278 F. 816 | E.D.S.C. | 1922
This matter comes up upon an application for a. temporary injunction. Due notice of the application was given and counsel for all parties interested have appeared and fded their returns and affidavits, and the motion has been heard upon the pleadings and affidavits in the cause. At the same time was heard a motion by counsel for the defense to dismiss the complainants’ bill of complaint. Counsel for all parties interested have been fully heard.
According to the bill of complaint, the complainants are two separate corporations, both having practically the same name. The name of one complainant is “The Firestone Tire & Rubber Company.” The name of the other complainant is “Firestone Tire & Rubber Com
The West Virginia corporation was organized some time about August, 1900, and it maintained a plant for the manufacture and sale of tires in the city of Akron in the state of Ohio, and also carried on business in several other of the states of the United States for the sale of tires and accessories thereto.
In the year 1909 the other corporation of the same name was organized under the laws of the state of Ohio, and then purchased and had conveyed to it by the West Virginia corporation all the real estate and personal property of the West Virginia corporation in the state of Ohio devoted to the manufacture of tires and accessories. After this sale the Ohio corporation, whose capital was $75,000,000, seems to have confined itself largely to the manufacture of tires and accessories. The capital of the West Virginia corporation was only $50,000, of which the entire capital stock except a few shares were owned by the Ohio corporation.
The West Virginia corporation seems to have confined itself to the selling of tires and accessories, and not to have engaged further in manufacture, and, as it was practically owned by the Ohio corporation, it seems in substance to have been a selling agent used by the Ohio corporation to dispose of its manufactured product, and their relations seem to have been of the closest character.
In November, 1919, the Ohio corporation entered into an agreement with the Marlboro Cotton Mills, the defendant herein, a corporation of South Carolina, for the purchase of a large amount of cord fabric. In August, 1921, the Marlboro Cotton Mills instituted an action in the court of common pleas for the county of Marlboro against the Firestone Tire & Rubber Company for a breach of this contract, praying judgment against the Firestone Tire & Rubber Company in the sum of $114,795.65. The contract upon its face showed that it was with the Firestone Tire & Rubber Company, Akron, Ohio.
The title of this action in the court of common pleas for Marlboro county is “The Marlboro Cotton Mills, a Corporation, Plaintiff, v. Firestone Tire & Rubber Company, a Corporation, Defendant.” In the body of the complaint it is stated that the defendant Firestone Tire &• Rubber Company is a corporation organized under the laws of one of the states of the American Union. It is not stated either in the title or in the body of the complaint whether the corporation sued is the corporation organized under the laws of the state of West Virginia, or that organized under the laws of the state of Ohio.
The summons in this action in the county of Marlboro was on the 11th of August, 1921, attempted to be served by delivery thereof to one C. T. Ernest, stated in the affidavit of service to be an agent of the Firestone Tire & Rubber Company, the defendant corporation in the action. Ernest, it appears, was then employed by the Firestone Tire & Rubber Company of West Virginia as a salesman. He was still in their employ, although the term of his employment apparently would
The bill of complaint alleges that the office in Charlotte was an office of the West Virginia corporation, and that Padgett was an employee of that corporation; yet the letter written by Padgett would appear to be on stationery of, and emanate from, the Ohio corporation. This summons, therefore, was in the hands of the person in charge of the office of the West Virginia corporation in Charlotte, in ample time for it to have appeared and taken any defensive action, if it had realized the necessity for so doing.
Padgett, the person who seems to have been in charge of the of-•fiee in Charlotte, N. C., was wholly to blame for failing to inform his employer and in undertaking to decide that he would take no notice of this legal summons. Its delivery to and knowledge of by a superior officer or employee of the West Virginia corporation therefore fully appears.
Messrs. MeColl & Stevenson seems to have made no answer to the letter of Padgett. Perhaps they were not legally bound to do so; yet in equity their position would have been much better, knowing the amount involved, had they answered, notifying Padgett of the danger, and that he, a mere employee, should notify his employer.
No answer or appearance being served by any one to this suit of the Marlboro Cotton Mills, application for judgment by default was made at the next term of court in October, 1921. No one appearing for the defendants, certain ex parte issues were submitted by the presiding judge to a jury, viz.:
First. Was C. T. Ernest, the person served with the summons in this case on August 11, 1921, an agent of the Firestone Tire & Rubber Company, on that date?
