Southwestern Bank & Trust Co. of Oklahoma City v. Metcalf State Bank, Nos. 74-1619

• Decision Date: 31 October 1975
• Docket Number: Nos. 74-1619,74-1620
• Citation: 525 F.2d 140
• Parties: The SOUTHWESTERN BANK & TRUST COMPANY OF OKLAHOMA CITY, Appellant, v. METCALF STATE BANK, Appellee. STEWART SECURITIES, Appellant, v. METCALF STATE BANK, Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 140

525 F.2d 140

The SOUTHWESTERN BANK & TRUST COMPANY OF OKLAHOMA CITY, Appellant, v. METCALF STATE BANK, Appellee.

STEWART SECURITIES, Appellant, v. METCALF STATE BANK, Appellee.

Nos. 74-1619, 74-1620.

United States Court of Appeals Tenth Circuit.

Oct. 31, 1975.

Rehearing Denied Dec. 10, 1975.

Joel L. Wohlgemuth, of Rizley, Prichard, Ford, Norman & Reed, Tulsa, Okl. (David L. Wolfe, Jr., Oklahoma City, Okl., with him on the brief), for appellants.

John M. Imel, of Martin, Logan, Moyers, Martin & Conway, Tulsa, Okl. (Paul Johanning, of Hirsh, Johanning & Hudson, Oklahoma City, Okl., and Bill R. Scarth, of Bassmann, Gordon, Mayberry & Scarth, Claremore, Okl., with him on the brief), for appellee.

Before LEWIS, Chief Judge, and SETH and McWILLIAMS, Circuit Judges.

SETH, Circuit Judge.

Appellants, Southwestern Bank & Trust Company of Oklahoma City, an Oklahoma corporation, and Stewart Securities, Inc., a Florida corporation, appeal from the dismissal of their action against Metcalf State Bank, a Kansas corporation, for breach of contract and breach of fiduciary duty.

The lawsuit arose out of the issuance of industrial development revenue bonds by the Claremore Industrial Authority of Claremore, Oklahoma. Appellants Southwestern and Stewart are the holders of bonds so issued.

The bond proceeds under the plan, and statutory authority, were to be used to construct a plant in Claremore for the manufacture and assembly of electronic components. Advance Gas Survey, Inc. entered into an agreement with the Claremore Industrial Authority to lease the facility. Metcalf State Bank was to act as trustee pursuant to a mortgage indenture and trust agreement with the Claremore Industrial Authority relative to this issue of bonds. The bank's duty as trustee under the indenture, and related undertakings, pertained to the use of the proceeds of the sale of bonds and also included the enforcement of the lease agreement between the Industrial Authority and the lessee, Advance Gas Survey, Inc. for the benefit of the bondholders. The rentals were to service and retire the bonds.

In 1972, the lessee defaulted on its obligation to pay rent, and apparently no prospect existed for future payments. Thus a suit was started in the State District Court of Rogers County, Oklahoma (Case No. C-72-292) by the Claremore Industrial Authority and the Metcalf State Bank to liquidate the property subject to the trust. The bondholders were named in that action including, of course, the parties to this appeal. The state suit was apparently brought pursuant to 60 O.S.A. § 175.23 and is still pending.

While the state action was pending, the plaintiff bondholders began this suit in the federal court seeking damages against the trustee, the Metcalf State Bank, for its failure to properly perform its duties as trustee.

Plaintiff, Security State Bank of Wewoka, and an individual intervening bondholder, Billie F. Gaither, have not appealed.

The trial court sustained the motion of defendant to dismiss, finding that the Oklahoma court had in rem jurisdiction under 60 O.S.A. § 175.23 (1971) over all causes relating to the trust. The statute in part provides:

"A. The district court shall have original jurisdiction to construe the provisions of any trust instrument; to determine the law applicable thereto; the powers, duties, and liability of trustee; the existence or nonexistence of facts affecting the administration of the trust estate; to require accounting by trustees; to surcharge trustee; and in its discretion to supervise the administration of trusts; and all actions hereunder are declared to be proceedings in rem." (Emphasis added).

The trial court in sustaining the motion to dismiss also relied upon Princess Lida of Thurn and Taxis v. Thompson, 305 U.S. 456, 59 S.Ct. 275, 83 L.Ed. 285, wherein the Court said:

". . . (I)t is settled that where the judgment sought is strictly in personam, both the state court and the federal court, having concurrent jurisdiction may proceed with the litigation at least until judgment is obtained in one of them which may be set up as res judicata in the other. On the other hand, if the two suits are in rem, or quasi in rem, so that the court, or its officer, has possession or must have control of the property which is the subject of the litigation in order to proceed with the cause and grant the relief sought the jurisdiction of the one court must yield to that of the other."

The trial court thus found that this action and the state action were in rem and so dismissed.

Appellee here argues that the district court had jurisdiction of this suit, as it is in personam, and the state statute does not change its character.

Concurrent jurisdiction of state and federal courts is not possible where the actions are of such a nature as to require possession or control of the subject matter in order to grant the relief requested; i. e., in rem actions. Markham v. Allen, 326 U.S. 490, 66 S.Ct. 296, 90 L.Ed. 256; Kline v. Burke Construction Co., 260 U.S. 226, 43 S.Ct. 79, 67 L.Ed. 226; Miller v. Miller, 423 F.2d 145 (10th Cir.). 60 O.S.A. § 175.23, quoted in part above, characterizes any action brought under that section as an action in rem. Such a designation by statute does not make such a suit in rem which is not in fact of such nature. Thus the state suit must be examined with this in view. It seeks to have the court administer the trust, liquidate the property held by the trustee, and make distribution of the proceeds to the bondholders. One of the intervening parties in this action seeks in the state suit an accounting of the trustee. It is apparent that the state court has complete control over the res, and this is necessary in order to carry out the liquidation provided for in the state statute. Also the state court has jurisdiction over the trustee, as an integral part of the liquidation, to require the performance of its duties including an accounting.

The state suit is clearly in rem, but what is the nature of the federal action here on appeal? Some case law has referred to a general class of actions for administration of trusts as being actions in rem. Princess Lida of Thurn and Taxis v. Thompson, 305 U.S. 456, 59 S.Ct. 275, 83 L.Ed. 285; Swanson v. Bates, 170 F.2d 648 (10th Cir.); Ewald v. Citizens Fidelity Bank & Trust Co., 242 F.2d 319 (6th Cir.). As we noted in Miller v. Miller, 423 F.2d at 147:

"Although each action may be labeled as in personam and...