1. An allegation in a bill in a federal court, by a receiver,
that the suit was brought by authority of the state court which
appointed him is put in issue under the 30th Equity Rule by an
allegation in the answer that the defendant has no knowledge or
information as to the authority granted the plaintiff in that
regard, and therefore neither admits nor denies the allegation, but
requires the plaintiff to make strict proof thereof. P.
280 U. S.
357.
2. The Court of Common Pleas of Ohio appointed a receiver of all
the property of a local corporation in two suits, (1) a suit by a
mortgage trustee seeking to satisfy the company's defaulted bonds
by foreclosure of the mortgage, and praying for a receiver to
take
Page 280 U. S. 352
charge of and manage the company's property and to collect the
rents and income therefrom and to sequester all amounts so received
from any of the mortgaged property for payment of the bonds, and
praying general relief, and (2) a suit by a preferred stockholder
of the company against it and the mortgage trustee, alleging that,
owing to market conditions and want of capital, the company had
ceased operations and was unable to pay or finance its obligations,
including the bonds, and would be subject to suits, judgments,
executions and sale of its assets, and praying that, for the
necessary protection of its bondholders, stockholders, and
creditors, a receiver be appointed to take charge of and conserve
its plant and property until its financial requirements could be
provided, and for general relief. The court directed and empowered
the receiver to take possession of the property and to do all
things necessary to preserve and protect it for the best interests
of all parties interested therein, and authorized him to bring suit
in the federal court to recover certain of the bonds, or their
value, from their holder, upon the ground that they had been
obtained from the company under an
ultra vires and illegal
contract in exchange for some of its preferred stock. The claim was
a chose in action of the company, and as such was part of the
property embraced in the receivership.
Held:
(1) The Court of Common Pleas had chancery jurisdiction (§
11894, Gen.Code of Ohio) to appoint the receiver, and even if it
was erroneous to extend the receivership under the petition of the
mortgage trustee to property not covered by the mortgage, and to
grant any receivership under the petition of the stockholder, which
prayed no other relief, the validity of the appointment could not
be attacked collaterally in another court. P.
280 U. S.
358.
(2) The action against the bondholder, involving, in effect, the
claim of an illegal taking of a large amount of the company's bonds
which, if recovered, would reduce the amount of the mortgage lien
was within the terms of § 11897, Gen.Code of Ohio, providing
that,
"under the control of the court, the receiver may bring and
defend actions in his own name, as receiver, . . . and generally do
such acts respecting the property as the court authorizes."
P.
280 U. S.
360.
(3) In any case, the order specifically authorizing and
directing the receiver to bring that action was one which the Court
of Common Pleas had jurisdiction to make in the exercise of its
discretion and under the construction which it placed upon the
statute, and, even if erroneous, was not subject to collateral
attack by the party sued under it in the federal court. P.
280 U. S.
360.
Page 280 U. S. 353
3. The rule that a chancery receiver, having no title, cannot
maintain a suit in a foreign jurisdiction to recover demands or
property therein situate
held inapplicable to a suit in
the district court by a receiver appointed by a state court having
territorial jurisdiction within the division of the district in
which the suit was brought. P.
280 U. S.
361.
4. When the circuit court of appeals erroneously reverses a
decree of the district court in favor of a receiver and dismisses
the suit, upon the ground that the plaintiff had no authority to
sue, this Court, upon correcting the error, will remand the case
for determination of the merits. P.
280 U. S. 363.
27 F 2d 201 reversed.
Certiorari, 278 U.S. 593, to review a decision of the circuit
court of appeals which reversed a decree of the district court in
favor of Grant, receiver, and dismissed the suit on the ground that
he had no authority to sue.
MR. JUSTICE SANFORD delivered the opinion of the Court.
