Harkin v. Brundage
276 U.S. 36 (1928)

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U.S. Supreme Court

Harkin v. Brundage, 276 U.S. 36 (1928)

Harkin v. Brundage

No. 117

Argued December 5, 6, 1927

Decided February 20, 1928

276 U.S. 36

Syllabus

1. As between two courts of concurrent and coordinate jurisdiction, the court which first obtains jurisdiction and constructive possession of property by the filing of a bill is entitled to retain it without interference, and cannot be deprived of its right to do so because it may not have obtained prior physical possession by its receiver of the property in dispute; but where the jurisdiction is not the same or concurrent, and the subject matter in litigation in the one is not within the cognizance of the other, or there is no constructive possession of the property in dispute by the filing of a bill, it is the date of the actual possession of the receiver that determines the priority of jurisdiction. P. 276 U. S. 43.

2. A stockholders' suit having been brought in a state court to protect the assets of a corporation from wasteful and dishonest management and to restore them, when in safe condition, to the corporation after election of a new management, the attorney for the corporation fraudulently procured a postponement of a motion for receivers by agreeing in the state court that nothing would be done in the interim to affect the status quo, the real intention being to secure a prior receivership in the federal court. To this end, during the continuance, a collusive creditors' suit was begun against the corporation by a nonresident, a receiver was appointed with the corporation's consent, the bill, answer, and consent being filed simultaneously, and the receiver took custody of the corporate property.

Page 276 U. S. 37

Soon afterwards, receivers appointed by the state court, explaining he facts to the federal court, applied for a surrender of the property, which was denied, although the parties there at that time were limited to the corporation and the plaintiff, both charged with knowledge of the fraud, and although, due to the insolvency of the corporation, the proceeding in the state court could by amendment have been given the effect of a creditors' bill. The federal court proceeded to administer the corporate estate, receiver's receipts were issued and paid, some of the property was sold, some distribution made to creditors, and the rights of innocent creditors who had become parties were involved.

Held:

(1) The means by which the state court was induced to delay exercise of its jurisdiction to appoint receivers and the failure to reveal the facts to the federal court constituted a fraud on both courts. P. 276 U. S. 56.

(2) Vindication of the cause of comity and good faith as between the two courts should not be limited to punitive proceedings against the lawyer whose pledge to the state court was broken. P. 276 U. S. 54.

(3) Although the difference in character between the two suits as brought was such as to have enabled the federal court to retain jurisdiction of the property but for the fraud, when it learned of the fraud, the parties before it being both guilty, it was bound in good faith and comity to accord the state court an opportunity to exercise its jurisdiction, even to the taking of the property. P. 276 U. S. 56.

(4) Notwithstanding the subsequent change of situation, through the administration of the estate in the federal court and the introduction of innocent parties, comity still required that the federal court, after paying reasonable compensation to its officers for work done by them, should surrender the property still in its custody to the state court receivers, but on condition that that court first confirm all that was done in the sale, disposition, and distribution of assets as though done by its own decree, and so shape its pleadings, etc., that the case in that court might proceed, as a creditors' bill, to a liquidation of all debts and distribution of remaining assets. P. 276 U. S. 57

(5) Failing the making of such an order by the state court and its production in the federal court in a seasonable time, the pending administration in the federal court should continue. P. 276 U. S. 58.

3. As a general rule, a creditors' bill can be brought only by a judgment creditor after a return of nulla bona. P. 276 U. S. 52.

4. When a receiver has been irregularly appointed in a suit by a simple contract creditor with consent of the defendant, and the

Page 276 U. S. 38

administration has proceeded so far that it would be detrimental to all concerned to discharge the receiver, the receivership has been permitted to continue because not seasonably objected to. P. 276 U. S. 52.

5. A receiver is an officer of the court, and should be as free from "friendliness" to any party as should the court itself. P. 276 U. S. 55.

6. A conclusion of fact made by the district court upon hearing the witnesses will not be accepted here when the agreed stenographic report and other circumstance in the case show it to be clearly erroneous. P. 276 U. S. 53.

13 F.2d 617 reversed.

Certiorari, 273 U.S. 682, to a decree of the circuit court of appeals affirming an order of the district court, which denied an application by the petitioners here for surrender into their custody, as receivers appointed by a state court, of property in the custody of the respondent, as receiver appointed by the district court. See post, p. 604.

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