Respondents Brief — Manhattan Properties, Inc. v. Irving Trust Co.

Utanics

IN THE |

SUPREME COURT

UNITED STATES.

OcToser TERM, 1934.

No. 54.

E. Forrest Mitchell, Insurance Com-

missioner of the State of California,

Petitioner,

VU.

\

Bertha E. Maurer and International

Re-Insurance Corporation, a Corpo-

ration,

Respondents.

RESPONDENTS’ BRIEF.

}

j “FE. D. LYMAN,

Roosevelt Bldg., 727 W. 7th St., Los Angeles,

/ Attorney for Respondents.

P. B. Plums,

CHALMERS L. McCGAUGHEY and

Ben S. BEeEry,

Of Counsel.

Parker, Stone & Baird Co., Law Printera, Los Angeles,

SUBJECT INDEX.

PAGE

a

ND TN nck risiictninecbipinedunsicienicleioitseteieac Cae a

II.

PE OE Ce a aietiiscseanincsonnscnctonsnsacuaaniainmeumanmen 4

III.

I sscsiniomssnnniiiennapatainnontorniiessccpepabebaoblecespnsiasinsniacanimntitiie 6

Summary of respondents’ argument........22222.20..22..-eseececeeeeeeeeeeeee 6

Point A. The primary receivers in Delaware were entitled, as

quasi-assignees, to maintain the action against respondent

corporation for the appointment of ancillary receivers in

ey ee ee Se a ee ee 7

Point B. The appointment of ancillary receivers upon the

bill of the primary receivers was valid....2......0.0.c.ecccececeseoeee 14

1. The appointment of ancillary receivers upon the peti-

tion of primary receivers has been approved by federal

i CEE ET FEL NONE NE MERTENS TERE 14

2. The federal courts, by virtue of comity, have jurisdic-

tion to appoint receivers ancillary to a primary receiver-

ship proceedings without regard to jurisdictional require-

UTNE sentisicccenisssnamsciennocnnntsniesssdtnrsinanienencsnapsah anuaasantsboniasbinnniasisenciaivien 23

Tae PA SRAM A OOS BG tone 25

TABLE OF AUTHORITIES CITED.

PAGE

Abm. S. See & Depew v. Fisheries Products Co., 9 F. (2d) 235 15

Bernheimer v. Converse, 206 U. S. 516, 51 L. Ed. 1163............ 8

Bluefields S. S. Co. v. Steele, 184 Fed. 584-...........0..22...-..--.---- 15, 23

Bodge v. Skinner Packing Co., 115 Neb. 41, 211 N. W. 203..20, 24

Booth v. Clark, 17 How. 322, 58 U. S. 322, 15 L. Ed. 164........

ee aeiaeseand 8, 12, 14, 20, 21

ST A Uh sal sees as wiciadanancdiaaeannnioans 22

eee 6; FI, GE BE Be Is Diicntencstsetnensninesnesenctosneatasticnsencninn 15

Central Trust Co. v. McGeorge, 151 U. S. 129, 132, 38 L.

ie a aecaldaehsnoaabenaniamnenionnaah 43

Coal & Iron Ry. Co. v. Reherd, 204 Fed. 859.................-.-.-.-.--- 14, 17

Coltrane v. Templeton, 106 Fed. 370..................................... 14, 16

Converse v. Hamilton, 224 U. S. 243, 56 L. Ed. 749.................. 8

Fairview Fluor Spar & Lead Co. v. Ulrich, 192 Fed. 894............ 22

Great Western Mining Co. v. Harris, 198 U. S. 561, 49 L. Ed.

nett ceased ligslonanis ann aniainndiditmigashantdnnand 12, 21

Green v. Star Cash & Package Car Co., 99 Fed. 656.................. 21

Hale v. Allison, 188 U. S. 56, 47 L. Ed. 380... 21

I i I I I ccc aincirsinietonipnnenenneyantnindatennltiinnesnanon 21

Keatley v. Furey, 226 U. S. 399, 57 L. Ed. 273................0.::000 8, 21

McCandless v. Furlaud, 68 Fed. (2d) 925.............. 3, 7, 8, 13, 20, 21

Mercantile Trust Co. v. Kanawha & O. Ry. Co., 39 Fed. 337...... 21

Metropolitan Railway Receivership, Re, 208 U. S. 90, 52 L.

—

Soc Ne TE TED NERET ET sen EN OT

Reed v. Alaska Mines Corporation, 6 Alaska 370...............

