Harkin v. Brundage

• Decision Date: 04 June 1926
• Docket Number: No. 3642.,3642.
• Citation: 13 F.2d 617
• Parties: HARKIN et al. v. BRUNDAGE et al.
• Court: U.S. Court of Appeals — Seventh Circuit

13 F.2d 617 (1926)

HARKIN et al. v. BRUNDAGE et al.

No. 3642.

Circuit Court of Appeals, Seventh Circuit.

April 14, 1926.

Rehearing Denied June 4, 1926.

Lloyd C. Whitman, of Chicago, Ill., for appellants.

Edward R. Johnston, of Chicago, Ill., for appellees.

Before ALSCHULER, EVANS, and PAGE, Circuit Judges.

EVAN A. EVANS, Circuit Judge.

This appeal involves a controversy between appellants, who were appointed receivers of the Daniel Boone Woolen Mills, Inc., by the superior court of Cook county, Ill., upon a bill filed by one Harry Hurwitz, a stockholder, and appellee, the receiver appointed by the United States District Court for the Northern District of Illinois upon the suit of the United States Worsted Sales Company, a creditor. Adopting the language of counsel, appellants will be referred to as the state court receivers, appellee as the federal court receiver, and the Daniel Boone Woolen Mills, Inc., as the debtor.

The creditor in the federal suit was a New York corporation, and its claim exceeded $6,000. The allegations of the bill were sufficient to justify the appointment of a receiver, which was one of the reliefs sought. Debtor appeared in this suit, filed an answer admitting all of the allegations of the bill, and consented to the appointment of a receiver. Nine days subsequent, appellants were named receivers in the state court.

Immediately upon his appointment as receiver, appellee took possession of the assets of the debtor, and thereafter, upon their appointment, appellants filed a petition in the United States District Court, asking that the property of the said debtor be turned over to them, and also asking that appellants' attorneys be permitted to appear in the federal court for the corporation.

This appeal is from an order denying petitioners any relief.

Appellee, having been first appointed receiver, and having taken possession of the property of the debtor prior to appellants' appointment, would ordinarily be entitled to hold it. Appellants, however, contend that this rule must yield, in view of the peculiar facts present in the instant suit. They point out that their suit was filed in the state court prior to the institution of the proceedings in the federal court, and likewise their prior and pending application for the appointment of a receiver invoked the so-called constructive possession theory, for which they cite and rely upon Havner v. Hegnes (C. C. A.) 269 F. 537.

Appellee answers by asserting that the bill, as originally filed in the state court, did not ask for the appointment of a receiver, and no facts were alleged which would have justified the court in appointing a receiver, citing sections 53 and 54 of the Corporation Act of 1919 (Laws Ill. 1919, p. 327). People v. Weigley, 155 Ill. 491, 504, 40 N. E. 300; Gilbert v. Block, 51 Ill. App. 516; Blanchard Bro. & Lane v. The S. G. Gay Co., 289 Ill. 413, 124 N. E. 616; Coquard v. National Linseed Oil Co., 171 Ill. 480, 485, 49 N. E. 563.

We are inclined to accept the view that appellants' position should be determined, not merely upon the complaint as filed, but in the light of the pleadings, together with the pending motion of the stockholder for the appointment of a receiver. This motion carried with it the possibilities of amended pleadings and supporting affidavits. And this view is particularly persuasive in view of the proceedings that occurred in the state court when a continuance of the motion for the appointment of a receiver was granted at the request of the debtor.

Appellee further contends, however, that the two suits, one in the state court brought by the stockholder and the other in the federal court brought by the creditor for himself and for all others similarly situated, were entirely different, not only as to parties, but as to purpose, subject-matter, and relief, and therefore there was no conflict of jurisdiction between the two courts.

An examination of the cases (Empire Trust Co. v. Brooks, 232 F. 641; Palmer v. Texas, 212 U. S. 118, 129, 29 S. Ct. 230, 53 L. Ed. 435; Wabash Railroad v. Adelbert College, 208 U. S. 609, 28 S. Ct. 425, 52 L. Ed. 642; Farmers' Loan & Trust Co. v. Lake Street Ry. Co., 177 U. S. 51, 20 S. Ct. 564, 44 L. Ed. 667; Pacific Live Stock Co. v. Oregon Water Bd., 241 U. S. 440, 36 S. Ct. 637, 60 L. Ed. 1084; Moran v. Sturges, 154 U. S. 283, 14 S. Ct. 1019, 38 L. Ed. 981; 15 C. J. pp. 1163, 1177) convinces us that, if the two suits were different, there was no conflict of jurisdiction, and the court which first acquired jurisdiction over the res by actual seizure through its receiver should retain jurisdiction. The suit instituted by the stockholder in the state court was different from that brought by a creditor in the federal court. Moran v. Sturges, supra; Empire Trust Co. v. Brooks, supra. In fact, it would not have been possible for the stockholder to maintain a suit such as was brought in the federal court. People v. Weigley, 155 Ill. 504, 40 N. E. 300.

Appellants further contend, however, that the suit in the federal court was brought in violation of the pledge by the debtor's attorney given to the state court, and upon which the continuance of the receivership motion was granted. We fully agree with appellants' counsel that there is no basis for an alleged misunderstanding as to the effect of the assurances thus given, upon which assurances a continuance of the hearing was had. We furthermore agree that such counsel spoke for and bound the debtor. He could not, however, and did not, represent creditors who were not parties to the state court suit, and whose interests were adverse to the debtor. In other words, the creditors' right to bring this suit could not be defeated or affected by the conduct of counsel for the debtor. Surely punishment for professional misconduct and bad faith of counsel at the time representing the debtor corporation should not be visited upon creditors who were not parties to the suit, whose interests were hostile to the corporation, and who did not even know of the proceedings that occurred in the state court.

Appellants likewise contend that the complaint filed in the federal court failed to allege that the creditor's obligation was past due. The plaintiff alleged: "T...