Pierrepont v. Fidelity-Philadelphia Trust Co.

• Decision Date: 21 March 1929
• Docket Number: No. 4483.,4483.
• Parties: PIERREPONT v. FIDELITY-PHILADELPHIA TRUST CO. et al.
• Court: U.S. District Court — Western District of Pennsylvania

32 F.2d 608 (1929)

PIERREPONT v. FIDELITY-PHILADELPHIA TRUST CO. et al.

No. 4483.

District Court, E. D. Pennsylvania.

March 21, 1929.

Alexander R. Staples and John Lewis Evans, both of Philadelphia, Pa., for plaintiff.

Henry C. Boyer, Thomas Raeburn White, and White, Parry, Schander & Maris, all of Philadelphia, Pa., for defendants.

KIRKPATRICK, District Judge.

This case comes before the court upon motions (a) to strike out specific portions of the answers filed by the defendants, and (b) to strike out the entire answers, and for judgment pro confesso. The purpose is to test the legal sufficiency of the answers, and the method adopted is proper. National Ass'n of Certified Public Accountants v. United States, 53 App. D. C. 391, 292 F. 668.

The material facts as pleaded in the bill and admitted by the answers are as follows: The will of Charles Chauncey left the residue of his estate in trust for his wife for life, with remainder over, either to the plaintiff absolutely, or to the plaintiff for life with remainder to her descendants. (That question involves the application of the rule in Shelley's Case, and is now pending for decision in the Orphans' Court of Montgomery County, Pennsylvania.) During the life of the widow, the trustee received $28,000 in "dividend obligations" of the Richmond, Fredericksburg & Potomac Railroad, and transferred them to her. The life tenant died, and the $28,000 dividend obligations are still in the possession of her executors who are, with the trustee, defendants in the bill.

Under what is known as the "Massachusetts Rule," which was adopted by the United States Supreme Court in the case of Gibbons v. Mahon, 136 U. S. 549, 10 S. Ct. 1057, 34 L. Ed. 525, all stock dividends declared during the existence of a trust of this kind belong to the corpus of the estate without regard to whether they represent earnings before or after the beginning of the trust. Under what is known as the "Pennsylvania Rule," stock dividends must be apportioned between the life tenant and corpus by giving the corpus sufficient to keep intact the value of the shares as they were at the time the trust began and by giving the rest of the dividend to those entitled to the income.

The answers in this case allege that the dividend obligations represented income earned during the life tenancy, and this must be taken as a conceded fact. It is also undisputed, and I hold that the "dividend obligations" in this case are in reality stock dividends as that term is used in the various decisions which will be discussed.

The question for decision is whether this court is bound to follow the law as established by the courts of Pennsylvania, or the rule adopted by the Supreme Court of the United States. If the former, then the answers set forth a complete defense to the bill. If the latter, then they are insufficient and must be stricken out. It is the position of the plaintiff that the question here involved is a question arising under the general rules of equity jurisprudence as to which federal courts sitting in equity follow the law laid down by the Supreme Court of the United States, and are not bound by the decision of the state courts. It is the position of the defendant that the issue involves a well-established rule of property as to which the decisions of the state courts are binding upon federal courts acquiring jurisdiction.

I think that the plaintiff gives too broad a scope to the principle which he states as the basis of his position. It is not the law that the mere fact that the case before the court is one which presents a proper ground of equity jurisdiction is sufficient to relieve the federal court of the duty of following the decisions of the state courts as to all matters which may come before it for determination in the case. The rule in question has its origin in the principle earlier announced that the equitable jurisdiction of the federal courts is that which was exercised by the High Court of Chancery in England at the time of the adoption of the Constitution and the passing of the Judiciary Act (1 Stat. 73), and that it can neither be impaired nor enlarged by state laws. The cases in which the rule has been applied have usually involved questions of equitable remedies and modes of proceeding, although the decisions are broad enough to include general rules of equity jurisprudence. An example of this is United States v. Olzak (D. C.) 6 F.(2d) 1014. In Mason v. United States, 260 U. S. 545, 558, 43 S. Ct. 200, 203 (67 L. Ed. 396), the Supreme Court quoting with approval Independent District v. Beard (C. C.) 83 F. 5, said: "It is undoubtedly true that the United States courts sitting as courts of equity have a freedom of action. * * * But these decisions relate to the practice, the impairing of jurisdiction, rather than to the determination of the rights of parties after jurisdiction has been acquired."

When reference is made to "general principles of equity jurisprudence," the rights (as distinguished from the remedies) included in that term mean rights cognizable by courts of equity as distinguished from rights recognized solely by courts of common-law jurisdiction. The thought just stated is arrived at rather by process of exclusion than from any comprehensive definition because, so far as I have found, no court has attempted to say exactly what rights are included in the general principles of equity jurisprudence, for the purpose of establishing what rules are to be binding upon the federal courts. At all events, it is clearly settled that substantial rights resting upon state statutes or decisions, especially when they constitute rules of property, are as obligatory on the federal courts in equity as on the state courts. See 25 C. J. 829, and cases there cited in note 52. "* * * The principle that the courts of the state cannot abridge the equity jurisdiction of the federal courts has not been carried so far as to deny to a party litigating in those courts substantial rights." Collins Mfg. Co. v. Wickwire Spencer Steel Co. (D. C.) 14 F.(2d) 871, citing Brine v. Insurance Co., 96 U. S. 637, 24 L. Ed. 858; Independent District of Pella v. Beard (C. C.) 83 F. 5; Mason v. United States, 260 U. S. 545, 43 S. Ct. 200, 67 L. Ed. 396. In this respect, no distinction is made between rights arising under well-established and accepted decisions of state courts and rights arising under state statutes. See 25 C. J. 845.

In passing, reference may be made to the case of Collins Mfg. Co. v. Wickwire Spencer Steel Co. (D. C.) 14 F.(2d) 871, in which the court held that even if the rights involved in the action are rights of an equitable character, when tested by general principles of equity, a party "cannot avoid the enforcement of these equitable rights by removing the suit from the state to the federal court."

Is the Pennsylvania rule relating to the apportionment of stock dividends between life tenant and remainderman a rule of property? In Bucher v. Cheshire R. Co., 125 U. S. 555, 583, 8 S. Ct. 974, 978 (31 L. Ed. 795) the Supreme Court defined rules of property in this connection as "those rules governing the descent, transfer, or sale of property, and the rules which affect the title and possession thereto. * * *" Accepting this definition, the plaintiff says in her reply brief: "No question of the descent of property is involved. The difference between the Pennsylvania decisions and the United States decisions as to the...