1. An objection to the capacity of the receiver of a
corporation, appointed by a federal court, to sue in a federal
court in another State under an ancillary appointment made on his
direct
ex parte application and not as an incident to an
independent bill, is an objection that might have been remedied if
timely made in the court of first instance, and is waived if made
for the first time on appeal. P.
293 U. S.
73.
2. The court in which the receiver sued having jurisdiction of
both the subject matter and the parties, the objection to the
manner of his appointment goes not to the court's jurisdiction, but
to his legal capacity as plaintiff. P.
293 U. S.
74.
3.
Booth v.
Clark, 17 How. 322, distinguished. P.
293 U. S.
75.
68 F.2d 925 reversed.
Certiorari, 292 U.S. 617, to review the reversal of a decree in
a suit brought by McCandless as ancillary receiver. The review here
was to be limited to the questions pertaining to the validity of
the appointment of the petitioner as ancillary receiver, and his
right as such to maintain this suit.
Page 293 U. S. 68
MR. JUSTICE BRANDEIS delivered the opinion of the Court.
McCandless, a citizen and resident of Pennsylvania, suing as
ancillary receiver of the Duquesne Gas Corporation, appointed by
the federal court for Southern New York, brought this suit in that
court. The bill alleged that he had been appointed receiver of all
the assets of the corporation in a consolidated suit in the federal
court for Western Pennsylvania originally brought by Frank T.
Harrington against the Duquesne Gas Corporation, and later
consolidated with one brought by the Central Hanover Bank &
Trust Company, as trustee under the corporation's mortgage; that,
upon his petition as primary
Page 293 U. S. 69
receiver filed in the federal court for Southern New York, he
had, by an order "duly made," been appointed ancillary receiver
there; that he had "duly qualified, and is now acting as such
ancillary receiver;" and that the "order duly authorized" him as
such receiver to bring this suit. The bill then set forth at great
length facts on which it charged that the defendants, or some of
them, acting in a fiduciary relation to the corporation, came into
the possession of funds arising from the sale of its securities,
and had misappropriated more than $2,500,000. An accounting and the
recovery of these sums were prayed for. Furlaud, a citizen and
resident of New York, and three corporations organized under the
laws of states other than Pennsylvania were the defendants. Each
filed an answer which denied most of the allegations of the
bill.
The case was heard by the District Court on the merits, on
evidence which occupied 217 pages of the original printed record.
That court entered a final decree which ordered Furland and the
Kingston Company to pay the sum of $1,834.640.08, with interest and
costs. Those defendants appealed to the Circuit Court of Appeals,
denying liability. McCandless cross-appealed, claiming the
additional sum of $850,000, and that the other two companies, as to
whom the bill had been dismissed by the decree, were also liable
for the full amount.
The Court of Appeals, without passing upon the merits of the
controversy, reversed the decree. 68 F.2d 925, 927. It did so,
solely on the ground that, under the rule of
Booth v.
Clark, 17 How. 322, the
"appointment of the plaintiff as ancillary receiver was void,
and he did not acquire, in any of the proceedings, a status to
warrant the institution of this suit."
Its decision was based upon the following facts which were shown
by the copy of the record of the proceedings in the federal court
for Southern New York by which McCandless was appointed
ancillary
Page 293 U. S. 70
receiver, and which he had introduced at the hearing in this
cause: the papers in the proceeding for such appointment were
entitled "Frank T. Harrington, Complainant against Duquesne Gas
Corporation, Defendant," but, in fact, no independent bill against
the corporation had been filed in the Southern District of New York
by Harrington or by any other person. The papers filed consisted
merely of a petition by McCandless as primary receiver praying that
he be appointed ancillary receiver, and the order entered thereon.
Annexed to his petition was a copy of the proceedings of the
federal court for Western Pennsylvania by which he was appointed
primary receiver. The record does not show that the corporation was
represented when the appointment of the ancillary receiver was
made. So far as disclosed by the record, the order of the District
Court for Southern New York appointing him was made
ex
parte.