Rene v. Runde, 103 U.S. 222, 0 LL. Ed. 337... 8

Rust v. United Waterworks Co., 70 Fed. 129... i; ee

Sands v. E. S. Greeley & Co., 88 Fed. 130... 11, 23, mM

Seested v. Bonfils, 33 Fed. (2d) 185..0.00.0000000000000... 11, 14, 23, 24

Shinney v. North American Savings, Loan & Building Co., 97

PU: Pines hipaa ti catahtactlaiciclintcnckcsgnehaeattiesnncecaiats Hl, 24, 15, 23, 2

Southern Colonization Co. v. Parten, 83 Fla. 300, 91 So. 263... 24

Sterrett v. Second Nat. Bank, 248 U. S. 73, 63 L. Ed. 135...

Seueesdibeiiiiain lah labealindiliabibceatiaiictesaninlcsss naiactiiiiialabe te ios tN" te 8, 12, 14, 20

HII inelastic pecanecinbatanaiacortoas cassisan le ee 11, 23

Walker v. United States Light & Heating Co., 220 Fed. 393... 23

Ward v. Foulkrod, 264 Fed. 627.000.000.000... 9, 11, 14, 18, 23

IN THE

SUPREME COURT

OF THE

UNITED STATES.

OcToBEeR TERM, 1934.

No. 54.

1

E. Forrest Mitchell, Insurance Com-

missioner of the State of California,

Petttioner,

Vv.

Bertha E. Maurer and International

Re-Insurance Corporation, a Corpo-

ration,

Respondents.

RESPONDENTS’ BRIEF.

In this case a writ of certiorari was granted on October

8th, 1934, directed to the United States Circuit Court of

Appeals for the Ninth Circuit. The order of this court,

granting the writ, limited the review to the question of the

validity of the appointment of ancillary receivers upon the

petition of the primary receivers, and directed attention to

the case of McCandless v. Furlaud, No. 11 on the docket

for the 1934 term of this court.

The decree of the court below, to which the writ was

directed, affirmed two orders of the District Court of the

wshilhions =

United States for the Soythern District of Caliper one

of which denied the petitioner’s motion to vacaté the order

of the District Court appointing’receivers [R. pp. 50-51],

and'the other of which denied petitioner’s motion for a

rehearing of his original motion to vacate [R. p. 69].

I,

OPINION BELOW.

The opinion of the Circuit Court of Appeals is contained

in pages 97-133 of the record and is reported in 69 F.

(2d) 233.

II.

STATEMENT OF THE CASE.

Respondent International Re-Insurance Corporation is

a corporation organized and existing under the laws of the

state of Delaware and, prior to April 19th, 1933, conducted

an insurance business in practically every state of the

United States, including California. [R. p. 4.] On April

19th, 1933, in an action brought by a creditor for the

appointment of general receivers in the Court of Chancery

in the state of Delaware, in and for New Castle county,

entitled “Bertha E. Maurer, plaintiff, vs. International

Re-Insurance Corporation, a corporation, respondent,”

Arthur G. Logan of Wilmington, Delaware, Carl M.

Hansen of Philadelphia, Pennsylvania, and George DeB.

Keim of Edgewater Park, New Jersey, were appointed

receivers for all of the property and assets of said Inter-

national Re-Insurance Corporation. [R. pp. 30-36.]

_ =

Subsequent to their appointmment, said Arthur G.

Logan, Carl M. Hansen and George DeB. Keim, as pri-

mary receivers of respondent corporation in the state of

Delaware, filed, in the District Court of the United States

for the Southern District of California, a bill of com-

plaint against International Re-Insurance Corporation for

the appointment of ancillary receivers. [R. pp. 3-7.] The

allegations of this bill and its amendments will be herein-

after noted.

On April 25th, 1933, with leave of court [R. p. 37 1,

amendments to this bill were filed in the District Court.

By these amendments there were added to the original bill

and made a part thereof, exemplified copies of the Bill for

Appointment of Receivers filed in the Delaware Court of

Chancery [R. pp. 20-25] and the order appointing primary

receivers in that court. [R. pp. 30-36.]

Subsequent to the filing of the amendments to the bill,

and on April 25th, 1933, respondent International Re-

Insurance Corporation filed its answer. [R. pp. 38-39], by

which the allegations of the bill of complaint as amended

were admitted and the respondent joined in the request for

the appointment of ancillary receivers.

Thereafter the petitioner, who was not a party to the

proceeding for the appointment of receivers in the Dis-

trict Court, served and filed a motion to vacate the order

appointing receivers, to dissolve the restraining order, to

dismiss the petition for the appointment of receivers, and

to reexamine the order appointing receivers. [R. pp. 41-

~

48.] This motion was denied. A subsequent motion for

rehearing was tnade, heard and denied. The writ of

certiorari herein is directed to the judgment and decree

of the Circuit Court of Appeals for the Ninth Circuit,

affirming these orders.

III.

- ARGUMENT.

