Knudsen v. First Trust & Savings Bank

WOLVERTON, District Judge (after stating the facts as above). The central question presented by this appeal is whether, by the rules of law relating to conflicting jurisdiction of courts or by reason of the comity existing between the federal and state courts, the District Court of the United States ought to entertain and maintain jurisdiction through its receiver of the res, which is the property subject to the trust deed of complainants. [ 1 ] Where the controversy is the same in actions pending in courts of concurrent jurisdiction, and the parties are the same, the general rule, supported by the weight of authority, seems to be that the court first acquiring jurisdiction of the controversy will retain it to the exclusion of the other, though possession of the res he not taken, [84] through a receiver or otherwise. In re Lasserot, 240 Fed. 325, — C. C. A. — ; Gluck & Becker on Receivers, 67, 68 (2d Ed. 89, 91), cited in Empire Trust Co. v. Brooks, 232 Fed. 641, 646, 146 C. C. A. 567. [2] Nevertheless it is true that the pendency of an action in a state court is no bar to proceedings concerning the same matter in a federal court having jurisdiction. McClellan v. Carland, 217 U. S. 268, 30 Sup. Ct. 501, 54 L. Ed. 762. [3] The possession of the res vests the court which has first acquired jurisdiction with the power to hear and determine all controversies relating thereto, and this to the exclusion of other courts of co-ordinate jurisdiction assuming to exercise like power. Farmers’ Loan, etc., Co. v. Lake St. Rd. Co., 177 U. S. 51, 20 Sup. Ct. 564, 44 L. Ed. 667; Palmer v. Texas, 212 U. S. 118, 29 Sup. Ct. 230, 53 L. Ed. 435. “Nor,” says the court in the Farmers’ Loan Company Case, supra, “is this rule restricted in its application to cases where property has been actually seized under judicial process before a second suit is instituted in another court, but it often applies as well where suits are brought to enforce liens against specific property, to marshal assets, administer trusts, or liquidate insolvent estates,' and in suits of a similar nature where, in the progress of the litigation, the court may be compelled to assume the possession and control of the property to be affected. The rule has been declared to be of especial importance in its application to federal and state courts.” In this case the Farmers’ Loan & Trust Company commenced its suit to foreclose in the federal court, on January 30, 1896, at 10:35 a. m. On the same day, but shortly after the bill had been filed, the Lake Street Elevated Railroad Company filed its bill to restrain and enjoin the loan company from prosecuting any suit to foreclose, and a writ of injunction was forthwith issued and served. It was held that the federal court first obtained jurisdiction of-the res by reason of the filing of its bill, notwithstanding the injunction in the state court was first issued and served, the court saying: “The bill filed in the federal court looked to the enforcement of the trusts declared in the mortgage, the control of the railroad through a receiver, the sale of the railroad, and the final distribution of the assets of the company.” The Palmer Case was a proceeding in the state court of Texas to' forfeit a permit of the oil company to do business in that state. The receiver had been appointed and qualified, and process served, although he had not taken actual possession of the property, and it was held that the state court had acquired constructive possession of the res as against the propriety of the federal court assuming possession through a receiver appointed by it. These cases are illustrative of the application of the doctrine stated in the above-quoted paragraph. A case also quite apposite for illustration of the principle is McKinney v. Landon, 209 Fed. 300, 126 C. C. A. 226. The state of Kansas, through its Attorney General, instituted quo warranto proceedings against a group of gas companies, with prayer for ouster and the appointment of receivers to take charge of the property and business. The cause was tried in the state court, and taken under advisement. [85] While it was in this condition suits were instituted in the federal court, one alleging insolvency and praying appointment of a receiver, and the other to foreclose, and a receiver was accordingly appointed before any was appointed by the state court. The jurisdiction of the federal court of the res was denied, the court saying: “That actual seizure or possession is not essential, but that jurisdiction may be acquired by acts which according to established procedure, stand for dominion and in effect subject the property to judicial control.” [4] There is another principle enunciated by the courts and text-writers, namely, that where the controversy, is not the same, that is, where the issues in one suit are different from those involved in another, and the subject-matter is not identical, there can be no infringement of jurisdiction as between the courts maintaining cognizance of the cases. This, it is maintained, rests on the ground that in such a case there is no conflict of jurisdiction as to the question or cause. In such cases, the first acquisition of the possession of the res dominates the authority to retain the same. Empire Trust Co. v. Brooks, 232 Fed. 641, 146 C. C. A. 567; Compton v. Jesup, 68 Fed. 263, 283, 15 C. C. A. 397; De La Vergne Refrig. Mach. Co. v. Palmetto Brewing Co. (C. C.) 72 Fed. 579; Gluck & Becker on Receivers, supra. The application of the principle is very well enunciated by Simonton, Circuit Judge, in Machinery Co. v. Brewing Co., supra, as follows: “In view, therefore, of the fact that the controversy in the suit in this court is entirely distinct from that in the state court, and that the scope and purpose of the proceedings in the state court are not those of the proceedings in this court, connected with the fact that the receiver heretofore appointed in the main cause is in actual, peaceable possession of the property, and that the complainant holds a legal lien on the property, entitling it to its possession through a receiver, the mortgagor being insolvent, and that this court has been ashed by it not to exercise a.n act of discretion, but to give effect to a right secured to it by the Constitution and laws of the United States, the prayer of the petition cannot he granted; and it is so ordered.” These principles, in either aspect, we think determine the case against appellants. That the controversies involved by the two suits are not the same is perfectly manifest. It is a little difficult to say just what the purpose of the suit in the state court was. It is manifestly not a suit to wind out the business of the concern, dispose of its assets, and distribute its proceeds among those entitled thereto. On the other hand, it was evidently designed that the irrigation company should be maintained as a going concern, and that the system which it had promoted should be repaired and completed. It is shown that the company had squandered its funds, which are denominated trust funds, to which the purchasers were entitled for the repair, maintenance, and upkeep of the system, and in this connection it is alleged that the plaintiffs in said action and others similarly situated “had by virtue of the premises and by operation of law and equity a first and prior lien and claim upon all of the assets of every kind, character, and description” of the irrigation company, and that the lien of the trust deed of the complainants in the foreclosure suit was inferior in rank to theirs. But there is not a semblance of a purpose shown to enforce such purchasers’ liens as such. At most, the suit could be [86] construed only as one for the rehabilitation and reorganization of the irrigation company, and the readjustment of its affairs in that way so that the purchasers might reap the benefits of their purchases in pursuance of the original scheme for promoting and maintaining the irrigation system. Now, it cannot be said that the suit in the state court is either an action in rem, suited to a disposal of the irrigation company’s property, or one to enforce a lien, with the subjection of its property to the satisfaction thereof. Nor is it a suit to marshal assets for distribution among those entitled thereto, for such a thing was not contemplated. The only apparent object was that the affairs of the company might be administered for the time being under the supervision of the court for accomplishing the purposes of rehabilitation and reorganization. It is not such a suit that the full accomplishment of its purposes requires dominion and control over the res; so that, whether we apply the one principle or the other above ascertained, the trial court was right in maintaining possession of the res under its receivership. We have not made mention of the bankruptcy matter, because it does not affect the result. The fact that a trustee in bankruptcy had been appointed and had taken possession of the res does not aid'the complainants’ possession in the foreclosure suit. It is only because the receiver in the federal court first obtained possession of the res that the court is entitled to maintain its jurisdiction respecting the same. Affirmed. Footnotes [1] <gn=3l<’or other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes [2] <@=»For other eases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes