1. Insolvency of a corporation is not an equitable ground for
appointing a receiver at the suit of a simple contract creditor. P.
262 U. S. 85.
Pusey & Jones Co. v. Hanessen, 261 U.
S. 491.
2. In a suit by a creditor alleged to be on behalf also of
others similarly situated, seeking to collect a debt from an
insolvent corporation through a receivership and by having the debt
declared a lien on its assets, the amount in controversy,
determining the jurisdiction of the district court, does not depend
on the corporation's
Page 262 U. S. 78
assets or liabilities, but is the amount of the plaintiff's
claim as shown by the.bill. P.
262 U. S.
85.
3. Where the bill discloses that the amount in controversy is
less than the jurisdictional amount, a general allegation to the
contrary is of no avail.
Id.
4. A suit in the district court which is dependent on a
receivership in the district court of another district fails with
the dismissal of the bill in that case. P.
262 U. S.
87.
5. The provision of Jud.Code § 56 extending the operation of a
receivership to other districts in the same judicial circuit
applies where there is fixed property extending, as a unit, into
different states, like railroads or pipelines, but not where the
assets are those of an insurance company, described as cash,
mortgages, securities, bills receivable, real estate, stocks and
bonds. P.
262 U. S.
87.
6. The general rule is that a receiver cannot sue in a foreign
jurisdiction, and this is not overcome by an order of the court
appointing him purporting to embrace in the receivership all
property of the defendant wherever situate, and authorizing the
receiver to apply to other courts in aid of the order. P.
262 U. S.
87.
7. Where a state court of competent jurisdiction has, by
appropriate proceedings, taken property into its possession through
its officers, the property is thereby withdrawn from the
jurisdiction of all other courts. P.
262 U. S.
88.
8. Where a state court of Nebraska, under Comp.Stats. Neb.1922,
§§ 7745-7748, first took possession of records and assets of a
local insurance company through the State Department of Trade and
Commerce for the purpose of conducting the business temporarily,
and later, by a supplemental decree made on a supplementary
application, ordered the Department to liquidate it,
held
that receivers appointed by a federal court in the interim were not
entitled to possession of the
res, and that their suit in
a federal court against the company and the Department for the
purpose of acquiring possession could not be maintained, and that
the legality of the state court's action in continuing its control
could not be thus questioned or attacked collaterally. P.
262 U. S.
89.
281 F. 1021, 280 F. 540, reversed.
Certiorari to two decrees of the Circuit Court of Appeals, the
first affirming a decree of the District Court for Minnesota
appointing general receivers for a Nebraska insurance company, the
second reversing a decree of the District Court for Nebraska which
dismissed a bill
Page 262 U. S. 79
brought by the receivers for the possession of the company's
property.
MR. JUSTICE BRANDEIS delivered the opinion of the Court.
These two cases arise out of the insolvency of the Lion Bonding
& Surety Company, a Nebraska insurance corporation. They are
here on writs of certiorari to the United States Circuit Court of
Appeals for the Eighth Circuit. In the
Karatz case, it
affirmed a decree of the Federal Court for Minnesota which
appointed receivers in a suit brought by an unsecured simple
contract creditor.
See 280 F. 532. In the
Hertz
case, it reversed a decree of the Federal Court for Nebraska which
dismissed a suit brought by those receivers for possession of the
company's property. 280 F. 540. At the date of each decree, the
property of the company in Nebraska was held by the Department of
Trade and Commerce of that state, with the usual powers of a
receiver, under a decree of a state court. The circuit court of
appeals directed, in the
Hertz case, that the lower court
enjoin the Department from doing any act in relation to the
property except to hold custody thereof subject to the further
order of the Federal Court for Minnesota. Petitioners ask that the
judgments of the appellate court be reversed, and that the bills in
the
Page 262 U. S. 80
federal district courts be dismissed. The grounds on which
jurisdiction was asserted by the federal courts make necessary a
fuller statement of the facts.
The Lion Bonding & Surety Company had, for some years prior
to 1921, been licensed to conduct the business of insurance in
Nebraska, and was doing business and had property also in 18 other
states. A statute of Nebraska commits to its Department of Trade
and Commerce the supervision of insurance companies and control
thereof in case of insolvency and otherwise. Compiled Statutes
Nebraska 1922, §§ 7745-7748; Laws Nebraska 1919, c.190, Tit. 5,
Art. 3, pp. 576-579. Paragraph 1 of § 4 of that act provides:
"Whenever any domestic company is insolvent, . . . or is found,
after an examination, to be in such condition that its further
transaction of business would be hazardous to its policy holders,
or to its creditors, or to its stockholders, or to the public, . .
