Alexander v. Hillman

• Decision Date: 22 January 1935
• Docket Number: No. 3736,3737.,3736
• Citation: 75 F.2d 451
• Parties: ALEXANDER et al. v. HILLMAN et al. (two cases).
• Court: U.S. Court of Appeals — Fourth Circuit

75 F.2d 451 (1935)

ALEXANDER et al. v. HILLMAN et al. (two cases).^*

Nos. 3736, 3737.

Circuit Court of Appeals, Fourth Circuit.

January 22, 1935.

E. C. Higbee, of Uniontown, Pa., and Arthur S. Dayton, of Charleston, W. Va. (Edwin W. Smith and Wm. M. Robinson, both of Pittsburgh, Pa., on the brief), for appellants.

E. W. Knight, of Charleston, W. Va. (George E. Alter and Alexander J. Barron, both of Pittsburgh, Pa., on the brief), for appellees.

Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.

NORTHCOTT, Circuit Judge.

These are appeals from two decrees entered in the District Court of the United States for the Southern District of West Virginia, one of which was entered in a suit in equity, wherein Piedmont Coal Company and others are plaintiffs and Tower Hill Connellsville Coke Company of West Virginia is defendant, and permitted the filing of an ancillary bill. The other was entered in the ancillary proceeding so commenced, in which the receivers of Tower Hill Company, the appellants, are plaintiffs and the appellees are defendants. The original suit has been twice before this court (33 F.(2d) 703; 64 F.(2d) 817, 91 A. L. R. 648), in each of which certiorari was denied (280 U. S. 607, 50 S. Ct. 157, 74 L. Ed. 650; 290 U. S. 675, 54 S. Ct. 93, 78 L. Ed. 582).

Upon the last appeal in the original cause this court affirmed the decree of the District Court, entered August 25, 1932, which directed that the business and affairs of Tower Hill be terminated and wound up, its property and assets sold and converted into money and distribution thereof made to its creditors and stockholders according to their respective rights and priorities. For that purpose the District Court had appointed A. S. Alexander, H. D. Rummel, and George S. Baton receivers of all the property and assets of Tower Hill of whatsoever character and wheresoever situate, with power to procure the appointment of ancillary receivers whenever and wherever in their judgment such ancillary receivers should be necessary to effectuate any of the provisions of the decree and to institute and prosecute, either in their own names or through such ancillary receivers, all suits and proceedings necessary to recover possession of all the property and assets of the corporation.

On December 12, 1933, the District Court entered an order in the cause referring same to J. E. Campbell as special master, to take, state, and report to the court an account, showing all the debts, obligations, and claims against Tower Hill, with the nature, amount, and respective priorities thereof, the owners of the preferred and common stock of Tower Hill, and such other matters as any party in interest might require. On January 30, 1934, at a hearing duly held by the special master in Charleston, W. Va., pursuant to the order of reference, J. H. Hillman, Jr., A. B. Sheets, and Thomas Watson, all of whom are citizens of the commonwealth of Pennsylvania residing in the Western District thereof, and Hillman Coal & Coke Company and Hecla Coal & Coke Company, each of which is a corporation of the commonwealth of Pennsylvania having its principal place of business in the Western District thereof, filed certain proofs of claim as creditors and stockholders of Tower Hill, and testimony was taken with regard thereto. The claim of Hecla is that it is a holder of preferred and common stock of Tower Hill, and the claims of the other claimants are for alleged debts said to be owing by Tower Hill. Each of the claims remains pending and undetermined before the special master.

On February 19, 1934, the receivers asked leave of the District Court to file an ancillary bill of complaint against the claimants above named who had filed claims with the special master. The ancillary bill tendered for filing at that time alleged that claimants Hillman, Sheets, and Watson, as directors of Tower Hill, had mismanaged the affairs of that corporation and had misapplied its assets in the payment of improper salaries and in the transfer of assets for the benefit of other corporations in which they were interested; that, as a result of their mismanagement, Hecla had received valuable property through an exchange with the Redstone Coal & Coke Company, to which Tower Hill was a party, and in the course of which Tower Hill had parted with property of great value and received property of insignificant value in return; and that the claim of the Hillman Company was based upon an arrangement between that company and Tower Hill growing out of the mismanagement of the latter by Hillman, Sheets, and Watson, and that the Hillman Company was liable to the receivers for moneys which it had received pursuant to this arrangement. Most of the causes of action asserted in the ancillary bill appear not to have grown out of the transactions which were the basis of the claims filed with the receivers, but to constitute independent claims in behalf of the receivers against the claimants. The court ordered the ancillary bill filed, with leave to the defendants therein named, however, to move to dismiss, answer, or make such other defense thereto as might be proper.

