Pell v. McCabe

256 F. 512 | 2d Cir. | 1919

ROGERS, Circuit Judge

(after stating the facts as above). [ 1 ] Inasmuch as it appears that neither the plaintiffs nor the defendants reside within the Southern district of New York, the court below clearly was without jurisdiction of the suit, now under review, as an original action. But it is said that this suit is not brought as an original suit, but as a dependent and ancillary suit, which has direct reference to a matter already litigated in the bankruptcy proceedings in the District Court for the Southern District of New York relating to the firm of S. H. P. Pell & Co. and the several persons alleged to constitute that firm. In Street’s Federal Equity Practice, vol. 2, § 1229, that writer says:

“It is a rule, subject to but one exception, that jurisdiction in an ancillary-proceeding is supported by the jurisdiction of the court in the main, or principal cause. Hence the ordinary jurisdictional averments may be dispensed with in such a proceeding. If a court has jurisdiction of the principal suit, it also has jurisdiction of any ancillary proceeding in that suit. Neither the citizenship of the parties, nor the amount in controversy, nor any other factor that would ordinarily determine jurisdiction, has any bearing on the right of the court to entertain that proceeding.”

The one exception above referred to relates to an ancillary receivership, and with that we are not now concerned. The right of a federal court to sustain jurisdiction of an ancillary suit, without reference to the citizenship of the parties, was fully considered in Krippendorf v. Hyde, 110 U. S. 276, 4 Sup. Ct. 27, 28 L. Ed. 145, which reviewed the authorities. And see Pacific Railroad of Missouri v. Missouri Pacific Railway Co., 111 U. S. 505, 4 Sup. Ct. 583, 28 L. Ed. 498; Johnson v. Christian, 125 U. S. 642, 645, 8 Sup. Ct. 989, 31 L. Ed. 820; Carey v. Houston & Texas Central Ry. Co., 161 U. S. 115, 16 Sup. Ct. 537, 40 L. Ed. 638; Eichel v. United States Fidelity & Guaranty Co., 245 U S. 102, 104, 38 Sup. Ct. 47, 62 L. Ed. 177.

The jurisdiction of a court over a particular subject-matter and that court’s power to apply a remedy no doubt are co-extensive; so that demands which are ancillary to the main action may be taken cognizance of by the court and determined in aid of its authority over the principal matter, and a court may entertain proceedings ancillary to its judgment or decree, for the jurisdiction it originally acquired is not exhausted by the entry of the judgment, and the power is still in the court to issue all proper process and take all proper proceedings for the enforcement of its judgment. All this is familiar doctrine and well-established law.

[2] An ancillary suit may be maintained: (1) To aid, enjoin, or regulate the original suit. (2) To restrain, avoid, explain, or enforce the judgment or decree entered in the original suit. (3) To enforce or adjudicate liens or claims to- property in the custody of the court in the original suit. (4) To prevent the relitigation in other courts of the issues heard and adjudged in the original suit, and to protect the titles and rights acquired under its judgment or decree from attack based on the theory that the adjudication in the original suit was illegal or ineffective. Riverdale Cotton Mills v. Alabama & Georgia Manuf. Co., 198 U. S. 188, 25 Sup. Ct. 629, 49 L. Ed. 1008; Julian v. Central Trust Co., 193 U. S. 93, 112, 113, 24 Sup. Ct. 399, 48 L. Ed. 629; Carey v. Houston & Texas Ry. Co., 161 U. S. 115, 126, 127, 16 Sup. Ct. 537, 40 L. Ed. 638; St. Louis & San Francisco Ry. Co. v. McElvain (D. C.) 253 Fed. 123, 128.

In Bates on Federal Equity Procedure, vol, 1, § 97, the doctrine is summarized as follows:

“A 5111 filed to continue a former litigation in the same court, or which relates to some matter already partly litigated in the same court, or which is an addition to a former litigation in the same court, by the same parties or their representatives standing in the same interest, or to obtain and secure the fruits, benefits, and advantages of the proceedings and judgment in a former suit in the same court by the same or additional parties, standing in the same interest, or to prevent a party from using the proceedings and judgment of the same court for fraudulent purposes or to restrain a party from using a judgment to perpetrate an injustice, or obtain an inequitable advantage over other parties to the former judgment or proceeding, or to obtain any equitable relief in regard to, or connected with, or growing out of, any judgment or proceeding at law rendered in the same court, or to assert any claim, right or title to property in the custody of the court, or for the defense of any property rights, or the collection of assets of any estate being administered by the court, is an ancillary suit.”

[3] We do not question but that the District Court for the Southern District of New York may enforce and protect its jurisdiction as a court of bankruptcy, when appealed to by a supplementary or ancillary bill to enforce its orders, sustain its jurisdiction, and protect parties in the enjoyment of rights secured to them under its orders. This is so, not only where jurisdiction is reserved or still retained, but even after-wards, where the result would be a relitigation of the same subject-matter between the same parties. In re Swofford (D. C.) 180 Fed. 549. But the difficulty with the maintenance of this suit is that it cannot be regarded as in any proper sense an ancillary suit. It was instituted upon the theory that the proceedings in the District Court for the Southern District of New York in the bankruptcy matter of S. H. P. Pell & Co. discharged Stephen H. P. Pell & Co., as a firm, and Stephen H. Pell, Charles A. Kittle, and Howland H. Pell, individually, from all claims against the film of S. H. P. Pell & Co., and that it also discharged therefrom Robert M. Thompson. But this is to lose sight of the terms of the composition, which provided for the release of Thompson—

“from any and all liability to any creditor of S. H. P. Pell & Co. who shall assent hereto, on account of any connection of said Robert M. Thompson with said firm, or any transaction of said Robert M. Thompson by or through said firm.”

