Milwaukee & St. Paul Railroad v. Milwaukee & Minnesota Railroad

Cole, J. We are of the opinion that the order appealed from in this case must be affirmed for the objection taken as the first ground of demurrer. That objection is, that it appears upon the face of the complaint that the circuit court of Milwaukee county has no jurisdiction of the subject of the action, which is the railroad and other property therein mentioned, for the reason that the same is in the possession of the United States court by its receiver. This point we think well taken. The complaint certainly shows in the clearest manner that Hans Crocker, as receiver, on the 11th day of June, 1860, took possession of the railroad of the La Crosse & Milwaukee company, together with its rolling stock and all other property, under the foreclosure proceedings in the United States district court, and that he still holds possession. It likewise appears that the receiver was appointed under a mortgage prior in date and superior in equity to the Barnes mortgage, which the plaintiff asks to have foreclosed for its benefit and the benefit of other bondholders under that mortgage. Now is it not perfectly obvious that there can be no foreclosure and sale under the Barnes mortgage without directly interfering with the rights or possession of the receiver ? The relief prayed for in the complaint [172] is, that the amount due the plaintiff on its bonds, as well as all other bondholders under the mortgage to Barnes, be ascertained and determined ; that the said mortgage be foreclosed, and the premises therein described be sold under the direction of the state court, and that the purchaser at the sale be let into the jDossession of the mortgaged premises. How can any such relief be granted withóut disturbing the possession of the receiver? Should the state court, for the purpose of enforcing a later incumbrance, proceed to sell property already in the care and possession of another court, by its receiver, to satisfy a superior mortgage ? We were referred to a class of cases on the argument, which hold that any attempt by a person having an outstanding right or title, to disturb the possession of a receiver, would be considered a contempt of the court appointing such receiver; and that even when a party is asserting a prior legal right over the property, he should ask and obtain leave of the tribunal appointing the receiver,before bringing his action; otherwise he will be liable to be adjudged in contempt, and punished accordingly. The reason given for this rule of practice is, that unless the court having possession of the property is permitted to retain it undisturbed, and administer upon it, nothing could be more easy than to prevent the execution of the decree by persons having or pretending title to such estate. See the authorities cited on the briefs of the counsel in this case, and also Angell v. Smith, 9 Vesey, 335; Chataugue County Bank v. Risley, 19 N. Y., 370. If this rule obtains in respect to one asserting a paramount right to the properly in the possession of the receiver, the reason of the rule certainly applies with stronger force to a party seeking to enforce a confessedly inferior lien. The counsel for the plaintiff admits that the principle is perfectly well settled, that when a receiver has been appointed by one court to take possession of property, no steps can be taken in another court which will affect the title or possession of the receiver. And this concession would seem to be fatal to the [173] action. Eor, as already observed, if there should be a foreclosure and sale under the Barnes mortgage, surely the purchaser at such sale could not be let into the possession of the mortgaged property without taking the possession from the receiver. And that this should not be done, particularly where the receiver is in possession under a prior incumbrance, results from the most obvious legal principles. It is attempted, however, to avoid the application of the rule of practice just referred to, by insisting that it is one object of the suit at bar to inquire into the regularity of the foreclosure already made by the trustee, Barnes, and to set aside and vacate that foreclosure, and the conveyance made by the trustee to the defendant company. And it is said that the court below should take jurisdiction for the purpose of determining and settling these questions, and then, if there is any doubt about its right to enforce its judgment while the receiver is in possession, it should direct the party to apply to the court in which the receiver is appointed, for leave to execute its judgment. But such litigation in the state courts, if not anomalous, would manifestly be fruitless and inconsequential, while the railroad is in the possession of the receiver. Eor suppose the state court should determine that the sale made by Barnes was for any reason invalid and of no effect, yet it could not proceed and foreclose the Barnes mortgage by selling the mortgaged premises. Or if it should sell, it could not place its purchaser in possession without disturbing the possession of the receiver already appointed; and therefore the litigation would be of no avail. It seems to us, the more appropriate tribunal for settling these rights is the United States court, which has already taken the possession and control of the railroad property by its receiver, and which, in distributing the fund, can fully protect the interests of all parties. If there is any money which can properly be applied in payment of the bonds secured by the Barnes mortgage, there is no difficulty in the United States court applying it upon those claims. It is fully competent to ascertain [174] and settle tbe rights of tbe parties, and distribute the funds among those entitled to them. By the Court. — The order of the circuit court sustaining the demurrer, is affirmed. Dowser, J., took no part in the decision of this case.