1. A suit brought against a fraternal benefit association and
its officers by some in behalf of all of the members of a class of
its beneficiaries so numerous that it would be impracticable to
join all as parties to determine their rights as a class respecting
the disposition and control of trust funds held by the association
is cognizable by the district court where diversity of citizenship
exists between the parties complainant and defendant, and the
decree will bind all members
Page 255 U. S. 357
of the class, including those not parties who are co-citizen
with the defendant. P.
255 U. S.
363.
2. Recognition of the jurisdiction to bind absentee in such
cases is manifest in the omission from Equity Rule 38, promulgated
in 1912, of the earlier provision making the decree without
prejudice to their rights and claims. P.
255 U. S.
366.
3. Equity Rule 38, dealing specifically with this subject,
controls Equity Rule 39. P.
255 U. S.
366.
4. Having rendered a decree in a class suit defining the right
of a class of beneficiaries of a fraternal benefit associations,
the district court has ancillary jurisdiction of a bill brought by
the association against members of the class who are citizens of
the same state as itself and were not parties to the original suit
to restrain them from reopening the questions thus settled by suits
against it in the state court. P.
255 U. S. 367.
264 F. 247 reversed.
The case is stated in the opinion.
MR. JUSTICE DAY delivered the opinion of the Court.
This case is here upon the question of jurisdiction. Jud.Code, §
238. Appellant is a fraternal benefit association organized under
the laws of the State of Indiana. It filed a bill against Aurelia
J. Cauble and others, citizens and residents of Indiana, to enjoin
them from prosecuting in the state courts certain suits which, it
is averred, would relitigate questions settled by a decree of the
United States District Court for Indiana, it being the contention
that all the members in Class A in the Supreme Tribe of Ben Hur,
including the appellees, were bound and concluded by the federal
decree.
The bill was filed upon the theory that it is ancillary in
character, and justifies a decree to protect the rights
Page 255 U. S. 358
adjudicated in the original proceeding. A motion to dismiss for
want of jurisdiction was sustained. 264 F. 247.
The ancillary bill alleges that the questions decided in the
original suit determined:
(1) The right of the Supreme Tribe of Ben Hur to create a new
class of benefit certificate holders known as Class B. (The
membership in such society up to July 1, 1908, having been in the
class thereafter to be designated as Class A.) (2) The right of the
society to determine that all benefit certificates issued after
July 1, 1908, should be Class B certificates, and that no Class A
certificates should be issued after that date, and no new members
taken into Class A from that time. (3) The right of the Supreme
Tribe of Ben Hur to require members of Class B to pay different
rates for their insurance from members of Class A. (4) The right of
the Supreme Tribe of Ben Hur to require that the mortuary funds of
the two classes be kept separate and distinct, and that the death
losses occurring therein should be paid out of the funds of each
class respectively. (5) The right of the Supreme Tribe of Ben Hur
to authorize members of Class A to transfer, upon a written
application therefor to Class B, and to take with them into Class
B, their interest in the mortuary and other funds, of the society
created or arising prior to July 1, 1908, and requiring the Class B
members to pay a monthly payment and rate in excess of that paid by
Class A members. (6) The right of the Supreme Tribe of Ben Hur to
require members remaining in Class A, and not transferring to Class
B, to pay a sufficient number of monthly payments or assessments to
meet the death losses in Class A. (7) The right of the Supreme
Tribe of Ben Hur to use the expense fund of the society for the
purpose of creating Class B, and induce Class A members to transfer
to Class B, and to secure new members in Class B. (8) Whether
Page 255 U. S. 359
the Supreme Tribe of Ben Hur had used the expense fund in a
manner justified by its constitution and bylaws and a general
examination of expenditures which had been made by that society out
of its expense fund, and the purpose for which these expenditures
had been made and whether any of them were made in violation of the
rights of Class A members. (9) The right of the Supreme Tribe of
Ben Hur to use its expense fund, including all questions as to
whether payments made out of it were equitable and just, or
inequitable, wrongful and unlawful, and the question of whether the
maintenance of a general expense fund, and the payments of the
entire expenses of the society therefrom, was fair, just and legal.
(10) Whether the Supreme Tribe of Ben Hur had wrongfully, or
unlawfully inaugurated a campaign to persuade and induce the
members of the society belonging to Class A to give up their
certificates in Class A and to apply for and procure membership and
certificates in Class B, or whether the action of the society and
its officers in that connection was rightful, just, and equitable.
