Merchants' Nat. Bank v. Chattanooga Construction Co.

53 F. 314 | U.S. Circuit Court for the District of Eastern Tennessee | 1892

KEY, District Judge.

The complainants aver that they are citizens of this district, and that defendant is a corporation of West Virginia. Defendant lias hied a plea alleging that complainant Carter is a citizen of Kentucky and that compla inant Bogan is a citizen of the northern division of this district, the court for which is held at Knoxville, and that he cannot sue in this division of the district. As to Carter, the testimony satisfactorily establishes that he is a citizen of Tennessee, and of this division of this district. There is no dispute as to the fact that Bogan resides in 1 he northern division of the district, and is a citizen of that division. He is a citizen of this district, and the law provides: “But where jurisdiction is founded only on the fact that the action is between citizens of different states, suit shall he brought only in the district of the residence of either the plaintiff or the defendant.” The terms of ihe law are clear and unambiguous. The suit must be brought in the district, not in any particular division of the district. This suit is brought in the district of Bogan’s citizenship, precisely as the law by its words requires.

The hill is filed by several pa rfcies claiming to he creditors of the defendant. They are creditors at large, without judgments, except Carter & Bogan, who claim to have obtained judgment in a state court in Georgia. Defendant has not answered the bill, but demurs to it. The material points of the demurrer are: (1) That judgment must he obtained at law before complainants can maintain a bill like the present, and that none of complainants have such judgments; that Carter & Bogan’s judgment, is void. (2) That, if it be not void, it is a judgment of a state different from the one in which this court is held, and that, before a court of equity can lay hold of the case, there must be a judgment in a court of this state; There was no service of process upon the defendan t in the state court. The copy of the record shows that there were tv o defendants in the case in the state court, that one of them was ser\ ed with process and copy on the 22d of December, 1891, and that the defendant in this cause was not to be found in the county in which the suit was brought; hut following the return of the sheriff this appears: “Service acknowledged. Copy and process and all further service waived. 12 — 23—-91. The Chattanooga Construction Co. of West Ya. By B. J. Bobcrtson, President.” The defendant insists that the record ought to show affirmatively that Kobertson was within the jurisdiction of the court, and subject to its process, when he made this acknowledgment, and because it does not so appear the judgment is void. It will be observed that the record shows that the acknowledgment is of the-date of the day following the sheriff’s return; that the defendant had recently built a railroad through the county in which the court was held; and there is no averment or a word of proof in that court or this that there was any fault or failure in respect to defendan c’s having been properly brought into court, so that the circumstances well-nigh prove the presence of Bobertson within the jurisdiction of the court at the time he acknowledged service. But, aside from this, presumptions, if indulged at all, are in favor of the action and proceedings of the court, and not against it. If this he so, the judgment cannot he held void for want of process or its service.

As to whether this judgment, as that of a state different from the one in which this court is held, is such judgment as will authorize this court to assert and maintain jurisdiction of a creditors’ bill, is a serious question. Many state courts and some decisions in federal courts have held that jurisdiction does not follow such judgments. I think, however, that the weight of authority is the other way. In the case of Stutz v. Handley, 41 Fed. Rep. 537, Judge Jackson of this circuit held that the bill in that case was properly filed under the authority of Hatch v. Dana, 101 U. S. 205, and that no valid objection could be raised to the form of the suit. This case went to the supreme court, and is reported in 139 U. S. 417-438, 11 Sup. Ct. Rep. 530. The bill was filed in Nashville, Tenn., and was a general creditors’ bill. In Handley v. Stutz, 139 U. S. 419, 11 Sup. Ct. Rep. 530, it is stated that the bill in that case “averred that the plaintiffs were judgment creditors of the company, by judgments obtained in the courts of Kentucky.” Here we have a case brought and decided in a circuit court of the United States in Tennessee in behalf of creditors whose claims rested on judgments obtained in Kentucky, — a creditors’ bid, which went to the supreme court of the United States, and that court maintained jurisdiction of the case, and decided it on its merits. The authority of the learned circuit judge and of the supreme court is sufficient to control me without searching for further or other reasons. I conclude, therefore, that, so far as Carter & Eogan are concerned, they have a valid judgment, and, founded upon that, have a standing in this court, even though no execution had issued thereon.

