The evident purpose of a suitor who brings his action against a
receiver without leave is to obtain some advantage over the other
claimants upon the assets in the receiver's hands. His judgment, if
he recovered one, would be against the defendant in his capacity as
receiver, and the execution would run against the property in his
hands as such.
Hall v. Smith, 2 Bing. 156;
Camp v.
Barney, 4 Hun (N.Y.) 373;
Commonwealth v. Runk, 26
Pa.St. 235;
Thompson v. Scott, 4 Dill. 508.
If he has the right in a distinct suit to prosecute his demand
to judgment without leave of the court appointing the receiver, he
would have the right to enforce satisfaction of it. By virtue of
his judgment, he could, unless restrained by injunction, seize upon
the property of the trust or attach its credits. If his judgment
were recovered outside the territorial jurisdiction of the court by
which the receiver was appointed, he could do this and the court
which appointed the receiver and was administering the trust assets
would be impotent to restrain him. The effect upon the property of
the trust of any attempt to enforce satisfaction of his judgment
would be precisely the same as if his suit had been brought for the
purpose of taking property
Page 104 U. S. 129
from the possession of the receiver. A suit, therefore, brought
without leave to recover judgment against a receiver for a money
demand is virtually a suit the purpose of which is, and effect of
which may be, to take the property of the trust from his hands and
apply it to the payment of the plaintiff's claim without regard to
the rights of other creditors or the orders of the court which is
administering the trust property. We think, therefore, that it is
immaterial whether the suit is brought against him to recover
specific property or to obtain judgment for a money demand. In
either case, leave should be first obtained.
And it has been so held, in effect, by this Court. In
Wiswall v.
Sampson, 14 How. 52, this Court said:
"It has been argued that a sale of the premises on execution and
purchase occasioned no interference with the possession of the
receiver, and hence no contempt of the authority of the court, and
the sale therefore in such a case should be upheld. But conceding
the proceedings did not disturb the possession of the receiver, the
argument does not meet the objection. The property is a fund in
court to abide the result of the litigation, and to be applied to
the payment of the judgment creditor who has filed his bill to
remove impediments in the way of his execution. If he has succeeded
in establishing his right to the application of any portion of the
fund, it is the duty of the court to see that such application is
made. And in order to effect this, the court must administer it
independently of any rights acquired by third persons pending the
litigation. Otherwise the whole fund may have passed out of its
hands before the final decree, and the litigation become
fruitless."
So in
Ames v. Trustees of Birkenhead Docks, 20 Beav.
332, Lord Romilly, Master of the Rolls, said that it is an idle
distinction that the rule forbidding any interference with property
in the course of administration in the Court of Chancery only
applies to property actually in the hands of the receiver, and
declared that it applied to debts, rents, and tolls which the
receiver was appointed to receive.
It is next asserted by the plaintiff that the fact that the
receiver in this case is in possession of, and is conducting the
business of, a railroad as a common carrier takes his case out
Page 104 U. S. 130
of the rule that he is only answerable to the court by which he
is appointed, and cannot be sued without its leave. Her contention
is that parties who deal with such a receiver, either as freighters
or passengers upon his railroad, may for any injury suffered,
either in person or property, sue him without leave of the court by
which he was appointed.
We do not perceive how the fact that the receiver, under the
orders of the court, is doing the business usually done by a common
carrier makes his case any exception to the rule under
consideration. It was said by this Court in
Cowdrey v.
Galveston &c. Railroad Co., 93 U. S.
352, that
"The allowance for goods lost in transportation, and for damages
done to property whilst the road was in the hands of the receiver,
was properly made. The earnings received were as much chargeable
with such loss and damage as they were chargeable with the ordinary
expenses of managing the road. The bondholders were only entitled
to what remained after charges of this kind, as well as the
expenses incurred in their behalf, were paid."