(11) The question of whether the rates in Class A, in effect prior
to July 1, 1908, were adequate or inadequate, or whether they were
sufficient to provide for the current death losses in Class A and
the expenses of the society, or whether it was necessary, in order
to prevent the insolvency of the Supreme Tribe of Ben Hur, to
create a new class and induce the members of the old class, insofar
as it was possible to induce them, to transfer to the new class,
and the right of the society to take all action necessary for this
purpose.
Other details of the reorganization are set forth, and it is
averred that, in the original suit, it was finally determined and
adjudged that the reorganization adopted by the Supreme Tribe of
Ben Hur was valid and binding upon all the members of the society,
including the members known as Class A.
Page 255 U. S. 360
The ancillary bill alleges that the commencement of the suit in
the state courts of Indiana will have the effect to relitigate
questions conclusively adjudicated against the defendants as
members of Class A in the action in the United States district
court; that to permit them to do so would destroy the effect of the
decree rendered in that suit; that, in the several suits commenced
in the state courts, plaintiffs therein challenged the rights of
the society to create Class B, and that the plan of reorganization
of the society to create Class B and the questions of fact and law
involved in the causes in the state court are the same questions,
and none other than those conclusively adjudged and determined in
the main suit.
The district judge dismissed the suit for want of jurisdiction
upon the following certificate:
"I hereby certify that I dismissed the ancillary bill of
complaint in the above cause of the
Supreme Tribe of Ben Hur v.
Aurelia J. Cauble et al. solely because of the lack of
jurisdiction of the United States District Court for the District
of Indiana to entertain said ancillary bill of complaint."
"I dismissed said ancillary bill of complaint upon a motion
filed by the defendants thereto, and also upon my own motion."
"The jurisdictional question arose as follows:"
"On April 16, 1913, George Balme, a citizen of the State of
Kentucky, and five hundred and twenty-three other complainants
residing in fifteen different states of the Union outside of the
State of Indiana, and one complainant residing in the Dominion of
Canada, filed their bill of complaint in the United States District
Court for the District of Indiana against the Supreme Tribe of Ben
Hur, a fraternal beneficiary society organized under laws of the
state of Indiana with its principal office at Crawfordsville in
said state and district aforesaid, and its officers, all citizens
and residents of the State of Indiana,
Page 255 U. S. 361
to enjoin what was claimed to be an unlawful use of trust funds
of said defendant, Supreme Tribe of Ben Hur, in which all the
complainants and other members of Class A of said Supreme Tribe of
Ben Hur had a common but indivisible interest, and attacking a plan
of reorganization adopted by the supreme legislative body of the
Supreme Tribe of Ben Hur to prevent threatened insolvency and
disruption of said society; the suit was a class suit brought and
prosecuted for the benefit of all members of Class A of said
society, of whom there were more than seventy thousand at the time
of the commencement of said suit, to-wit, April 16, 1913; an answer
was filed by the defendants, setting up a full answer to the facts
averred in the bill of complaint; a long hearing was had before the
master, the master filed a written report, and in this report it
was found that this was strictly a true class suit, presenting
questions of common interest to all the members of Class A and
affecting their joint interests in funds and in internal management
of the society, written exceptions were filed thereto both by
complainants and defendants, and a final decree was entered,
dismissing complainants' bill of complaint for want of equity,
which said decree has never been appealed from, modified, or
vacated, but is still in full force and effect. No Indiana members
of the society intervened or were made parties to the suit by any
subsequent proceeding prior to the filing of said ancillary bill in
said cause."
"In 1919, the defendants to the ancillary bill, all being
residents of the State of Indiana and all having been members of
said Class A of said Supreme Tribe of Ben Hur or being
beneficiaries of persons who were members of said Class A at the
time of the commencement, prosecution, and final decree in said
cause of
Balme and Others v. Supreme Tribe of Ben Hur and
Others, commenced actions in the Circuit Court of Montgomery
County,
Page 255 U. S. 362
Indiana and in the Circuit Court of Marion County, Indiana, in
which they seek to relitigate questions determined in favor of the
defendant, Supreme Tribe of Ben Hur, in said suit brought by George
Balme and others in the United States District Court for the
District of Indiana."