Summary of Respondents’ Argument.

Point A.

THE PRIMARY RECEIVERS IN DELAWARE WERE EN-

TITLED, AS QUASI-ASSIGNEES, TO MAINTAIN THE ACTION

AGAINST RESPONDENT- CORPORATION FOR THE APPOINT-

MENT OF ANCILLARY RECEIVERS IN THE FEDERAL DIs-

TRICT CourRT. '

»

Point B.

THE APPOINTMENT OF ANCILLARY RECEIVERS UPON THE

BILL OF THE PRIMARY RECEIVERS WAS VALID.

1. The Appointment of Ancillary Receivers Upon

the Petition of Primary Receivers Has Been Ap-

proved by Federal and State Courts.

2. The Federal District Courts, by Virtue of

Comity, Have Jurisdiction to Appoint Receivers

Ancillary to the Primary Receivership Proceedings,

Without Regard to Jurisdictional Requirements.

my

POINT A.)

The Primary Receivers in Delaware Were Entitled,

as Quasi-Assignees, to Maintain the Action

Against Respondent Corporation for the Appoint-

ment of Ancillary Receivers in the Federal Dis-

trict Court.

Since the order of this court, in granting the writ of

rane bs attention to the case of McCandless v.

Furlaud, hich is now under consideration by the court,

we. desire, at the outset, to direct the court’s attention to

fundamental differences between the facts presented for

decision in McCandless v. Furlaud and in the instant case

and the legal significance of these differences.

In the McCandless case the primary receivers were

acting under the appointment of a Federal District Court,

whereas in the instant case the primary receivers were

acting under the appointment of the Delaware Chancery

Court. In the McCandless case no process was issued

against the respondent corporation and no appearance

was entered for respondent, while in the instant case the

respondent corporation regularly filed its answer, sub-

mitted to the jurisdiction of tlggcourt and joined in the

request for the appointment of ancillary receivers. Because

of these differences, we believe that the questions pre-

sented for decision in the McCandless case are not present

in the instant case, and that the primary receivers in the

instant case were entitled to maintain and did, in fact,

institute and maintain an action for the appointment of

ancillary receivers, which was clearly within the juris-

diction of the Federal District Court to entertain.

If we corrgetly understand the decision of the Circuit

Court of Appeals for the Second Circuit in McCandless v,

dion

Furlaud, 68 F. (2d) 925, and the issues presented for the

decision of this court in the McCandless case, the first

question was whether a Federal court had jurisdiction to

appoint a primary receiver with power to sue outside

of ‘the territorial jurisdiction of the court. The facts

involved in the instant case remove it from the scope

of this question. As we have heretofore pointed out, the

ptimary receivers in the instant case were appointed by

~—the Court of Chancery in the state of Delaware, in and

for New Castle county. [R. pp. 30-36.] Under section

- 3884 of the Revised Code of Delaware of 1915, these

receivers were vested with title to all of the property of

the corporation, except real property not situated in Dela-

ware. While this court held, in Booth v. Clark, 17 How.

322, 58 U. S. 322, 15 L. Ed. 164, that the principle of

comity was not applicable in the Federal courts to an

action brought by a receiver outside the territorial juris-

diction of the court of appointment, this court, by a long

line of decisions, has grafted to this rule an exception,

that @- receiver may maintain such an action where, under

the laws of the state of his appointment, he is constituted

a quasi-assignee of the property of the insolvent cor-

poration.

Relfe v. Rundle, 103 U. S. 222, 26 L. Ed. 337;

Bernheimer.v. Converse, 206 U. S. 516, 51 L. Ed.

1163;

Converse v. Hamilton, 224 U. S. 243, 56 L. Ed.

749;

Sterrett v. Second Nat. Bank, 248 VU. S. 73, 63 L.

Ed. 135;

Keatley v. Furey, 226 U. S. 399, 57 L. Ed. 273;

Oakes v. Lake, 78 L. Ed. 15 (Adv. Op.) (Nov. 6,

1933).

—

~

Under the above-cited provision of the Delaware law

the primary receivers in the instant case were quasi-

assignees, within the meaning of this rule.

Ward v. Foulkrod, 264 Fed. 627 :

Morris v. Wisconsin Hydro Electric Co., 4 F.

Supp. 991.

The other question decided by the Circuit Court of Ap-

peals and presented here in the McCandless case was

whether or not the proceedings, there in question, consti-

tuted a suit or action within the equity jurisdiction of the

Federal court, inasmuch as no process was issued and no

appearance entered by the respondent corporation. An

examination of the instant proceedings discloses that such

a suit or action was instituted.

