Brown v. Duffin

DENISON, Circuit Judge (after stating the facts as above). Throe questions are involved: (1) Whether the bill states a ease justifying the receivership; (2) whether the bill is a collusive effort to got jurisdiction into the federal court; (3) whether the state court proceedings, by their priority in time, exclude the federal court remedy. 1. We see no reason to doubt that the bill makes a good case in equity for a receivership, and for the usual degree of exclusive jurisdiction in the receivership court over collateral controversies. The corporation had voluntarily discontinued business, although its corporate existence continued; all its assets were in the hands of the liquidating trustees; they wei’e about to resign and leave at large what were in substance the corporate assets. The ease was entirely suitable for a receivership; no more appvopri-r ate means existed for appointing a successor trustee. The fact that the trustees were, in precision, trustees for the stockholders, and not for the corporation, is not matter of substance. 2. We find no collusion, as that term is defined in this connection. The plaintiff in the receivership suit was a large stockholder or beneficiary of the trust, and it now appears that ho rep resented the very large, if not the overwhelming, majority of those beneficiaries. He was a citizen of Illinois, and if he preferred to bring his suit in the federal court he had the right to do so; his motives are not important. Having this right, the consent of the defendants that it should be there placed, and that a receiver bo appointed by that court, does not make collusion. Toledo v. Toledo Rys. (C. C. A. 6) 259 F. 450, and cases cited on page 456. 3. The question of the exclusive effect of the proceedings in the state court is a close and troublesome one, and depends upon their precise character and effect. Without discussing the authorities in detail, we think the established principles are that, as between state and federal courts having concurrent jurisdiction, if the suit is clearly one in which the court must take possession of the property in order* to give the relief asked, the court which is first appealed to by commencement of suit gets exclusive jurisdiction (Dennison Co. v. Chicago Co. [C. C. A. 6] 286 F. 818, 820); while, if the [710] suit is wholly in personam, there is no exclusion of one by the other, and nQ obstacle exists to the prosecution of either until one of them reaches the stage of final judgment, whereupon it may be pleaded in bar in the other (Kline v. Burke Co., 260 U. S. 226, 43 S. Ct. 79, 67 L. Ed. 226, 24 A. L. R. 1077). A test, perhaps the invariable one, whether a suit is primarily in rem or in personam seems to be whether it may be wholly prosecuted by substituted service under section 57 of the Judicial Code (Comp. St. § 1039). There is, however, a third class of suits, in which, though the custody of property is not essential to attain the object of the suit, yet during the progress of the ease such custody may become necessary or desirable, as collateral to the full measure of relief, which was primarily sought in personam. These cases are only inchoately in rem, and the ex-elusive jurisdiction dates either from the actual taking of possession, or, at the earliest, from some specific request that the court do take possession. We put the Brown state court case in this class. It did not ask that the court seize any property. A judgment in equity that defendant first account, and then pay over, is a judgment in personam. Yet it showed a body of property with the trustees, for which a receivership might well be later advisable, and the prayer for general relief would have supported such a result. Hence it was, up to the time of filing the federal bill, a suit in personam, and did not bar the general jurisdiction of the federal court. Nor did the federal receivership necessarily bar the continuance of the state court accounting suit. A proceeding for accounting by the trustees, and payment over to their successor, the receiver, is so far collateral to the receivership, and, if in another court, so likely to embarrass the receivership administration, that no more such suits should be brought after the receiver is appointed; but, under the principles involved, it is not so wholly and necessarily collateral that a suit in personam, rightly planted, can be superseded, in so far as the rights of the parties have been already fixed. It results that the Brown Case may proceed in the state court, strictly in personam, by and for the sole benefit of its original plaintiffs ar^d those other stockholders, if any, who had accepted its invitation .and joined as plaintiffs before the receivership. While the Brown case was initially a class suit, its assumption of an open representative character was ended by the appointment of an official representative for all stockholders, effective as to all who had not already accepted the Brown invitation, and even as to them in all matters except the personal accounting up until that date. It follows that this Brown suit and any accounting proceeding which may be instituted by the receiver may proceed concurrently in matters in personam. The books and papers are in control of the federal court, but it will doubtless permit their reasonable úse as evidence in the state court. The effect of any final judgment, as an adjudication, is not now involved. The decree below should be modified in accordance -with this opinion, and the case is remanded for further appropriate proceedings. Appellants will recover costs of this court.