. the Department . . . may apply to the district court . . . in the
county . . . in which the principal office of such company is
located for an order directing such company to show cause why the
Department . . . should not take possession of its property,
records, and effects and conduct or close its business, and for
such other relief as the nature of the case and the interest of its
policy holders, creditors, stockholders or the public may
require."
On April 12, 1921, the Department applied to the District Court
of Douglas County, Nebraska, for an order directing it to take
possession of the property and to conduct the business of the
company, under paragraph 2 of § 4, which provides:
"On such application, or at any time thereafter, such court or
judge may, in his discretion, issue an order restraining such
company from the transaction of its business, or disposition of its
property, records, and effects until the further order of the
court. On the return of such order to show cause, and after a full
hearing, the
Page 262 U. S. 81
court shall either deny the application or direct the Department
. . . forthwith to take possession of the property, records and
effects, and conduct the business of such company, and retain such
possession . . . until on the application of the Department . . .
or of such company, it shall, after a like hearing, appear to the
court that the cause of such order directing the Department . . .
to take possession has been removed, and that the company can
properly resume possession of its property, records, and effects,
and the conduct of the business."
The petition prayed also for an order restraining the company
from the transaction of its business or from disposing of any of
its property, and for other and further relief. The company
immediately filed an answer by which it admitted the material
allegations of the petition and joined in the prayer thereof. On
the same day, the state court entered a decree in accordance with
the prayer; the Department entered upon the duties prescribed by
the decree; it immediately took possession of all the property of
the company in Nebraska, has since held possession thereof subject
to the orders of the state court, and has also obtained like
possession of property of the company in other states. On May 28,
1921, the Department filed in the court a supplemental petition in
which it prayed for an order directing it to liquidate the business
under paragraph 3 of § 4, which provides:
"If, on a like application and order to show cause, and after a
full hearing, the court shall order the liquidation of the business
of such company, such liquidation shall be made by and under the
direction of the Department, . . . which may deal with the
property, records, effects and business of such company in the name
of the Department . . . or in the name of the company, as the court
may direct and it shall be vested by operation of law with title to
all the property effects, contracts and
Page 262 U. S. 82
rights of action of such company as of the date of the order so
directing it to liquidate. . . ."
The supplemental petition prayed, among other things, that the
orders theretofore made, so far as applicable and necessary to
further the liquidation, remain in full force. The company filed an
answer by which it admitted the material allegations contained in
the supplemental petition and joined in the prayer thereof. On the
same day, that court entered an order in accordance with the prayer
of the supplemental petition, all action of the Department being
made subject to the direction of the court.
On May 2, 1921, while the decree of the Nebraska court entered
April 12, 1921, was in full force and the Department was in actual
possession thereunder of the property in that state, Karatz, a
citizen of Minnesota, purporting to sue also on behalf of others
similarly situated, filed a bill in equity against the company in
the Federal Court for the District of Minnesota, Fourth Division.
No disclosure was made of the proceedings taken against the company
in the state court of Nebraska, nor that, under its decree, the
Department was in possession of all the company property in that
state, and at least of some of its property elsewhere. The bill
alleged that the company had been admitted to do business in
Minnesota; that, through its operation there, plaintiff had become
an unsecured simple contract creditor to the amount of $2,100; that
the company had ceased to do business and was insolvent; that it
had assets within that district valued at $20,000, and that there
was danger that the property of the company would be wasted. The
bill prayed that the amount due plaintiff be ascertained and
declared a first lien upon all the assets of the company in
Minnesota; that, for the purpose of protecting the general public,
creditors, and stockholders, receivers be appointed to collect all
its assets, wherever situated, and to realize upon and distribute
the same; that the company be directed to deliver possession to
them of all the
Page 262 U. S. 83
property wherever situated; that the company and its officers be
restrained from interfering in any way with such receivers, and for
general relief. On the filing of this bill, the federal court,
acting
ex parte, appointed Hertz and Levin receivers of
all the property of the company wheresoever situated, and
authorized them to apply to any other district court of the United
States in aid of the order so entered. The company (which was
served on May 5 by process upon the Insurance Commissioner of
Minnesota) moved on May 14, 1921, to dismiss the Karatz bill for
want of federal jurisdiction and for want of equity. A motion was
also made to discharge the receivers and to restore the property to
the company or to the Department of Trade and Commerce. Both
motions were denied on May 30, 1921.