In the instant case, the bill as amended, filed by the

primary receivers in the Federal court in California [R.

pp. 3-7, 9-38] alleged that the petitioners had been ap-

pointed receivers for the respondent corporation in the

Delaware proceedings, which proceedings had been

brought for the purpose of having receivers appointed for

all of the property and assets of the corporation, wherever

situated [R. p. 4]; that the corporation owned property

and assets in the city of Los Angeles, state of California;

that certain creditors of the respondent corporation were

threatening suits and attachments against the property of

the corporation, and that the corporation had no defense

to these threatened suits, and that, if such attachments

were levied, irreparable damage would result to the cred-

itors of the corporation and to the primary receivership.

[R. p. 5.] The bill, as amended, had attached thereto,

and there were incorporated therein by reference, exem-

— =

plified copies of the Bill for Appointment of Receivers in

the Delaware court [R. pp. 20-25] and the order appoint-

ing the primary receivers in that court. [R. pp. 30-36.]

By thus attaching and incorporating by reference the

Delaware bill, the bill alleged that the complainant in the

Delaware proceedings was a judgment creditor in the

sum of $5,000.00 [R. pp. 21-22], that the respondent cor-

poration was possessed of certain property, but was in-

solvent and was unable to meet its current and maturing

obligations as they came due [R. p. 23], and that there

were pending against the respondent corporation other

suits and judgments which the corporation did not have

funds or property available to pay. [R. p. 23.] Also,

the allegations of residence showed that the primary re-

ceivers were citizens of states other than that of Dela-

ware, and that the respondent was a Delaware corpora-

tion. Further, the bill invoked the jurisdiction of the

court for the purpose of administering and marshalling

the assets of the corporation within the jurisdiction of the

court, “taking such steps with respect to the property and

assets of said respondent as to this court shall seem meet

and proper to protect the interests of the creditors of said

respondent in this jurisdiction, and causing the net bal-

ance of said property and assets, after such steps as this

court may take in the interests of creditors of respondent

in this jurisdiction, to be delivered to the court of pri-

mary jurisdiction * * * and for the purpose of pro-

tecting and preserving the assets of respondent within the

jurisdiction of this court from dissipation and waste until

—1

this court makes its final determination on the bill here

A .

presented.” [R. p. 11.] Bene

Respondent corporation regularly made its appearance

in this action by the filing of its answer [R. pp. 38-39],

in which the respondent corporation admitted the allega-

tions of the bill and joined in the prayer for the appoint-

ment of receivers.

It thus appears that the primary receivers had insti-

tuted a suit or action against the respondent corporation,

which was clearly within the equity jurisdiction of the

court, and that the respondent corporation submitted to

the jurisdiction of the court. In view of these facts, the

proceedings can in no sense be regarded as summary,

ex parte, or as a subservient adjunct to the Delaware pro-

ceedings. The primary receivers sought to invoke, and

the court exercised, the independent equity jurisdiction

which the court clearly possessed.

Sands v. E. S. Greeley & Co., 88 Fed. 130 (C. C.

A., Second Circuit) ;

Shinney v. North American Savings, Loan &

Building Co., 97 Fed. 9 (C. C. D. Utah);

Rust v. United Waterworks Co., 70 Fed. 129 (C.

C. A., Eighth Circuit) ;

Ward v. Foulkrod, 264 Fed. 627 (C. C. A., Third

Circuit) ;

Seested v. Bonfils, 33 F. (2d) 185 (D. C. D.

Colo. ) ;

.——eE

Trustees System Co. of Pennsylvania v. Payne, 65

F. (2d) 103 (C.C. A, Third Circuit).

a

Since the bill invoked the jurisdiction of the court first

to protect local creditors, it was not subject to the objec-

tion, voiced by this court in Booth v. Clark, 17 How. 322,

58 U. S. 322, 15 L.:Ed. 164; Great Western M. & M. Co.

v. Harris, 198 U. S. 561, 49 L. Ed. 1163, and in Sterrett

v. Second Nat. Bank, 248 U. S. 73, 63 L. Ed. 135, to the

effect that if a foreign receiver were permitted, by reason

of comity, to sue and recover property or funds and with-

draw them from the jurisdiction, local creditors would be

prejudiced. In fact, the procedure adopted explicitly con-

formed to the law as interpreted by this court in Sterrett

v. Second Nat. Bank, supra, where it was said (63 L.

Ed. 137):

“Since the decision of this court in Booth v. Clark,

- 17 How. 322, 15 L. ed. 164, it is the settled doctrine

in Federal jurisprudence that a chancery receiver has

no authority to sue in the courts of a foreign juris-

diction to recover demands or property therein situ-

ated. The functions and authority of such receiver

are confined to the jurisdiction in which he was ap-

pointed. The reasons for this rule were fully dis-

cussed in Booth v. Clark, and have been reiterated in

later decisions of this court. * * * This practice

has become general in the courts of the United

States, and is a system well understood and followed.

