1. The appointment by a federal court of a receiver on a
creditor's bill gives no right to stay a suit against the debtor
then pending in a state court, and a judgment in personam
Page 279 U. S. 219
against the debtor by default in such suit in the state court
establishes conclusively the existence and amount of the claim for
the purpose of proof in the federal court, and will enable the
claimant to participate in the distribution among creditors of the
debtor's property ordered therein. P. 279 U. S.
2. The facts that neither the debtor nor the receiver undertook
to defend in the state court and that the judgment was entered y
default is, in this connection, immaterial. P. 279 U. S.
26 F.2d 247 affirmed.
Certiorari, 278 U.S. 591, to review a judgment of the circuit
court of appeals which affirmed an order of the district court
allowing a claim in a receivership. See also
5 F.2d 1015;
MR. JUSTICE BRANDEIS delivered the opinion of the Court.
This proceeding, commenced in 1923 in the Federal Court for
Southern New York, is what is called a friendly receivership. The
federal jurisdiction was invoked solely on the ground of diversity
of citizenship. The plaintiff, Hatch, a citizen of New York, is the
holder of a dishonored check of the sole defendant, the Morosco
Holding Company, Inc., a Delaware corporation, apparently with its
principal place of business in New York. The bill alleges that the
company has a variety of assets, largely intangible, and many
liabilities, and that, although financially embarrassed, it is
solvent. The prayers are that the court administer its entire
property, appoint for this purpose a receiver, and enjoin all
persons from interfering with his possession. An answer presented
with the bill admitted its allegations and joined in its prayers.
Page 279 U. S. 220
was appointed receiver. Thereafter, orders were entered
restraining the prosecution of suits against the company and
directing creditors to file with the receiver their claims against
the company. So far as appears, no order of distribution has been
Among the company's creditors, but not mentioned in the bill,
was Margolies. Two months before the institution of this suit in
the federal court, he had commenced in the Supreme Court of New
York an action against the company to recover $124,381 for breach
of a contract. That action, in which the company had filed an
answer and counterclaim, was pending when the receiver was
appointed. It was stayed by the order of the federal court.
Margolies did not, so far as appears, challenge the jurisdiction of
the federal court. Compare Harkin v. Brundage,
276 U. S. 36
276 U. S. 51
Lion Bonding & Surety Co. v. Karatz, 262 U. S.
, 262 U. S. 85
Pusey & Jones Co. v. Hanessen, 261 U.
, 261 U. S. 500
He applied to it for a modification of the order so that he might
prosecute his action in the state court, and he sought to have the
receiver directed to contest or liquidate the claim there. The
denial by the district court of that motion, and the contention by
the receiver that the judgment later recovered in the state court
is not to be accepted in the receivership proceedings as conclusive
proof of the existence and amount of Margolies' claim, have been
the subject of four decisions by the Circuit Court of Appeals for
the Second Circuit. The last of them only is here for review, but
what happened earlier must be stated. The record of the proceedings
is fragmentary, but supplemented by the opinions of the circuit
court of appeals shows the following.
On the first appeal, Hatch v. Morosco Holding Co.,
F.2d 1015, the unanimous court reversed, with costs as "a plain
violation of § 265 of the Judicial Code," the refusal of the
district court to permit Margolies to prosecute his claim in the
state court. In doing so, the appellate
Page 279 U. S. 221
"A direction will, however, be included in our mandate, and in
the order to be entered thereupon, that, should any judgment be
entered in said action in the state court, such judgment shall not
be taken to be a liquidation of any claim filed or capable of being
filed under the judgment [sic
] creditors' bill herein, or
as in any way affecting the right of the receiver to contest the
claim so reduced to judgment de novo.
Nothing, however, in
our mandate shall be taken to prevent the court below permitting
liquidation of Margolies' claim by suit in the state court, should
it prefer so to do."
Upon the coming down of the mandate, Margolies moved in the
district court that the receiver be directed to liquidate the claim
in the action pending in the state court. The motion was denied.
Thereupon formal notice of trial of that action was served upon
both the receiver and the attorney of record of the company.
Neither appeared at the trial. Judgment by default was taken
against the company, and, upon an inquest as to the amount of
damages, judgment was entered in the sum of $55,283.88, which
included interest and costs. Thereupon, Margolies moved in the
circuit court of appeals that its mandate on the first appeal be
recalled and corrected so that the receiver should not be permitted
to try de novo
in the district court the issue on his
claim. This motion was denied by the circuit court of appeals,
apparently without an opinion.
