of jurisdiction. may not complain when he is, thereafter,

saddled with the charges. And he will be held to have acquiesced,

despite a challenge of the jurisdiction, if his challenge was placed

wholly upon an untenable ground: for, by objecting only on the

untenable ground, he may have misled the court as much as if he

had not objected at all. The trial court rested its finding of

acquiescence on the fact that, while vigorously Opposing continu-

ance of the receivership on other grounds, the corporation did not

intimate a lack of jurisdiction unti] months after the appointment :

that, aside from failing to object to the venue, it failed to appeal

from the decree continuing the appointment of the receivers, when

the case was heard upon the order to show cause; and that it

stood by in silence while the receivers were borrowing and spending

money upon its property, thus taking the benefit of their action.

The assumption of the District Court in matter of law and its

finding of fact were affirmed by the Court of Appeals.

We have no occasion to determine whether a federal district

court which appoints a receiver in a ease in which it necessarily

be aequired by acquiescence, may nevertheless impose upon the

corporation, because of acquiescence, the usual charges incident

that where a receiver is appointed in a stockholders’ suit by a

federal court having jurisdiction, and the appointment is held on

review to have been wrongly made, the Court may, in the exercise

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Burnrite Coal Briquette Co. vs. Riggs et al. 5

ifits judicial discretion, require that the receivers’ charges be paid

ther by the corporation or by the unsuccessful plaintiff. See

Palmer v. Texas, 212 U. S. 118, 132; Lion Bonding and Surety Co.

,Karatz, 262 U. 8. 640, 642. Compare Atlantic Trust. Co. v. Chap-

nan, 208 U. S. 360. And where a court. in the exercise of juris-

diction, has erroneously appointed a receiver, the acquiescence of

the defendant may influence the court. in its discretion, to make

the receivership expenses a charge upon the fund.? It was well

rithin the discretion of the District Court to charge the fund in

the case at bar.

We have no occasion to consider the contention, made as to a part

of the charges, that they were incurred after the acquiescence had

ceased and, hence, do not fall within the supposed exception above

referred to. For the waiver of the objection to venue conferred

you the Distriet Court complete jurisdiction of the cause, and

the power to impose upon the corporation payment of the receivers’

charges does not rest on acquiescence. There is no serious con-

tation that any particular charge allowed was, in its nature or

in amount, improper, or that in allowing it as a charge against

the fund there was an abuse of discretion.

The contention that the first decision of the Circuit Court of

Appeals directing dismissal of the bill for want of jurisdiction

had become ‘‘the law of the case’’ and that, therefore, this Court

uust assume that the dismissal of the bill directed was properly

i dismissal for want of jurisdiction. is groundless. Messenger y.

Anderson, 225 U. S. 436, 444: Diaz vy. Patterson, 263 U. S. 399,

2; Davis v. O'Hara, 266 U. S. 314, 321.

Affirmed.

See Ferguson v. Dent, 46 Fed. 88, 96-99; Clark v. Brown, 119 Fed, 130;

Beach v. Macon Grocery Co., 125 Fed. 513; In re Lacov, 142 Fed. 960; In re

1. E. Hill Co., 159 Fed. 73; In re Aschenbach Co., 183 Fed. 305; In re Went-

worth Lunch Co., 191 Fed. 821; In re Wilkes-Barre Light Co., 235 Fed. 807;

In re Independent Machine Corp., 251 Fed. 484.

‘See Clark v. Brown, 119 Fed. 130; In re Wilkes-Barre Light Co., 235

Fed. 807; In re Independent Machine Corp., 251 Fed. 484, Compare Dilling-

tam v. Moran, 81 Fed. 759 3 101 Fed. 933; Pennsylvania Steel Co. v. New

York City Ry. Co., 198 Fed. 721, 725-734.

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