A court of bankruptcy has no jurisdiction over a suit in equity
brought by the trustee of a bankrupt corporation in the the
corporation's domicile, against a number of its shareholders there
residing, for the purpose of collecting from each an ascertained
sum of money which, by the terms of such shareholder's individual
subscription contract, had become unconditionally due and payable
to the corporation at times specified, and without regard to the
obligations of other shareholders.
Where the liabilities of the shareholders of a corporation to
pay stock subscriptions are several, independent, and
unconditional, and no issue with the corporation touching such
liabilities is common to the shareholders, the remedy of the
corporation, or its trustee in bankruptcy, is by action at law
against each shareholder separately; the equitable jurisdiction to
avoid multiplicity of actions does not arise merely because the
claims are very numerous, and a single
Page 245 U. S. 117
suit by the corporation, or by its trustee in bankruptcy,
against many of the shareholders to collect their subscriptions
cannot be maintained on that ground.
An order of the court of bankruptcy calling for the payment of
shareholders' subscriptions to a bankrupt corporation which, before
and independently of the order, were ascertained and payable adds
nothing to the liabilities of the shareholders or to the rights of
the trustee in bankruptcy, and cannot justify a single suit by the
trustee against many of the shareholders to collect their
subscriptions which, in the absence of the order, would not have
been cognizable in equity, and neither can an order of the
bankruptcy court directing the trustee "to institute a suit in
equity" to make such collections confer such equitable
jurisdiction.
The amendment to § 47, clause (2), of subdivision
a of
the Bankruptcy Act, made by the Act of June 25, 1910, 36 Stat. 840,
§ 8, did not confer new means of collecting ordinary claims due the
bankrupt.
Where causes of action and citizenship of parties are such that
a bankrupt, before bankruptcy, could have sued only in a state
court, the bankruptcy court is without jurisdiction to enforce them
at the suit of the trustee, even if, as a matter of equity
jurisdiction, the trustee might join all causes in one bill to
prevent a multiplicity of suits, while the bankrupt would have been
obliged to sue upon each of them independently at law.
Contested claims of a bankrupt corporation against persons
alleged to be shareholders, for moneys alleged to be due and
payable on subscriptions to the corporate stock, are not to be
regarded as property in the possession of the trustee in bankruptcy
for the purpose of determining whether the bankruptcy court has
jurisdiction to enforce them; nor does the fact that such alleged
debtors are shareholders of the corporation enable the trustee to
sue them in that forum to collect their subscriptions.
238 F. 996 affirmed.
The case is stated in the opinion.
Page 245 U. S. 118
MR. JUSTICE BRANDEIS, delivered the opinion of the Court.
The Gibraltar Investment & Home Building Company, a
California corporation with a capital stock of $2,000,000 divided
into 20,000,000 shares of ten cents each, was adjudicated a
bankrupt in the southern district of that state. Its debts were
about $150,000. Its assets consisted of amounts aggregating
$480,921.25 unpaid and overdue on subscriptions to its stock. The
subscription of each stockholder was contained in a separate
contract which provided for payment unconditionally at specified
dates. The court of bankruptcy found that a large majority of the
subscribers were nonresidents of the district or were insolvent,
and that the full amount due from resident solvent stockholders
would be required to pay the claims of creditors and cost of
administration. It ordered payment of all unpaid subscriptions, and
directed the trustee in bankruptcy "to institute a suit in equity"
to enforce collection thereof. Such a suit was brought in that
court against Gill and about 3,000 other residents of the district.
A motion to dismiss for want of jurisdiction was sustained, and a
decree was entered dismissing the bill. 238 F. 996. The case comes
here on appeal under § 238 of the Judicial Code.
The question presented is of importance in the administration of
bankrupt corporations. To enable the trustee, by means of a single
suit in the court of bankruptcy, to determine and enforce payment
of all amounts due from stockholders would obviously promote the
effective administration of the bankrupt estate, but the aggregate
burden thereby cast upon the individual stockholders might be
correspondingly heavy. Whether the right to choose the court and
the place in which litigation shall proceed should be conferred
upon the trustee or upon the defendant is a legislative question
with which Congress
Page 245 U. S. 119
has dealt in the Bankruptcy Act (1898, c. 541, 30 Stat. 544).
Section 2, clause 7, confers upon the court of bankruptcy
jurisdiction to
"cause the estates of bankrupts to be collected, reduced to
money and distributed, and determine controversies in relation
thereto, except as herein otherwise provided."
But § 23b prohibits the trustee (with exceptions not here
applicable) from prosecuting, without the consent of the proposed
defendant, a suit in a court other than that in which the bankrupt
might have brought it, had bankruptcy not intervened. [
Footnote 1] The corporation is a
citizen of California. It could not have sued these stockholders
except in the state courts. The court of bankruptcy was therefore
without jurisdiction of this suit unless there is something either
in the nature of the cause of action or in the relation of
stockholders to a corporation or in the character of the suit which
prevents the application of the prohibition contained in § 23b.
The trustee seeks to sustain the jurisdiction on the ground:
First: That the suit -- a bill in equity against all
resident stockholders -- is not one which the corporation could
have brought "if proceedings in bankruptcy had not been
instituted," and that a right to bring it arises in the trustee
under the amendment of 1910 to § 47, clause
a(2).
