13 F. 493 | U.S. Cir. Ct. | 1882
I had reached a conclusion in this case to sustain the bill and leave the question open, upon reference to a master, whether one creditor could claim any priority of satisfaction over another in the distribution of the assets, (although as the proof stands I could not see how such a claim could be sustained,) because the question could be finally determined only when the distribution is made. Smith v. St. Louis Ins. Co. 6 Lea, 564, 570. But for reasons that will presently appear I have found it necessary to determine now whether or not the plaintiffs, who are the Tennessee creditors, have any lien on the assets in this state. It may be conceded here,- for the purposes of the argument, that a state may, by its- insolvency laws, appropriate all the assets in that state to the payment of creditors residing there, in preference to and exclusion of all others. It is sufficient answer to say that the state of Tennessee has never done' that, and its insolvency laws make no discrimination of1 the kind among creditors. Our attachment laws against non-resident and fraudulent debtors permit a race of diligence among creditors who
In Kirtland v. Hotchkiss, 98 U. S. 491, it is said the situs of a debt is for the. purposes of taxation, if not for all purposes, the domicile of the creditor. Where the transaction is inter vivos, the better rule seems to be that the situs of a debt is the domicile of the creditor, and this is with us the rule, even in the. administration of decedent’s estates, where the principle is of more doubtful application. If so, this property was situated in Missouri, and not in Tennessee, and passed by the assignment or decree, or both. Whart. Confl. Laws, (2d Ed.) §§ 359-371; Wilkins v. Ellett, 9 Wall. 740; Goodlett v. Anderson, 7 Lea, 286; St. John v. Hodges, 9 Bax. 334. Besides, the laws of Tennessee recognize the validity of an assignment in another state to pass the title to debts owed by citizens of this state, where there is notice of it before the attachment. Flickey v. Loney, 4 Bax. 170. Here the bill shows these creditors had notice of the proceedings in Missouri. Moreover, this is a mutual company, and under the laws of Missouri these Tennessee policy-holders, by its
I do not think, therefore, that the attachment in this case gives the parties any priority of lien. Yery much has been said in the argument about the rights these parties had in the state court under state statutes and state laws, and the wrong done to deprive them of these rights by removal to this court. It is familiar law here that the federal courts of equity administer only the general equity law, and that state statutes and state decisions cannot change the principles or rules of decision by which they are governed. Payne v. Hook, 7 Wall. 425, and numerous other cases cited everywhere; Bump, Fed. Proc. 126. Citizens of other states have a right to invoke the benefit of general principles of equity prevailing in the federal courts of equity by a removal of their controversies to this court, and I know of no principle which requires the federal courts to decide the cause in cases removed according to the statutory or judicial rules of equitable decision prescribed by the states any more than in original cases. If the state statutes referred to were required to give state equity courts jurisdiction to wind up foreign corporations in insolvency, it does not follow that these statutes can confer that jurisdiction on this court. If a statute gives a lien or creates a trust it becomes a rule of property, which we enforce and possibly state statutes may enlarge—they certainly cannot restrict—equitable remedies in such away that federal courts of equity will administer them. I do not think this case presents that question. I have not the least doubt that the chancellor and the supreme court of Tennessee would decide the questions I am now considering just as I do here. ' There is nothing in the statutes that' gives the creditor, who files the bill to wind up a corporation, priority over other creditors; and when the court comes to administer the' assets they are distributed pro rata, or according to th¿ liens or preferences existing by contract, or such other liens as exist' upon them, and thus to all creditors alike, resident and non-resident. Marr v. Bank of West Tennessee, 4 Cold. 471. The object of the attachment is to secure the assets by impounding them, but it cannot be claimed that in proceedings to wind up an insolvent corporation or an insolvent estate priority is to be given to the creditor filing the bill, or to one residing' at home, in preference to one residing in another state. No case- so decides. The courts do not tolerate attempts to acquire such preferences. Yonley v. Lavender, 21 Wall. 276. Sometimes, in a
The cases of Smith v. St. Louis, etc., 6 Lea, 564; S. C. 3 Tenn. Ch. 502; and Liepold v. Marony, 7 Lea, 128, only establish that the state courts may, under these statutes, wind up an insolvent foreign corporation; they do not decide that the home creditors would have any priority; that question is reserved. And if foreign creditors share pro rata in winding up a domestic corporation, there would seem to be no substantial reason for giving home creditors a preference on the winding up of a foreign corporation. It is a preference that is not given in settling insolvent estates of decedents, nor in any other insolvency proceeding; such, for example, as an insolvency assignment made within this state. Why, then, should the distinction be made here ? The claim for it is founded on a misapprehension of the effect of these statutes and the doctrine of insolvency in its interstate or international relations. Because our courts will seize the property of an insolvent debtor, whether an individual or a corporation, situated within this state, and, treating it as a trust fund,—which means nothing more than that creditors and not the stockholders are entitled to subject it in a court of equity to the payment of their claims—satisfy creditors here rather than permit the property to be carried out of the jurisdiction to be distributed according to laws existing elsewhere, non constat that they will prefer home creditors to the exclusion of others in its distribution. A right to wind up an insolvent corporation, and distribute its assets equally among all creditors, on the theory that after insolvency the assets constitute a trust fund for distribution among creditors, instead of belonging to the stockholders or the first taker, does not become a rule of property in the sense that the creditors in this state have a lien on it or a preference to it any more than a right to sue to judgment and take out execution, becomes a rule of property. Possibly a state might, by law, adopt such a policy and give such a lien, but this state has never done it, and it would be antagonistic not only to the equitable doctrine of equality, but to all our other insolvency laws. And I do not' doubt that state courts of equity, administering these assets under these statutes and decisions, would give full force and effect to the laws of Missouri, governing the members of this company inter sese as we would here. Talmadge v. North Am. Co., supra. Tennessee