Second. Was the Firestone Tire & Rubber Company doing business in South Carolina on or before August 11, 1921?
No person appearing for any defendant, the jury returned a verdict in the affirmative on both issues and against the defendant for $121,492.05. Thereupon judgment was entered in favor of the plaintiff,, the Marlboro Cotton Mills, against the Firestone Tire & Rubber Company, defendant for the amount of that verdict; and on the same date application, without any notice to the defendant, was made to the presiding judge of the court of common pleas at his chambers in Dillon, S. C., under supplementary proceedings, and an order was.
Thereupon this bill of complaint was filed on the 24th day of October, 1921, in this court, praying an injunction against the defendant, its agents and attorneys, from proceeding by execution, or procuring or seeking to procure the appointment of a receiver, or by any other means from enforcing the judgment entered up in the court of common pleas for Marlboro county; and the case has been heard upon an application for a temporary injunction to that effect. At the same time it has been heard on the defendant’s motion to dismiss the bill.
A mere inspection of the pleadings shows that the pleadings in the state court and the judgment entered thereon are very ambiguous. The defendant is sued simply as the Firestone Tire & Rubber Company and alleged to be a corporation of some state. The contract upon which action is brought in the state court is upon the face of it apparently a contract of the Ohio corporation, not of the West Virginia corporation. According to the bill and affidavits, the person upon whom service was made of the summons so as to secure service upon the defendant corporation was a salesman of the West Virginia corporation. Presumably the judgment that should have been entered in the state court under the pleadings should have been a judgment against the Ohio corporation. No service, however, was made or appears to have been claimed to have been made upon any one upon whom service could be made so as to bind the Ohio corporation.
The subsequent proceedings, in the nature of supplementary proceedings under the Code of Procedure of the state of South Carolina, appear also to be directed against the West Virginia corporation, although not even in these proceedings is there anything set up to show specifically that the West Virginia corporation was in any way claimed to be the corporation bound by the judgment.
This ambiguity in the first instance is the result of the action of the complainants in using the same name and with relations so close that the public generally might well be misled as to the corporations being the same. The letter of Padgett to McColl & Stevenson, although claimed to be a letter by an employee of the West Virginia corporation from an office of that company, bears every earmark of emanating from the Ohio corporation.
In the second instance, it is the fault of the plaintiff, the Marlboro Cotton Mills; for the contract with it was sufficient to show it that the corporation responsible to it was the corporation carrying on business at Akron, Ohio; and there was no reason why the plaintiff should
The whole proceeding presents upon the face of it such a mingled condition of confusion and uncertainty as might well call upon any court of equity, especially in the recovery of so large a judgment as in this case, to suspend action, and give to the parties affected an opportunity to interpose any meritorious defense they might have.
The grounds for consideration of some kind presented by the complainants are no doubt strong. It seems a startling result that a judgment by default for so large an amount obtained against a corporation through the inexcusable carelessness and conceit of a subordinate employee should be allowed to be enforced so immediately after its entry, when the defendant can show any meritorious defense on the merits for consideration. Whatever legal question might exist, as to the sufficiency of a service on a mere salesman to bind a foreign corporation (notwithstanding Sellers v. Chemical Works, 76 S. C. 343, 56 S. E. 978), yet, equitably speaking, the object of a service, 'which is notice, was attained when the summons was delivered to the West Virginia corporation’s officer in Charlotte. Too, it would seem equitably that Messrs. McColl &• Stevenson, as solicitors of high standing-, should have answered the letter from Padgett. They knew they were seeking for their client a judgment for a large amount against a corporation, which can only know and act through its employees. They must have known that corporations are frequently the victims of the folly or indifference of those employees. They must have known' the ignorant folly of Padgett’s letter and its disastrous consequences to ids employer. They cannot he supposed to have desired to procure a judgment for their client save after .the defendant had had its fair day in court. It would seem, therefore, from the standpoint of a court of equity they should have answered Padgett’s Idler, notifying him of the legal effect of a summons, and that he should lay the matter before his employer.
It also seems a most inequitable result, under the. circumstances of this cane, 1hat a judgment on a contract by one corporation should be allowed to be enforced against the property oí a wholly distinct corporation.
