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for fraud. Kelly and McDonald demurred to the cross-bill because there was no jurisdiction of the persons and matters set forth. The objection was made that Stuart was not a necessary party to the suit, but only a proper one. Judge Deady said that it might be admitted that he was not a necessary party; yet plaintiff had a right to make him a party, and being properly made a party, he had the same right to file and maintain a cross-bill in the suit as he would if he were a necessary or indispensable party. Attempt was also made to show that the cross-bill could not be maintained on account of the citizenship of the parties thereto, because a controversy was stated between Stuart on the one hand and McDonald and the flour mills company on the other, all of whom were British subjects. The learned judge disposed of this in the following language:
"Now, nothing is better settled, both on reason and authority, than this. In suits not original, but ancillary to litigation already pending in a Circuit Court of the United States, the citizenship of the parties is wholly immaterial, Shields v. Barrow, 17 How. 130, 15 L. Ed. 158; Freeman v. Howe, 24 How. 460, 16 L. Ed. 749; Cross v. De Valle, 1 Wall. 14, 17 L. Ed. 515; Railroad Co. v. Chamberlain, 6 Wall. 748, 18 L. Ed. 859. In the last case the court reversed the decree of the Circuit Court dismissing the cross-bill on the final hearing, because the parties thereto were citizens of the same state; saying that the cross-bill ‘was but ancillary to, and dependent upon, the original suit,' and, by a necessary implication, that the citizenship of the parties in this connection was immaterial. If the citizenship of the parties in the original suit is sufficient to give the court jurisdiction, it has jurisdiction of the cross-bill therein without reference to the citizenship of the parties thereto. A crossbill is a proper and recognized means of making a defense or asserting the right of a defendant in a suit in equity. It would be intolerable if a party sued in a national court was thereby deprived of this right, unless the parties to the cross-bill were such as to give the court jurisdiction in an original suit. In short, the cross-bill and the original suit are but one cause, and jurisdiction of the latter includes the former. Field v. Schieffelin, 7 Johns. Ch. (N. Y.) 252; Story, Eq. Pl. § 399.”
It would appear as if a different rule had been followed by Judge Speer in Vannerson v. Leverett (C. C.) 31 Fed. 376, decided about the same time that Judge Deady expressed the opinion just quoted from. Vannerson v. Leverett was a controversy wherein a creditors' bill had been filed against the defendants, Vannerson and Leverett. Vannerson filed a cross-bill against his codefendant, Leverett, seeking relief in a certain indebtedness which existed between themselves. Leverett filed a plea to the jurisdiction of the United States courts, and averred that both he and Vannerson were citizens of Georgia. To this plea Vannerson demurred upon several grounds; one being that the bill filed by the creditors was a creditors' bill, and that the jurisdiction of the court did not depend upon the citizenship of the parties. The original bill in that case was dismissed, but Judge Speer did not regard thắt as material, but placed his decison upon the ground that, if Vannerson and Leverett were both citizens of Georgia, the one could have no relief in the United States court against the other, in a crossbill filed to an original bill against them both, which he could not have obtained by original bill in the United States court. Emphasis was laid upon the fact that Vannerson had no standing in court as a suitor by original bill, and prayed no relief against the creditors. It was
held, too, that the cross-bill had no relation to the subject-matter of the suit by the creditors, nor was the cross-bill in any sense a reply to the allegations of the original bill.
There is no difficulty in reconciling the opinion of Judge Speer with that of Judge Deady, as it is clear that in the Salem Bank Case Stuart did have an interest in the subject of the controversy, and the cross-bill was ancillary to the original suit, while in the Vannerson Case the accounts which may have existed between the defendants themselves did not relate to the subject matter of the suit by the creditors against the two defendants. Desty in his work on Federal Procedure, vol. 1, page 400, approves of Judge Deady's opinion, and deduces the following rule:
“An original bill and a cross-bill thereto constitute but one cause, and when a circuit court has jurisdiction of the former, by reason of the citizenship of the parties thereto, it has jurisdiction of the latter without reference to such citizenship.” Jesup v. Illinois Cent. R. Co. (C. C.) 43 Fed. 483, 496; Foster's Federal Practice, $ 18, p. 65; Park v. New York, L. E. & W. R. Co. et al. (C. C.) 70 Fed. 641.
In Brooks v. Laurent, 98 Fed. 647, 39 C. C. A. 201, the Court of Appeals for the Fifth Circuit passed upon the question directly involved. A cross-bill was there filed, praying for a decree enforcing the specific performance of the contract or lease, which was the subject-matter of the original bill. It was decided that the jurisdiction invoked by the cross-bill was not original, but ancillary; and, being merely ancillary to the original suit, the court said it might be maintained, “although the court would not have had jurisdiction of the cross-bill as an original action.” The court cited Railroad Co. v. Chamberlain, 6 Wall. 618, 18 L. Ed. 859; Osborne & Co. v. Barge (C. C.) 30 Fed. 805; First Nat. Bank of Salem v. Salem Capital Flour Mills Co. (C. C.) 31 Fed. 580; Freeman v. Howe, 24 How. 450, 16 L. Ed. 749.
