Raphael v. Monroe

• Citation: 60 F.2d 16
• Decision Date: 27 June 1932
• Docket Number: No. 2675.,2675.
• Parties: RAPHAEL v. MONROE.
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)

60 F.2d 16 (1932)

RAPHAEL v. MONROE.

No. 2675.

Circuit Court of Appeals, First Circuit.

June 27, 1932.

Mark M. Horblit and Benjamin Goldman, both of Boston, Mass., for appellant.

Andrew J. Aldridge and Carl F. Schipper, Jr., both of Boston, Mass., for appellee.

Before BINGHAM, WILSON, and MORTON, Circuit Judges.

BINGHAM, Circuit Judge.

This is an appeal from an order entered December 7, 1931, in the District Court for Massachusetts in connection with receivership proceedings brought against The Monroe Stores, Inc., enjoining the appellant, Louis Raphael, from further prosecuting a certain suit in the superior court of Suffolk county, Mass., except that he might proceed in said cause to judgment, but no further.

The receivership bill was brought against The Monroe Stores, Inc. (hereafter called The Stores), on July 14, 1930, by J. B. Hirshfield & Co., Inc., and other creditors, and later, on July 23, 1930, George B. Monroe of Quincy, Mass., who was the treasurer of The Stores, was appointed receiver. In compliance with an order of the District Court requiring all persons holding claims against The Stores to present their proof to the receiver for allowance on or before September 30, 1930, Louis Raphael, a citizen and resident of Connecticut, presented his proof of claim on September 25, 1930, and on or about February 9, 1931, it was duly proved and allowed in the sum of $35,000.

Shortly prior to November 26, 1930, one Harold F. Dempsey made an offer to purchase from the receiver all the assets of The Stores, and by the terms of the offer as interpreted and agreed to by the parties he was to pay to its creditors 30 per cent. of their claims within thirty days after they had been duly proved and allowed; also to pay within thirty days after allowance the liabilities of the receiver and his expenses. With this offer a bond was filed running to the United States of America and signed by Harold A. Dempsey, as principal, and Louis F. Buff and Clifford S. Drake, as sureties. This bond was in the penal sum of $100,000 and conditioned on compliance "with all the conditions and items of said offer." The bond was duly approved, the offer accepted, and on November 27, 1930, the assets of The Stores were turned over to Dempsey by the receiver.

The amount to be paid Raphael under this offer was $10,500. On March 23, 1931, more than thirty days after his claim against The Stores had been proved and allowed and after having been paid $1,200 thereon by Dempsey, Raphael "as creditor of said Monroe Stores, Inc.," filed a petition for leave to institute proceedings on the bond and, on the same day, leave was granted by the court.

April 9, 1931, Raphael brought suit on the bond in the superior court of Massachusetts in which he "obtained and now has attachments upon the property of said defendants Drake and Buff, and injunctions restraining the transfer by them of certain property to secure the payment of the amount justly due him." In hearings in the state court before a master, to whom the case was referred, both the receiver and his counsel testified. This case was prosecuted by Raphael to a point where, on November 13, 1931, it was ripe for the entering of a final decree against the signers of the bond and in favor of Raphael.

In the meantime, on April 16, 1931, the receiver filed in the receivership proceedings an ancillary bill of complaint against Dempsey, Buff, and Drake, as obligors on the bond, and on May 4, 1931, an interlocutory injunction issued enjoining them from transferring or incumbering their property "until the further order of this court." On July 16, 1931, after notice and hearing, and all parties to the bill consenting, a decree was entered in which it was "ordered, adjudged and decreed that judgment for the plaintiff in the sum of $33,026.83 together with costs be entered against the defendants" Drake, Buff, and Dempsey, jointly and severally, and that execution issue forthwith. In this sum of $33,026.33 the claim of Raphael was included, but he was not a party to and did not participate in the proceedings and did not authorize the receiver to act for him therein.

The receiver obtained nothing on the execution and on October 7, 1931, filed in the District Court a petition for contempt as to defendants Buff and Drake on various grounds. The hearing on this petition resulted in an order directing Buff and Drake to pay the receiver $1,000 on the 20th of October, 1931, and a like sum on the 20th of each month thereafter until the execution issued on the judgment was satisfied; the final disposition of the matter being held pending further orders of the court.