"The ancillary bill of complaint filed herein seeks to enjoin
the maintenance and prosecution of the actions commenced by said
several defendants to the ancillary bill of complaint in the state
courts of Indiana, all of which actions were commenced subsequent
to the final decree in said cause of
Balme and Others v.
Supreme Tribe of Ben Hur, which final decree was entered and
rendered on the 1st day of July, 1915."
"That a copy of said ancillary bill, together with the motion of
the defendants thereto to dismiss the same, and the order of
dismissal are contained in the judgment roll filed herein, to which
reference is made for a more particular description thereof, and
that there is attached to said ancillary bill contained in said
judgment roll a full copy of all the pleadings and proceedings had
in said cause of
Balme et al. v. The Supreme Tribe of Ben Hur
et al., together with the report and findings of the master
and the judgment and decree of the court."
"I dismissed the ancillary bill of complaint on the ground only
that members of Class A of the Supreme Tribe of Ben Hur residing in
the State of Indiana could not be bound by representation by
complainants in the class suit of
Balme et al. v. Supreme Tribe
of Ben Hur et al., as the presence of such Indiana members of
Class A as plaintiffs would have ousted the jurisdiction of the
court in the main suit, such jurisdiction being based only on
diversity of citizenship and not on any federal question, and that
therefore the decree in the main case was and is not
res
adjudicata as to Indiana members of Class A of the Supreme
Tribe of Ben Hur. "
Page 255 U. S. 363
"The only question which arose on the dismissal of the ancillary
bill of complaint was the question of jurisdiction, and such
question of jurisdiction only, as above stated, is hereby certified
to the Supreme Court of the United States for its decision
thereon."
From this statement of the case, it is apparent that two points
are involved in determining the jurisdictional question before us:
first, was the original decree binding upon citizens of Indiana who
were in the class for whom the suit was prosecuted, but not
otherwise parties to the bill?; second, was the present suit
ancillary in character, and such as to justify an injunction in the
federal court to restrain the proceedings in the state court?
Class suits have long been recognized in federal jurisprudence.
In the leading case of
Smith v.
Swormstedt, 16 How. 288,
57 U. S. 302,
of such suits, this Court said:
"Where the parties interested in the suit are numerous, their
rights and liabilities are so subject to change and fluctuation by
death or otherwise that it would not be possible, without very
great inconvenience, to make all of them parties, and would
oftentimes prevent the prosecution of the suit to a hearing. For
convenience therefore and to prevent a failure of justice, a court
of equity permits a portion of the parties in interest to represent
the entire body, and the decree binds all of them the same as if
all were before the court. The legal and equitable rights and
liabilities of all being before the court by representation, and
especially where the subject matter of the suit is common to all,
there can be very little danger but that the interest of all will
be properly protected and maintained."
The subject is provided for by Rule 38 of the Equity Rules of
this Court, promulgated in 1912, which reads:
"When the question is one of common or general interest to many
persons constituting a class so numerous as to make it
impracticable to bring them all before the court,
Page 255 U. S. 364
one or more may sue or defend for the whole."
As the rule formerly read, it contained the following provision:
"But in such cases, the decree shall be without prejudice to the
rights and claims of the absent parties."
The district court held that this change in the rule could not
affect the jurisdictional authority of the court, and added that,
in its view, Rule 39 was the applicable one. Rule 39 provides:
"In all cases where it shall appear to the court that persons
who might otherwise be deemed proper parties to the suit cannot be
made parties by reason of their being out of the jurisdiction of
the court, or incapable otherwise of being made parties, or because
their joinder would oust the jurisdiction of the court as to the
parties before the court, the court may, in its discretion, proceed
in the cause without making such persons parties, and in such case
the decree shall be without prejudice to the rights of the absent
parties."
Under the latter rule, the district court held that the Indiana
citizens were out of the jurisdiction of the federal court in the
original suit, and that their joinder would have ousted the
jurisdiction of the court, although that fact would not prevent the
court from proceeding in the case to a decree without prejudice to
their rights. "In other words," said the judge, "although the
original bill was a class suit, the class did not include Indiana
citizens."
That the persons in Class A of the society were so numerous that
it would have been impossible to bring them all before the court is
apparent from a statement of the case. They numbered many thousands
of persons, and resided in many different states of the Union.
There was the requisite diversity of citizenship to justify the
bringing of a class suit in the United States District Court for
the District of Indiana. The court therefore properly acquired
jurisdiction of the suit, and was authorized to proceed to a final
decree.
