Pell v. McCabe

• Decision Date: 30 January 1919
• Docket Number: 136.
• Citation: 256 F. 512
• Parties: PELL et al. v. McCABE et al.
• Court: U.S. Court of Appeals — Second Circuit

256 F. 512

PELL et al. v. McCABE et al.

No. 136.

United States Court of Appeals, Second Circuit.

January 30, 1919

The South Carolina suit is for the recovery of moneys said to have been obtained from the plaintiffs by the defendants by fraud and deceit. Neither plaintiffs nor defendants reside within the Southern district of New York.

The plaintiffs were members of the firm of S. H. P. Pell & Co. cotton brokers on the New York Cotton Exchange. The defendants are residents of South Carolina, who prior to December 23, 1912, employed the brokers mentioned to buy and sell cotton on their behalf on the New York Cotton Exchange.

The plaintiffs contend that by reason of certain proceedings had in the United States District Court for the Southern District of New York in the bankruptcy proceedings of S. H. P. Pell &amp Co. these defendants cannot maintain an action, in South Carolina or anywhere, against these plaintiffs, and that they should be enjoined from doing so. The facts with reference to those bankruptcy proceedings are as follows:

On July 31, 1914, S. H. P. Pell & Co., New York Cotton Exchange brokers made a general assignment for the benefit of creditors.

On August 3, 1914, an involuntary petition in bankruptcy was filed by three creditors having provable claims exceeding $500 in the District Court for the Southern District of New York to have the firm of S. H. P. Pell & Co., and Charles A Kittle and Howland H. Pell, individually, composing the said firm, adjudicated involuntary bankrupts. Robert M. Thompson was not made a party by that PETITION. S. H. P. Pell & Co. was, however, a limited partnership formed under the laws of the state of New York. The firm consisted of the two Pells above named and Kittle as general partners, and Robert M Thompson as a special partner.

Receivers in bankruptcy were appointed, who immediately qualified. When they took possession of the assets of the firm, they found among them a large amount of securities and stocks which were claimed to be the individual property of Robert M. Thompson.

On October 2, 1914, the alleged bankrupts filed schedules, in which was set forth the indebtedness of S. H. P. Pell & Co. to Robert M. Thompson in the sum of $3,373,082.30, and that defendants were debtors in the sum of $261.52.

On October 19th of the same year the receivers of S. H. P. Pell & Co. notified the defendants that they were scheduled as debtors in the schedules filed in the bankruptcy court for the sum of $261.52, and on the same day further demanded payment from the defendants of a claim for $91,467.57 in favor of the bankrupts. Pell & Co. had, prior to December, 1913, acted as cotton brokers on the New York Cotton Exchange, and claimed that the defendants owed them $91,467.57 and $261.52.

On November 21st of the year aforesaid the defendants remitted to the receivers the sum of $261.52, being the amount previously demanded; and on November 23d and 28th of that year petitions were filed in the bankruptcy proceedings, which prayed that Robert M. Thompson be made a party to those proceedings and adjudicated a general partner and a bankrupt.

Negotiations were had at this time between the bankruptcy receivers, the New York Cotton Exchange, Robert M. Thompson, and the bankrupts (firm and individuals) for:

'(1) The adjustment and settlement of the claims of the New York Cotton Exchange creditors, aggregating over $2,000,000.

'(2) The threatened sale of certain securities loaned by Robert M. Thompson to the bankrupt firm, and large deficiency, and the assumption by Robert M. Thompson of certain firm liabilities aggregating $2,100,000, and his agreement to hold the bankrupt estate harmless.

'(3) The withdrawal of the scheduled claim of Robert M. Thompson against the bankrupt estate for $3,373,082.50, and the release of the bankrupt estate therefrom.

'(4) The settlement of all questions and disputes with release and discharge of Robert M. Thompson and the dismissal of the intervening petitions against Robert M. Thompson.'

The result was a plan of settlement in pursuance of which the bankrupts made an offer of compromise and composition which contained the following provisions concerning Robert M. Thompson:

'First. This offer is made in consideration of the discharge of the bankrupts, Stephen H. P. Pell, Charles A. Kittle, and Howland H. Pell, from their debts, both individual and partnership, and of the release of Robert M. Thompson from any and all liability to said S. H. P. Pell & Co., and from any and all liability to any creditor of S. H. P. Pell & Co.'

'Ninth. Each and every creditor of S. H. P. Pell & Co. who shall assent to this offer of composition shall, upon the final confirmation of such composition by the court, be deemed conclusively by his said assent thereto to have released Robert M. Thompson of and from any and all liability to such creditor on account of any connection of said Robert M. Thompson with S. H. P. Pell & Co. or any transaction of said Robert M. Thompson by or through S. H. P. Pell & Co.'

'Twelfth. It shall be adjudged herein * * * there shall be no liability to said Thompson on the part of the estate of S. H. P. Pell & Co. by reason of any rights or claims of any person. * * *

'Fourteenth. The intervening petitions herein of Logan and Bryan and of Heineken and Vogelsang et al. shall be dismissed, without costs.'

The intervening petitions above referred to, which were to be dismissed, were those asking to have Thompson declared a general partner of S. H. P. Pell & Co. and adjudicated a bankrupt.

The bankruptcy court, by formal order on January 25, 1915, confirmed the proposed compromise and offer of composition which had previously received the consent in writing of more than a majority in number and 90 per cent. in amount of the creditors.

It is not denied that Robert M. Thompson duly carried out and performed all the terms of the agreement of compromise and the order of confirmation of January 25, 1915, and thereafter, and in accordance with the order of confirmation aforesaid, the bankrupts and the bankruptcy receivers conveyed all the bankrupt estate to John W. Jay, who thereafter duly transferred it to the Guaranty Trust Company as substituted trustee for the bankrupt estate.

On June 16, 1916, the Guaranty Trust Company began an action in the United States District Court for the Southern District of New York against the defendants herein to recover the sum of $91,467.57, alleged to be due from defendants to the firm of S. H. P. Pell & Co. on account of transactions conducted by that firm on the New York Cotton Exchange as the defendants' brokers.

On March 29, 1918, the defendants began an action in the court of common pleas for the county of Charleston, in the state of South Carolina, wherein the defendants resided, against the firm of S. H. P. Pell & Co., alleged to be formed of Stephen H. P. Pell, Charles A. Kittle, Howland H. Pell, and Robert M. Thompson, to recover $1,500,000 damages for fraud perpetrated in and arising out of transactions had by the defendants with S. H. P. Pell & Co., while that firm was acting as their brokers in transactions on the New York Cotton Exchange. The liability of Robert M. Thompson in said action is placed on the ground of his being a general partner.

Robert M. Thompson, one of the plaintiffs herein, and who was the only defendant served with process in the South Carolina action, caused the action to be removed from the state court into the United States District Court, wherein it was understood to be pending when this case was argued in this court, and wherein, so far as we are informed, it is still pending.

In the suit, now under review in this court, the court below dismissed the bill.

Myers & Goldsmith, of New York City (Emanual J. Myers and Gordon S. P. Kleeberg, both of New York City, of counsel), for appellants.

William St. John Tozer, of New York City (William St. John Tozer, of New York City, of counsel), for appellees.

Before WARD and ROGERS, Circuit Judges, and KNOX, District Judge.

ROGERS Circuit Judge (after stating the facts as above).

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, Sec. 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 ...