Grant, a citizen and resident of Ohio, was appointed by the
common pleas court of Mahoning County in that state receiver of the
property and assets of the Struthers Furnace Co., an Ohio
corporation. Thereafter, pursuant to an order of that court so
directing, he brought this suit in equity against Leach & Co.,
a New York corporation in the federal district court for the
Eastern Division of the Northern District of Ohio [
Footnote 1] to recover certain mortgage
Page 280 U. S. 354
bonds of the Furnace Company, or their value. The district court
gave decree in favor of the receiver. The circuit court of appeals
vacated this decree and dismissed the suit on the ground that it
was beyond the power of the common pleas court to authorize the
receiver to bring it. 27 F.2d 201. [
Footnote 2]
1. The bonds in question were part of an issue of eight percent
bonds of the Furnace Company, secured by a mortgage upon certain
real and personal property. In 1922, Leach & Co. purchased from
the Furnace Company a large number of these bonds at 90 1/2 and
accrued interest, for which it paid partly in shares the seven
percent preferred stock of the Furnace Company at 85 and accrued
dividends, and partly in cash.
In 1925, the trustee under the mortgage brought suit in the
common pleas court against the Furnace Company for foreclosure. The
verified petition alleged that the Furnace Company had defaulted in
semi-annual interest on the bonds, and all the outstanding bonds
had
Page 280 U. S. 355
been declared due and payable. It prayed that judgment be given
for the amount of the bonds and interest, that the mortgaged
property be sold and the proceeds applied to the payment of the
outstanding bonds, that a receiver be appointed to take charge of
the "property of the defendant" and manage the same and collect the
rents and incomes therefrom, and that he be ordered to set apart
and sequester all amounts so received from any of the mortgaged
property for the payment of the bonds, and for general relief.
On the same day, a preferred stockholder of the Furnace Company
brought suit in the common pleas court against the Furnace Company
and the mortgage trustee. The verified petition alleged that the
Furnace Company, owing to prevailing market conditions and want of
capital, had been compelled to close down its plant and cease
operations, had been unable to pay the semi-annual interest on its
bonds, was indebted in the sum of $1,500,000 on the bonds, had no
funds with which to pay the same and accruing interest, was
indebted on past due notes and other current obligations in a sum
exceeding $2,000,000 which it could not pay, was unable to finance
its obligations, and would be subjected to suits, judgments, and
executions and the sale of its property and assets, and that, for
the protection of bondholders, stockholders, and creditors of the
Company, it was necessary that a receiver be appointed to take
charge of and conserve its plant and property until its financial
requirements could be provided, and prayed that the court appoint a
receiver to take charge of its property and assets, and for general
relief.
These causes came on to be heard on the petitions for the
appointment of a receiver, whereupon the court consolidated them
insofar as the question of the appointment, acts, and duties of a
receiver were common to both. And, finding that there was urgent
exigency for the immediate
Page 280 U. S. 356
appointment of a receiver in the two cases to preserve the
property and assets of the Furnace Company, the Court granted the
prayers of the petitions, appointed Grant receiver in both cases,
and directed and empowered him to take possession of all the
property designated in the trustees' petition, together with all
other property, both real and personal, of the Furnace Company,
including its books and papers, to do all things necessary in order
properly to preserve and protect the assets and property for the
best interests of all parties interested therein, and to manage and
control the same and collect the rents and income therefrom.
Thereafter, Grant applied to the Court for an order granting
him, as receiver, authority to bring suit in the federal district
court against Leach & Co. on the ground that it, under an
ultra vires and illegal contract, had received bonds of
the Furnace Company in exchange for preferred stock, and
represented to the Court that he should recover for the benefit of
the stockholders and creditors of the Furnace Company the value of
such bonds, or the bonds themselves, and that it would be to the
material benefit of the stockholders and creditors if leave to
commence such suit were granted. Upon hearing this application, the
Court, finding that it was for the best interests of the creditors
and stockholders of the Furnace Company that such suit be
commenced, authorized and directed the receiver to commence the
suit against Leach & Co., praying for such relief as should be
obtained against it in order to reimburse the receiver for the
apparent unlawful and illegal issue of the bonds by the Furnace
Company to Leach & Co. in consideration of the preferred
stock.
