296 U.S. 222 (2018), Alexander v. Hillman

Citation:296 U.S. 222, 56 S.Ct. 204, 80 L.Ed. 192
Party Name:Alexander v. Hillman *
Case Date:December 09, 1935
Court:United States Supreme Court
 
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Page 222

296 U.S. 222 (2018)

56 S.Ct. 204, 80 L.Ed. 192

Alexander

v.

Hillman *

United States Supreme Court

Dec. 9, 1935

CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE FOURTH CIRCUIT

In a suit in the District Court in which receivers were appointed to collect and distribute the assets of a corporation, claims were filed by individuals who as directors and officers had controlled and dominated the corporation's affairs, and by other companies also controlled and used by them. In response to the claims, the receivers filed in the same court an ancillary bill, separately numbered but not praying process, in which they set up counterclaims for the value of assets of the corporation which they averred the individual claimants fraudulently and in violation of their duties as officers and directors had, through complicated transactions, converted to the use of themselves and the two corporate claimants. Upon being served by mail with copies of the ancillary bill and an order directing them to plead to it, the claimants appeared specially and moved to quash upon the ground that they were inhabitants of another State, within the purview of § 51, Jud.Code.

Held:

1. The court had jurisdiction of the subject matter -- the claims and counterclaims. P. 237.

2. The ancillary bill, while in form not inappropriate for the commencement of a suit, served as a pleading in the main suit to put the claimants to proof of their claims and to assert the right of the receivers to affirmative relief. P. 239.

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3. Causes of action arising from the derelictions of officers and directors of corporations, such as those alleged, are cognizable in equity for the reason that the receivers have no adequate remedy at law, and also because property was obtained fraudulently, and therefore cannot, in equity and good conscience, be retained. P. 240.

4. Both the individual claimants and the corporate claimants alleged to have been their tools are to be dealt with just as if they were technically trustees for creditors and stockholders. P. 240.

5. Judicial Code § 51, in the provision that

no civil suit shall be brought in any district court against any person by any original process or proceeding in any other district than that whereof he is an inhabitant . . . ,

is inapplicable, since the claimants were not summoned, but, by presenting their claims, waived the privilege conferred by that provision and subjected themselves to all the consequences that attach to an appearance. P. 240.

6. The provision of Equity Rule 30 with respect to counterclaims in answers does not cover counterclaims to claims filed against receivers, but the omission so to extend the rule gives rise to no implication that receivers may not assert and enforce, against those who appear and demand part of the res, counterclaims for portions of the receivership estate that they wrongfully took and still withhold. The right of the receivers to have affirmative relief in the receivership court is supported by the same, or at least similar and equally strong, reasons as those that constitute the foundation of the rule. P. 241.

7. As a general rule, equity, having jurisdiction of parties to a controversy, will decide all matters in dispute between them, and decree complete relief. P. 242.

8. Nothing is more clearly a part of the main suit in this case than recovery of all that belongs to the res; the matters in controversy may be tried and determined more conveniently in the receivership court than elsewhere. Pp. 242-243.

75 F.2d 451 reversed.

Certiorari, 295 U.S. 725, to review a decree modifying a decree of the District Court which dismissed for want of jurisdiction over the persons of the respondents an ancillary bill brought by receivers of a corporation setting up counterclaims against three individuals and two corporations who had presented claims.

Page 230

BUTLER, J., lead opinion

MR. JUSTICE BUTLER delivered the opinion of the Court.

The controversies here involved arise in a suit in equity brought November 3, 1924, in the federal court for the Southern District of West Virginia by the Piedmont Coal Company, a Pennsylvania corporation, and three persons, inhabitants of Pennsylvania, against the Tower Hill Connellsville Coke Company of West Virginia, a corporation organized under the laws of that State. The plaintiffs own 4,000 common and 10,850 preferred shares of its stock. August 25, 1932, the court entered a decree that defendant's business be wound up and its properties converted into money and distributed to its creditors and shareholders, appointed petitioners receivers, and directed a special master to state an account and to report to the court all claims against defendant. Respondents have

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presented claims. Petitioners oppose their demands, and, by counterclaims, ask affirmative relief.

The questions, as put by them, are:

(1) When a claimant appears before a master in a federal receivership proceeding and proves a claim to share in the distribution of the receivership res, does he submit himself to the jurisdiction of the receivership court for the adjudication of his liability to the res, when the counterclaim asserted against him by the receiver is of a nature cognizable in equity and its adjudication is essential to a final disposition of the receivership proceeding?

2. Is not the adjudication of the counterclaim against the claimant and the determination of the whole controversy within the purpose and intendment of Equity Rule 30?

The Tower Hill Connellsville Coke Company, a Pennsylvania corporation, operated coal mines and coke plants. * The West Virginia Tower Hill, by issue of its stock to the stockholders of the Pennsylvania Tower Hill, acquired all the share capital of the latter, and, until January 8, 1930, was merely a holding company owning only that stock. In April, 1920, Thompson Connellsville Coke Company, a Pennsylvania corporation, purchased a majority, about 28,000 shares, of the common stock of the West Virginia Tower Hill. Respondent Hillman, an inhabitant of Pennsylvania, was president of and controlled the purchasing company. Respondents Sheets and Watson of that State were also its officers. Hillman became president, and Sheets and Watson became officers of both Tower Hill Companies. In June, 1920, the Eastern Coke

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Company was organized under Pennsylvania law; Hillman became its president, and Sheets and Watson were given other offices. They caused the Pennsylvania Tower Hill to subscribe for 51 percent of the common shares, and later it acquired the rest. The three individual respondents were also directors of the Tower Hill Companies, the Eastern Company, and the two corporate respondents, the Hillman Coal & Coke Company and the Hecla Coal & Coke Company. Hillman, with the other two acting under his direction, dominated these five corporations. The corporations maintained joint general offices and joint sales, operating, and engineering departments.

The preferred stock of the West Virginia Tower Hill was, in preference to the common, entitled to cumulative dividends at the annual rate of $6 per share, and, upon distribution of assets, par plus unpaid dividends. In 1924, the company paid $9, leaving then...

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