Stoll v. Gottlieb

• Citation: 83 L.Ed. 104,305 U.S. 165,59 S.Ct. 134
• Decision Date: 21 November 1938
• Docket Number: No. 20,20
• Parties: STOLL v. GOTTLIEB
• Court: United States Supreme Court

305 U.S. 165

59 S.Ct. 134

83 L.Ed. 104

STOLL

v GOTTLIEB.

No. 20.

Argued and Submitted Oct. 14, 1938.

Decided Nov. 21, 1938.

Rehearing Denied Dec. 19, 1938.

See 305 U.S. 675, 59 S.Ct. 250, 83 L.Ed. —-.

Mr. A. W. Froehde, of Chicago, Ill., for petitioner.

Mr. David J. Shipmen, of Chicago, Ill., for respondent.

[Argument of Counsel from page 166 intentionally omitted] Mr. Justice REED delivered the opinion of the Court.

This certiorari was allowed to review a judgment of the Supreme Court of Illinois. That court had denied effect to a plea of res judicata arising from orders of a district court in bankruptcy. Provisions declaring the supremacy of the Constitution and the extent of the judicial power and authorizing necessary and proper legislation to make the grants effective confer jurisdiction upon this Court to determine the effect to be given decrees of a court of the United States in state courts.¹ As the contention is that the ruling below disregarded decrees of a court of the United States it raised a federal question reviewable under Section 237(b) of the Judicial Code, 28 U.S.C.A. § 344(b).²

The admission of facts and uncontroverted allegations of the pleadings show that Ten Fifteen North Clark Building Corporation filed a petition for reorganization on June 20, 1934, under Section 77B of the Bankruptcy Act, 11 U.S.C.A. § 207, in the United States District Court for the Northern District of Illinois; that the petition was approved as properly filed shortly thereafter, and that notice of the proceedings was given to the creditors, one of whom was respondent William Gottlieb. A proposed plan of reorganization was filed by the debtor which provided for the substitution of one share of common stock in the Olympic Hotel Building Corporation for each $100 principal amount of the outstanding first mortgage, 6 1/2% gold bonds of the debtor corporation, the discharge of the bonds and the cancellation of a guaranty endorsed on them. The guaranty was one of J. O. Stoll, petitioner here, and S. A. Crowe, Jr., to pay the bond. Its material provisions are stated below.³ The extinction of the personal guaranty was in consideration 'for the transfer of all the assets of said Debtor (i.e., the Building Corpora- tion) to the Olympic Hotel Building Corporation and the surrender of the said Common Stock of the Debtor.' Crowe and Stoll, together with other stockholders of the debtor, 'filed their acceptances in writing' of the plan.

On notice to respondent and a hearing at which he did not appear the proposed plan of reorganization with the provision for the extinction of the guaranty was confirmed over the objections of creditors of the same class as respondent. The confirmation provided that all creditors of the debtor should be bound. It also appears that, in accordance with the plan, the guarantors caused the assets of the debtor to be transferred to the new corporation and surrendered the capital stock of the debtor. After the institution of the present action in the state court Gottlieb filed a petition in the proceedings for reorganization of the Ten Fifteen North Clark Building Corporation praying that an order be entered vacating or modifying the decrees and orders entered in the proceedings confirming the plan of reorganization, on the ground that the district court in proceedings for reorganization did not have power or jurisdiction to cancel the guaranty. An order was entered denying this petition. No appeal was taken from any of the bankruptcy orders.

Subsequent to the confirmation of the plan of reorganization but before the petition to vacate these orders Gottlieb began an action in the Municipal Court of Chicago against the guarantors Crowe and Stoll to recover upon their guaranty of three of the $500 bonds of Ten Fifteen North Clark Building Corporation. Crowe was not served with summons. Stoll defended on the ground that the order of the bankruptcy court confirming the plan of reorganization with release of his guaranty and its further order, denying Gottlieb's petition to set aside the decree providing for the release of the guaranty, were res judicata.

The Municipal Court granted the relief sought by the bondholder, the appellate court reversed and its judgment was in turn reversed by the Supreme Court of Illinois which affirmed the judgment of the Municipal Court.⁴ Two justices dissented.