The Court of Appeals held that the legal sufficiency of the
appointment of the plaintiff as ancillary receiver had been put in
issue by the answer, and that the plaintiff had not sustained the
burden of establishing its legality. It ruled that, in the federal
courts, a foreign receiver may not "sue outside the district as a
matter of comity even by obtaining permission before suit is
commenced;" that
"to permit a foreign receiver to obtain an ancillary
appointment, on an
ex parte application, improperly avoids
the rule denying foreign receivers the right to sue in the foreign
jurisdiction;"
that the "right of a receiver to sue in a foreign court cannot
be upheld as a mere incident to the office of a receiver;" and
that, since federal courts for the several districts are foreign to
one another, an ancillary receiver may be appointed only as an
incident of an independent bill.
The importance of reviewing that ruling, in view of an
established practice, said to prevail in perhaps a majority of the
state courts, of permitting foreign receivers
Page 293 U. S. 71
to sue, [
Footnote 1] and a
common practice, said to obtain in federal courts, of appointing
ancillary receivers on the
ex parte application of the
primary receiver, was the reason principally urged for granting the
petition for certiorari. The order allowing certiorari was
"limited to the questions pertaining to the validity of the
appointment of the petitioner as ancillary receiver, and his right
as such to maintain this suit."
In the abbreviated record prepared for use here, only those
portions of the original record which were supposed to bear upon
those questions were included. The rest were omitted in printing
pursuant to stipulation. The briefs filed on the argument of the
case in this Court were directed solely to the question whether the
appointment of the ancillary receiver as made was void and open to
collateral attack. But statements of counsel made at the oral
argument in this Court, in answer to inquiries, and confirmed by
examination of the original record, enable us to dispose of the
case without passing on the specific question whether, in a federal
court, an ancillary receiver may be appointed otherwise than as an
incident of an independent bill in equity.
First. The holding of the Court of Appeals that the
legal sufficiency of the appointment of the plaintiff as ancillary
receiver had been put in issue by the answer rests solely upon the
provision in Equity Rule 30, which declares that a statement in the
answer that the defendant is without knowledge as to facts alleged
in the bill "shall be treated as a denial." [
Footnote 2] This constructive denial did
Page 293 U. S. 72
not suggest that there was a legal objection to the manner of
the appointment or to its validity. The proceedings at the hearing
and later show that there was no intention to deny the validity of
the appointment of the ancillary receiver, [
Footnote 3] nor was it in fact questioned in the
District Court. [
Footnote 4] On
the appeal, sixty-five alleged errors were as
Page 293 U. S. 73
signed. One of them was directed to an alleged holding that the
order entered in the Southern District of New York "constituted a
due and valid appointment" of McCandless as ancillary receiver. But
the record does not show that the District Court did so rule, or
that it was requested to rule on the subject. Moreover, the
petitioner stated that the objection to the validity of the
appointment had been made for the first time in the Court of
Appeals, and counsel for the respondent, in his oral argument in
this Court, said that the objection to the validity of the
appointment was not urged by him because he desired to have a
decision on the merits.
Second. Under the early practice, an objection to the
legal capacity of the plaintiff to sue could be taken only by plea
in abatement.
Kane v. Paul,
14 Pet. 33,
39 U. S. 41;
Ventress v.
Smith, 10 Pet. 161,
35 U. S. 168.
New, it may be taken by plea in bar or by answer.
Noonan v.