The release of Thompson was to apply only to those who specifically assented thereto, and there is no allegation anywhere in the complaint in the present action that the defendants herein assented to the composition. An examination of the record of the former proceedings shows that Thompson was not adjudicated a bankrupt, never filed schedules, and never made any. offer of composition. The offer of composition was an offer made by the two Pells and Kittle. Moreover, Thompson could not have offered a composition, as section 12 of the Bankruptcy Act expressly provides that a bankrupt shall not offer terms of composition — ■

“before he lias been examined in open court or at a meeting of his creditors, and has tiled in court the schedule of his property and lists of his creditors, required to bo filed by bankrupts. * * * ”

An examination of the offer of composition made by the Pells and Kittle, and of the order confirming the same, discloses that in neither is any reference made to the question whether Thompson was a member of the firm of S. H. P. Pell & Co. as a general or special partner. There was no adjudication of that question in that proceeding. There was no adjudication in that proceeding on the subject-matter involved in the South Carolina action; and if the defendants here had appeared in that proceeding and opposed the composition, which they did not, they could not be enjoined from suing in another court. Friend v. Talcott, 228 U. S. 27, 33 Sup. Ct. 505, 57 L. Ed. 718. In the case cited the court holds that a creditor who had unsuccessfully opposed a composition and a discharge in bankruptcy on the ground of fraud in creating the debt, and accepted a dividend, and who then sued for the balance on the ground that the debt was excepted from the discharge, had not waived his right to sue on the tort by accepting the dividend; and the court also held that the) granting of the discharge was not res judi-cata of the claim for the balance of the debt.

In the instant case the defendants, who have brought the South Carolina action, deny that thejr knew of the existence of their claims until long after the bankruptcy proceedings. Their allegation is that they did not know that they had been defrauded by S. H. P. Pell & Co. until some time after July 1, 1916. The order of confirmation of the composition agreement was entered on January 25, 1915. The allegations of fraud contained in the complaint in the South Carolina action may be found in the margin.¹

The South Carolina action is based on fraud and deceit, and is of such a nature that the tort claim it asserts was not provable in bankruptcy, even if the plaintiffs in that action had known of the facts of the claim in time to have asserted them in the bankruptcy proceedings. Whether the tort might have been waived and a provable claim in bankruptcy made, based on an implied contract, if the facts had been known, we need not consider, as the allegation is that the facts were not known, and, if not known, no such course could have been adopted. And section 17 of the Bankruptcy Act (Act July 1, 1898, c. 541, 30 Stat. 550 [Comp. St. § 9601]) declares that—

“A discharge in bankruptcy shall release a bankrupt from all of his provable debts, except such as * * * (4) were created by his fraud * * * while acting * * * in any fiduciary capacity.”

And the fraud complained of was committed, it is alleged, while the defendants in the South Carolina action were employed by the plaintiffs in that action as cotton brokers to- buy and sell cotton for the account and risk of the plaintiffs, and such fraud was in connection therewith.

The bill of complaint in the present suit is exceedingly complicated, and raises a number of questions which the court below did not find it necessary to determine, and which we do not find it necessary to determine. The court below found in the bill no ground for equitable intervention, even if all the allegations the bill contains be assumed as true. We are in full agreement with that court in believing that the bill is without equity. It was properly dismissed, and, being dismissed for want of jurisdiction, the decree is to be modified to provide that the dismissal is without prejudice.

Decree, as modified, is affirmed.

Judge WARD was present at the argument and participated in the subsequent discussion of the case and concurred in the result. He has not read this opinion, being temporarily absent from the country at the time it was prepared and filed.

1 “That in the course of the employment of defendants by plaintiffs aforesaid, plaintiffs sent to defendants certain orders for the purchase and sale of cotton as aforesaid, which defendants agreed and promised to execute upon the said New York Cotton Exchange. That defendants not only neglected, failed, and omitted so to execute the said orders, but falsely and fraudulently staled, reported, and represented to plaintiffs that the said orders had been duly executed upon the said Exchange, and in accordance with the by-laws, rules, and regulations thereof, and falsely and fraudulently charged plaintiffs’ account with such sums as would have been advanced by defendants, and with such sums as would have been earned by defendants, if said orders of plaintiffs had in fact been so executed by defendants as by them falsely and fraudu-lenlly stated, reported, and represented to plaintiffs.

“That from time to time during said period said defendants rendered to plaintiffs various statements wherein defendants falsely and fraudulently charged plaintiffs with the purchase price of about one hundred and fifty-seven thousand (157,000) bales of cotton in the amount of approximately ten million one hundred and ninety-throe thousand nine hundred and ninety dollars (S10,19“.9i)(>), and by said statements falsely and fraudulently represented to plaintiffs such cotton to have been purchased by defendants for plaintiffs’ account in accordance with plaintiffs’ instructions and with the by-laws, rules, and regulations of the said New York Cotton Exchange, and thereby falsely and fraudulently represented to plaintiffs that the amount of the purchase price thereof had been duly paid, laid out, and expended by defendants for and on account of plaintiffs, and that the amount of defendants’ commissions charged to plaintiffs in said statements had been duly earned by defendants in and about the purchase and sale of the cotton so falsely represented to plaintiffs to have been purchased for their account and to be due and owing to defendants.”