The Congress enacted, as one of the earlier statutes, provisions for giving effect to the judicial proceedings of the courts. This has long had its present form.⁵ This statute is broader than the authority granted by Article 4, section 1, of the Constitution, U.S.C.A.Const. art. 4, § 1, to prescribe the manner of proof and the effect of the judicial proceedings of states. Under it the judgments and decrees of the Federal courts in a state are declared to have the same dignity in the courts of that state as those of its own courts in a like case and under similar circumstances.⁶ But where the judgment or decree of the Federal court determines a right under a Federal statute, that decision is 'final until reversed in an appellate court, or modified or set aside in the court of its rendition.'⁷ As this plea was based upon an adjudication under the reorganization pro- visions of the Bankruptcy Act, effect as res judicata is to be given the Federal order, if it is concluded it was an effective judgment in the court of its rendition. The problem before the Supreme Court of Illinois was not one of full faith and credit but of res judicata. In this particular case, a federal question was involved. This was the power of the Federal courts to protect those who come before them relying upon constitutional rights or rights given, as in this case, through a statute enacted pursuant to constitutional grants of power.

The inquiry is to be directed at the conclusiveness of the order releasing the guarantor from his obligation, assuming the Bankruptcy Court did not have jurisdiction of the subject matter of the order, the release in reorganization of a guarantor from his guaranty of the debtor's obligations.⁸

A court does not have the power, by judicial fiat, to extend its jurisdiction over matters beyond the scope of the authority granted to it by its creators. There must be admitted, however, a power to interpret the language of the jurisdictional instrument and its application to an issue before the court. ⁹ Where adversary parties appear, a court must have the power to determine whether or not it has jurisdiction of the person of a litigant,¹⁰ or whether its geographical jurisdiction covers the place of the occurrence under consideration.¹¹ Every court in rendering a judgment tacitly, if not expressly, determines its juris- diction over the parties and the subject matter. ¹² An erroneous affirmative conclusion as to the jurisdiction does not in any proper sense enlarge the jurisdiction of the court until passed upon by the court of last resort, and even then the jurisdiction becomes enlarged only from the necessity of having a judicial determination of the jurisdiction over the subject matter. When an erroneous judgment, whether from the court of first instance or from the court of final resort, is pleaded in another court or another jurisdiction the question is whether the former judgment is res judicata. After a Federal court has decided the question of the jurisdiction over the parties as a contested issue, the court in which the plea of res judicata is made has not the power to inquire again into that jurisdictional fact.¹³. We see no reason why a court in the absence of an allegation of fraud in obtaining the judgment, should examine again the question whether the court¹⁴ making the earlier determination on an actual contest over jurisdiction between the parties, did have jurisdiction of the subject matter of the litigation. In this case the order upon the petition to vacate the confirmation settled the contest over jurisdiction.

Courts to determine the rights of parties are an integral part of our system of government. It is just as important that there should be a place to end as that there should be a place to begin litigation. After a party has his day in court, with opportunity to present his evidence and his view of the law, a collateral attack upon the decision as to jurisdiction there rendered merely retries the issue previously determined. There is no reason to expect that the second decision will be more satisfactory than the first.

That a former judgment in a state court is conclusive between the parties and their privies in a Federal court when entered upon an actually contested issue as to the jurisdiction of the court over the subject matter of the litigation, has been determined by this Court in Forsyth v. Hammond.¹⁵ The respondent, Caroline M. Forsyth, sought by injunction in the Federal court to forbid the City of Hammond from collecting taxes on certain lands, annexed to the city by an earlier state court decree. The city contended that the earlier decree was decisive, the respondent that it was void because the enlargement of a city was a matter of legislative, not judicial, cognizance. Without determining the issue whether annexation itself is a function solely of the legislature, this Court upheld the contention of the city on the ground that the respondent had taken an appeal to the Supreme Court of Indiana from the earlier decree of the trial court against her in the annexation proceedings, and had in that appeal attacked the validity of the decree on the ground of lack of jurisdiction. 'Having litigated a question in one competent tribunal and been defeated, can she litigate the same question in another tribunal acting independently and having no appellate jurisdiction? The question is not whether the judgment of the supreme court would be conclusive as to the question involved in another action between other parties, but whether it is not binding between the same parties in that...