Bradley, 9 Wall. 394,
76 U. S.
400-402. But an objection to the plaintiff's legal
capacity to sue will not be entertained if taken, for the first
time, in the appellate court. The rule is of general application,
and has been applied in the federal appellate courts to a variety
of cases: to lack of capacity on the ground of infancy; [
Footnote 5] on the ground that
plaintiff was a married woman; [
Footnote 6] on the ground that the husband was not
entitled to sue in his own name for the death of his wife;
[
Footnote 7] on the ground that
plaintiff, a foreign corporation, had failed to comply with
requirements of the local law; [
Footnote 8] on the ground that a suit in the name of the
United States was brought without the requisite authority of the
Attorney General. [
Footnote 9]
Under like circumstances, the appellate
Page 293 U. S. 74
courts have refused to entertain the objection that plaintiff
was not the real party in interest; [
Footnote 10] that the father was not entitled to sue for
the death of his minor son; [
Footnote 11] and that the plaintiff, an executor or
administrator, had not secured ancillary administration. [
Footnote 12] The reason for the rule
is the broad one that a defect found lurking in the record on
appeal may not be allowed to defeat recovery, where the defect
might have been remedied, if the objection had been seasonably
raised in the trial court. [
Footnote 13]
Third. The alleged invalidity of the order appointing
McCandless ancillary receiver is a defect of this character. It is
urged that the appointment of an ancillary receiver can be made
only as an incident of an independent bill, and upon application of
one properly a party thereto; that here there was nothing before
the court, because no suit was then pending in the Southern
District of New York; that there was neither a plaintiff nor a
defendant; that no relief was prayed; that no process had issued;
that the corporation did not voluntarily appear, and hence that the
court lacked the power to make the appointment, since there was
nothing before it upon which its judicial power could act. We have
no occasion to decide whether the contention is well founded. For,
if the validity of his appointment as ancillary receiver had been
seasonably urged in the trial court, the plaintiff might have
remedied the defect by causing an independent bill to be filed; the
District Court might thereon have entered an order appointing him
ancillary receiver; and, in this
Page 293 U. S. 75
cause, the trial court might have permitted the appropriate
amendment of the bill of complaint. [
Footnote 14]
The rule that a federal appellate court must, of its own motion,
dismiss the suit if it appears that the trial court was without
jurisdiction,
Mansfield, C. & L.M. Ry. Co. v. Swan,
111 U. S. 379,
111 U. S. 382,
is not applicable to the situation presented here. In the case at
bar, the District Court confessedly had jurisdiction of the subject
matter and of the parties. The objection sustained goes not to the
jurisdiction of the District Court in this suit, but to the legal
capacity of the plaintiff as ancillary receiver.
Fourth. The objection which the Court of Appeals held
fatal to the maintenance of this suit differs, in essence, from
that sustained in
Booth v. Clark. There, the foreign
equity receiver suing in the federal court of another state failed
because, having no title to the assets within the district, he was
without a cause of action. He lacked title because the order
appointing him did not, and could not, transfer to him the assets
involved in the litigation. For that reason, a bill in the federal
court for Southern New York brought by the primary receiver,
alleged to have been duly appointed in Pennsylvania and authorized
to bring this suit, would have been bad on demurrer. But this bill
by the ancillary receiver, which alleges that he had been duly
appointed by the federal court for New York and authorized to bring
the suit, would have been good on demurrer.
Great Western Mining & Mfg. Co. v. Harris,
198 U. S. 561,
198 U. S. 576,
shows that the rule of
Booth v. Clark rests upon practical
considerations. The foreign receiver failed in the
Great
Western case, although he sued in the name of the corporation.
He failed, as the Court there stated, because
"every jurisdiction, in which it is sought, by means of a
receiver, to subject property to the control of
Page 293 U. S. 76
the court, has the right and power to determine for itself who
the receiver shall be, and to make such distribution of the funds
realized within its own jurisdiction as will protect the rights of
local parties interested therein, and not permit a foreign court to
prejudice the rights of local creditors by removing assets from the
local jurisdiction without an order of the court, or its approval
as to the officer who shall act in the holding and distribution of
the property recovered."
The nature of the rule of
Booth v. Clark is shown
further by the fact that, when by statute the appointment of the
receiver operates to transfer title, the foreign receiver may sue
in the federal court for another state.
