A circuit court of the United States has
"jurisdiction, in a general creditor's suit properly pending
therein for the collection, administration, and distribution of the
assets of an insolvent corporation, to hear and determine an
ancillary suit instituted in the same cause by its receiver in
accordance with its order, against debtors of such corporation, so
far as in said suit the receiver claims the right to recover from
anyone debtor a sum not exceeding $2,000."
This case arose upon a certificate of the Court of Appeals for
the Sixth Circuit, based upon the following facts:
The Cardiff Coal and Iron Company, a corporation of Tennessee,
becoming insolvent, a creditors' bill was filed in the Circuit
Court for the Eastern District of Tennessee by George F. Bosworth,
a citizen of Massachusetts, and a judgment creditor of the company,
setting forth the insolvency of the company, the wasting of its
assets, etc., and praying for a sale of the property, the
collection of its choses in action, the appointment of a receiver,
and for an injunction. In pursuance of the prayer of this bill, the
appellee, Ewing, was appointed receiver of the company, ordered to
take possession of its assets and to manage and protect the same
for the benefit of the creditors under orders from the court. All
creditors were ordered to file their claims.
Subsequently the receiver filed a petition stating that a large
proportion of the company's assets consisted of promissory notes,
amounting to about $225,000, given for land purchased from the
company, upon which liens had been retained to secure their
payment. These notes were executed by 130 different persons, and
were for various amounts, many of them for less than $2,000. The
receiver petitioned for authority from the court to institute suits
for the collection of such notes, stating that in order to save
costs and expense, he had
Page 159 U. S. 37
been advised that it was proper, if it might be done, to bring
in all the debtors by bill or petition and join them as defendants
in one suit, that he was requested by the creditors to proceed in
this manner, and that to sue the debtors separately would require
more than one hundred suits, with the enormous expense incident
thereto.
In compliance with this petition, the court made an order that
the receiver be directed to institute suit by proper bill or
petition in the pending case against all persons indebted to the
defendant company (the Cardiff Coal and Iron Company), by note or
account, as set forth in his petition.
In pursuance of this order, the receiver filed his bill in the
circuit court against 130 persons, of whom thirty were alleged to
be citizens of Tennessee and the remainder citizens of other
states, all of whom were joined as defendants, and the amounts
alleged to be due from them, respectively, were in most cases less
than $2,000. It was also alleged that special liens were retained
in each case in the deed to the purchaser, to secure the deferred
payments of the purchase money, and the court was asked to enforce
such liens by sale of the lands, for the satisfaction of the
balance of the purchase money due separately from each and all said
defendants upon their respective notes.
The resident defendants were personally served with subpoena,
and an order of publication made against the nonresident
defendants. No exception was taken to the form of the bill by
demurrer or otherwise, and the defendants nearly all answered
denying their liability. The case was referred to a master, and on
his report decrees were entered against those found to be indebted,
such decrees being in a majority of instances for sums less than
$2,000. The lots were ordered to be sold to pay the amounts so
found due. Appeals from these decrees were duly taken to the
circuit court of appeals and perfected by the appellants in this
case.
Upon this statement of facts, the circuit court of appeals
certified the following question to this Court for its
determination:
"Had the circuit court of the United States, in a general
creditors' suit properly pending therein for the collection,
administration, and distribution of the assets of an insolvent
corporation, the jurisdiction to hear and determine an ancillary
suit instituted in the same cause by its receiver, in accordance
with its order, against debtors of such corporation, so far as in
said suit the receiver claimed the right to recover from anyone
debtor a sum not exceeding $2,000? "
Page 159 U. S. 38
MR. JUSTICE BROWN, after stating the facts in the foregoing
language, delivered the opinion of the court.