In his petition in the district court, Grant alleged that he was
the receiver of all the assets, choses in action, and other
property of the Furnace Company, duly appointed by the Common Pleas
Court, and brought the suit by
Page 280 U. S. 357
virtue of authority so to do granted to him by that court, and
that the Furnace Company was without authority to exchange its
bonds for its stock. He prayed that the court order Leach & Co.
to surrender and deliver to him the bonds that it had received from
the Furnace Company in exchange for the stock, or, if it had
disposed of the bonds and could not redeliver them, to pay him
their value upon the surrender of the stock, and for general
relief. Leach & Co., answering the petition on the merits,
admitted that the petitioner was duly appointed receiver of all the
assets, choses in action, and property of the Furnace Company by
the Common Pleas Court, but stated that it had no knowledge or
information as to the authority granted to him by that court to
bring the action, and therefore neither admitted nor denied that
allegation, but required the plaintiff to make strict proof
thereof. This, we think, under the 30th Equity Rule, [
Footnote 3] put in issue the allegation that
the action was brought under authority granted by the Common Pleas
Court.
At the hearing, the district court, after stating that the
plaintiff was the receiver of the Furnace Company, duly appointed
by the Common Pleas Court, and as such possessing all the powers
conferred by statute and general principles of equity on a receiver
-- without referring to the question whether he had been authorized
to bring the action [
Footnote
4] -- found upon the evidence that the transaction
Page 280 U. S. 358
by which the bonds were delivered to Leach & Co. violated
numerous principles of corporation law, justice, and honesty, was a
gross fraud upon other preferred stockholders, and could not be
sustained against creditors, and, as it appeared that Leach &
Co. had disposed of the bonds to innocent purchasers, gave decree
against it in favor of the receiver for their value, with the
interest on them that had been paid to Leach & Co.
On appeal by Leach & Co., the circuit court of appeals held,
in substance, that the powers of the receiver were limited to the
purposes of the suit in which he was appointed, and the common
pleas court could confer upon him authority to do only such acts as
were within the scope of its jurisdiction as limited by such
purposes, and that, since there was no object or purpose in them
that could be served by the bringing of the suit against Leach
& Co., the court was without authority to direct him to bring
it, and the purported authorization so to do was beyond its power.
And, without passing upon the merits of the receiver's claim, the
decree of the district court was reversed and the suit
dismissed.
2. Upon these facts, we conclude that the circuit court of
appeals was in error in reversing the decree of the district court
and dismissing the receiver's action without consideration of his
claim upon the merits. While the argument in this Court has covered
a wide range, we do not find it necessary to state more than the
controlling reasons which lead us to that conclusion.
The common pleas court, by its order, had in fact authorized and
directed Grant, as receiver, to bring the action in the district
court. The common pleas court had previously appointed him receiver
of all the property of the Furnace Company, both real and personal,
and had directed and empowered him to take possession thereof and
to do all things necessary to preserve and protect it for the best
interests of all parties interested therein.
Page 280 U. S. 359
The claim against Leach & Co. arising out of the exchange of
bonds for preferred stock was a chose in action of the Furnace
Company, and as such was a part of the property of which he had
been appointed receiver.
The common pleas court had jurisdiction of the petitions for the
appointment of a receiver in the suits of the mortgage trustee and
preferred stockholder, and the power to determine whether, under
the allegations of the petitions, it was authorized to appoint a
receiver of the Company's property, to what extent and for what
purposes, and what authority should be vested in him as such
receiver.
Section 11894 of the General Code of Ohio provides that the
common pleas court may appoint a receiver in causes pending therein
in certain designated cases, and "6. In all other cases in which
receivers heretofore have been appointed by the usages of
equity."
It is questioned whether, under this statute, the court rightly
appointed, under the petition of the mortgage trustee, a receiver
of the portion of the Furnace Company's property which was not
covered by the mortgage, and it is asserted that, under the
petition of the preferred stockholder, in which no other relief was
prayed, the appointment was erroneous under the decisions of the
Ohio courts. But, however this may be, the court had jurisdiction
and the power to determine these questions. And even if the order
appointing the receiver was erroneous and might have been vacated
in part in a direct attack, as upon an appeal by the Furnace
Company, its validity was not challenged in any respect by the
answer of Leach & Co. in the district court, which admitted the
allegation that Grant had been "duly appointed" receiver of all the
Company's property. And plainly the validity of the appointment
could not have been questioned by a collateral attack in another
court.