This puts claims against the receiver, in his capacity as a
common carrier, on the same footing precisely as the salaries of
his subordinates or as claims for labor and material used in
carrying on the business. If a passenger on the railroad who is
injured in person or property by the negligence of the servants of
the receiver can, without leave, sue him to recover his damages,
then every conductor, engineer, brakeman, or trackhand can also sue
for his wages without leave. To admit such a practice would be to
allow the charges and expenses of the administration of a trust
property in the hands of a court of equity to be controlled by
other courts at the instance of impatient suitors, without regard
to the equities of other claimants, and to permit the trust
property to be wasted in the costs of unnecessary litigation.
Such is not the course and practice of courts of equity in
administering a trust estate. The costs and expenses of the trust
are allowed by the court upon a reference to its own master. If the
adjustment of the claim involves any dispute in regard to the
alleged negligence of the receiver, or any other fact upon which
his liability depends, or in regard to the amount of the damages
sustained by a party, the court, in a
Page 104 U. S. 131
proper case, in the exercise of its legal discretion, either of
its own motion or on the demand of the party injured, may allow him
to sue the receiver in a court of law, or direct the trial of a
feigned issue to settle the contested facts.
The claim of the plaintiff, which is against the receiver for a
personal injury sustained by her while traveling on the railroad
managed by him, stands on precisely the same footing as any of the
expenses incurred in the execution of the trust, and must be
adjusted and satisfied in the same way.
We therefore think that the demand of the plaintiff is not of
such a nature that it may of prosecuted by suit without leave of
the court.
The plaintiff lastly contends that want of leave to bring the
suit does not take away the jurisdiction of the court in which it
was brought to hear and determine it, but only subjects the
plaintiff to liability to be attached for contempt, or to be
enjoined from its further prosecution. In other words, she says
that leave to prosecute the suit is not a jurisdictional fact, and
that therefore the plea to the jurisdiction should not have been
sustained.
Our decision upon this question will be limited to the facts of
this case, which are that the receiver was appointed by a court of
the State of Virginia, and the property in course of administration
was in that state; the suit was brought in a court of the District
of Columbia, a foreign jurisdiction, and the cause of action was an
injury received by plaintiff in the State of Virginia, by reason of
the negligence of the defendant while carrying on the business of a
railroad, under the orders of the court by which he was appointed.
No leave was obtained to bring the suit, and it does not appear
that any application was made, either to the receiver or to the
court by which he was appointed, to allow and pay the demand of the
plaintiff.
Upon these facts, we are of opinion that the Supreme Court of
the District of Columbia had no jurisdiction to entertain a
suit.
This point has been substantially settled by this Court in the
case of
Peale v.
Phipps, 14 How. 368.
In that case, it appeared that, under a law of the State of
Page 104 U. S. 132
Mississippi, by the decree of the Circuit Court of Adams County
in that state, the charter of the Agricultural Bank at Natchez was
declared forfeited and the corporation dissolved, and Peale, the
plaintiff in error, appointed trustee and assignee of its assets,
and was the sole legal representative of the corporation; that he
became legally liable to the creditors of the bank to the extent of
the assets, and that he had assets in his possession sufficient to
pay all the debts of the corporation. The defendants in error
claimed that there was due them from the bank a large sum of money
on account of mesne profits, &c., of certain real estate in
Natchez, from which they had been unlawfully expelled by the bank,
and the possession of which they had recovered from the bank in an
action of ejectment. The defendants in error presented their claim
to Peale, the receiver, for allowance as a valid claim against the
bank, who refused to admit or allow it, or any part of it.
Thereupon the defendant in error brought suit against Peale in
the United states Circuit Court for the Eastern District of
Louisiana to recover said mesne profits, and effected service upon
him in that district. Peale, among other defenses, filed an
exception in which he denied the jurisdiction of the court. This
was overruled, and judgment was rendered against him for $20,058,
to be satisfied out of the assets of the bank in the hands of Peale
as trustee. The case having been brought on error to this Court,
the judgment was reversed. The Court, Mr. Chief Justice Taney
delivering its opinion, said:
"As we think this exception [the one just mentioned] decisive
against the jurisdiction of the Circuit Court of Louisiana, it is
unnecessary to set out the other exceptions. We see no ground upon
which the jurisdiction of the court can be sustained. The plaintiff
in error held the assets of the bank as the agent and receiver of
the Court of Adams County and subject to its order, and was not
authorized to dispose of any assets or pay any debts due from the
bank except by order of the court. He had given bond for the
performance of his duty, and would be liable to an action if he
paid any claim without the authority of the court from which he
received his appointment and to which he was accountable. The
property in legal contemplation was in the custody of the court of
which he was an
Page 104 U. S. 133
officer, and had been placed there by the laws of Mississippi.