[
Footnote 2]
Page 245 U. S. 120
Second: That the suit is a proceeding concerning
property in the actual or constructive possession of the trustee or
the bankrupt. [
Footnote 3]
The cause of action sued on is the failure of the several
stockholders to perform their several unconditional promises to pay
definite amounts at fixed times which have elapsed. The amount
payable by one is in no way dependent upon what is due from
another. The corporation had a separate right against each alleged
stockholder, and the remedy open to it was a separate action at law
against each. The trustee rightly assumes that the corporation
could not have brought a single suit in equity against all these
stockholders, although a very large number of actions at law would
be required to make collection of the balances unpaid on the stock.
There was no common issue between these alleged stockholders and
the corporation, and the liability of each would have presented a
separate controversy unconnected with that of any other. Thus,
elements essential to jurisdiction in equity to avoid multiplicity
of actions at law by the corporations were lacking.
St. Louis,
Iron Mountain & Southern Ry. Co. v. McKnight, 244 U.
S. 368,
244 U. S. 375.
[
Footnote 4] That
Page 245 U. S. 121
lack is not supplied by the assignment to the trustee. No other
property has become involved. No new issues have been raised. The
order of the court of bankruptcy that subscriptions be paid up was
not a condition precedent to the existence of the causes of action
against the several stockholders, and it added nothing to the
rights which had already passed to the trustee. For him, also, the
appropriate remedy was a separate action at law against each
stockholder. The amendment of 1910 to § 47 of the Bankruptcy Act
did not confer new means of collecting ordinary claims due the
bankrupt, and the order directing the trustee "to institute a suit
in equity" was impotent to confer equity jurisdiction.
But even if there had been equity jurisdiction, the suit could
not have been brought in the federal court. The cause of action
sued on would still have been the broken promise of the individual
stockholder to pay the balance on his stock. That was a cause of
action on which the bankrupt could have sued, and sued only in the
state court. The cause of action would remain the same, although
equity, to avoid multiplicity of actions at law, undertook to deal
with three thousand separate claims in a single suit. The mere fact
that the bankrupt could not have brought the particular suit would
not confer on the court of bankruptcy jurisdiction of the suit of
the trustee.
Bardes v. Hawarden Bank, 178 U.
S. 524.
Nor can the jurisdiction of the court of bankruptcy be
maintained on the ground that this is a suit brought to determine a
controversy concerning property in the possession of the trustee.
He had possession merely of contested claims against alleged
stockholders. Many
Page 245 U. S. 122
of the defendants may prove not to be stockholders. And even
those confessedly stockholders are, in respect to the matters in
controversy, as much strangers to the corporation and to the estate
as any other person against whom the corporation had a cause of
action. The fact that an alleged debtor of a corporation is a
stockholder, or even an officer, does not enable the trustee to sue
him in the court of bankruptcy.
Park v. Cameron,
237 U. S. 616.
We have no occasion to consider whether a different rule applies
in those cases where an order of the court of bankruptcy is a
condition precedent to the existence of any liability, either
because stockholders are liable only after a call or because the
liability of stockholders is
pro rata, and limited to such
sums as may, in the aggregate, be necessary to satisfy the claims
of creditors.
Decree affirmed.
[
Footnote 1]
The Bankruptcy Act of 1867, as amended, conferred expressly upon
the federal courts jurisdiction of actions by the assignees for the
collection of debts owing the bankrupt or other assets.
Bardes
v. Hawarden Bank, 178 U. S. 524,
178 U. S. 531.
And, independently of any statute, a receiver of an insolvent
corporation, appointed by a federal court on a judgment creditor's
bill under its general equity jurisdiction, had been held in 1895
entitled to sue a debtor of the corporation in that court on the
ground that the proceeding was ancillary.
White v. Ewing,
159 U. S. 36.
[
Footnote 2]
1910, c. 412, § 8 (36 Stat. 840).
"Sec.n 8. That section forty-seven, clause two, of subdivision
a, of said acts as so amended be, and the same hereby is,
amended so as to read as follows:"
"Collect and reduce to money the property of the estate for
which they are trustees, under the direction of the court, and
close up the estate as expeditiously as is compatible with the best
interests of the parties in interest, and such trustees, as to all
property in the custody or coming into the custody of the
bankruptcy court, shall be deemed vested with all the rights,
remedies, and powers of a creditor holding a lien by legal or
equitable proceedings thereon, and also, as to all property not in
the custody of the bankruptcy court, shall be deemed vested with
all the rights, remedies, and powers of a judgment creditor holding
an execution duly returned unsatisfied."
[
Footnote 3]
See Mueller v. Nugent, 184 U. S.
1;
Whitney v. Wenman, 198 U.
S. 539,
198 U. S.
552.
[
Footnote 4]
In
White v. Ewing, 159 U. S. 36,
159 U. S. 38,
where this Court was requested, on certificate from the circuit
court of appeals, to answer a question arising in an ancillary suit
similar in character, brought by a receiver, the opinion of the
Court called attention to the fact that "no exception was taken to
the form of the bill by demurrer or otherwise, but the defendants
answered, denying their liability," and the fact had been also
noted by the circuit court of appeals (66 F. 2).