The Minnesota receivers secured the appointment of themselves as
ancillary receivers by the federal courts for twelve other
districts, but not for the Nebraska district. On May 11 and May 12,
1921, they filed, in purported compliance with § 56 of the Judicial
Code, certified copies of the bill and of the order of appointment
with the clerks of the Federal District Courts for Nebraska and
other states in the Eighth Circuit. On May 14, 1921, the company
moved the circuit court of appeals under that section for an order
of disapproval of the appointment of receivers, so far as it may be
operative outside the District of Minnesota. This motion was denied
on May 31, 1921. [
Footnote
1]
On September 6, 1921, the Minnesota receivers filed in the
Federal Court for the District of Nebraska, Omaha
Page 262 U. S. 84
Division, a bill in equity (called the
Hertz suit)
against the company, the Department of Trade and Commerce, and
others. It charged that there was a conflict of authority between
the Federal Court for Minnesota and the Nebraska state court
concerning the administration of the company's property; that the
Department threatened to liquidate the company under the order of
the state court entered May 28, 1921; that its rights were limited
to the temporary possession and listing of the property authorized
by the order of April 12, 1921, and that it had no longer any right
to the possession or control of the property either for the
administration of the affairs of the company under direction of the
state court or otherwise. The bill prayed that defendants be
restrained from interfering with the Minnesota receiver's
possession and control; that they be directed to surrender
possession to plaintiffs, and for other relief. A motion of
defendants to dismiss the bill for want of jurisdiction and for
want of equity was granted, and the receivers appealed to the
circuit court of appeals.
Meanwhile the
Karatz case had proceeded to final
hearing. On August 11, 1921, a decree was entered adjudicating
Karatz's claim for $2,100, making permanent the appointment of the
receivers and continuing their powers to administer the property of
the company, and perpetually enjoining it from interfering with the
receiver's control. The company appealed to the circuit court of
appeals. That court then heard together appeals in the two cases.
On April 28, 1922, it rendered the opinions, 280 F. 532, 540, by
which, in the Minnesota case, it affirmed the order appointing
receivers, [
Footnote 2]
Page 262 U. S. 85
and, in the Nebraska case, reversed the decree dismissing the
bill. The decree in the latter was later enlarged by directing the
district court to reinstate the bill, and to restrain the
Department, the company and their employees
"from removing, secreting, or disposing of the moneys, books,
papers, records, assets, property, accounts, or choses in action of
or derived from the Lion Bonding & Surety Company, and from
doing any other act in relation thereto, except to hold the custody
thereof subject to the further order of the United States District
Court for the District of Minnesota, Fourth Division. [
Footnote 3]"
The decrees of the circuit court of appeals in both cases must
be reversed.
First. In the
Karatz case, the motion to
dismiss the bill should have been granted. There was want of
equity, for it was brought by an unsecured simple contract
creditor.
Pusey & Jones Co. v. Hanessen, 261 U.
S. 491. But there was also the fundamental objection
that the district court was without jurisdiction as a federal
court.
The only ground of jurisdiction alleged is diversity of
citizenship. The facts specifically stated show that the amount in
controversy was less than $3,000. Plaintiff's claim against the
company was $2,100. He prayed that this debt be declared a first
lien on the assets within the state. His only interest was to have
that debt paid. The amount of the corporation's assets, either
within or without the state, is of no legal significance in this
connection. Nor is the amount of its debts to others. The case is
not of that class where the amount in controversy
Page 262 U. S. 86
is measured by the value of the property involved in the
litigation.
Hunt v. New York Cotton Exchange, 205 U.
S. 322,
205 U. S. 335;
Western & Atlantic R. Co. v. Railroad Commission of
Georgia, 261 U. S. 264. Nor
is it like those cases in which several plaintiffs, having a common
undivided interest, unite to enforce a single title or right, and
in which it is enough that their interests collectively equal the
jurisdictional amount.
Troy Bank v. G.A. Whitehead & Co.,
Inc., 222 U. S. 39. In
the case at bar, if several creditors of the company, each with a
debt less than $3,000, had joined as plaintiffs, the demands could
not have been aggregated in order to confer jurisdiction.
Rogers v. Hennepin County, 239 U.
S. 621;
Scott v. Frazier, 253 U.
S. 243. Nor can Karatz's allegation that he sued on
behalf of others similarly situated help him.
Compare Title
Guaranty Co. v. Allen, 240 U. S. 136;
Eberhard v. Northwestern Mutual Life Ins. Co., 241 F. 353,
356. [
Footnote 4] Since the
bill in this case discloses that the amount in controversy was less
than the jurisdictional amount, the general allegation that it
exceeds this amount is therefore of no avail.
