Motlow v. Southern Holding & Securities Corporation

• Decision Date: 14 April 1938
• Docket Number: No. 10870.,10870.
• Citation: 95 F.2d 721
• Parties: MOTLOW v. SOUTHERN HOLDING & SECURITIES CORPORATION et al.
• Court: U.S. Court of Appeals — Eighth Circuit

95 F.2d 721 (1938)

MOTLOW v. SOUTHERN HOLDING & SECURITIES CORPORATION et al.^*

No. 10870.

Circuit Court of Appeals, Eighth Circuit.

April 14, 1938.

Patrick H. Cullen, of St. Louis, Mo. (Clem F. Storckman and Cullen Coil, both of St. Louis, Mo., on the brief), for appellant.

David A. Murphy, of Kansas City, Mo. (Charles A. Loughin, of New York City, and John T. Harding, R. C. Tucker, and John Murphy, all of Kansas City, Mo., on the brief), for appellees Home Ins. Co. and Home Indemnity Co.

Paul F. Plummer, of St. Louis, Mo. (Sam B. Jeffries and Arthur E. Simpson, both of St. Louis, Mo., on the brief), for appellee Louis H. Pink.

John S. Leahy, of St. Louis, Mo. (Kent V. Gay and William O'Herin, both of St. Louis, Mo., on the brief), for appellee Southern Holding & Securities Corporation.

Earl Susman, R. H. McRoberts, and E. W. Banister, all of St. Louis, Mo., for appellees Pasadena Realty Company and others.

Before STONE, SANBORN, and WOODROUGH, Circuit Judges.

SANBORN, Circuit Judge.

Lem Motlow, plaintiff in the court below, has appealed from a decree dismissing his suit in equity after a motion to dismiss his second amended bill of complaint had been sustained and after he had refused to plead further.

The plaintiff, as a creditor of the Southern Surety Company of New York, which had become insolvent and was in liquidation in the state of New York, brought this suit to set aside certain transfers alleged to have been made in fraud of creditors by the Southern Surety Company to Southern Holding & Securities Corporation, a creature of Home Insurance Company and Home Indemnity Company, and to recover from the three companies last named — which are defendants and are said to have conspired to bring about the fraudulent transfers — sufficient of the transferred assets to satisfy plaintiff's claim.

Pasadena Realty Company, successor to Carter Realty Company, Frazier-Davis Construction Company, J. F. Steinmeyer, Tower Grove Bank & Trust Company, trustee, and R. H. McRoberts, trustee, are defendants alleged to be in possession of some of the transferred assets, for the use and benefit of Southern Holding & Securities Corporation, Home Insurance Company, and Home Indemnity Company. Louis H. Pink, superintendent of insurance of the state of New York, as liquidator of the Southern Surety Company of New York, is also a defendant.

The suit was originally commenced June 1, 1934, in the circuit court of St. Louis county, Mo., without joining the superintendent of insurance of New York as a party defendant. It was thereafter removed to the federal court by nonresident defendants on the ground of diversity of citizenship and a separable controversy as to them.

On December 5, 1935, the court below ordered a dismissal of the bill for the reasons: (1) That the plaintiff was without capacity to maintain the suit; (2) that the court had no jurisdiction of the subject matter; and (3) that an indispensable party, the superintendent of insurance of the state of New York, had not been joined as a party defendant.

The plaintiff then filed an amended bill, in which the superintendent of insurance of the state of New York, as liquidator of the Southern Surety Company, was made a party defendant. The superintendent was served with process in the state of New York, in accordance with section 57 of the Judicial Code, 28 U.S.C. § 118, 28 U.S.C. A. § 118. He appeared specially and moved to set aside the service made upon him and for dismissal of the suit for want of jurisdiction of his person and of the subject matter. Other defendants moved for a dismissal of the bill for want of equity. The court sustained the motion to vacate the service of process upon the superintendent, and granted the motions to dismiss the amended bill for want of equity for the reasons which formed the basis for the dismissal of the original bill.

