Candless v. Furlaud

• Citation: 293 U.S. 67,79 L.Ed. 202,55 S.Ct. 42
• Decision Date: 05 November 1934
• Docket Number: No. 11,11
• Parties: McCANDLESS v. FURLAUD et al. *
• Court: United States Supreme Court

293 U.S. 67

55 S.Ct. 42

79 L.Ed. 202

McCANDLESS

v FURLAUD et al.^*

No. 11.

Argued Oct. 11, 1934.

Decided Nov. 5, 1934.

Mr. Ralph Royall, of New York City, for petitioner.

Mr. Louis B. Eppstein, of New York City, for respondents.

Mr. Justice BRANDEIS delivered the opinion of the Court.

McCandless, a citizen and resident of Pennsylvania, suing as ancillary receiver of the Duquesne Gas Corporation, appointed by the federal court for Southern New York, brought this suit in that court. The bill alleged that he had been appointed receiver of all the assets of the corporation in a consolidated suit in the federal court for Western Pennsylvania originally brought by Frank T. Harrington against the Duquesne Gas Corporation, and later consolidated with one brought by the Central Hanover Bank & Trust Company, as trustee under the corporation's mortgage; that upon his petition as primary receiver filed in the federal court for Southern New York he had by an order 'duly made' been appointed ancillary receiver there; that he had 'duly qualified and is now acting as such ancillary receiver;' and that the 'order duly authorized' him as such receiver to bring this suit. The bill then set forth at great length facts on which it charged that the defendants, or some of them, acting in a fiduciary relation to the corporation, came into the possession of funds arising from the sale of its securities and had misappropriated more than $2,500,000. An accounting and the recovery of these sums were prayed for. Furlaud, a citizen and resident of New York, and three corporations organized under the laws of states other than Pennsylvania were the defendants. Each filed an answer which denied most of the allegations of the bill.

The case was heard by the District Court on the merits, on evidence which occupied 217 pages of the original printed record. That court entered a final decree which ordered Furland and the Kingston Company to pay the sum of $1,834.640.08, with interest and costs. Those defendants appealed to the Circuit Court of Appeals, denying liability. McCandless cross-appealed, claiming the additional sum of $850,000; and that the other two companies, as to whom the bill had been dismissed by the decree, were also liable for the full amount.

The Court of Appeals, without passing upon the merits of the controversy, reversed the decree. 68 F.(2d) 925, 927. It did so, solely on the ground that, under the rule of Booth v. Clark, 17 How. 322, 15 L.Ed. 164, the 'appointment of the plaintiff as ancillary receiver was void, and he did not acquire, in any of the proceedings, a status to warrant the institution of this suit.' Its decision was based upon the following facts which were shown by the copy of the record of the proceedings in the federal court for Southern New York by which McCandless was appointed an cillary receiver, and which he had introduced at the hearing in this cause: The papers in the proceeding for such appointment were entitled 'Frank T. Harrington, Complainant against Duquesne Gas Corporation, Defendant'; but, in fact, no independent bill against the corporation had been filed in the Southern District of New York by Harrington, or by any other person. The papers filed consisted merely of a petition by McCandless as primary receiver praying that he be appointed ancillary receiver; and the order entered thereon. Annexed to his petition was a copy of the proceedings of the federal court for Western Pennsylvania by which he was appointed primary receiver. The record does not show that the corporation was represented when the appointment of the ancillary receiver was made. So far as disclosed by the record, the order of the District Court for Southern New York appointing him was made ex parte.

The Court of Appeals held that the legal sufficiency of the appointment of the plaintiff as ancillary receiver had been put in issue by the answer; and that the plaintiff had not sustained the burden of establishing its legality. It ruled that in the federal courts a foreign receiver may not 'sue outside the district as a matter of comity even by obtaining permission before suit is commenced;' that 'to permit a foreign receiver to obtain an ancillary appointment, on an ex parte application, improperly avoids the rule denying foreign receivers the right to sue in the foreign jurisdiction'; that the 'right of a receiver to sue in a foreign court cannot be upheld as a mere incident to the office of a receiver'; and that, since federal courts for the several districts are foreign to one another, an ancilary receiver may be appointed only as an incident of an independent bill.