And while it thus remained in the custody and possession of that
court, awaiting its order and decision, no other court had a right
to interfere with it and wrest it from the hands of its agent, and
thereby put it out of his power to perform his duty."
And the Court declared that the facts stated in the petition
showed "that the Circuit Court of Louisiana had no jurisdiction" of
the case.
That case differs from the one now under consideration only in
this, that it was a suit to recover a judgment against the trustee
and receiver upon a demand due from the bank before his
appointment, while the present case seeks to establish a demand
against the receiver for a claim which, according to the decision
of this Court (
Cowdrey v. Galveston, &c. Railroad Co.,
supra), forms a part of the charges and expenses of executing
that trust. Such charges are specially subject to the control and
allowance of the court which is administering the trust
property.
We think, therefore, that the case just cited is decisive of
this.
The argument is much pressed that, by leaving all questions
relating to the liability of receivers in the hands of the court
appointing them, persons having claims against the insolvent
corporation, or the receiver, will be deprived of a trial by jury.
This, it is said, is depriving a party of a constitutional right.
To support this view the following cases are cited:
Palys v.
Jewett, New Jersey Court of Error and Appeals, Am.Law Reg.,
Sept., 1880, 553;
Kinney v. Crocker, 18 Wis. 74;
Allen
v. Central Railroad of Iowa, 42 Ia. 683.
But those who use this argument lose sight of the fundamental
principle that the right of trial by jury, considered as an
absolute right, does not extend to cases of equity jurisdiction. If
it be conceded or clearly shown that a case belongs to this class,
the trial of questions involved in it belongs to the court itself,
no matter what may be its importance or complexity.
Thus, upon a bill filed for an injunction to restrain the
infringement of letters patent and for an account of profits for
past infringement, it is now the constant practice of courts of
Page 104 U. S. 134
equity to try without a jury issues of fact relating to the
title of the patentee involving questions of the novelty, utility,
prior public use, abandonment, and assignment of the invention
patented. The jurisdiction of a court of equity to try such issues
according to its own course of practice is too well settled to be
shaken.
Rubber Company v.
Goodyear, 9 Wall. 788;
Cawood Patent,
94 U. S. 695;
Marsh v. Seymour, 97 U. S. 348.
So, in cases of bankruptcy, many incidental questions arise in
the course of administering the bankrupt estate, which would
ordinarily be pure cases at law, and in respect of their facts
triable by jury, but, as belonging to the bankruptcy proceedings,
they become cases over which the bankruptcy court, which acts as a
court of equity, exercises exclusive control. Thus, a claim of debt
of damages against the bankrupt is investigated by chancery
methods. The bankruptcy court may, and in cases peculiarly
requiring such a course will, direct an action or an issue at law
to aid it in arriving at a right conclusion. But this rests in its
sound discretion. True, if one claims that the assignee has
wrongfully taken possession of his property as property of the
bankrupt, he is entitled to sue him in his private capacity as a
wrongdoer in an action at law for its recovery.