In Osborne & Co. v. Barge, supra, demurrers to the cross-bill in equity were filed. Judge Shiras considered the demurrers to the crossbill upon the ground of lack of jurisdiction, and said:
“As already stated, the jurisdiction of the cause of action presented by the original bill and of the parties thereto cannot be and is not questioned. Having acquired full and complete jurisdiction of the original cause and the parties thereto, the court cannot be deprived thereof because another party obtains leave to intervene for the assertion of a right to the property which is the subject of the proceeding. If it be necessary for the protection of the rights of a third party that he be heard in the cause pending, he may be permitted to intervene, even though the court would not have, by reason of his being a citizen of the same state with complainant, jurisdiction over an original proceeding between the same parties. Freeman v. Howe, 24 How. 450, 16 L. Ed. 749; Krippendorf v. Hyde, 110 U. S. 276, 4 Sup. Ct. 27, 28 L. Ed. 145; Phelps v. Oaks, 117 U. S. 236, 6 Sup. Ct. 714, 29 L. Ed. 888.
In Lilienthal v. McCormick, 117 Fed. 89, 54 C. C. A. 475, the Bank of Woodburn, in Oregon, was made a defendant by the complainants, and brought into the suit in the United States court, where it asked affirmative relief, by filing a cross-bill for the foreclosure of certain liens, thus attempting to litigate the question whether the complainants had any lien against certain property. The Court of Appeals for this, the Ninth Circuit, held that the bank was properly before the
court, and that the federal court was the proper one to deal with the subject-matter of the litigation. Judge Hawley, speaking for the court, said:
"It had jurisdiction to determine the controversy between complainants and the Bank of Woodburn as to the priority of their respective liens upon the property. In this case, the Bank of Woodburn was made a party defendant in order that its rights might be heard and determined. If it had not been made a party, it would have had the right to intervene. The citizenship of the Bank of Woodburn and of Wong Gee, who was not a party to the original bill, did not deprive the court of its jurisdiction.” Compton v. Jesup, 15 C. C. A. 397, 68 Fed. 263, 279, and authorities there cited ; Schenck v. Peay, Fed. Cas. No. 12,450.
The rule is that consolidations, cross-bills, and interventions do not oust the jurisdiction of the court in the main suit, whatever the citizenship of the parties thus brought in may be. Sioux City Terminal R. & Warehouse Co. v. Trust Co. of North America, 27 C. C. A. 73, 82 Fed. 124, 128; Morgan's L. & T. R. & S. S. Co. v. Texas Cent. R. Co., 137 U. S. 171, 201, 11 Sup. Ct. 61, 31 L. Ed. 625; Park v. Railroad Co. (C. C.) 70 Fed. 641. The cases of Covert v. Waldron et al. (C. C.) 33 Fed. 311, and Cilley v. Patten (C. C.) 62 Fed. 498, are cited by defendants. Covert v. Waldron was not a case where cross-complaints were filed by persons interested in the subject-matter of the suit, who asked for affirmative relief. In Cilley v. Patten et al. the court decided that the parties complainant and defendants were selected for the purpose of creating a cause cognizable by the federal courts, and, as the court found no real controversy between citizens of different states, jurisdiction could not be had. The question considered does not bear upon the present case.
In conclusion, I hold that the cross-bills are proper, and that the elastic forms and modes of proceeding in equity will enable the court to do complete justice, even though the case be complicated and the parties numerous. There is no impingement upon the right to trial by jury. Jurisdiction in equity is complete as between complainant and defendants, and does not fail as between cross-complainants and complainant or others already parties to the suit, even though a diversity of citizenship may be lacking between codefendants.
The objections to the jurisdiction are denied.
BANKRUPTCY-PROPERTY PASSING TO TRUSTEE-ESTOPPEL TO ASSERT EQUITABLE
A bankrupt had been a stockholder in a corporation which owned western lands, and with the other stockholders had advanced money to the corporation to pay its debts, to secure which a mortgage was taken on its lands. The mortgage was foreclosed by the trustee therein, who bought in the lands as such trustee. Subsequently, at request of the stockholders, he conveyed the lands without consideration to the bankrupt individually, and the latter, in order to settle any question as to
his title and to facilitate sales, instituted a suit in equity, to which the stockholders became voluntary parties, in which it was decreed that he was the absolute owner of the lands in fee simple, the title was quieted in him, his heirs and grantees, and all the defendants were enjoined from questioning the same. From time to time thereafter he sold portions of the lands, and mingled the proceeds with his other funds, but kept an account of the same, and when sufficient accumulated distributed the amounts so received among the stockholders of the corporation. At the time of his adjudication as a bankrupt he still held certain of the lands, and also had in his possession proceeds of others sold, which he had put into the form of a draft payable to him as trustee. Held, that the stockholders of the corporation were estopped by the decree to which they had consented from asserting any equity or trust, which would prevent the property from passing to the bankrupt's trustee, under Bankr. Act July 1, 1898, c. 541, $ 70 (5), 30 Stat. 565 (U. S. Comp. St. 1901, p. 3451], as property which he could have transferred, and which might
have been levied upon and sold under judicial process against him. In Bankruptcy. On petition for review of order of referee. Clarence E. Bacon and John M. Ragan, for petitioner. Hobart Hotchkiss and William H. Ely, for trustee. Howard Taylor, for Russell Murray & Co., intervening creditors.