Margolies then filed in the district court his verified proof of
claim, and, at a hearing thereon had before a special master,
presented an exemplified copy of the judgment in the state court.
The receiver thereupon announced his election "to have the claim
tried de novo,
" the master recommended that the claim be
dismissed "upon the authority of the opinion of the circuit court
of appeals," and the district court ordered that Margolies' claim
be dismissed. The order was the subject of another
Page 279 U. S. 222
appeal by Margolies. Hatch v. Morosco Holding Co., Inc.,
Appeal of Margolies,
19 F.2d 766. There, the court held by a
majority decision that the direction in the mandate to the effect
that any judgment recovered in the state court should not affect
the right of the receiver to contest the claim de novo
the federal court had been improvidently made. It therefore
reversed the judgment of the district court and remanded the cause
for further proceedings.
At the hearing then had before the special master, Margolies put
in evidence the judgment and rested. The receiver offered to prove
that the claim was less than the amount of the judgment. The master
excluded the evidence and recommended that judgment be entered for
the full amount save for a small deduction directed by the circuit
court of appeals on the interest allowed by the state court, which
is not challenged here. His report was confirmed by the district
court. The receiver appealed to the circuit court of appeals. It
affirmed the judgment, Hatch v. Morosco Holding Co., Inc., Ex
26 F.2d 247, but, in doing so, said:
"A majority of the court, as it is now constituted, think that
our first decision impairs the jurisdiction of the district court
over assets already in its custody when the judgment of the state
court was entered. They believe that the liquidation of claims is a
part of the distribution of the estate, since it determines how
much each creditor shall get, and that the distribution of the
estate is part of what is usually understood as jurisdiction over
However, the former decision was reached after
unusual deliberation and full presentation of all the questions
involved. If it is to be changed, only the Supreme Court may do so;
in the same case and on the same claim, the first ruling must
This Court then granted a writ of certiorari. 278 U.S. 591. We
are of opinion that the
Page 279 U. S. 223
view there expressed by the majority is erroneous, and that the
judgment should be affirmed.
The appointment of a receiver of a debtor's property by a
federal court confers upon it, regardless of citizenship and of the
amount in controversy, federal jurisdiction to decide all questions
incident to the preservation, collection, and distribution of the
assets. It may do this either in the original suit, Rouse v.
Letcher, 156 U. S. 47
156 U. S. 49
or by ancillary proceedings, White v. Ewing, 159 U. S.
. Compare Kelley v. Gill, 245 U.
, 245 U. S. 119
And it may, despite § 265 of the Judicial Code, issue under § 262,
or otherwise, all writs necessary to protect from interference all
property in its possession. Julian v. Central Trust Co.,
193 U. S. 93
193 U. S. 112
But the appointment of the receiver does not necessarily draw to
the federal court the exclusive right to determine all questions or
rights of action affecting the debtor's estate. Calhoun v.
Lanaux, 127 U. S. 634
127 U. S.
-639. This is true, a fortiori,
as to the
subject matter of a suit pending in a state court when the
receivership suit was begun. Compare Haines v. Carpenter,
91 U. S. 254
rule that, when the jurisdiction of a court and the right of a
plaintiff to prosecute his suit in it have once attached, the right
cannot be restrained by proceedings in any other court, applies to
protect the jurisdiction of the court unless the case is within
some recognized exception to § 265 of the Judicial Code.
Compare Hull v. Burr, 234 U. S. 712
234 U. S. 723
Wells Fargo & Co. v. Taylor, 254 U.
, 254 U. S.
-184; Essanay Film Co. v. Kane, 258 U.
, 258 U. S. 361
Atchison, Topeka & Santa Fe Ry. Co. v. Wells,
265 U. S. 101
265 U. S. 103
Here, there is no basis for any such exception.
The contention that the judgment is not conclusive rests upon
the argument that, because the appointment of the receiver draws to
the appointing court control of the assets and in the distribution
of them among creditors,
Page 279 U. S. 224
there is necessarily involved a determination both of the
existence of the claim and of the amount of the indebtedness, the
federal court must have the exclusive power to make that
determination. The argument ignores the fact that an order which
results in the distribution of assets among creditors has
ordinarily a two-fold aspect. Insofar as it directs distribution
and fixes the time and manner of distribution, it deals directly
with the property. Insofar as it determines, or recognizes a prior
determination of, the existence and amount of the indebtedness of
the defendant to the several creditors seeking to participate, it
does not deal directly with any of the property. The latter
function, which is spoken of as the liquidation of a claim, is
strictly a proceeding in personam.