Very analogous to the case of an assignee in bankruptcy is that
of a receiver of an insolvent railroad company or other
corporation. Claims against the company must be presented in due
course, as the court having charge of the case may direct. But if,
by mistake or wrongfully, the receiver takes possession of property
belonging to another, such person may bring suit therefor against
him personally as a matter of right, for in such case the receiver
would be acting
ultra vires. Parker v. Browning,
8 Paige (N.Y.) 388;
Paige v. Smith, 99 Mass. 395;
Hills v. Parker, 111
id. 508. So far, the case
seems plain. But if claims arise against the receiver as such,
whilst acting under the powers conferred on him, whether for labor
performed, for supplies and materials furnished, or for injury to
persons or property, then a question of some difficulty arises as
to the proper mode of obtaining satisfaction and redress. The new
and changed condition of things which is presented by the
Page 104 U. S. 135
insolvency of such a corporation as a railroad company has
rendered necessary the exercise of large and modified forms of
control over its property by the courts charged with the settlement
of its affairs and the disposition of its assets. Two very
different courses of proceeding are presented for adoption. One is
the old method, usually applied to banking, insurance, and
manufacturing companies, of shutting down and stopping by
injunction all operations and proceedings, taking possession of the
property in the condition it is found at the instant of stoppage,
and selling it for what it will bring at auction. The other is to
give the receiver power to continue the ordinary operations of the
corporation, to run trains of cars, to keep the tracks, bridges,
and other property in repair, so as to save them from destruction,
and as soon as the interest of all parties having any title to or
claim upon the corpus of the estate will allow, to dispose of it to
the best advantage for all, having due regard to the rights of
those who have priority of claim.
It is evident that the first method would often be highly
injurious and result in a total sacrifice of the property. Besides,
the cessation of business for a day would be a public injury. A
railroad is authorized to be constructed more for the public good
to be subserved than for private gain. As a highway for public
transportation, it is a matter of public concern and its
construction and management belong primarily to the Commonwealth,
and are only put into private hands to subserve the public
convenience and economy. But the public retain rights of vast
consequence in the road and its appendages with which neither the
company nor any creditor or mortgagee can interfere. They take
their rights subject to the rights of the public, and must be
content to enjoy them in subordination thereto. It is therefore a
matter of public right by which the courts, when they take
possession of the property, authorize the receiver or other officer
in whose charge it is placed to carry on in the usual way those
active operations for which it was designed and constructed, so
that the public may not suffer detriment by the nonuser of the
franchises. And in most cases, the creditors cannot complain,
because their interest as well as that of the public is promoted by
preventing
Page 104 U. S. 136
the property from being sacrificed at an untimely sale, and
protecting the franchises from forfeiture for nonuser.
As a choice, then, of least evil, if not of the most positive
good (but generally of the latter also), it has come to be settled
law that a court of equity may, and in most cases ought to,
authorize its receiver of railroad property to keep it in repair
and to manage and use it in the ordinary way until it can be sold
to the best advantage of all interested. The power of the court to
do this was expressly recognized in
Wallace v. Loomis,
97 U. S. 146.
But here arises a dilemma. If the receiver is to be suable as a
private proprietor of the railroad would be, or as the company
itself whilst carrying on the business of the railroad was, it
would become impossible for the court to discharge its duty to
preserve the property and distribute its proceeds among those
entitled to it according to their equities and priorities. It has
therefore been found necessary, and has become a common practice
for a court of equity, in its decree appointing a receiver of a
railroad property, to provide that he shall not be liable to suit
unless leave is first obtained of the court by which he was
appointed.
If the court below had entertained jurisdiction of this suit, it
would have been an attempt on its part of adjust charges and
expenses incident to the administration by the court of another
jurisdiction of trust property in its possession, and to enforce
the payment of such charges and expenses out of the trust property
without the leave of the court which was administering it, and
without consideration of the rights and equities of other claimants
thereto. It would have been an usurpation of the powers and duties
which belonged exclusively to another court, and it would have made
impossible of performance the duty of that court to distribute the
trust assets to creditors equitably and according to their
respective priorities.
We therefore declare it as our opinion that when the court of
one state has a railroad or other property in its possession for
administration as trust assets, and has appointed a receiver to aid
it in the performance of its duty by carrying on the business to
which the property is adapted, until such time as it can be sold
with due regard to the rights of all persons interested
Page 104 U. S. 137
therein, a court of another state has not jurisdiction, without
leave of the court by which the receiver was appointed, to
entertain a suit against him for a cause of action arising in the
state in which he was appointed and in which the property in his
possession is situated, based on his negligence or that of his
servants in the performance of their duty in respect of such
property.
Judgment affirmed.
MR. JUSTICE MILLER dissenting.