It permits an application for an ancillary receivership

in a foreign jurisdiction where the local assets may

be recovered, and, if necessary, administered.”

Although, as we have pointed out, we believe the bill

contained all of the essential allegations to invoke the

—13—

equity jurisdiction of the court, if the bill was in any way

deficient in this connection, the defects were waived by the

answer of the respondent corporation.

Pusey & Jones Co. v. Hanssen, 261 U. S. 491, 500,

67 L. Ed. 765;

Re Metropolitan Railway Receivership, 208 U. S.

90, 52 L. Ed. \403.

}

Also, any objection that non-residents of California

were suing a Delaware corporation in a Federal court in

California was waived by the answer of the respondent.

Central Trust Co. v. McGeorge, 151 U. S. 129,

132, 38 L. Ed. 98.

On this phase of the argument, therefore, we submit

that the primary receivers in the Delaware court of chan-

cery were quasi-assignees of the property of the corpora-

tion under the Delaware law, and as such ‘were entitled

to institute and maintain an action in the Federal court in

California, and that they actually did institute an action

against the respondent corporation which was within the

jurisdiction of the Federal court to entertain. The brief

of respondents in the McCandless case, it is interesting to

note, concedes the rules of law hereinabove discussed and

their application to the instant case, and there is nothing

in the decision of the Circuit Court of Appeals in that case

that could be construed as authority against the proceed-

ings in the instant case.

a

POINT B.

The Appointment of Ancillary Receivers Upon the

Bill of the Primary Receivers Was Valid.

1. THe APPOINTMENT OF ANCILLARY RECEIVERS

UPON THE PETITION OF PRIMARY RECEIVERS HAs

BEEN APPROVED BY FEDERAL AND STATE COuRTS.

While, for the reasons discussed under the foregoing

Point A, we regard it as unnecessary to invoke the rule,

we, nevertheless, believe it to be the rule in the Federal

courts, that a primary receiver may properly make applica-

tion to a Federal court for the appointment of ancillary ©

receivers, which application may be granted by the court,

as a matter of comity, and that this procedure is not

within the prohibition of Booth v. Clark, supra, and its

companion cases. While the case of Sterrett v. Second

Nat. Bank, supra, cannot be cited as direct authority for

this rule, we believe the language above quoted, from the

opinion of this court in that case, infers approval of this

rule. So far as we have been able to ascertain, this court

has not otherwise had occasion to consider the point.

However, the rule has been approved in a number of

cases in the lower Federal courts.

Shinney v. North American Savings, Loan &

Building Co., 97 Fed. 9 (C. C. D. Utah);

Ward v. Foulkrod, 264 Fed. 627 (C. C. A., Third

Circuit) ; .

Coal & Iron Ry. Co. v. Reherd, 204 Fed. 859 (C.

C. A., Fourth Circuit) ;

Coltrane v. Templeton, 106 Fed. 370 (C. C. A,

Fourth Circuit) ;

Seested v. Bonfils, 33 F. (2d) 185 (D. C.'D.

Colo. ) ; ) |

a

Abm. S. See & Depew v. Fisheries- Products Co.,

9 F. (2d) 235 (C. C. A., Second Circuit) ;

Brooks v. Smith, et al., 290 Fed. 33 (c. ©. Ag

First Circuit) ;

Bluefields S. S. Co. v. Steele, 184 Fed. 584, 586-

587 (C. C. A., Third Circuit) ;

Platt v. Philadelphia & R. R. C 0., 54 Fed. 569 (C.

C. D. Mass.).

In Shinney v. North American Savings, Loan & Build-

tng Co., 97 Fed. 9, a primary receiver was appointed by

the state court in Minnesota. This receiver then made

application for his appointment as ancillary receiver in a

proceeding in the state of Utah which had been instituted

in the state court and removed to the Federal court. The

court said (p. 11):

“It is admitted that, when a receiver is once ap-

pointed by a federal court, other federal courts,

through comity, will usually appoint the same person

as receiver of the assets within their jurisdiction;

but it is argued that, where the appointment is first

made by a state court, federal courts are without

power to act, in conformity with the principle of

comity. No reason for such a distinction is apparent.

The state court is of co-ordinate jurisdiction in such

matters with the federal court sitting in the same lo-

cality. As between the parties, its determination of

the insolvency of the corporation and of the need

for a receiver is just as conclusive as if had in a

federal court. The need for a uniform administra-

tion of the assets of an insolvent corporation in-

heres in the principles of equity, and does not vary

with the forum first invoked. It is no unusual thing

—te—

for a federal court to appoint an ancillary receiver of

assets within its jurisdiction in aid of a primary ap-

poiritment by a state court of another state.”

