262 U.S. 77 (1923), Lion Bonding & Surety Co. v. Karatz

Citation:262 U.S. 77, 43 S.Ct. 480, 67 L.Ed. 871
Party Name:Lion Bonding & Surety Co. v. Karatz
Case Date:April 23, 1923
Court:United States Supreme Court

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262 U.S. 77 (1923)

43 S.Ct. 480, 67 L.Ed. 871

Lion Bonding & Surety Co.



United States Supreme Court

April 23, 1923




1. Insolvency of a corporation is not an equitable ground for appointing a receiver at the suit of a simple contract creditor. P. 85. Pusey & Jones Co. v. Hanessen, 261 U.S. 491.

2. In a suit by a creditor alleged to be on behalf also of others similarly situated, seeking to collect a debt from an insolvent corporation through a receivership and by having the debt declared a lien on its assets, the amount in controversy, determining the jurisdiction of the district court, does not depend on the corporation's

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assets or liabilities, but is the amount of the plaintiff's claim as shown by the.bill. P. 85.

3. Where the bill discloses that the amount in controversy is less than the jurisdictional amount, a general allegation to the contrary is of no avail. Id.

4. A suit in the district court which is dependent on a receivership in the district court of another district fails with the dismissal of the bill in that case. P. 87.

5. The provision of Jud.Code § 56 extending the operation of a receivership to other districts in the same judicial circuit applies where there is fixed property extending, as a unit, into different states, like railroads or pipelines, but not where the assets are those of an insurance company, described as cash, mortgages, securities, bills receivable, real estate, stocks and bonds. P. 87.

6. The general rule is that a receiver cannot sue in a foreign jurisdiction, and this is not overcome by an order of the court appointing him purporting to embrace in the receivership all property of the defendant wherever situate, and authorizing the receiver to apply to other courts in aid of the order. P. 87.

7. Where a state court of competent jurisdiction has, by appropriate proceedings, taken property into its possession through its officers, the property is thereby withdrawn from the jurisdiction of all other courts. P. 88.

8. Where a state court of Nebraska, under Comp.Stats. Neb.1922, §§ 7745-7748, first took possession of records and assets of a local insurance company through the State Department of Trade and Commerce for the purpose of conducting the business temporarily, and later, by a supplemental decree made on a supplementary application, ordered the Department to liquidate it, held that receivers appointed by a federal court in the interim were not entitled to possession of the res, and that their suit in a federal court against the company and the Department for the purpose of acquiring possession could not be maintained, and that the legality of the state court's action in continuing its control could not be thus questioned or attacked collaterally. P. 89.

281 F. 1021, 280 F. 540, reversed.

Certiorari to two decrees of the Circuit Court of Appeals, the first affirming a decree of the District Court for Minnesota appointing general receivers for a Nebraska insurance company, the second reversing a decree of the District Court for Nebraska which dismissed a bill

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brought by the receivers for the possession of the company's property.

BRANDEIS, J., lead opinion

MR. JUSTICE BRANDEIS delivered the opinion of the Court.

These two cases arise out of the insolvency of the Lion Bonding & Surety Company, a Nebraska insurance corporation. They are here on writs of certiorari to the United States Circuit Court of Appeals for the Eighth Circuit. In the Karatz case, it affirmed a decree of the Federal Court for Minnesota which appointed receivers in a suit brought by an unsecured simple contract creditor. See 280 F. 532. In the Hertz case, it reversed a decree of the Federal Court for Nebraska which dismissed a suit brought by those receivers for possession of the company's property. 280 F. 540. At the date of each decree, the property of the company in Nebraska was held by the Department of Trade and Commerce of that state, with the usual powers of a receiver, under a decree of a state court. The circuit court of appeals directed, in the Hertz case, that the lower court enjoin the Department from doing any act in relation to the property except to hold custody thereof subject to the further order of the Federal Court for Minnesota. Petitioners ask that the judgments of the appellate court be reversed, and that the bills in the

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federal district courts be dismissed. The grounds on which jurisdiction was asserted by the federal courts make necessary a fuller statement of the facts.

The Lion Bonding & Surety Company had, for some years prior to 1921, been licensed to conduct the business of insurance in Nebraska, and was doing business and had property also in 18 other states. A statute of Nebraska commits to its Department of Trade and Commerce the supervision of insurance companies and control thereof in case of insolvency and otherwise. Compiled Statutes Nebraska 1922, §§ 7745-7748; Laws Nebraska 1919, c.190, Tit. 5, Art. 3, pp. 576-579. Paragraph 1 of § 4 of that act provides:

Whenever any domestic company is insolvent, . . . or is found, after an examination, to be in such condition that its further transaction of business would be hazardous to its policy holders, or to its creditors, or to its stockholders, or to the public, . . . the Department . . . may apply to the district court . . . in the county . . . in which the principal office of such company is located for an order directing such company to show cause why the Department . . . should not take possession of its property, records, and effects and conduct or close its business, and for such other relief as the nature of the case and the interest of its policy holders, creditors, stockholders or the public may require.

On April 12, 1921, the Department applied to the District Court of Douglas County, Nebraska, for an order directing it to take possession of the property and to conduct the business of the company, under paragraph 2 of § 4, which provides:

On such application, or at any time thereafter, such court or judge may, in his discretion, issue an order restraining such company from the transaction of its business, or disposition of its property, records, and effects until the further order of the court. On the return of such order to show cause, and after a full hearing, the

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court shall either deny the application or direct the Department . . . forthwith to take possession of the property, records and effects, and conduct the business of such company, and retain such possession . . . until on the application of the Department . . . or of such company, it shall, after a like hearing, appear to the court that the cause of such order...

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