Of course, no one can
obtain any part of the assets, or enforce a right to specific
property in the possession of a receiver, except upon application
to the court which appointed him. Lion Bonding & Surety Co.
v. Karatz, 262 U. S. 77
262 U. S. 88
But the judgment of the state court does not purport to deal with
the property. The sole question involved there was the existence
and amount of Margolies' claim against the corporation, and the
sole question involved here is the proof of that claim. There is no
inherent reason why the adjudication of the liability of the debtor
may not be had in some court other than that
which has control of the res.
It is only necessary that,
in the receivership, proof of the claim be made in an orderly way,
so that it may be established who the creditors are and the amounts
The power to fix the time for distribution may include the
power, in the exercise of judicial discretion, to decline to
postpone distribution awaiting disposition of litigation in another
court over a contested claim. Compare Wm. Filine's Sons Co. v.
Weed, 245 U. S. 597
245 U. S. 602
Pennsylvania Steel Co. v. New York City Ry.,
229 F. 120.
But there is no reason why the character of the proof
Page 279 U. S. 225
required in the receivership suit for any purpose should be
different from that which would have been required had the judgment
in the state court been rendered prior to the appointment of the
receiver, or from that which would be required if an independent
suit on the judgment were brought in the federal court. It would
hardly be doubted that a final judgment, recovered in a state court
prior to the commencement of the receivership suit, would establish
conclusively the existence and amount of the claim against the
debtor if later a decree were entered in the federal court
distributing the funds in the receiver's hands among its creditors.
Whether such a judgment recovered in a suit commenced after the
appointment of the receiver would operate as res judicata
we need not consider. For Margolies' suit was begun before. He had,
under § 265 of the Judicial Code, the right to prosecute that suit
to judgment despite the institution later of the receivership
proceedings. He must have, as an incident thereof, the further
right to have it accepted therein as an adjudication of the
existence of the indebtedness. The fact that neither the company
nor the receiver undertook to defend in the state court is, in this
connection, immaterial. A judgment of a court having jurisdiction
of the parties and of the subject matter operates as res
in the absence of fraud or collusion, even if
obtained upon a default. Last Chance Mining Co. v. Tyler Mining
Co., 157 U. S. 683
157 U. S. 691
Compare Northern Pacific Ry. Co. v. Slaght, 205 U.
The establishment of a claim constituting the basis of the right
to participate in the distribution of property in the possession of
one court is often conclusively determined by a judgment obtained
in another court. Thus, a judgment of a federal court may establish
conclusively the fact which entitles one to share in a decedent's
estate in course of administration in a state court.
21 Wall. 276; Hess v. Reynolds,
113 U. S. 73
Page 279 U. S. 226
Byers v. McAuley, 149 U. S. 608
149 U. S. 620
Waterman v. Canal-Louisiana Bank, 215 U. S.
. Under the Bankruptcy Act of 1867, a judgment against
the debtor rendered in a suit in a state court pending at the time
of the commencement of the bankruptcy proceedings established
conclusively in bankruptcy the existence and amount of the debt
provable against the estate. Norton v. Switzer,
93 U. S. 355
93 U. S.
-364. Compare Hill v. Harding, 107 U.
. A judgment in a state court against a receiver
pursuant to § 66 of the Judicial Code establishes conclusively the
right to payment from the funds of the receivership, although the
Act makes the suit in the state court
"subject to the general equity jurisdiction of the court in
which such manager or receiver was appointed so far as the same may
be necessary to the ends of justice. [Footnote 1
Where a receivership of a national bank is appointed by the
Comptroller of the Currency, a judgment entered after the
appointment in an action commenced in a state court before the
appointment is binding upon the receivers as well as upon the bank.
Speckert v. German National Bank,
98 F. 151, 154.
The rule that the appointment by a federal court of a receiver
on a creditor's bill gives it no right to stay a suit then pending
in a state court, and that the judgment in personam
thereafter recovered therein in the state court against the debtor
must be held to have established conclusively the existence and
amount of the claim for the purpose of proof in the federal court,
and will enable the claimant to participate in a distribution among
Page 279 U. S. 227
of the debtor's property ordered therein, has long been applied
in some of the lower federal courts. [Footnote 2
] No case has been found in which the right has
been denied. A like rule has been applied in state courts.
