Klein v. Peter

HUNT, Circuit Judge (after stating the facts as above). [1] Before the present suit was instituted the district court of the Fifth judicial district of the state of Idaho, a court of competent jurisdiction, in an action by F. Walther against the Mascot Mining & Milling Company, the Idaho corporation, lawfully acquired possession of all the assets and property of the corporation through the appointment of a receiver, and reserved to itself, or subject to its permission or order, the determination of questions affecting the property and the administration thereof. Thus, when this suit was instituted, the property of the corporation was in custodia legis. Davis v. Gray, 83 U. S. (16 Wall.) 203, 21 L. Ed. 447; Porter v. Sabin, 149 U. S. 473, 13 Sup. Ct. 1008, 37 L. Ed. 815; Martin v. Atchison, 2 Idaho, 634, 33 Pac. 47. The action in the state court was to recover upon claims alleged to be due from the corporation to Walther and Peter, and in that action it was also alleged that the defendant corporation was insolvent, and a receiver was asked. That it was part of the alleged scheme of those made defendants in the present suit to bring the action referred to against the corporation in the state court, and to have a receiver appointed by the state court, does not affect the question. No charge is here made that the receiver was appointed by the state court as a result of any misconduct on the part of that court or the judge thereof; nor does it appear that any stockholder in the corporation, or that the corporation through its officers, objected to the action of the state 'court in appointing a receiver, or that the court was ever requested by any shareholder to direct the receiver to sue on behalf of the corporation and its shareholders. [2] Clearly, the primary right to sue is in the corporation and the receiver, and forms part of the estate being administered by the state court, and is within the jurisdiction of that court. Ridge v. Manker, 132 Fed. 599, 67 C. C. A. 596; Kelly v. Dolan, 233 Fed. 635, 147 C. C. [364] A. 443; Kelly v. Dolan (D. C.) 218 Fed. 966. In Porter v. Sabin, supra, during the time a receiver appointed by a state court was in control of the property and business of a corporation, certain stockholders brought suit in the federal court against the directors and managing officers of the company for wasting the assets, and the corporation was joined as defendant. Plaintiffs alleged that the state court refused to permit the receiver to bring such an action, or to be made a defendant therein, and the court said: “If the corporation becomes insolvent, and a receiver of all Its assets and effects is appointed by a court of competent jurisdiction, tbe right to enforce this and all other rights of the corporation vests in the receiver, and he is the proper party to bring suit, and if he does not himself sue he should properly be made a defendant in any suit by stockholders in the right of the corporation.” The court cited Covell v. Heyman, 111 U. S. 176, 4 Sup. Ct. 355, 28 L. Ed. 390, which held that, when one court takes into its jurisdiction a specific thing, that thing is as much withdrawn from the judicial power of the other as if it had been carried physically into a different territorial sovereignty. In Atlantic Trust Co. v. Chapman, 208 U. S. 360, 375, 28 Sup. Ct. 406, 411 (52 L. Ed. 528, 13 Ann. Cas. 1155) the court said: “A receiver, as soon as he is appointed and qualifies, comes, as we have said, under the sole direction of the court. The contracts he makes, or the engagements into .which he enters from time to time under the order of the court, are in a substantial sense the contracts and engagements of the court.. The liabilities which he incurs are liabilities chargeable upon ihe property under the control and in the possession of the court, and not liab ilities of the parties. They have no authority over him and cannot control his acts.” We think the Supreme Court in Kline et al. v. Burke Construction Co., 43 Sup. Ct. 79, 67 L. Ed.-(decided November 20, 1922), has adhered to the same rule. Our conclusion is that, inasmuch as the whole of the property of the corporation, including all its rights of action, except as orders of the state court may have otherwise directed, remains in the custody of the state court, to be administered and distributed by that court, under the facts alleged the federal court will not assume to deal with the rights of property or action which constitute part of the estate; at least, until the estate has been completely administered and the receivership terminated, or unless the state court has authorized the receiver to bring suit. Porter v. Sabin, supra; Palmer v. Texas, 212 U. S. 118, 123, 29 Sup. Ct. 230, 53 L. Ed. 435. The decree of dismissal is affirmed. Addendum. — Since the foregoing opinion was agreed upon, the Circuit Court of Appeals for the Eighth Circuit has decided Klein et al. v. Peter et al., 284 Fed. 797, which we cite as in accord with, the view we have expressed.