In Coltrane v. Templeton, 106 Fed. 370, in considering

the validity of the appointment of ancillary receivers by

a Federal court, it was said (pp. 374-375):

“The bill in this case is styled an ‘ancillary bill.’

Technically it is not an ancillary bill. The term ‘an-

cillary bill’ is applicable to a proceeding growing out

of original proceedings in the same court, dependent

on such proceedings, and instituted’ for the purpose

of enforcing the judgment, or of rendering complete

justice among all the parties in interest. * * *

It is more properly an auxiliary bill filed to assist

another circuit court in the administration and dis-

tribution of assets in a cause properly before it.

The circuit courts of the United States, by reson of

the comity existing between them, entertain such

bills, and give all the assistance in their power to

the court in which the bill was filed originally. The

extent of the jurisdiction of the courts entertaining

such auxiliary bills, and how far they will exert an

independent function, is not clearly determined. Mr.

Justice Harlan and Judge Jackson, in this circuit, in

Mercantile Trust Co. v. Kanawha & O. R. Co. (C.

C.) 39 Fed. 337, denied that this court could take

jurisdiction in such cases. That case, however, was

for the foreclosure of the mortgage covering a rail-

road in the district of West Virginia, and the bill

filed in the circuit court of that district did not con-

tain proper averments justifying such a decree. In

the First circuit, in Platt v. Railroad Co. (C.C.) 54

Fed. 569, it is stated that the practice in other dis-

tricts is to entertain such bills and to act upon them

generally ex parte and without argument.”

|)

In Coal & Iron Ry. Co. v. Reherd, 204 Fed. 859, a re-

ceiver of a partnership was appointed in Virginia. The

receiver then sued a debtor of the partnership in a Federal

court in West Virginia. While this suit was pending,

the receiver filed a bill for the appointment of ancillary

receivers in the Federal court in West Virginia. While

* the complainants in the primary receivership were named

as complainants in the ancillary suit in West Virginia,

the primary receiver was the moving party in the filing

of the bill. The court said (p. 882) :

“It seems to be settled, therefore, that this receiver,

who was appointed in a Virginia court, was not au-

thorized in the outset to institute his action in the

United States Court in the Northern District of

West Virginia; but the plaintiff undoubtedly, from

his subsequent action, undertook to cure this defect

by going into Randolph county, W. Va., after the

suit had been begun, and filing an ancillary bill, under

which an order ratifying his appointment as receiver

was made, * * ¥*

* * * x 2k *x *x *

The question then presented is as to whether this

proceeding, taken after the suit had been actually

instituted, would have the effect for which it was

intended. It occurs to us that in this situation the

position of the defendant becomes one of extreme

technicality. Undoubtedly, if the plaintiff had filed

his ancillary. bill in the state court of Randolph

county, W. Va., and his appointment as receiver had

been ratified, and authority given to bring the suit,

the proceeding herein would have been regular and

the question of jurisdiction eliminated.”

ilies

In Ward v. Foulkrod, 264 Fed. 627, a receiver was

appointed by a Delaware Court of Chancery. This re-

ceiver then petitioned a Federal court in Pennsylvania to

fee a receiver for the corporation appointed by

vi court and to turn over the assets held by that re-

ceiver to the petitioner, s Delaware receiver. The court

held that the Delaware court had prior jurisdiction over

the Federal court in Pennsylvania, but that the Delaware

receiver should have applied for the appointment of ancil-

lary receivers in the Federal court in Pennsylvania. The

court said (pages 536-637) :

“While a court of the domicile of a corporation

may appoint a receiver and authorize him to take

possession of its property in a foreign jurisdiction, as

did the court in this case, the doctrine seems universal

that the appointment confers no legal authority which

the receiver can, unaided and alone, exert over the

property in that jurisdiction. What then is to be

done?

x *e * * * 8 %*£ *

This is the rule of comity which impels the court

of foreign jurisdiction to render aid to the court of

primary jurisdiction in the administration of the cor-

poration’ s assets by appointing on application ancil-

lary receivers. 23 R. C. L. pp. 140-148. Of course,

in yielding to this rule, the court to which application

is made has the right to determine for itself who the

ancillary receivers shall be. While a court when

acting in comity to a distant court of coordinate

jurisdiction will be careful to appoint receivers amen-

‘able to its control, it usually appoints, for obvious

reasons, at least one of the receivers appointed by

=— =

the domiciliary court to act with one of its own

selection.

The appropriate proceeding in such a case as this

(which is readily distinguishable from O’Neil v.