The district court held that, in its view, joinder of
Indiana
Page 255 U. S. 365
citizens would have defeated jurisdiction in the federal court,
which conclusion was necessarily decisive of the case.
In
Stewart v. Dunham, 115 U. S. 61, a
creditor's bill was filed in equity to set aside a conveyance of a
stock of merchandise. The suit was removed from the state court to
the circuit court of the United States on the ground of diversity
of citizenship. After the cause was removed co-claimants, citizens
of the same state as were the defendants, were admitted into the
suit. This, it was contended, prevented the court from proceeding
to a decree, as it was without jurisdiction because the controversy
became one not wholly between citizens of different states. Of this
contention, this Court said (p.
115 U. S.
64):
"This, of course, could have furnished no objection to the
removal of the cause from the state court, because, at the time,
these parties had not been admitted to the cause, and their
introduction afterwards as co-complainants did not oust the
jurisdiction of the court, already lawfully acquired, as between
the original parties. The right of the court to proceed to decree
between the appellants and the new parties did not depend upon
difference of citizenship, because, the bill having been filed by
the original complainants on behalf of themselves and all other
creditors choosing to come in and share the expenses of the
litigation, the court, in exercising jurisdiction between the
parties, could incidentally decree in favor of all other creditors
coming in under the bill. Such a proceeding would be ancillary to
the jurisdiction acquired between the original parties, and it
would be merely a matter of form whether the new parties should
come in as co-complainants,or before a master under a decree
ordering a reference to prove the claims of all persons entitled to
the benefit of the decree. If the latter course had been adopted,
no question of jurisdiction could have arisen. The adoption of the
alternative is, in substance, the same thing."
This principle controls this case. The original suit was
Page 255 U. S. 366
a class suit brought by a large number of the class as
representatives of all its membership.
The change in Rule 38 by the omission of the qualifying clause
is significant. It is true that jurisdiction, not warranted by the
Constitution and laws of the United States, cannot be conferred by
a rule of court, but class suits were known before the adoption of
our judicial system, and were in use in English chancery. Street's
Federal Equity Practice, vol. 1, § 549.
The district courts of the United States are courts of equity
jurisdiction, with equity powers as broad as those of state courts.
That a class suit of this nature might have been maintained in a
state court, and would have been binding on all of the class, we
can have no doubt.
Hartford Insurance Co. v. Ibs,
237 U. S. 662,
237 U. S. 672;
Royal Arcanum v. Green, 237 U. S. 531.
Owing to the number of interested parties and the impossibility
of bringing them all before the court, the original suit was
peculiarly one which could only be prosecuted by a part of those
interested suing for all in a representative suit. Diversity of
citizenship gave the district court jurisdiction. Indiana citizens
were of the class represented, their rights were duly represented
by those before the court. The intervention of the Indiana citizens
in the suit would not have defeated the jurisdiction already
acquired.
Stewart v. Dunham, supra. Being thus
represented, we think it must necessarily follow that their rights
were concluded by the original decree.
Rule 38, as amended, was intended to apply to just such cases.
Rule 39 does not apply to a subject already specifically covered in
rule 38. Of course, mere considerations of inconvenience cannot
confer jurisdiction, but it is to be noted that, if the Indiana
citizens are not concluded by the decree, and all others in the
class are, this unfortunate situation may result in the
determination of the rights of most of the class by a decree
rendered upon a theory which
Page 255 U. S. 367
may be repudiated in another forum as to a part of the same
class.
If the federal courts are to have the jurisdiction in class
suits to which they are obviously entitled, the decree when
rendered must bind all of the class properly represented. The
parties and the subject matter are within the court's jurisdiction.
It is impossible to name all of the class as parties where, as
here, its membership is too numerous to bring into court. The
subject matter included the control and disposition of the funds of
a beneficial organization, and was properly cognizable in a court
of equity. The parties bringing the suit truly represented the
interested class. If the decree is to be effective and conflicting
judgments are to be avoided, all of the class must be concluded by
the decree.
As to the other question herein involved, holding, as we do,
that the membership of Class A were concluded by the decree of the
district court, an ancillary bill may be prosecuted from the same
court to protect the rights secured to all in the class by the
decree rendered.
Looney v. East Texas R. Co., 247 U.
S. 214, and cases cited.
It follows that the decree of the district court, dismissing the
ancillary bill for want of jurisdiction, must be reversed.