On November 27, 1931, the receiver, appellee here, filed in the original receivership proceedings a motion seeking to have the order of March 23, 1931, granting Raphael leave to bring suit on the bond, modified and that Raphael be enjoined from further prosecuting his cause of action in the Massachusetts court "except insofar as to reduce his claim to judgment." A preliminary injunction against Raphael and an order of notice to show cause was issued, which was served on Raphael's attorney. On December 3, 1931, Raphael appearing specially filed a plea in which he set out the facts in connection with his suit in the state court in detail, asserting that the receiver had no legal interest or standing to entitle him to an order interfering with the state court proceeding; that he was not a party to the proceeding either individually or as receiver; that he had no interest in his (Raphael's) claim; that the receiver in no way represented Raphael and had at no time been authorized to bring proceedings in his behalf; that at the time of filing the ancillary bill of complaint in the receivership proceedings, the proceeding in the state court had already been commenced and was pending; that Raphael was not made a party to the ancillary bill of complaint and had never taken any part in the hearings thereon or in the contempt proceedings; that he was a resident of Connecticut and no personal service had been made upon him; that having knowledge of the order granting Raphael leave to bring suit against Dempsey, Drake, and Buff on the bond and of the subsequent proceedings thereunder the receiver is barred and estopped from attempting to obtain a modification of said order; that he (Raphael) was not interfering or attempting to interfere in any way with the receivership; that said receiver had disposed of all the property of The Stores which came into his hands; and that Drake and Buff were amply able to pay his (Raphael's) claim and such payment would not interfere with the collection by any of said other creditors of the amounts due them. Raphael filed with his plea the report of the master in the state court proceeding.

After a hearing on the receiver's motion to modify and the plea of Raphael, an order was entered by the court modifying said order and restraining the appellant from further prosecuting the suit in the state court except that he might proceed in that cause to judgment but no further. This is the order here appealed from.

The assignments of error are twelve in number, but the appellant in his brief has reduced them to six questions:

1. Whether the appellee had any legal standing or interest to entitle him to the order, he having no interest in the state suit.

2. Whether the court had jurisdiction over the appellant, he being a citizen and resident of Connecticut and not having been personally served with the order of notice.

3. Whether the District Court erred in enjoining the appellant from prosecuting his action in the state court, the injunction interfering with appellant's legal right to sue in the state court.

4. Whether equitable principles of laches and estoppel should have been applied.

5. Whether the order was warranted on general principles of equity.

6. Whether the order could lawfully be entered on the "motion."

It is unnecessary to consider the first question as the appellee does not base his right to the injunction on any interest he may have in the suit in the state court but on the ground that the District Court has exclusive jurisdiction of actions on the bond given in the receivership proceedings, the bond, as alleged by him, taking the place of the receivership assets.

The fundamental inquiry is whether the District Court had, by reason of the receivership proceedings, such jurisdiction of the subject matter of the suit in the state court as to authorize it to issue an injunction restraining its further prosecution.

It is well settled that a federal court has no power to enjoin a suit in a state court unless the res in its custody is affected or interfered with (Guardian Trust Co. v. Kansas City Ry. Co. (C. C. A.) 146 F. 337, 340; Id. (C. C. A.) 171 F. 43, 28 L. R. A. (N. S.) 620; Kline v. Burke Construction Co., 260 U. S. 226, 43 S. Ct. 79, 67 L. Ed. 226, 24 A. L. R. 1077) or its jurisdiction is in some other way defeated or impaired. Hull v. Burr, 234 U. S. 712, 723, 34 S. Ct. 892, 58 L. Ed. 1557; Julian v. Central Trust Co., 193 U. S. 93, 24 S. Ct. 399, 48 L. Ed. 629.

The receiver does not question this proposition, but contends that in this case the bond is the res in the receivership proceedings; that it stands for and is held by him as a substitute for the assets of The Stores (Dietzsch v. Huidekoper, 103 U. S. 494, 26 L. Ed. 497); and that a suit by a creditor on the bond in another court would defeat and impair the jurisdiction of the federal court previously acquired.

We think this contention as applied to the admitted facts of this case is not sound. It might be said that a bond would take the place of the property purchased, if Dempsey had promised to pay the receiver the purchase price (the 30 per cent. of the claims of the creditors). In that case the receiver would have been entitled to receive the money from Dempsey or sue on the bond with the duty of paying out as assets of the estate...