Adler Goldman Commission Co. v. Williams

• Decision Date: 09 March 1914
• Citation: 211 F. 530
• Parties: ADLER GOLDMAN COMMISSION CO. et al. v. WILLIAMS et al.
• Court: U.S. District Court — Western District of Arkansas

211 F. 530

ADLER GOLDMAN COMMISSION CO. et al. v. WILLIAMS et al.

United States District Court, W.D. Arkansas.

March 9, 1914

This is a bill to set aside certain conveyances of real estate made by the defendant F. S. Williams to his codefendants, one of whom is his wife and the other his stepson, alleged to have been made for the purpose of defrauding the plaintiffs, his creditors. The material allegations in the bill are that plaintiffs are corporations created by and existing under the laws of the state of Missouri, and that the defendants are citizens of the state of South Carolina; that in 1911 the defendant F. S. Williams was indebted to each of the plaintiffs in sums exceeding $3,000, exclusive of interest and costs, as evidenced by his promissory notes; that to secure the payment of the indebtedness due the commission company the defendant pledged certain shares of stock of the fertilizer company, the value of which is not more than one-half of the indebtedness due the commission company; that the only property which defendant owned at that time, in addition to the stock pledged, was the lands sought to be reached by this bill; that on October 8, 1911, without any consideration, and for the purpose of defrauding these plaintiffs, he conveyed to his wife, the defendant Viola Williams, 742.67 acres of land lying in Clark county, Ark and on August 25, 1913, he conveyed to the defendant Smith his stepson, certain property lying in the city of Argenta Ark., all of which property is situated within the jurisdictional limits of this court; that the defendant F. S Williams had no other property whatever; that he does not reside in the state of Arkansas, and cannot be served with process here. The prayer of the bill is that the plaintiffs have judgment against the defendant F. S. Williams for the sums due them, that the conveyances to his codefendants be set aside and the lands be subjected to the payment of plaintiffs' demands, and that the pledged stock be sold and the proceeds applied to the payment of their claims. The defendant filed a motion to dismiss, setting up three grounds in support thereof: (1) That similar actions to attain the same object have been instituted by the plaintiffs in courts of Arkansas and are now pending. (2) That it appears from the face of the bill that although there is a diversity of citizenship between the plaintiffs and defendants, neither of them are residents of the state of Arkansas or of this district. (3) That plaintiffs not having reduced their demands to judgment and execution issued, which was returned unsatisfied, a court of equity has no jurisdiction.

Rose, Hemingway, Cantrell & Loughborough, of Little Rock, Ark., for plaintiffs.

Harry H. Myers and O. D. Longstreth, both of Little Rock, Ark., for defendants.

TRIEBER District Judge (after stating the facts as above).

The first ground set up in the motion to dismiss must be overruled, as the fact that another action is pending in a court of this state cannot be properly raised by a motion to dismiss. By Equity Rule 29 (198 F. xxvi, 115 C.C.A. xxvi) the motion to dismiss takes the place of a demurrer under the former rules, and the rule governing demurrers applies; that only matters appearing on the face of the bill can be reached by a motion to dismiss. Under the old rules these facts would be raised by a plea in abatement, and to sustain it would require evidence. Special pleas of abatement are now abolished by Equity Rule 29, but may be set up in the answer. In any event the plea would be bad. This court had that question before it a short time ago in Falls City Construction Co. v. Monroe County (D.C.) 208 F. 482, and it is unnecessary to repeat the reasons why such a plea is not good.

The second ground of the motion to dismiss, that neither parties are residents of this district, raises a very nice question as to whether a creditor's bill may be maintained in a national court when there is a diversity of citizenship, but neither of the parties reside in the district where the suit is brought, although the property sought to be reached by the bill is realty lying in that district. But this question cannot be determined in this cause now, as it has been authoritatively settled that when a party demurs, not only to the jurisdiction of the court, but also pleads to the merits of the bill, such a motion is equivalent to a general appearance, and waives, not only all defects in the service, but all special privileges of defendant in respect to the particular court in which the action is brought. As there is a diversity of citizenship, which gives some national court jurisdiction, this ground must be overruled. In re Moore, 209 U.S. 490, 28 Sup.Ct. 585, 706, 52 L.Ed. 904, 14 Ann.Cas. 1164; Western Loan & Trust Co. v. Butte & Boston Mining Co., 210 U.S. 368, 372, 28 Sup.Ct. 720, 52 L.Ed. 1101. The defendants in their motion to dismiss not only question the jurisdiction of this court, but also attack the sufficiency of the bill, and for this reason have waived their privilege of being sued in this court, if such privilege existed.

