McKinney v. Kansas Natural Gas Co.

• Citation: 206 F. 772
• Court: United States District Courts. 10th Circuit. United States District Courts. 10th Circuit. District of Kansas
• Decision Date: 05 June 1913
• Parties: McKINNEY et al. v. KANSAS NATURAL GAS CO. FIDELITY TITLE & TRUST CO. v. KANSAS NATURAL GAS CO. et al.

206 F. 772

McKINNEY et al. v. KANSAS NATURAL GAS CO.

FIDELITY TITLE & TRUST CO. v. KANSAS NATURAL GAS CO. et al.

United States District Court, D. Kansas, First Division.

June 5, 1913

John H Atwood, of Leavenworth, Kan., John S. Dawson, of Topeka Kan., Chester I. Long, of Wichita, Kan., and O. P Ergenbright and T. S. Salathiel, both of Independence, Kan for petitioners.

John J. Jones, of Chanute, Kan., and John F. Philips, of Kansas City, Mo., for receivers appointed by Federal Court.

Charles Blood Smith, of Topeka, Kan., for complainants.

John J. Jones, of Chanute, Kan., for defendants.

MARSHALL District Judge.

In these suits a petition is filed by the Attorney General of the state of Kansas and by the receivers of the Kansas Natural Gas Company, heretofore appointed by the district court of Montgomery county, Kan., for an order from this court directing the receivers heretofore appointed by it of the property of the Kansas Natural Gas Company to surrender the possession of the same to the receivers appointed by the state court.

It appears that the suit which resulted in the appointment of receivers by the state court was instituted January 5, 1912, by the state of Kansas against the Independence Gas Company, the Consolidated Gas, Oil & Manufacturing Company, and the Kansas Natural Gas Company. The petition in substance alleged that the first two defendant corporations were public service corporations organized under the laws of Kansas, and that the Kansas Natural Gas Company was a foreign corporation authorized to transact business in Kansas; that the defendants had entered into certain agreements, trusts, and combinations, which were specified in the petition, and were alleged to be in violation of the anti-trust acts of the state of Kansas, and had thereby abused and misused the corporate powers and privileges granted to them by that state; that the two first-named defendants had transferred all of their property alleged to be essential to the discharge by them of their duties as public service corporations, and without authority of law, and that this property, which was described, had become vested in the Kansas Natural Gas Company; that the managing officers of the defendant corporations willfully and intentionally abused and mismanaged the corporate property and business, and thereby caused each of the defendants to pervert its corporate privileges, and that each of the defendants threaten and will continue to abuse and misuse its corporate privileges, unless its said officers be by order of the court removed, or a receiver be appointed to manage the corporate property under the supervision of the court until said abuses are fully corrected. Wherefore it was prayed that an order be made ousting the defendants from the exercise of corporate powers and privileges within the state of Kansas, and that a receiver be appointed to manage the corporate property and business and to wind up the affairs of said defendants.

On January 17, 1912, a motion was filed for the appointment of a receiver of the property of the Independence Gas Company and of the Consolidated Gas, Oil & Manufacturing Company; but this motion was not pressed to a hearing.

On October 7, 1912, John L. McKinney, claiming to be a bondholder under a second mortgage executed by the Kansas Natural Gas Company, and acting in behalf of other creditors similarly situated, filed a suit in this court for the marshaling of the assets of said company and the payment of its debts. He prayed for the appointment of receivers of the property of the company to preserve it during the pendency of the litigation. In form the bill was the usual bill for an administrative receivership. The defendants appeared, admitted the averments of the bill, and consented to the appointment of receivers. Thereupon the court appointed receivers, who qualified and immediately entered into possession of the property. The Fidelity Title & Trust Company, a trustee under a first mortgage of the property of the Kansas Natural Gas Company to secure bondholders, was then permitted to intervene in this suit, and sought the same relief as the plaintiff. By order of this court the receivership theretofore existing was extended to the intervening petition of the Fidelity Title & Trust Company.

