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

Citation262 U.S. 77, 43 S.Ct. 480, 67 L.Ed. 871
Party NameLion Bonding & Surety Co. v. Karatz
Case DateApril 23, 1923
CourtUnited States Supreme Court

Page 77

262 U.S. 77 (1923)

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

Lion Bonding & Surety Co.

v.

Karatz

United States Supreme Court

April 23, 1923

CERTIORARI TO THE CIRCUIT COURT OF APPEAL

FOR THE EIGHTH CIRCUIT

Syllabus

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has, by appropriate proceedings, taken property into its possession through its officers, the property is thereby withdrawn from the jurisdiction of all other courts.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 directing the Department . . . to take possession has been removed, and that the company can properly resume possession of its property, records, and effects, and the conduct of the business.

The petition prayed also for an order restraining the company from the transaction of its business or from disposing of any of its property, and for other and further relief. The company immediately filed an answer by which it admitted the material allegations of the petition and joined in the prayer thereof. On the same day, the state court entered a decree in accordance with the prayer; the Department entered upon the duties prescribed by the decree; it immediately took possession of all the property of the company in Nebraska, has since held possession thereof subject to the orders of the state court, and has also obtained like possession of property of the company in other states. On May 28, 1921, the Department filed in the court a supplemental petition in which it prayed for an order directing it to liquidate the business under paragraph 3 of § 4, which provides:

If, on a like application and order to show cause, and after a full hearing, the court shall order the liquidation of the business of such company, such liquidation shall be made by and under the direction of the Department, . . . which may deal with the property, records, effects and business of such company in the name of the Department . . . or in the name of the company, as the court may direct and it shall be vested by operation of law with title to all the property effects, contracts and

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rights of action of such company as of the date of the order so directing it to liquidate. . . .

[43 S.Ct. 482] The supplemental petition prayed, among other things, that the orders theretofore made, so far as applicable and necessary to further the liquidation, remain in full force. The company filed an answer by which it admitted the material allegations contained in the supplemental petition and joined in the prayer thereof. On the same day, that court entered an order in accordance with the prayer of the supplemental petition, all action of the Department being made subject to the direction of the court.

On May 2, 1921, while the decree of the Nebraska court entered April 12, 1921, was in full force and the Department was in actual possession thereunder of the property in that state, Karatz, a citizen of Minnesota, purporting to sue also on behalf of others similarly situated, filed a bill in equity against the company in the Federal Court for the District of Minnesota, Fourth Division. No disclosure was made of the proceedings taken against the company in the state court of Nebraska, nor that, under its decree, the Department was in possession of all the company property in that state, and at least of some of its property elsewhere. The bill alleged that the company had been admitted to do business in Minnesota; that, through its operation there, plaintiff had become an unsecured simple contract creditor to the amount of $2,100; that the company had ceased to do business and was insolvent; that it had assets within that district...