PLATT, District Judge. A careful study of the situation which this case has taken during its later presentations to the referee discloses no sound reason for passing upon the main contention, which is separated into diametrically opposing views—one taken by the claimants and the other by the trustee. The referee, however, perhaps wisely, and certainly courageously, assumed the burden, the matter has been fully and fairly discussed before him and before the court, and there is no disposition to avoid an expression of opinion, which may shed some light upon what may happen when the chance for final solution arrives.
The essential facts can be briefly stated: In 1890 there existed in Nebraska a corporation known as the Nebraska Real Estate & Live Stock Association, which had many stockholders, widely scattered about the country, among whom appears the bankrupt, for himself and for his wife. Becoming embarrassed, it requested a loan from the stockholders, so that it might pay its debts. It agreed
It agreed to repay the loan, with 8 per cent. interest, and to mortgage its property therefor. Each stockholder loaned the pro rata amount called for under his holding, and to secure them a mortgage was made to one A. L. Clarke as their trustee. In 1899, default having been made under the trust aeed, the said Clarke, under the powers therein contained, obtained a foreclosure in the district court of Adams county, Neb., and the property was conveyed to him as trustee for the stockholders, who had made the advances to the corporation, as above described. Clarke went on acting as such trustee until November, 1900, when, at the written request of the stockholders, for whom he was acting, he conveyed the property to the bankrupt. The bankrupt paid no money to Clarke for such conveyance. The bankrupt then had upon the records the absolute title to all the real estate in Nebraska which had formerly belonged to said corporation. Early in 1902, it appearing that, although the legal title to said real estate was in the bankrupt, a pros
pective purchaser, knowing the situation, feared the possible legal complications which might arise, Mr. Coffin brought suit in the district court for Adams county, Neb., against the corporation and its stockholders, all of whom submitted to the jurisdiction of the court. He had already obtained quitclaim deeds from all the stockholders for the purpose of quieting and confirming his title, without paying any. inoneys therefor, and these he recited in his petition, and they prere made part of the decree, and placed on file in the clerk's office. The decree based on said petition is dated June 2, 1902. It shows full jurisdiction, and sets forth, more fully, perhaps, than I have done, the facts above recited, and, inter alia, contains this:
That plaintiff is now the absolute owner in fee of all the premises hereinafter described, having full power to sell and convey the same, and to take mortgages for securing any portion of the purchase money in his own name, and to release the same; that all the defendants hereto are forever barred and should be enjoined from ever calling in question plaintiff's right and title to do, or his
title to said premises, and the title to his grantees and the grantees of said A. L. Clarke, trustee. That the lands and premises to be affected by this decree are described as follows.
After the description comes the decretal order, which is in part as follows:
"It is therefore ordered, adjudged, and decreed that the title to all said premises be forever quieted and confirmed in plaintiff and his heirs, his or their grantees, and the grantees of A. L. Clarke, trustee, free and clear of any outstanding interest, claim, or title; that defendants and all persons claiming or to claim through, by, or under them, or either of them, be and they are hereby forever barred and enjoined from in any manner questioning plaintiff's title to such of said lands as still stand in his name, or the title of his grantees or the grantees of A. L. Clarke, trustee, in lands by him heretofore conveyed."
After the decree the bankrupt disposed of several pieces of the real estate therein described, giving deeds therefor in his own name, and receiving in payment certain sums in cash and certain mortgages back to him personally upon the properties sold. Long prior to that time, and continuously until the adjudication, the bankrupt kept only one bank account, which was in the First National Bank of Middletown, and in his individual name. He mingled therein his own moneys and the moneys of his wife and all receipts from the sales of the Nebraska lands. As returns accumulated from the western property, he paid to the stockholders, who had advanced moneys to the Nebraska corporation, a considerable percentage on their advancements, with interest at 8 per cent., turning over to them, as convenience dictated, the mortgages given to him individually in part payment on the sales, and filling up the balance of each stockholder's share with his personal check. Such payments were accepted by the stockholders, who gave receipts therefor, as payments on account of their advances. In 1899 the corporation voted the bankrupt a salary of $1,500 per annum. The bankrupt credited this salary monthly on the books up to August 1, 1901, and from August 1, 1901, to June 1, 1902, he credited himself with services at the rate of $175 a month. Up to February, 1903, a large sum had accumulated in his personal bank account from sales