Welch, supra, and similar cases where the foreign

court had no rights to be preserved) is not by applica-

tion of the receivers appointed by the court of pri-

mary jurisdiction addressed to the court of foreign

jurisdiction that it summarily discharge its receiver

and direct him to turn over to them the corporation’s

property in his hands, but it is by application to that

court praying it to discharge its receiver after he has

passed his account and appoint ancillary receivers.

When the prayer of such a petition has been granted

and ancillary receivers have been appointed, all rights,

those of the domiciliary court and of the foreign

court, and of all stockholders and creditors of the

corporation in both jurisdictions, will fall into their

proper places and will be duly cared for and pro-

tected in the orderly administration of the estate.

If such an application had been made in this case,

we apprehend the District Court would have recog-

nized and have acted upon the rules we have dis-

cussed. But as the application that .was made was

not one to which the District Court was required to

respond by yielding its jurisdiction in the manner

demanded, we find that its action was without error

and that its decree should be affirmed.

In order, however, that there shall be no misunder-

standing as to what we consider to be the rights

of the receivers of the state court in future appro-

priate proceedings looking to the appointment of

ancillary receivers in jurisdictions foreign to‘that of

their appointment, we direct that the order appealed

from be modified so as to provide that the dismissal

~—i0—

of the petition shall be without prejudice to the rights

of the Delaware receivers t® institute appropriate

proceedings for the appointment of ancillary receivers

for the property of the corporation now in the hands

of the receiver appointed by the District Court of

the United States for the Eastern District of Penn-

sylvania.” cl

The rule has been expressly approved in state courts.

Bodge v. Skinner Packing Co., 115 Neb. 41, 211

N. W. 203.

The decision of the Circuit Court of Appeals in the

McCandless case, in stating the rule that a receiver cannot

sue in a foreign jurisdiction and in citing Booth v. Clark,

supra, fails, we submit, to recognize the significance of the

rationale of the decision of this court in that case, and to

note the distinction between a suit by a foreign receiver

to recover funds or property which will, if recovered, be .

removed from the jurisdiction to the prejudice of local

creditors, and a suit for the appointment of ancillary

receivers. This distinction is important, as was recog-

nized by the Circuit Court of Appeals in its decision in

the instant case. (69 F. (2d) 233, 235-236.) As said

in that decision, the prohibition imposed by the holding in

Booth v. Clark, to the effect that a receiver could not sue

in a foreign jurisdiction, was for the benefit of local

creditors and applied only when the attempted suit was

for the purpose of removing property from the jurisdic-

tion. The opinion in Booth v. Clark so indicated, and

a oe

subsequent decisions of this court have confirmed this

principle.

Great Western Mining Co. v. Harris, 198 U. S.

561, 49 L. Ed. 1163; -

Hale v. Allison, 188 U. S. 56, 47 L. Ed. 380;

Sterrett v. Second National Bank, 248 U. S. 73,

63 L. Ed. 135;

Keatley v. Furey, 226 U. S. 399, 57 L. Ed. 273.

Neither the reason for the rule of Booth v. Clark, nor

the rule itself has any application to a suit for the appoint-

ment of ancillary receivers, since proceedings for’ the

appointment of ancillary receivers are expressly designed

for the dual purpose of protecting local creditors and of

cooperating with the primary receivership proceedings,

as is witnessed by the relief sought in the instant case.

The few Federal cases, cited in this connection by the

Circuit Court of Appeals in the McCandless decision, are

readily distinguishable.

In Hilltker v. Hale, 117 Fed. 220, a state receiver sued

in a foreign jurisdiction to recover on a statutory stock-

holders’ liability. The court correctly applied the rule of

Booth v. Ciark.

In Mercantile Trust Co. v. Kanawha & O. Ry. Co., 39

Fed. 337, the same complainant in the primary proceedings

brought the ancillary proceedings. Thus the point was not

raised or considered.

In Green v. Star Cash & Package Car Co., 99 Fed. 656,

a Federal District Court in Connecticut refused to appoint

om

ancillary receivers upon the petition of a primary receiver,

but based its refusal upon a ground other than that of the

fact that the primary receiver was the petitioner.

In In re Brant, 96 Fed. 257, it does not appear who the

petitioner for the appointment of a receiver was, or that

the application was for an, ancillary appointment. The

court said that there was ne defendant in the suit, and

hence no case pending in which a receiver could be ap-

pointed. ©

In Fairview Fluor Spar & Lead Co. v. Ulrich, 192 Fed.

894, a creditor, not a primary receiver, filed an ex parte

bill in a Federal court in Illinois without joining the cor-

poration as a party, and sought the appointment of a re-

ceiver ancillary to a receivership proceedings in another

Federal court. The court held that since there was no

defendant in the suit, the bill was a nullity.

Under the authorities above discussed, we submit that,

even if the primary receivers had not been entitled to sue

as quasi-assignees, they were entitled to invoke, upon their

own petition, the jurisdiction of the Federal court in Cali-

fornia, to appoint ancillary receivers in an independent

action brought for that purpose, and that the court had the

requisite jurisdiction to make such appointment.

This conclusion is necessarily confirmed by the many

cases, hereinafter discussed under the next point, which

have uniformly held that the Federal courts have juris-

diction to appoint receivers ancillary to a receivership

proceeding in another jurisdiction, apart from the usual

jurisdictional requirements of the amount involved in the

suit and diversity of citizenship.

ae ee

2. THE FEDERAL Courts, By VIRTUE OF Comity, Have

JURISDICTION To Appoint RECEIVERS ANCILLARY

TO A PRIMARY RECEIVERSHIP PROCEEDINGS WITH-

OUT REGARD TO JURISDICTIONAL REQUIREMENTS.

It has been repeatedly and uniformly held that a Fed-

eral court has jurisdiction to appoint receivers ancillary

‘to a receivership proceeding in another jurisdiction, with-

out regard to the usual requisites of jurisdictional amount

and diversity of citizenship.

Sands v. E. S. Greeley & Co., 88 Fed. 130 (ck

A. Second Circuit) ;

Shinney v. North American Savings, 1, &

Building Co., 97 Fed. 9 (C. C. D. Utah) ;

Rust v. United Waterworks Co., 70 Fed. 129 {eo

C. A. Eighth Circuit) ;

Bluefields S. S. Co. v. Steele, 184 Fed. 584 (i &

A. Third Circuit) ;

Ward v. Foulkrod, 264 Fed. 627 (C. C. A. Third

Circuit) ;

Bluefields S. S. Co. v. Steele, 192 Fed. 23 (<<)

A. Third Circuit) ;

Seested v. Bonfils, 33 F. (2d) 185 im G. @,

Colo. ) ; ;

Trustees System Co. of Pennsylvania v. Payne, 65

F. (2d) 103 (C. C. A. Third Circuit) ;

Walker v. United States Light & Heating Co.,

220 Fed. 393 (D. C. S. DN. LF:

Reed v. Alaska Mines Corporation, 6 Alaska 370.

Federal courts will make such ancillary appointment not

only when based upon proceetlings in other Federal courts,

«

a ee

but also when based upon primary proceedings in a state*

court.

Sands v. E. S. Greeley & Co., 88 Fed. 130;

Shinney v. North American Savings, Loan &

Building Co., 97 Fed. 9;

Rust v. United Waterworks Co., 70 Fed. 129;

Seested v. Bonfils, 33 F. (2d) 185.

The theory of these cases is that an order, appointing a

receiver in a court of primary jurisdiction, is entitled to

full faith and credit, and that the Federal court will make

an appointment of receivers ancillary to the primary pro-

ceedings by virtue of the doctrine of comity.

The same principle has been applied in the state courts

where, under the doctrine of comity, one court will ap-

point receivers ancillary to receivership proceedings in

another state, without regard to the question of jurisdic-

tion.

Southern Colonization Co. v. Parten, 83 Fla. 300,

91 So. 263;

Bodge v. Skinner Packing Co., 115 Neb. 41, 211

N. W. 203.

It is apparent, under these cases, that, in this connection,

the Federal courts are exercising an inherent equity juris-

diction to which the usual requirements of jurisdictional

amount and diversity of citizenship are not requisite. To

hold that the Federal courts have no jurisdiction to ap-

point ancillary receivers upon the application of primary

receivers, for the reason that such jurisdiction is not

expressly conferred by the Constitution of the United

States, or by the pertinent statutes of Congress, would

have the result of overruling the immediately above men-

tioned cases and of denying the principle upon which those

decisions are based. ;

~

CONCLUSION.

Cogent practical considerations for the affirmance of

the judgment of the Circuit Court of Appeals in this case

have been presented to this court in petitioner’s brief and

petitioner’s reply brief in the McCandless case, and it is

therefore unnecessary to reiterate them here.

We submit that, aside from such practical considera-

tions, and apart from the questions presented in McCand-

less v. Furlaud, the primary receivers, for the reasons here-

lu discussed, properly instituted and were entitled to main-

tain the action for the appointment of ancillary receivers

in the Federal court in California, and that the judgment

of the Circuit Court of Appeals should be affirmed, with

costs.

Respectfully submitted,

E. D. Lyman, * |

Attorney for Respondents.

P. B. Plump,

CHALMERs L. McGaucue_y and

Ben S. Berry,

Of Counsel.

RELIEF ON LMT EEE SIRS LR EI Nth RE EE