On February 3, 1913, the Fidelity Title & Trust Company filed its bill in this court to foreclose a mortgage executed to it, as trustee, by the Kansas Natural Gas Company; the default justifying the suit having occurred after the institution of the McKinney suit. The property mortgaged was situated in part in the Western district of Missouri, in part in the Eastern district of Oklahoma, and in part in the district of Kansas. By a compliance with the conditions prescribed in section 56 of the Judicial Code, the receivers here appointed have been vested with jurisdiction and control of the property in Missouri and Oklahoma, as well as that within the state of Kansas.

On February 15, 1913, the district court of Montgomery county, Kan., entered a decree in the suit there pending in favor of the plaintiff, and as a part of the adjudged relief appointed R. S. Litchfield and John M. Landon, two of the petitioners in this proceeding, receivers of all of the property of the Kansas Natural Gas Company; and it having been made to appear to the court that the receivers heretofore appointed by this court were in the actual possession of the property of that company, the said receivers appointed by the state court were ordered and directed, in conjunction with the Attorney General of the state of Kansas, to appear in the District Court of the United States and request a delivery of said property to them. In the opinion filed by the judge of the state court, the court said with respect to the corporate defendants in that suit that:

'The relationship of this case to the public is such that complete judgment of dissolution and ouster would punish the public rather than the offending company. A dissolution of the Consolidated Gas, Oil & Manufacturing Company is not advisable, nor would a complete ouster of the Kansas Natural Gas Company be advisable. So that the court will take charge of all the gas business of the Consolidated Company and all the business of the Kansas Natural Gas Company by its receivers, and manage the corporate property and business, protecting the gas consumers and the public until the abuses are fully corrected; and here is presented the question of conflicting jurisdiction. It is brought to the attention of this court in the arguments that receivers have been appointed for all the property of the Kansas Natural Gas Company in the federal court for the district of Kansas, and that such receivers are now in charge. * * * This court cannot enjoin the receivers of the federal court, or render any effective judgment, because the Kansas Natural Gas Company is not in the possession of the property. In a word, this court is powerless to execute its decree herein.'

It is this question of conflicting jurisdiction here referred to that is presented now for determination. The general principle involved was declared by Mr. Justice Shiras, speaking for the Supreme Court in Farmers' Loan & Trust Co. v. Lake Street Railroad Co., 177 U.S. 51, 61, 20 Sup.Ct. 564, 568 (44 L.Ed. 667), in these words:

'The possession of the res vests the court which has first acquired jurisdiction with the power to hear and determine all controversies relating thereto, and for the time being disables other courts of co-ordinate jurisdiction from exercising a like power. This rule is essential to the orderly administration of justice, and to prevent unseemly conflicts between courts whose jurisdiction embraces the same subjects and persons. Nor is this rule restricted in its application to cases where property has been actually seized under judicial process before a second suit is instituted in another court; but it often applies as well where suits are brought to enforce liens against specific property, to marshal assets, administer trusts, or liquidate insolvent estates, and in suits of a similar nature, where, in the progress of the litigation, the court may be compelled to assume the possession and control of the property to be affected. The rule has been declared to be of especial importance in its application to federal and state courts.'

The different phases of the question have been so frequently before the Circuit Court of Appeals of this circuit and so authoritatively determined that no general discussion seems admissible. Gates v. Bucki, 53 F. 961, 4 C.C.A. 116; Merritt v. Steel Barge Co., 79 Fed. 228, 24 C.C.A. 530; Zimmerman v. So Relle, 80 F. 417, 25 C.C.A. 518; Sullivan v. Algrem, 160 F. 366, 87 C.C.A. 318.

This general principle is not questioned; but it is contended that, where the suits are different in their nature, in their objects, and the rights sought to be enforced, an exception occurs, 'and the court that first actually seizes the res and takes possession retains it, notwithstanding a prior suit has been commenced and service made affecting the property ' This claimed exception rests on no principle. The nisi prius courts, both federal and state, exercise jurisdiction over the same persons and property within the same territory. They are co-ordinate in the sense that one is not clothed with control over the other. Established by different sovereignties, the pendency of a suit in the one is no ground for the abatement of a suit in the other, although between the same parties and for the same cause of action. But with respect to suits in rem or quasi in rem, the nature of the...