On March 19, 1934, a motion to vacate the order of court entered February 19, 1934, and to quash the service of that order and the ancillary bill of complaint was filed by the defendants named in the ancillary bill, each appearing specially for the purpose of making the motion and without submitting to the jurisdiction of the court, but solely for the purpose of questioning that jurisdiction. The reasons assigned in the motion were that, at the time of the entry of the order, the filing of the bill, and the alleged service thereof upon each of the defendants, no one of the defendants was or had since been a citizen, resident, or inhabitant of, or had been doing business within, the Southern District of West Virginia, but that each of said defendants was a citizen, resident, and inhabitant of the city of Pittsburgh, in the Western District of Pennsylvania, and that no legal service had been had upon any of them. Each of the defendants filed also a motion to quash the service of the ancillary bill and to dismiss it for want of jurisdiction, on the same grounds as those alleged in the motion filed in this cause. The court sustained the motion and dismissed the ancillary bill, finding that none of the defendants therein named was an inhabitant of the Southern District of West Virginia, but that each of them was at the time of the filing of the bill, and had since been, a resident of the commonwealth of Pennsylvania. The receivers have appealed in both the original and the ancillary proceedings, but both appeals present the same question, viz., the correctness of the order dismissing the ancillary bill.

We think that the learned judge below was correct in holding that the court had not acquired jurisdiction to award any affirmative relief against the defendants named in the ancillary bill on the causes of action therein asserted against them which constituted counterclaims to the claims filed with the receivers, and not mere defenses to those claims. The question involved is not one as to the jurisdiction of the court over the causes of action asserted in the ancillary bill, for it is well settled that the courts of the United States have jurisdiction to entertain, either in equity or at law as may be appropriate, ancillary proceedings in aid of a receivership suit pending in a federal court, even though other elements of federal jurisdiction, such as diversity of citizenship or the jurisdictional amount, may be lacking. White v. Ewing, 159 U. S. 36, 15 S. Ct. 1018, 40 L. Ed. 67; Pope v. L., N. & A. C. R. Co., 173 U. S. 573, 19 S. Ct. 500, 43 L. Ed. 814; Kirkland v. Knox (C. C. A.) 230 F. 806; Carey v. McMillan (C. C. A. 8th) 289 F. 380; Hart v. Wiltsee (C. C. A.) 19 F.(2d) 903; Hume v. City of New York (C. C. A.) 255 F. 488; Peck v. Elliott (C. C. A.) 79 F. 10, 38 L. R. A. 616. The question is whether the court acquired such jurisdiction over the persons who filed claims with the receivers as would authorize the granting of relief against them on counterclaims on which affirmative personal relief was asked and which were not mere defenses to the claims filed; and we think it clear that this question must be answered in the negative.

The position of appellants is that these persons made themselves parties to the original cause by filing claims before the special master, and that no further service of process upon them or consent to jurisdiction on their part was necessary to give the court jurisdiction to award relief against them on the ancillary bill. The answer to this, however, is that under the federal practice a person does not, by filing a claim with a receiver, make himself a party to the original cause. Elkins v. First Nat. Bank of City of New York (C. C. A. 4th) 43 F.(2d) 777; Acme White Lead & Color Works v. Republic Motor Truck Co. (D. C.) 285 F. 88; Jones & Laughlins v. Sands (C. C. A. 2d) 79 F. 913; Youtsey v. Hoffman (C. C.) 108 F. 693; Sands v. E. S. Greeley & Co. (C. C.) 80 F. 195; Clark on Receivers, vol. 1, p. 717. And where an ancillary bill, as does the bill here, brings in new parties to the original suit and charges new matter as a basis of relief, the proceeding as against such new parties is an original, not an ancillary, proceeding, and they must be properly served with process to give the court jurisdiction. Dunn v. Clarke, 8 Pet. 1, 8 L. Ed. 845; Smith v. Woolfolk, 115 U. S. 143, 148, 5 S. Ct. 1177, 29 L. Ed. 357; G. & C. Merriam Co. v. Saalfield, 241 U. S. 22, 36 S. Ct. 477, 60 L. Ed. 868; Manning v. Berdan (C. C.) 132 F. 382; Bowen v. Christian (C. C.) 16 F. 729; Hart v. Wiltsee, supra.

A case very much in point is Whelan v. Enterprise Transp. Co. (C. C.) 164 F. 95, 98, a decision by Circuit Judge Lowell. That case involved a petition which was filed by a receiver of an insolvent corporation and was treated by consent as a...