See Cadle v.
Baker, 20 Wall. 650,
87 U. S. 651;
Shields v. Coleman, 157 U. S. 168,
157 U. S.
178;
Page 280 U. S. 360
Lively v. Picton, 218 F. 401, 406;
Lydick v.
Neville, 287 F. 479, 482;
Olmstead v. Distilling Co.,
73 F. 44, 48;
Shinney v. North American Co., 97 F. 9, 10;
Barbour v. National Bank, 45 Ohio St. 133, 140;
McNary
v. Bush, 35 Or. 114, 117.
Section 11897 further provides that,
"under the control of the court, the receiver may bring and
defend actions in his own name, as receiver, . . . and generally do
such acts respecting the property as the court authorizes."
Under this provision, the common pleas court had jurisdiction to
determine what actions the receiver might bring. The action against
Leach & Co. -- involving in effect the claim of an illegal
taking by it of a large amount of the Company's bonds which, if
recovered, would reduce the amount of the mortgage lien -- came we
think, fairly within the terms of the statute as an act respecting
property in the custody of the court in the trustees' suit. But
even if this were not the case, the order specifically authorizing
and directing the receiver to bring the action in the district
court was one which the common pleas court had jurisdiction to make
in the exercise of its discretion and under the construction which
it placed upon the statute, and, as such, was not one which, even
if erroneous, was subject to the collateral attack which Leach
& Co. sought to interpose in the district court. Thus, in
Sanger v. Upton, 91 U. S. 56,
91 U. S. 58, the
district court, on the application of the assignee of a bankrupt
corporation, had made an
ex parte order that the balance
unpaid on the stock of the several stockholders should be paid to
the assignee by a certain day, and in default of such payment the
assignee should proceed to collect the amount due from each
delinquent stockholder. This Court, in a suit instituted by the
assignee in the circuit court against a stockholder who had failed
to pay pursuant to that order, said:
"The order was conclusive as to
Page 280 U. S. 361
the right of the assignee to bring the suit. Jurisdiction was
given to the district court by the Bankrupt Act . . . to make it.
It was not necessary that the stockholders should be before the
court when it was made, any more than that they should have been
there when the decree of bankruptcy was pronounced. That decree
gave the jurisdiction and authority to make the order. The
plaintiff in error could not, in this action, question the validity
of the decree, and, for the same reasons, she could not draw into
question the validity of the order. She could not be heard to
question either except by a separate and direct proceeding had for
that purpose."
3. It is urged, however, in argument that, even if the order of
the common pleas court to otherwise valid, Grant is merely a
chancery receiver having no title to the property, and therefore
cannot maintain an action for its recovery by reason of the settled
doctrine in federal jurisprudence that such a receiver has no
authority to sue in the courts of a foreign jurisdiction to recover
demands or property therein situated, and that his functions and
authority are confined to the jurisdiction in which he was
appointed.
See Sterrett v. Second National Bank,
248 U. S. 73,
248 U. S. 76,
and cases cited. The underlying reason for this rule, as shown in
Booth v.
Clark, 17 How. 322,
58 U. S. 338,
and emphasized in
Hale v. Allinson, 188 U. S.
56,
188 U. S. 68, is
that such a receiver
"has no extraterritorial power of official action; none which
the court appointing him can confer, with authority to enable him
to go into a foreign jurisdiction to take possession of the
debtor's property; none which can give him, upon the principle of
comity, a privilege to sue in a foreign court of another
jurisdiction."
It has been applied by this Court in cases where a chancery
receiver appointed by a state court sought to maintain a suit in a
federal court in another state, its effect there being as appears
from a statement in
Hale v. Allinson,
Page 280 U. S. 362
supra at p.
188 U. S. 68,
merely to deny permission to such an action by a receiver, "outside
the jurisdiction of the state of his appointment."