Vance v. W. A.
Vandercook Co. (No. 2), 170 U. S. 468.
As the bill should have been dismissed on motion, there is no
occasion to consider whether the provisions of the Nebraska statute
and the proceedings taken thereunder in the courts of that state,
which the defendant set up, constituted a bar to the
Karatz suit. [
Footnote
5]
Page 262 U. S. 87
Second. In the
Hertz case, also, the motion to
dismiss the bill should have been granted. Being dependent upon the
decree in the
Karatz suit appointing the receivers, the
Hertz suit must necessarily fall with the dismissal of
that bill. But there are other insuperable obstacles to the
maintenance of the
Hertz suit.
Hertz and Levin were not appointed ancillary receivers for
Nebraska. They sue in the Nebraska district as Minnesota receivers,
relying upon § 56 of the Judicial Code. That section, by its terms,
applies only where, in a suit
"in which a receiver shall be appointed the land or other
property of a fixed character, the subject of the suit, lies within
different states in the same judicial circuit."
It relates to those cases where the fixed property is a unit,
extending into several states, like interstate railroads and
pipelines. [
Footnote 6]
See
Public Utilities Commission v. Landon, 249 U.
S. 236,
249 U. S. 243.
It cannot be assumed that the assets of an insurance company are of
that character. Those of this company, within the Minnesota
district, specifically described in the
Karatz bill, were
alleged to consist of money and credits. The description of the
property in Nebraska given in the
Hertz bill is "cash,
mortgages and other securities, bills receivable, real estate,
stocks, and bonds." The provisions of § 56 extending the operation
of a receivership to other districts of the same judicial circuit
were therefore inapplicable to this case. The motion made under
that section for disapproval of the order, so far as it may be
operative outside the district of Minnesota, should have been
granted. As Minnesota receivers merely, Hertz and Levin had no
rights whatever in Nebraska. The general rule that a receiver
cannot
Page 262 U. S. 88
sue in a foreign jurisdiction applied.
Great Western Mining
Co. v. Harris, 198 U. S. 561. The
express authorization (contained in the order of appointment) to
apply for aid to other courts could not aid them in this respect.
Sterrett v. Second National Bank, 248 U. S.
73.
Moreover, even if the Federal Court for Minnesota would have had
jurisdiction to appoint the receivers, and these receivers had
secured ancillary appointment in the Nebraska district, the Hertz
bill should still have been dismissed, because the property was
then in the possession of the state court. What the federal court
undertook to do was not to adjudicate rights
in personam
(as the state court did in
Kline v. Burke Construction
Co., 260 U. S. 226),
but to take the
res out of the possession and control of
the state court and to enjoin all action on its part except as
directed by the Federal Court for Minnesota. It sought to do this
although the state court alone had jurisdiction of the parties and
of the subject matter at the time when the proceeding before it was
begun at the time its decree directing the Department to take
possession was entered, and at the time possession was taken
thereunder. Moreover, the proceeding in the state court was
confessedly an appropriate one, the possession taken was actual,
and it has been continuous. All this occurred before any suit was
begun in any federal court. The federal court did not seek to gain
possession and control of the Nebraska property until three months
after entry of the decree of the state court directing the
Department (which had possession of the res) to proceed with the
liquidation. The case is thus free of those features which
sometimes create difficulty in determining conflicts between courts
of concurrent jurisdiction.
Where a court of competent jurisdiction has, by appropriate
proceedings, taken property into its possession through its
officers, the property is thereby withdrawn
Page 262 U. S. 89
from the jurisdiction of all other courts.
Wabash Railroad
v. Adelbert College, 208 U. S. 38,
208 U. S. 54.
Compare Oklahoma v. Texas, 258 U.
S. 574,
258 U. S. 581.
Possession of the
res disables other courts of coordinate
jurisdiction from exercising any power over it.
Farmers' Loan
& Trust Co. v. Lake Street Elevated R. Co., 177 U. S.
51,
177 U. S. 61.
The court which first acquired jurisdiction through possession of
the property is vested, while it holds possession, with the power
to hear and determine all controversies relating thereto. It has
the right, while continuing to exercise its prior jurisdiction, to
determine for itself how far it will permit any other court to
interfere with such possession and jurisdiction.
Palmer v.
Texas, 212 U. S. 118,
212 U. S. 126,
212 U. S.
129.