In substance, the bill of complaint, as finally amended, alleges that Motlow is a creditor of the Southern Surety Company who became such in the year 1923 and whose claim of $90,000 has been allowed in the liquidation proceeding now pending in the state of New York; that in 1930 the Southern Surety Company was a solvent going concern; that in that year the defendants Southern Holding & Securities Corporation, Home Insurance Company, and Home Indemnity Company "did unlawfully and willfully conspire, combine, confederate together to obtain without consideration the property of the Southern Surety Company of New York, with intent to enrich the said defendants and with the further intent to cheat, defraud, hinder and delay the creditors of said Southern Surety Company, including plaintiff"; that they procured the Southern Surety Company to transfer to Southern Securities & Holding Corporation assets of a value in excess of $3,500,000, thereby rendering the Southern Surety Company insolvent; that some of the assets so transferred are located in the Eastern District of Missouri; that the transfers were made with knowledge of the superintendent of insurance of New York; "that on or about the 22nd day of March, 1932, upon the application of George S. Van Schaick, who was then, and for many years prior thereto had been, Superintendent of Insurance of the State of New York, an order was entered in the Supreme Court of the State of New York, County of New York, that being a court of competent jurisdiction under the laws of said state, forfeiting, annulling and surrendering the corporate charter of Southern Surety Company of New York in accordance with the laws of the said state in such case made and provided"; that "said order directed and empowered the Superintendent of Insurance of the State of New York to take possession of the business, property, choses in action and accounts of the Southern Surety Company of New York and liquidate the same for the benefit of whom it may concern"; that the defendant Louis H. Pink succeeded George S. Van Schaick as superintendent of insurance of New York and as liquidator of the Southern Surety Company; that the superintendent of insurance of New York, as liquidator, has at all times failed, neglected, and refused to recover or to attempt to recover the assets of the Southern Surety Company which were wrongfully transferred to Southern Holding & Securities Corporation, although such liquidator has been fully aware at all times of the facts with reference thereto, and with knowledge of such facts has permitted the statutes of limitation to run against his cause of action for the recovery of such assets, and has abandoned all claim to such assets and to his right to recover them, and has, in violation of his trust, attempted to confirm the title of the defendants thereto. The prayer for relief is that the fraudulent transfers be set aside; that Southern Holding & Securities Corporation, Home Insurance Company, and Home Indemnity Company be required to turn over to the court a sufficient amount of the assets formerly belonging to Southern Surety Company to satisfy plaintiff's claim, and that, in case of their failure so to do, the plaintiff have judgment against those defendants for the amount of his claim.

It is not necessary to determine whether the plaintiff, as a general creditor whose claim has been allowed in the liquidation proceedings of the insolvent Southern Surety Company, has the same right to maintain this suit that a judgment creditor or a creditor with a lien would have. The bill of complaint shows that the Southern Surety Company is insolvent and has been placed in liquidation, and that the status of the plaintiff as a general creditor having a claim of $90,000 has been established. This would seem to bring the plaintiff within an exception to the general rule that only a creditor who has established the inadequacy of his legal remedies against his debtor, by obtaining a judgment at law and procuring an execution to be returned unsatisfied, may maintain a creditor's bill. See Case v. Beauregard, 101 U.S. 688, 690, 691, 25 L.Ed. 1004. The general rule to which reference has been made, its historical background, and the prerequisites to the maintenance of such a suit as this by a creditor, are discussed in the authorities in the footnote.¹ We shall assume, without deciding, that the fact that Motlow is a general creditor without a judgment and without a lien, did not preclude him from maintaining this suit.

Neither is it necessary to determine whether this suit is of such a nature that substituted service of process might be had under section 57 of the Judicial Code, 28 U.S.C. § 118, 28 U.S.C.A. § 118, upon nonresident defendants. It is by no means certain that such service of process could not be availed of in a suit of this general nature. Compare Mellen v. Moline Malleable Iron Works, 131 U.S. 352, 9 S.Ct. 781, 33 L.Ed. 178; Spellman v. Sullivan, D.C., 43 F.2d 762, affirmed 2 Cir., 61 F.2d 787; Spellman v. Bankers Trust Co., 2 Cir., 69 F.2d 1016; Albert v. Bascom, D.C., 245 F. 149; Hultberg v. Anderson, C.C., 170 F. 657; and Canton Roll & Machine Co. v. Rolling Mill Co. of America, C.C., 155 F. 321; note 34, 28 U.S.C.A. § 118. We shall, therefore, assume that the substituted service of process upon the superintendent of insurance was valid service.

The plaintiff, while conceding that the liquidator has title to the cause of action which is asserted in the suit at bar and the right to sue to recover assets of the Southern Surety Company wrongfully transferred, contends that the allegations of the bill of complaint bring the plaintiff within an exception to the rule that a liquidator, under such circumstances, would alone have the right to bring such a suit. The exception contended for is "that if the persons such as the liquidator entitled to sue for said claim, through inactivity, negligence, or wrongful conduct, fail or refuse to make any effort to collect the debts or reclaim the property of the corporation, then creditors and stockholders are given the...