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234 practice notes
  • 156 F.Supp. 342 (M.D.Ga. 1957), 2313, In re Engram
    • United States
    • Federal Cases United States District Courts 11th Circuit Middle District of Georgia
    • January 19, 1957
    ...it had not yet appointed its receiver when bankruptcy receiver took possession. See also Lion Bonding & Surety Co. v. Karatz, 262 U.S. 77, 43 S.Ct. 480, 67 L.Ed. It was said in International Bank v. Sherman, 1880, 101 U.S. 403, 406, 25 L.Ed. 866 and in Mueller v. Nugent, 1901, 184 U.S. ......
  • 475 F.Supp. 92 (N.D.Ill. 1979), 64 C 1285, Tcherepnin v. Franz
    • United States
    • Federal Cases United States District Courts 7th Circuit Northern District of Illinois
    • August 15, 1979
    ...the present action makes no attempt to take property out of the jurisdiction of the state court. Lion Bonding & Surety Co. v. Kavatz, 262 U.S. 77, 88, 90, 43 S.Ct. 480, 67 L.Ed. 871 (1923); Fischer v. American United Life Insurance Co., 314 U.S. 549, 553-54, 62 S.Ct. 380, 86 L.Ed. 444 (......
  • 66 B.R. 269 (Bkrtcy.D.Utah 1986), 84C-00380, In re Jeppson
    • United States
    • Federal Cases United States Bankruptcy Courts Tenth Circuit
    • August 15, 1986
    ...itself how far it would permit any other court to interfere with such possession and jurisdiction. Lion Bonding and Surety Co. v. Karatz, 262 U.S. 77, 89, 43 S.Ct. 480, 484, 67 L.Ed. 871 (1923). See generally 1 CLARK ON RECEIVERS §§ 280-295 (3d ed. [39] Corporate Reorganization Under the Fe......
  • 66 F.3d 438 (2nd Cir. 1995), 94-9207, Doctor's Associates, Inc. v. Distajo
    • United States
    • Federal Cases United States Courts of Appeals Court of Appeals for the Second Circuit
    • September 12, 1995
    ...state court judgments."). "Lower federal courts are not superior to state courts." Lion Bonding & Sur. Co. v. Karatz, 262 U.S. 77, 90, 43 S.Ct. 480, 484, 67 L.Ed. 871 (1923); see also District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 482, 103 S.Ct. 1303, 131......
  • Request a trial to view additional results
233 cases
  • 156 F.Supp. 342 (M.D.Ga. 1957), 2313, In re Engram
    • United States
    • Federal Cases United States District Courts 11th Circuit Middle District of Georgia
    • January 19, 1957
    ...it had not yet appointed its receiver when bankruptcy receiver took possession. See also Lion Bonding & Surety Co. v. Karatz, 262 U.S. 77, 43 S.Ct. 480, 67 L.Ed. It was said in International Bank v. Sherman, 1880, 101 U.S. 403, 406, 25 L.Ed. 866 and in Mueller v. Nugent, 1901, 184 U.S. ......
  • 475 F.Supp. 92 (N.D.Ill. 1979), 64 C 1285, Tcherepnin v. Franz
    • United States
    • Federal Cases United States District Courts 7th Circuit Northern District of Illinois
    • August 15, 1979
    ...the present action makes no attempt to take property out of the jurisdiction of the state court. Lion Bonding & Surety Co. v. Kavatz, 262 U.S. 77, 88, 90, 43 S.Ct. 480, 67 L.Ed. 871 (1923); Fischer v. American United Life Insurance Co., 314 U.S. 549, 553-54, 62 S.Ct. 380, 86 L.Ed. 444 (......
  • 66 B.R. 269 (Bkrtcy.D.Utah 1986), 84C-00380, In re Jeppson
    • United States
    • Federal Cases United States Bankruptcy Courts Tenth Circuit
    • August 15, 1986
    ...itself how far it would permit any other court to interfere with such possession and jurisdiction. Lion Bonding and Surety Co. v. Karatz, 262 U.S. 77, 89, 43 S.Ct. 480, 484, 67 L.Ed. 871 (1923). See generally 1 CLARK ON RECEIVERS §§ 280-295 (3d ed. [39] Corporate Reorganization Under the Fe......
  • 66 F.3d 438 (2nd Cir. 1995), 94-9207, Doctor's Associates, Inc. v. Distajo
    • United States
    • Federal Cases United States Courts of Appeals Court of Appeals for the Second Circuit
    • September 12, 1995
    ...state court judgments."). "Lower federal courts are not superior to state courts." Lion Bonding & Sur. Co. v. Karatz, 262 U.S. 77, 90, 43 S.Ct. 480, 484, 67 L.Ed. 871 (1923); see also District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 482, 103 S.Ct. 1303, 131......
  • Request a trial to view additional results
1 firm's commentaries
  • Government Contracts Review, Alston & Bird LLP, January 2016
    • United States
    • JD Supra United States
    • January 21, 2016
    ...federal and state courts around the country—resulted in an incredible reaction from the federal 4 Lion Bonding & Sur. Co. v. Karatz, 262 U.S. 77, 89 (1923). In Karatz, the Supreme Court held, “Where a court of competent jurisdiction has, by appropriate proceedings, taken property into i......