Here, however, the Ohio court authorized and directed the
receiver to bring the action in a federal district court within
Ohio, and having jurisdiction in territory within which the common
pleas court itself was located. [
Footnote 5] The receiver's petition merely prayed for a
recovery against Leach & Co., and did not seek an
administration of the property by the district court. Upon such
recovery, no assets would have to be removed from the territorial
jurisdiction of the district court to Ohio, the State of the
receiver's appointment, as they would be recovered and held
therein. The order did not authorize or require the receiver to
take any extraterritorial action outside of Ohio either for the
purpose of bringing the suit or taking possession of the property
recovered, and the bringing of the action within Ohio involved no
application to the district court to be granted the privilege of
bringing a suit outside of Ohio upon the principle of comity. We
think that, under these circumstances, the federal court in the
same state cannot rightly be considered a court of foreign
jurisdiction within the meaning of the general rule, and that there
is no substantial ground for extending that rule, as hitherto
applied, so as to bring this case within its terms.
This conclusion is emphasized by the fact that, in
Shields
v. Coleman, supra, p.
157 U. S. 174, a receiver appointed by a chancery court
of a Tennessee county was allowed, without question, pursuant to
its order, to maintain an action in the United States Circuit Court
for the Eastern District of Tennessee -- within whose territorial
limits that county was included -- for the restoration of property
then in the custody of a receiver appointed by the federal
Page 280 U. S. 363
court. Similar action was taken by this Court in
Harkin v.
Brundage, 276 U. S. 36,
276 U. S. 42, in
a proceeding by receivers appointed by the Superior Court of Cook
County, Illinois, brought in the federal district court for the
Northern District of Illinois. And, conversely, it was held in
Shull v. Fidelity & Guaranty Co., 81 W.Va. 184, 188,
that a receiver appointed by a federal district court in West
Virginia might maintain an action in a Circuit Court of the same
state under authority from the federal court, not being under such
circumstances "a foreign receiver" nor proceeding outside of the
jurisdiction of his appointment.
4. As the view of the circuit court of appeals that the receiver
was without authority to bring the action against Leach & Co.
was erroneous, its judgment must be reversed. And since it did not
determine the merits of the receiver's claim, the case will be
remanded to that court with instructions to proceed to that end in
conformity with this opinion.
See Buzynski v. Luckenbach S.S.
Co., 277 U. S. 226,
277 U. S. 228,
and cases cited.
Reversed and remanded.
[
Footnote 1]
Mahoning County is included in the Eastern Division of the
Northern District, and a stated term of the district court is held
therein.
[
Footnote 2]
The record here consists in part of copies of orders and
proceedings in the Common Pleas Court, which were filed in the
circuit court of appeals, for its consideration, pursuant to a
stipulation of the parties. The circuit court of appeals, after
stating that no issue had been made in the evidence in the district
court as to the receiver's authority to bring the action, said:
"We preferred not to decide it upon a construction of the
pleadings, and hence we suggested to counsel that they file
certified copies of any orders or proceedings had in the common
pleas court, where the receiver was appointed, and stipulate that
this Court might consider such orders or proceedings in determining
the question on it merits. This suggestion has been acted upon, and
certified copies of all pertinent pleadings and orders have been
field."
And we have likewise considered the orders and proceedings in
the Common Pleas Court, with like effect as if they had been
offered in evidence in the district court.
[
Footnote 3]
This rule provides that:
"The defendant in his answer shall in short and simple terms set
out his defense to each claim asserted by the bill . . .
specifically admitting or denying or explaining the facts upon
which the plaintiff relies, unless the defendant is without
knowledge, in which case he shall so state, such statement
operating as a denial. Averments other than of value or amount of
damage, if not denied, shall be deemed confessed, except as against
an infant, lunatic, or other person non compos and not under
guardianship. . . ."
[
Footnote 4]
No evidence had been offered upon this issue in the district
court; but the absence was fully supplied, by concurrence of both
parties, in the circuit court of appeals.
See note 2 supra.
[
Footnote 5]
See note 1
supra.