The other complainants have no judgments. Can the bill be maintained as to them? The bill seeks the appointment of a receiver, who may take charge of the assets of the defendant, and apply them to the debts of defendant. It alleges, among many other things, that the same persons wrho were engaged in building the Chattanooga Southern Bailroad from Chattanooga, Tenn., or rather from (he line between Tennessee and Georgia, near Chattanooga, through Georgia and Alabama, to Gadsden, in Alabama, called into existence the defendant to act as a contractor, and that they might have a legal person absolutely subject to their domination to rvhom the bonds of the railroad company might be issued; that said bonds, except 45, were issued to defendant; that said railroad company is now in the hands of a receiver; that a decree of foreclosure of the mortgage securing the bonds has been obtained, providing for the interests of the bondholders in its sale and purchase; that the same persons were the real owners and controllers of the railroad company and the defendant, and held fiduciary relations to the defendant, and have acquired the control of large quantities of said bonds, which in equity they hold as trustees for the defendant; that it has been their effort to strip the defendant of its assets, and that it is left without tangible assets, and it is insolvent, and unable to pay its debts, unless the court interposes. It is alleged that it is the purpose of the parties controlling both the railroad and defendant to use the bonds of the defendant in a reorganization scheme by which the bondholders are to purchase the road; that large sums belonging to the defendant have been diverted from the treasury of the defendant, and appropriated to various unauthorized purposes; that the officers and stockholders of defendant have combined and conspired to strip it of its assets, and leave it in an insolvent, condition. Many instances are given' in which it is alleged That the bonds of defendant have been hypothecated and pledged for debts for which defendant is not liable. The bill is full of averments, specific in their character, of violations of trust obligations, waste, and dissipation of assets, and acts of fraud, conspiracy, and confederation to defraud the creditors of defendant and to appropriate its means to the use of the officers and stockholders of the concern.

This hill is not answered. The demurrer admits its allegations. It seems to me that this bill does not fall within any case in which it ha.s been held that a judgment at law, or return of execution nulla bona,, or both, is necessary to maintain the bill. It is not au effort to reach equitable assets merely. It charges violation of trust; the dissipation and concealment of assets. It, charges conspiracy, confederation, and fraud for the purpose of despoiling defendant of its assets, and leaving its creditors without redress; and all this is done, it is alleged, by its officers and stockholders, and these allegations are not denied. If a court of equity does not have original jurisdiction of ibis case, it would be difficult to conceive one in which it has. Bills in equity with far fewer elemenis of original jurisdiction have been maintained. In the case of Stuiz v. Handley, 41 Fed. Rep. 537, already referred to, (.he court says of that suit; “Its object; being to reach and subject, a trust fund, complainants were not even required to have reduced their claims to judgment, and exhausted their remedy at Law, after the insolvency of the company;” citing Case v. Beauregard. 101 U. S. 688-690. Judge Harlan says in Mellen v. Iron Works, 331 U. S. 367, 9 Sup. Ct. Rep. 781: “The removal of alleged liens or incumbrances upon property, the closing up of a (fail's of insolvent corporations, and the administration and distribution of trust funds, aré subjects over which courts of equity have, general jurisdiction.” This quotation seems to justify the second headnote of the case, which is criticised, somewhat, in the case of Atlanta & F. R. Co. v. Western Ry. Co., 50 Fed. Rep. 790, 1 C. C. A. 676.

I regard the decisions of our circuit judge and the decisions of the supreme court as sustaining original jurisdiction of a court of equity in cases which possess fewer attributes of jurisdiction than the case we have before us has. Defendant’s counsel have shown great industry, learning, and ability in the cases cited, arguments delivered, and reasons enforced, hut;, without entering into any analysis of the eases produced by them or by complainants’ solicitors, it is sufficient to sa,y that, in my opinion, this bill is one of original equitable cognizance, and that a receiver should be appointed for the purposes and with the powers prayed for, who will be required to give bond with sufficient sureties in the penalty of $25,000. It is further ordered that an injunction issue as prayed for on bond and surety therefor in the penalty of $10,000.