See Bernheimer v.
Converse, 206 U. S. 516.
Compare Converse v. Hamilton, 224 U.
S. 243;
Clark v. Williard, 292 U.
S. 112.
The judgment of the Court of Appeals is reversed, and the cause
is remanded to it for the determination of the questions relating
to the liability of the defendants decided by the District Court
and presented by the appeal and cross-appeal.
Reversed.
[
Footnote 1]
It is stated by petitioner that a foreign equity receiver is
permitted to sue in 21 states, and that the highest courts of 7
other states have indicated approval of that view.
[
Footnote 2]
Paragraph fourth of the amended bill of complainant, after
reciting the proceedings appointing McCandless primary receiver in
the Western District of Pennsylvania, stated:
"That upon petition of the complainant as such Receiver duly
filed in the United States District Court in and for the Southern
District of New York, an order was duly made on the 23rd day of
March, 1932, by said last mentioned Court appointing said
complainant, George W. McCandless, as Ancillary Receiver of
Duquesne Gas Corporation, which last mentioned order duly
authorized the complainant, as such Receiver, to bring this suit,
and the complainant has duly qualified and is acting as such
Ancillary Receiver."
Defendant answered:
"With respect to the allegation of paragraph 'Fourth' of the
amended bill of complaint, defendant denies having information
sufficient to form a belief with respect thereto, and leaves the
complainant to his proof thereof."
[
Footnote 3]
McCandless, after testifying without objection to his
appointment in Pennsylvania, was asked: "Thereafter, did you apply
for and obtain authority from the Court to bring this suit?"
Defendants' counsel objected, stating:
"The ground of my objection is that the order itself is the best
evidence of what is contained therein. I might say at this point
that I intend to raise the point in the course of this trial that
the trustee had no authority to bring the suit in the particular
action under which he was appointed."
The court directed that the order be introduced. Thereupon
McCandless was asked: "Were you thereafter appointed ancillary
receiver by this District Court?" Without objection, he answered
"Yes." Then he was asked: "Were you there also authorized to bring
suit?" Defendants' counsel then made "the same objection," which
was sustained. The plaintiff then, without objection, introduced in
evidence a copy of the proceeding appointing him the ancillary
receiver. That record, including a copy of the proceedings in the
Pennsylvania suit, occupies 35 pages of the printed record in this
Court.
The nature of the objection which counsel had in mind in
asserting lack of authority in the "trustee" to bring the suit is
not clear. It obviously related equally to the authority conferred
by the Pennsylvania court on the primary receiver.
[
Footnote 4]
The careful opinion of the District Judge (which occupies 14
pages of the printed record of this Court) makes no mention of any
such objection or defense.
[
Footnote 5]
Paauhau Sugar Plantation Co. v. Palapala, 127 F.
920.
[
Footnote 6]
Buckingham v. Estes, 128 F. 584, 585, 586.
[
Footnote 7]
St. Louis Southwestern Ry. Co. v. Henson, 58 F.
531.
[
Footnote 8]
Dahl v. Montana Copper Co., 132 U.
S. 264.
[
Footnote 9]
McLaughlin v. United States, 107 U.
S. 526,
107 U. S.
528.
[
Footnote 10]
Northwestern S.S Co. v. Cochran, 191 F. 146, 149;
Mayor v. United States, 104 F. 113, 115.
[
Footnote 11]
Texas & Pacific Ry. Co. v. Lacey, 185 F. 225, 227,
appeal dismissed, 229 U.S. 628.
[
Footnote 12]
Compare McAleer v. Clay County, 38 F. 707;
Leahy v.
Haworth, 141 F. 850.
[
Footnote 13]
Compare O'Reilly v. Campbell, 116 U.
S. 418,
116 U. S.
420.
[
Footnote 14]
Compare Coal & Iron R. Co. v. Reherd, 204 F.
859.