While the receiver prayed in his petition to bring in all the
debtors by bill or petition in one suit, alleging that it was so
requested by creditors in order to avoid the expense of a separate
suit against each, and the bill was brought in that form against
130 defendants who were charged to be severally indebted upon notes
given for lots of land purchased from the company, no exception was
taken to the form of the bill by demurrer of otherwise, but the
defendants answered, denying their liability. The question
certified does not, as we understand it, demand the opinion of this
Court as to whether a single bill against all these defendants
would lie for the amounts severally due by them (upon which point
we do not feel called upon to express an opinion), but whether, so
far as in said suit the receiver claimed the right to recover from
anyone debtor a sum not exceeding $2,000, the court had
jurisdiction to render a judgment against them.
This question must be answered in the affirmative. As was
observed by this Court in
Porter v. Sabin, 149 U.
S. 473,
149 U. S.
479:
"When a court exercising a jurisdiction in equity appoints a
receiver to hold the property of a corporation, that court assumes
the administration of the estate, the possession of the
Page 159 U. S. 39
receiver is the possession of the court, and the court itself
holds and administers the estate, through the receiver as its
officer, for the benefit of those whom the court shall ultimately
adjudge to be entitled to it."
The circuit court obtained jurisdiction over the Cardiff Coal
and Iron Company by the filing of the original creditors' bill by
Bosworth, a citizen of Massachusetts, and by the appointment of a
receiver, and any suit by or against such receiver in the course of
the winding up of such corporation, whether for the collection of
its assets or for the defense of its property rights, must be
regarded as ancillary to the main suit, and as cognizable in the
circuit court regardless either of the citizenship of the parties
or of the amount in controversy.
Freeman v.
Howe, 24 How. 450,
65 U. S. 460;
Krippendorf v. Hyde, 110 U. S. 276;
Dewey v. West Fairmont Gas Coal Co., 123 U.
S. 329;
In re Tyler, 149 U.
S. 164,
149 U. S. 181;
Root v. Woolworth, 150 U. S. 401,
150 U. S. 413;
Rouse v. Letcher, 156 U. S. 47,
156 U. S.
49.
Indeed, it was conceded that where an insolvent corporation is
placed in the hands of a receiver of the circuit court, such
appointment draws to the jurisdiction of that court the control of
its assets so far as persons having claims to participate in the
distribution of such assets are concerned, and that parties must go
into that court in order to assert their rights, prove their
demands, and receive whatever may be due them, or their share or
interest in the estate. But it is insisted that there is a
distinction between cases where parties are brought before the
court for the purpose of the payment to them of claims they may
hold against the estate and cases where it is sought to recover of
them claims which the receiver insists they owe the estate; that
the receiver stands in the shoes of the company, and has no higher
rights than the corporation, and, having sued for less than the
jurisdictional amounts, that as to them the cases must be
dismissed.
This position is entirely correct so far as the right of the
receiver to recover upon the merits is concerned, but it has no
bearing whatever upon the question of the jurisdiction of the court
to pass upon such merits. The receiver does not take his authority
as an ordinary endorsee of the paper, and
Page 159 U. S. 40
subject to the disability to sue in the federal court, which
attaches to such endorsee, but he takes title by operation of law,
and as an instrument of the court which appointed him. The cases
upon which the appellant relies of
New Orleans Pacific Railway
v. Parker, 143 U. S. 42, and
Walter v. Northwestern Railroad, 147 U.
S. 370, were both original bills, over which
jurisdiction could only be acquired upon proper allegations of
citizenship and amount. In this case, however, the court proceeds
upon its own authority to collect the assets of an estate with the
administration of which it is charged, and, if the receiver in such
cases appears as a party to the suit, it is only because he
represents the court in its inherent power to wind up the estate of
an insolvent corporation over which it has by an original bill
obtained jurisdiction. In this particular, the jurisdiction of the
circuit court does not materially differ from that of the district
court in bankruptcy, the right of which to collect the assets of a
bankrupt estate we do not understand ever to have been doubted.
There is just as much reason for questioning the jurisdiction of
the court in this case upon the ground of the want of diverse
citizenship as upon the ground that the requisite amount is not
involved.
Two cases decided by Justices of this Court are directly in
point:
Price v. Abbott, 17 F. 506;
Armstrong v.
Trautman, 36 F. 275.
The question certified will therefore be answered in the
affirmative.