The assertion of control by the federal courts over property in
the possession of the state court is sought to be justified on the
following ground: the possession taken by the Department under the
state court's decree of April 12, 1921, was only for a temporary
purpose, namely to conduct the business until the company could
properly resume the conduct thereof. True, the supplemental decree
entered by the state court on May 28, 1921, directed the Department
to liquidate the business as provided in the statute. But
meanwhile, on May 2, 1921, suit had been brought by Karatz in the
Federal Court for Minnesota, and it had obtained jurisdiction over
the company's assets by its appointment
ex parte of
receivers. So, the court says, 280 F. 542:
"its right to the possession by its receivers is superior to
that of the state court. It follows that the receivers appointed by
it are entitled to the possession of the company's records and
assets as against the Department of Trade and Commerce."
This contention is opposed to the settled principles which
govern the relations of courts of concurrent jurisdiction. It is
inconsistent also with § 265 of the Judicial Code, which prohibits
courts of the United States from
Page 262 U. S. 90
staying proceedings in courts of a state.
Essanay Film
Manufacturing Co. v. Kane, 258 U. S. 358. The
Nebraska court was confessedly a court of competent jurisdiction.
While it was in possession of the
res, it entered a
supplemental decree directing the Department to liquidate the
company. The statute of the state expressly provides for such
liquidation. The original petition of April 12, 1921, clearly
contemplated it, and contained a prayer for general relief. The
claim is that the application for liquidation is a new and
independent proceeding, and that jurisdiction over the
res
had terminated before entry of the supplemental decree, although
the court's possession of the
res continued. The claim is
groundless. But, if the legality of the state court's action was to
be questioned, it could be done only by laying the proper
foundation through appropriate proceedings in that court.
Covell v. Heyman, 111 U. S. 176,
111 U. S. 179;
Byers v. McAuley, 149 U. S. 608,
149 U. S. 614;
compare Laing v. Rigney, 160 U. S. 531;
Metcalf v. Barker, 187 U. S. 165;
Pickens v. Roy, 187 U. S. 177;
Murphy v. John Hofman Co., 211 U.
S. 562,
211 U. S. 569.
If such action had been taken and relief had been denied there,
resort could then have been had to appellate proceedings.
Wiswall v.
Sampson, 14 How. 52. But the judgment of the state
court, which had possession of the
res, could not be set
aside by a collateral attack in the federal courts.
Mutual
Reserve Fund Life Association v. Phelps, 190 U.
S. 147,
190 U. S.
159-160. Nor could it be ignored.
Shields v.
Coleman, 157 U. S. 168.
Lower federal courts are not superior to state courts.
Reversed.
[
Footnote 1]
There was this qualification:
"That the right of said receivers to the possession of such of
the property of said company as is situated in the District of
Nebraska shall be subject to such right of possession thereof in
the Department of Trade and Commerce of Nebraska as had accrued to
it, under proceedings in the District Court of Douglas County in
that state, when the right of the receivers arose under the laws of
the United States."
[
Footnote 2]
The decree in the
Karatz case directly under review
here is that entered by the circuit court of appeals on July 7,
1922, pursuant to its per curiam opinion of June 30, 1922, in which
it affirmed the final decree of the district court entered August
11, 1921, for reasons stated in the opinion in that cause, of April
28, 1922, affirming the "interlocutory order appointing a
receiver."
[
Footnote 3]
In accordance with this decree of the circuit court of appeals,
the Federal District Court for Nebraska entered a decree for an
injunction. From the decree of the district court, the Department
appealed directly to this Court, on the ground that the district
court was without jurisdiction as a federal court. The appeal was
dismissed on October 16, 1922, for lack of jurisdiction in this
Court. 260 U.S. 713.
[
Footnote 4]
Where a creditors' bill has been entertained by this Court, the
amount of a single plaintiff's claim has been large enough to
satisfy the jurisdictional requirement.
Compare Hatch v.
Dana, 101 U. S. 205;
Johnson v. Waters, 111 U. S. 640;
Handley v. Stutz, 137 U. S. 366.
[
Footnote 5]
Compare O'Neil v. Welch, 245 F. 261, 267-268;
Ward
v. Foulkrod, 264 F. 627, 634.
See also Relfe v.
Rundle, 103 U. S. 222;
Bernheimer v. Converse, 206 U. S. 516;
Converse v. Hamilton, 224 U. S. 243.
[
Footnote 6]
The scope and effect of this section was stated by Mr. Moon (who
introduced it) to be this: "It applies to a case where a receiver
is to be appointed by a district judge covering property that runs
across an entire circuit." Cong.Rec. 61st Cong.3d Sess. pp. 566,
3998.