This leaves for determination the main question whether, upon the facts stated in the bill, a creditor's bill can be maintained when the demand has not been reduced to a judgment, an execution issued and returned unsatisfied. Section 3313 of Kirby's Digest of the Statutes of Arkansas provides:

'In suits to set aside fraudulent conveyances, and to obtain equitable garnishments, it shall not be necessary for the plaintiffs to obtain judgment at law in order to prove insolvency, but in such case insolvency may be proved by any competent testimony, so that only one suit shall be necessary in order to obtain the proper relief.'

In Scott v. Neeley, 140 U.S. 106, 11 Sup.Ct. 712, 35 L.Ed. 358, and Cates v. Allen, 149 U.S. 451, 13 Sup.Ct. 883, 37 L.Ed. 804, involving a similar statute of the state of Mississippi, it was held that a suit under such a statute by a simple contract creditor could not be maintained in the courts of the United States, although it might be in the courts of that state. In view of the conclusions reached it is unnecessary for the court to determine whether these cases have been modified or overruled by Cowley v. R.R. Co., 159 U.S. 569, 16 Sup.Ct. 127, 40 L.Ed. 263, as was intimated in Darragh v. H. Wetter Mfg. Co., 78 F. 7, 23 C. C. A. 609. The general rule prevailing in the national courts, as well as in courts of equity generally, is well established that, to maintain a creditor's bill to set aside a fraudulent conveyance, the creditor must have reduced his claim to judgment, have an execution issued upon the judgment and returned unsatisfied. The reasons upon which this rule is based, as enunciated by the different courts which have passed upon that question, are: (1) A debtor is entitled to a trial by jury for the purpose of determining the correctness of the demand, and there can be no jury trial in a court of equity; (2) to justify the interposition of a court of equity, the remedy at law must have been exhausted, and that can be shown by proof that a judgment had been obtained, an execution issued thereon, and returned nulla bona; (3) the existence of a lien upon the property, or interest in the property, created either by contract or by a judgment which is a lien.

As to the right of a trial by jury to have the validity of the demand determined, it is sufficient to say that the justice of the demands is not questioned. The motion to dismiss admits them. That being the case, there is nothing to submit to a jury, and equity never requires a useless thing to be done. A creditor need not reduce his claim to judgment where the correctness of the claim is admitted or not denied. D. A. Thompkins Co. v. Catawba Mills (C.C.) 82 F. 780; Nieters v. Brockman, 11 Mo.App. 600; Cohen v. Morriss, 70 Ga. 313.

As to the second ground the courts have established several exceptions to the general rule. One of them is that when it is shown that it is impossible or impracticable to obtain a judgment, another if a judgment has been secured, there is no property which can be subjected to an execution. Still another exception is when the property has been fraudulently conveyed by the debtor, then the remedy at law is wholly inadequate, and a resort to equity may be had. Thus, it has been held that the issuance of an execution is not a necessary prerequisite to a creditor's bill when it appears that a debtor has no property which is subject to an execution at law and the issuance of the execution would be of no practical utility. Sage v. Memphis & Little Rock R.R. Co., 125 U.S. 361, 8 Sup.Ct. 887, 31 L.Ed. 694; Johnson v. Powers, 139 U.S. 156, 11 Sup.Ct. 525, 35 L.Ed. 112; Talley v. Curtain, 54 F. 4, 4 C.C.A. 177; Schofield v. Ute Coal & Coke Co., 92 F. 269, 34 C.C.A. 334; Lazarus Jewelry Co. v. Steinhardt, 112 F. 614, 50 C.C.A. 393.

As stated in Sage v. R.R. Co., supra:

'When the suing out of an execution would be an idle ceremony, causing useless expense and being of no real benefit to the plaintiff, it is unnecessary.'

The courts almost universally recognize the rule that where the recovery of a judgment at law is impracticable or impossible, it is not an indispensable requisite to a creditor's bill. Kennedy v. Creswell, 101 U.S. 641, 645, 25 L.Ed. 1075; Case v. Beauregard, 101 U.S. 688, 690, 25 L.Ed. 1004; Mellen v. Moline Iron Works, 131 U.S. 352, 9 Sup.Ct. 781, 33 L.Ed. 178; National Tube Works v. Ballou, 146 U.S.

517 523, 13 Sup.Ct. 165, 36 L.Ed. 1070; Wyman v. Wallace, 201 U.S. 230, 26 Sup.Ct. 495, 50 L.Ed. 738; Hibernia Insurance Co. v. St. Louis & New Orleans Trans. Co. (C.C.) 10 F. 596; Consolidated Tank Line Co. v. Kansas City Varnish Co. (C.C.) 45 F. 7; Guaranty Title &...