There does not appear to have been any fraud in the procuring of the judgment. There is not the slightest evidence of any collusion or fraud on the part of the Marlboro Cotton Mills, and that company and its attorneys evidently believed in good faith that the Marlboro Cotton Mills was entitled to its claim. The complaint in the state court on its face presented a good cause of action. Nor is the judgment, on the face of it, an unconscionable one. The state court evidently required evidence of the amount of damage before the jury returned its verdict. It is true that the proceeding where no one appears to de
The real complaint of the present complainants is that a “snap” judgment has been recovered against them without an opportunity to interpose their defenses. Their defenses may or may not be ultimately successful. They state it is meritorious, but in any event it is on the face a legal controversy in which each side believes in its merit, and it will take a court and jury to decide upon the evidence. No fraud has been practiced; the usual course of procedure has been followed; only the judgment is a very large one; the complainants believe they have a good defense, and they have been deprived of any opportunity to set up that defense, but how? Not by any fraud or procurement of the other side, but by the inexcusable carelessness and conceit of an employee of the West Virginia corporation, viz. I*. O. Padgett: The only thing to be alleged against this is that the action of Messrs. McColl & Stevenson in not replying to Padgett’s letter was not what from the viewpoint of a court of equity was to be expected of them.
It may seem very hard that the service on a mere salesman should be effectual to bind a large corporation, but “Ita scripta lex est,” and in this case the salesman did his duty, for on the 13th of August he forwarded the summons to his principal.
In McSwain v. Adams, 93 S. C. 104, 76 S. E. 117, Ann. Cas. 1914D, 981, the court holds (although not necessary for the decision in that case) that, inasmuch as a foreign corporation (except those engaged in public interstate commerce) can at the mere will of a state be excluded from its territory, if it enters it, it does so accepting all the
In any view, the summons did find its way to the corporation from the employee served, and the great object of notice was accomplished. Further, it appears from the bill of complaint that the West Virginia coiporation has property in the state of South Carolina subject under the laws of that state to attachment, and jurisdiction to the extent of that property would thus have been acquired. It is not the case of a corporation which has neither property nor any business nor agency within the jurisdiction. The objection to the lack of jurisdiction of the state court on that ground is more technical than substantial.
In the last analysis, the bill of complaint and affidavits present only what appears to be an exceedingly bard case, due to the almost criminal folly and conceit of the West Virginia corporation’s own employee, Padgett.
This court cannot reopen a judgment in a state court. It cannot award a new trial in a cause pending therein. The object of the present bill of complaint is not to afford the defendants in the state court an opportunity to interpose their defenses in the cause in that court. That is manifestly impossible for this court to accomplish. The object is nominally to grant an injunction, but practically to have this court declare the judgment in the state court invalid and null, or at least one that a court of equity will not permit to be enforced.
Upon the face of the bill, this court has jurisdiction of the parties and of the cause, as the requisite diverse citizenship exists, and the amount involved in the controversy is in excess of the jurisdictional minimum.
Inasmuch as the claim is that the party served with the summons was not an employee of the Ohio corporation, and that the judgment in this case is null and void as against the Ohio corporation, and that corporation has no property in the state of South Carolina against which this judgment is sought to be enforced by the state court, it
If the right is one derived from equitable jurisdiction, it should logically follow that the state courts sitting in equity would have the equal right to enjoin the enforcement of final judgments at law in the federal courts. This would very easily lead to the most unfortunate and embarrassing friction. No federal decision of any controlling character appears to have conceded this necessary sequence. Nor has any federal decision of controlling character held that a federal court sitting in equity .has the power on equitable grounds to stay the enforcement of the decree of a court of equity of concurrent jurisdiction for unconscionableness or on any ground on which courts of equity stay the enforcement of judgments at law.
Dealing with a similar proceeding, where a bill was filed in the United States Circuit Court to enjoin a void judgment in the state court, the Supreme Court of the United States, in Mutual Reserve Association v. Phelps, 190 U. S. 147, 23 Sup. Ct. 707, 47 L. Ed. 987, uses the following language:
*825 “It was not in the strictest sense of the term a creditors’ bill. It did not purport to be for the benefit of all creditors, but simply a proceeding * * * to obtain satisfaction thereof, satisfaction by execution at law haying been shown to be impossible by the return of nulla bona. Tt is what is known as a supplementary proceeding, one known to the jurisprudence of many states, and one whose validity in those states has been recognized by this court. * * * It was a mere continuation of the action already passed into judgment, and in aid of the execution of such judgment. * * * Being a mere continuation of the action at law, and not removable to the federal court, the latter had no jurisdiction to enjoin the proceedings under it.”