] In Pendleton
v. Russell, 144 U. S. 640
144 U. S. 644
it was sought to prove against funds of a dissolved corporation in
the hands of a receiver appointed by a court of New York a judgment
recovered in Tennessee after the dissolution. The proof was
disallowed because the dissolution had operated, like death, as an
abatement of the suit. But the court said:
"Had the original judgment of the Circuit Court of the United
States been affirmed, instead of being reversed, it having been
rendered when the insurance company was in existence, it would have
stood as a valid claim against the assets of that company after its
There are some cases arising under the Bankruptcy Act and some
under state insolvency laws in which a judgment recovered in the
state court was held not to
Page 279 U. S. 228
be conclusive in the bankruptcy or insolvency proceedings. Thus,
it has been held by some lower federal courts that a judgment
recovered after institution of bankruptcy proceedings in an action
commenced in a state court prior thereto, on a claim to which the
limited power to stay action in a state court conferred by § 11 of
the Act of July 1, 1898, c. 541, 30 Stat. 549, applies, is not to
be accepted in bankruptcy as conclusive proof of the claim.
] Similarly it has
been held, where a statutory proceeding for the winding up an
insolvent corporation is brought in the state of the incorporation,
that the assets will be distributed only among those persons who
have been found to be creditors either by that court or elsewhere
with its leave, and that a judgment recovered in another state
without leave from it will not entitle the plaintiff to share in
the assets. [Footnote 5
decisions are not inconsistent with the conclusion stated above.
They have no application to receiverships in a federal court
sitting in equity, which lacks the power to stay an action in the
state court. Margolies had the absolute right to prosecute his
claim to judgment in the state court, the order of the district
court staying its prosecution was properly dissolved, and the
judgment entered there is conclusive as between the parties and
their privies in the federal court. Kline v. Burke Construction
Co., 260 U. S. 226
260 U. S. 230
260 U. S.
Central Trust Co. v. St. Louis, Arkansas & Texas Ry.
41 F. 551; Dillingham v. Hawk,
60 F. 494;
St. Louis S.W. Ry. Co. v. Holbrook,
73 F. 112; Willcox
177 F. 870; Manhattan Trust Co. v. Chicago
Electric Traction Co.,
188 F. 1006; American Brake Shoe
& Foundry Co. v. Pere Marquette R. Co.,
263 F. 237, 278 F.
832; International & Great Northern Ry. Co. v. Adkins,
14 F.2d 149.
Mercantile Trust Co. v. Pittsburg & Western R. Co.,
29 F. 732; Pine Lake Iron Co. v. La Fayette Car Works,
F. 853. Compare 51 U. S. Bacon,
10 How. 56, 51 U. S. 69
Wilder v. City of New Orleans,
87 F. 843, 848;
Anglo-American Land, etc., Co. v. Cheshire Provident
124 F. 464, 466; Pennsylvania Steel Co. v.
New York City Ry. Co.,
161 F. 786, 787; United States v.
Illinois Surety Co.,
238 F. 840, 846; International &
Great Northern Ry. Co. v. Adkins,
14 F.2d 149, 152.
Pringle v. Woolworth,
90 N.Y. 502; Taylor v.
59 N.J.Eq. 621; St. Louis, B. & M. Ry. Co. v.
183 S.W. 829, 833. See
"Judgment Claims in Receivership Proceedings," by Judge John K.
Beach, 30 Yale Law Journal 674. Compare Central Trust Co. v.
238 Mo. 676, where the rule was applied to proof under
an assignment for the benefit of creditors; Matter of Empire
state Surety Co.,
216 N.Y. 273, 283. See contra Evans v.
Illinois Surety Co.,
319 Ill. 105, in which the difference
between an equity receivership and receivers under bankruptcy or
insolvency laws was not referred to. Cases like In re New
Jersey Refrigerating Co.,
97 N.J.Eq. 358, where both actions
are brought in courts of the same state, depend, of course, upon
the local law.
In re Hoey, Tilden & Co.,
292 F. 269, 271; In
re James A. Brady Foundry Co.,
3 F.2d 437; In re Barrett
& Co., 27 F.2d
. Whether that is the correct rule, we have no occasion to
consider. See, contra, In re Buchan's Soap Corp.,
1017. Compare Hobbs v. Head & Dowst Co.,
184 F. 409;
In re Benwood Brewing Co.,
202 F. 326, 327-328; In re
272 F. 975; In re Rosentein,
276 F. 704;
In re Kelley,
297 F. 676; In re Winter,
Attorney General v. Legion of Honor,
196 Mass. 151;
Hackett v. Legion of Honor,
206 Mass. 139, 142.