The rapid absorption of the business of the country of every
character by corporations, while productive of much good to the
public, is beginning also to develop many evils, not the least of
which arises from their failure to pay debts and perform the duties
which by the terms of their organization they assumed. One of the
most efficient remedies for the failure to pay, when it arises from
inability, is to place the corporation in the hands of a receiver,
that its affairs may be wound up, its debts discharged, and the
remaining assets, if any there be, distributed among its
stockholders. Of the beneficial results of this remedy there can be
little doubt. When it is applied with dispatch, and the effects of
the insolvent corporation are faithfully used to meet its
liabilities and its dead body is buried out of sight as soon as
possible, no objection can be made to the procedure, and all courts
and good citizens should contribute, as far as they may, to this
desirable object.
In regard, however, to a certain class of corporations -- a
class whose operations are as important to the interests of the
community and as intimately connected with its business and social
habits as any other -- the appointment of receivers, as well as the
power conferred on them and the duration of their office, has made
a progress which, since it is wholly the work of courts of chancery
and not of legislatures, may well suggest a pause for
consideration. It will not be necessary to any observing mind to
say that I allude to railroad corporations. Of the fifty or more
who own or have owned the many thousand miles of railway in my
judicial circuit, I think I speak within limits in saying that
hardly half a
Page 104 U. S. 138
dozen have escaped the hands of the receiver. If these receivers
had been appointed to sell the roads, collect the means of the
companies, and pay their debts, it might have been well enough. But
this was hardly ever done. It is never done now. It is not the
purpose for which a receiver is appointed. He generally takes the
property out of the hands of its owner, operates the road in his
own way, with an occasional suggestion from the court, which he
recognizes as a sort of partner in the business; sometimes, though
very rarely, pays some money on the debts of the corporation, but
quite as often adds to them and injures prior creditors by creating
a new and superior lien on the property pledged to them.
During all this time, he is in the use of the road and rolling
stock and performing the functions of a common carrier of goods and
passengers. He makes contracts and incurs obligations, many of
which he fails to perform.
The decision which has just been announced declares that for
these failures he cannot be used in a court of law; that, by virtue
of his receivership, he and all his acts, and the business of the
road, are exempted from the operation of the common law, and that
all parties deal with him on the implied understanding that they
abandon the right to have their complaints tried by jury or by the
ordinary courts of justice, and can only obtain such relief as may
be had at the hands of a master in chancery of the court which
appointed him.
When a receiver appointed to wind up a defunct corporation has
no power to make new contracts -- when his sole duty is to convert
the property into a fund for the payment of debts, and for
distribution among those who are entitled to it -- a very strong
reason exists why the court which appointed him should alone
control him in the performance of his duty. In such cases, the
court of chancery has the undoubted right to protect him by
injunction against parties suing him in another court and to punish
them for contempt.
Wiswall v.
Sampson, 14 How. 52, and
Peale v.
Phipps, 14 How. 368, recognize this principle. In
the former case, the Court decided that a sale of property under a
judgment of one court which was in the actual possession of a
receiver appointed by
Page 104 U. S. 139
another court did not confer a valid title as against the sale
of the same property subsequently made under an order of the court
whose receiver had held possession all the time. The Court did not
decide that he could not be used at law for any tort committed by
him as receiver.
Peale v. Phipps carries the doctrine to an extent to
which it had not been carried before, but it was based upon the
proposition that Peale, as the trustee under the law of
Mississippi, appointed by a court of that state to close out and
distribute the assets of a broken bank, could not, as such trustee,
be made amenable to the jurisdiction of a court of Louisiana, the
reason being that the fund out of which alone the plaintiffs could
be satisfied was in the control of the court in Mississippi. The
debt sued for was created by the bank before it was placed in the
hands of the receiver. When he was appointed, the bank in effect
ceased to exist, and could neither do business nor contract debts.
There remained solely the duty of realizing its assets and paying
its debts.
In the case before us, the plaintiff sues to recover damages for
a personal injury, caused by an act done by the receiver or his
agents in the transaction of business as a common carrier, in which
he was largely and continuously engaged. Why should the receiver
not be sued like anyone else on such a cause of action in any court
of competent jurisdiction?