The only other claim for priority is that based upon the departmental mode of doing business by this company. It is claimed as a contract, or as an implication of one, arising from the constitution and by-laws of the company, and its mode of doing business. I do not think this claim deserves serious attention. If a policy should mature while this company was in business, the holder would certainly look to the general funds for payment. It would be an anomalous scheme of insurance if he could not. It would, instead of distributing the loss throughout a large area and among great numbers, restrict it to a single state or less subdivision, and thus impair the system of extended averages on which successful insurance depends. Losses occurring in department A, if not finding there sufficient assets to pay them, would find in all the other departments priorities compelling the holders to go to some department where there was a surplus over the priorities there existing; and in this struggle for payment the whole scheme would be wrecked. Nothing less than apt and certain words in the contract, or statutes and by-laws, should bind policy-holders to so disastrous and anomalous a scheme of insurance. There are no such words in the policies, the charter, the constitution, or the by-laws of this corporation. It was evidently only a scheme to extend and invite business by requiring a certain proportion of the funds of the company to be loaned or invested within the limits of the department under local boards of directors or trustees, instead of confining the investments, as most great’ companies do, at or near the centers of capital and trade. In one. sense this scheme affords security to the local policy-holders in having assets at home, the value of which they could secure by their own supervision of investments, and, if occasion required, subject by judgment and execution in local courts; but, doubtless, the main attraction of the scheme, and that upon which reliance was placed to extend business, was the feature which afforded an opportunity to borrow the money of the company and keep’it in circulation here, instead of sending it away for investment. The witnesses in this case speak of an understanding derived from the representations by the agents, and in the advertisements and circulars, that they would have the assets in this state as a security
Irrespective of any right to a lien or preference of payment out of these assets, it was my own judgment that, in the absence of a uniform system of bankruptcy established by congress, we are relegated to the wretched and disastrous system of separate and independent insolvency laws in each state; that each state could claim to administer according to its own laws all the assets of an insolvent found within its jurisdiction; that while, for the purposes of taxation; transfer 6f title, etc., the situs of a debt is the domicile of the creditor, for the purposes of seizure and administration in insolvency the forum of the debtor would be taken as its situs, because there it must ordinarily be collected, particularly where, as in this case, it was secured by liens on real estate; and therefore it was my opinion that, ruinous as it is to have repeated administrations of the assets of this corporation in each state of the union, we could not deny the right of the plaintiffs to administer those in this state by this bill; and this, whether the rights of the parties were to be governed by the laws of Missouri or not, whether they had liens and preferences or not, and whether or not they were to be paid first, or the distribution was to be made to all creditors everywhere, of which I have no doubt. It was and is my judgment that to prevent this ruin the constitution confers on congress the power to establish a uniform system of bankruptcy, and that the only remedy is to be there found. Whart. Confl. Laws, (2d Ed.) §§ 386-390. Story, Confl. Laws, §§ 403 et seq., 550 et seq. But it was said at the bar that, in a ease in the district of Kentucky against this corporation, the learned circuit judge dismissed a bill like this. He informs me that this is true, and that he proceeded on the ground that, where the plaintiffs had no specific lien acquired by attachment or otherwise before the proceedings in Missouri were commenced, and no right of preference, the bill should be, upon principles of comity, dismissed, and the parties left to file their claims in the proceedings in Missouri. I cheerfully yield my judgment to his, as it is my duty to
The question of costs has troubled me somewhat. I am in the habit of decreeing costs against the losing party, and think that should be the general rule in equity, as at law. * But in ■ this case there are considerations' upon which courts of equity may proceed in decreeing costs that are entitled to weight. Beames, Eq. Costs, 159, (20 Law Lib. 54.) These plaintiffs had, notwithstanding the impolicy of insisting on a separate administration of the assets in each state, a fair case for supposing that in the absence of a bankrupt law such administrations were probable, if not a necessity, in each state. I shall therefore decree no costs to either party against the other, but, where not already paid, in favor of the officers entitled to costs against each for his own costs, to be taxed by the master under further directions, if necessary. Bill dismissed.
Note. See Taylor v. Life Ass’n of America, 3 Fed. Rep. 465.