The importance of reviewing that rulling—in view of an established practice, said to prevail in perhaps a majority of the state courts, of permitting foreign receivers to sue,¹ and a common practice, said to obtain in federal courts, of appointing ancillary receivers on the ex parte application of the primary receiver—was the reason principally urged for granting the petition for certiorari. The order allowing certiorari was 'limited to the questions pertaining to the validity of the appointment of the petitioner as ancillary receiver, and his right as such to maintain this suit.' In the abbreviated record prepared for use here, only those portions of the original record which were supposed to bear upon those questions were included. The rest were omitted in printing pursuant to stipulation. The briefs filed on the argument of the case in this Court were directed solely to the question whether the appointment of the ancillary receiver as made was void and open to collateral attack. But statements of counsel made at the oral argument in this Court, in answer to inquiries, and confirmed by examination of the original record, enable us to dispose of the case without passing on the specific question whether in a federal court an ancillary receiver may be appointed otherwise than as an incident of an independent bill in equity.

First. The holding of the Court of Appeals that the legal sufficiency of the appointment of the plaintiff as ancillary receiver had been put in issue by the answer rests solely upon the provision in Equity Rule 30 (28 USCA, § 723), which declares that a statement in the answer that the defendant is without knowledge as to facts alleged in the bill 'shall be treated as a denial.'² This constructive denial did not suggest that there was a legal objection to the manner of the appointment or to its validity. The proceedings at the hearing and later show that there was no intention to deny the validity of the appointment of the ancillary receiver,³ nor was it in fact questioned in the District Court.⁴ On the appeal, sixty-five alleged errors were as signed. One of them was directed to an alleged holding that the order entered in the Southern District of New York 'constituted a due and valid appointment' of McCandless as ancillary receiver. But the record does not show that the District Court did so rule, or that it was requested to rule on the subject. Moreover, the petitioner stated that the objection to the validity of the appointment had been made for the first time in the Court of Appeals; and counsel for the respondent, in his oral argument in this Court, said that the objection to the validity of the appointment was not urged by him because he desired to have a decision on the merits.

Second. Under the early practice an objection to the legal capacity of the plaintiff to sue could be taken only by plea in abatement. Kane v. Paul, 14 Pet. 33, 41, 10 L.Ed. 341; Ventress v. Smith, 10 Pet. 161, 168, 9 L.Ed. 382. New, it may be taken by plea in bar or by answer. Noonan v. Bradley, 9 Wall. 394, 400—402, 19 L.Ed. 757. But an objection to the plaintiff's legal capacity to sue will not be entertained if taken, for the first time, in the appellate court. The rule is of general application, and has been applied in the federal appellate courts to a variety of cases: To lack of capacity on the ground of infancy;⁵ on the ground that plaintiff was a married woman;⁶ on the ground that the husband was not entitled to sue in his own name for the death of his wife;⁷ on the ground that plaintiff, a foreign corporation, had failed to comply with requirements of the local law;⁸ on the ground that a suit in the name of the United States was brought without the requisite authority of the Attorney General.⁹ Under like circumstances, the appeal late courts have refused to entertain the objection that plaintiff was not the real party in interest;¹⁰ that the father was not entitled to sue for the death of his minor son;¹¹ and that the plaintiff, an executor or administrator, had not secured ancillary administration.¹² The reason for the rule is the broad one that a defect found lurking in the record on appeal may not be allowed to defeat recovery, where the defect might have been remedied, if the objection had been seasonably raised in the trial court.¹³

Third. The alleged invalidity of the order appointing McCandless ancillary receiver is a defect of this character. It is urged that the appointment of an ancillary receiver can be made only as an incident of an independent bill, and upon application of one properly a party thereto; that here there was nothing before the court, because no suit was then...