The reply is because he is a receiver of the road on which the
plaintiff was injured, and holds his appointment at the hands of a
Virginia court of chancery. If this be a sufficient answer, then
the railroad business of the entire country, amounting to many
millions of dollars per annum, may be withdrawn from the
jurisdiction of the ordinary courts having cognizance of such
matters, and all the disputes arising out of these vast
transactions must be tried alone in the court which appointed the
receiver. Not only this, but the right of trial by jury, which has
been regarded as secured to every man by the constitutions of the
several states and of the United states, is denied to the person
injured, and though his case has no element of equitable
jurisdiction, he is compelled to submit it to a court of chancery
or to one of the masters of such a court.
Page 104 U. S. 140
In an action for a personal injury, which has always been
considered as eminently fitted for a jury, especially in the
assessment of damages, this constitutional right is denied because
the receiver of a railroad, and not its owners, committed the
wrong.
Before I can give my assent to such a doctrine, I must be well
assured that the law as heretofore expounded demands it.
So far from entertaining such a conviction, I think that the
doctrine is at variance with the principles which govern the
relations of common law courts and courts of equity where, as in
the courts of the United states, these jurisdictions have been kept
separate.
In England, in the contests between these courts, it was never
claimed that the Court of Chancery could act directly upon the
court of law, or that the latter was bound in any way to follow the
decisions of the former. Nor could the Chancellor direct his writ
to the common law court or its officers; but if it was determined
to give any equitable relief in the matter pending before the law
court, the injunction or other chancery process was directed to the
suitor. Upon him alone was the power of the court exercised. In
such a case as this, if the Court of Chancery was of opinion that
the plaintiff was improperly interfering with the functions of the
receiver, it could restrain him by injunction or punish him by
attachment for contempt. If, however, the plaintiff could not be
reached by that court, it is no more than the evil of many other
cases where a defendant cannot be found when he is wanted in a
court of justice.
But I know of no principle or precedent whereby a court of law,
having before it a plaintiff with a cause of action of which it has
jurisdiction and a defendant charged with an act also within the
jurisdiction, is bound or is even at liberty to deny the plaintiff
his lawful right to a trial because the defendant is a receiver
appointed by some other court, and to leave the suitor to that
court for remedy, where it is known that some of the most important
guaranties of the trial to which he is entitled, and which are
appropriate to the nature of his case, will be denied him.
Whatever courts of equity may have done to protect their
Page 104 U. S. 141
receivers, or the fund in their hands, it is no part of the duty
of courts of law to deny to suitors properly before them the trial
of their rights, which justice requires and the Constitution and
the law guarantee.
These views are well sustained by the authorities collected in
the brief of the plaintiff's counsel, especially in
Angel v.
Smith, 9 Ves.Jr. 335;
Hill v. Parker, 111 Mass. 508;
Chautauque County Bank v. Risley, 19 N.Y. 369;
Camp v.
Barney, 4 Hun (N.Y.) 373;
Sprague v. Smith, 29 Vt.
421.
The doctrine is stated with admirable precision by the Supreme
Court of Wisconsin in the case of
Kinney v. Crocker, 18
Wis. 74, in the following language:
"But in all these cases it is not a question of jurisdiction in
the courts of law, but only a question whether equity will exercise
its own acknowledged jurisdiction of restraining suits at law under
such circumstances and itself dispose of the matter involved. It
follows that although a plaintiff in such case, desiring to
prosecute a legal claim for damages against a receiver, might, in
order to relieve himself from the liability to have his proceeding
arrested by an exercise of its equitable jurisdiction, very
properly obtain leave to prosecute; yet his failure to do so is no
bar to the jurisdiction of the court of law, and no defense to an
otherwise legal action in the trial. There can be no room to
question this conclusion in all cases where there is no attempt to
interfere with the actual possession of property which the receiver
holds under the order of the court of chancery, but only an attempt
to obtain a judgment at law in a claim for damages."
It is asserted by counsel, whose brief shows the extent of his
research, that no case can be found where such a plea has been
sustained in an English court. I regret to say that in my opinion,
the judgment just rendered is unsupported by authority and unsound
in principle.