Apart from this particular proceeding, the state courts have also full equitable powers. Where a judgment has been obtained through mistake, surprise, inadvertence, or excusable neglect, the court can at any time within a year from its recovery open and set it aside. Code of Procedure of S. C. § 225.
In cases where a judgment may be attacked on other grounds of equitable cognizance, such as fraud, unconscionableness, duress, or lack of jurisdiction, the state courts, as courts of equity, retain their full equitable jurisdiction unaffected by the one-year limitation in section 225 of the Code of Procedure. Ex parte Carroll, 17 S. C. 446; Ex parte Gray, 48 S. C. 566, 26 S. E. 786.
As the evidence shows that the person served was an employee of the West Virginia corporation, the Ohio corporation may ignore the whole proceeding, or, if it sees fit, appear and apply to have the judgment vacated as having been rendered without any such service as would give the court jurisdiction of that corporation.
The state court is in actual consideration of a matter of an equitable nature pending before it, and this court of concurrent jurisdiction is asked by its injunction to terminate the state court’s hearing of the matter set for a hearing and practically rule that for reasons, not of paramount federal law, but of equity satisfactory to the chancellor in the federal court, the chancellor in the state court shall be summarily stopped from the consideration of an equitable controversy of which
Why is it necessary or competent to apply to this court, a court of concurrent jurisdiction, to set up their equities here and have this court by its injunction stay the state court in medias res?
To determine whether the judgment is unconscionable on the merits would require a trial of the original controversy on a breach of the contract — the very controversy raised by the original complaint in the state court. It would in effect be transferring the action to this court as much as if the original action had been removed. That action could have been removed by the defendant the Firestone Tire & Rubber Company, had it filed its application in the time limited by the statute. That time — if the service of the summons be good — has expired. Yet the effect of this proceeding, as claimed by the complainants, would be to do now what the statute has sought to prevent.
The better rule is that enunciated in the case of Phelps v. Mutual Reserve Association by the Circuit Court of Appeals for the Sixth Circuit, 112 Fed. 453, 50 C. C. A. 339, 61 L. R. A. 717:
“If the Circuit Court of the United States has the power and jurisdiction, when diversity of citizenship exists, to enjoin and dispossess a receiver, acting under authority of the Jefferson circuit court, upon a bill averring a defect of jurisdiction, the other must have an equal right upon a case arising presenting similar jurisdictional questions. The power must be reciprocal, if it exists.”
The court then proceeds to entirely approve the language of the court in Senior v. Pierce (C. C.) 31 Fed. 625, viz.:
“The only safe and legitimate course for the suitor is to pursue his remedy by some proper ancillary proceeding in the court first obtaining jurisdiction and take his appeal, if not satisfied, to the final justice of the Supreme Court of the state, or of the United States, as the case may require. * * * But at all events it is infinitely better that injustice should be done and suffered in particular eases than that a course of proceeding should be sustained fraught with all the evils of conflicting judgments and forcible collisions between the two independent jurisdictions.”
This case in the Circuit Court of Appeals was confirmed and approved by the Supreme Court of the United States in Mutual Reserve Ass’n v. Phelps, 190 U. S. 147, 23 Sup. Ct. 707, 47 L. Ed. 987.
If the principles declared in these cases be still approved law, they would seem to dispose of the instant application.
Inasmuch as it may .appear on hearing on the merits after the tes-' timony is taken that, so far as the Ohio corporation is concerned, it may be entitled to a decree enjoining the enforcement of the judgment in the state court against it, and for other reasons, the motion to dismiss the bill at this time should be refused.
It is accordingly ordered, adjudged, and decreed that the motion for a temporary injunction is refused. It is further ordered that the motion to dismiss the bill of complaint be and the same is refused. Provided, however, that inasmuch as an immediate appeal lies from this order, under section 129 of the Judicial Code of the United States (Comp. St. § 1121), the temporary restraining order hereinbefore granted on October 24, 1921, be, and the same is hereby, continued of full