Anderson v. Scandrett

• Decision Date: 03 June 1937
• Docket Number: No. 2931.,2931.
• Citation: 19 F. Supp. 681
• Parties: ANDERSON et al. v. SCANDRETT et al.
• Court: U.S. District Court — District of Minnesota

19 F. Supp. 681

ANDERSON et al. v. SCANDRETT et al.

No. 2931.

District Court, D. Minnesota, Third Division.

June 3, 1937.

F. W. Root, C. O. Newcomb, and A. C. Erdall, all of Minneapolis, Minn. (L. B. Mann, of Chicago, Ill., of counsel), for defendants.

Harold Olsen, of Minneapolis, Minn., for plaintiffs.

NORDBYE, District Judge (after stating the facts as above).

The bill of complaint joined as defendants the three trustees and one M. P. Graven. Plaintiffs consented to the striking of M. P. Graven as a party defendant, and an order to that effect has been filed herewith. The defendants, therefore, in this order will be referred to as the defendant trustees. The bill avers that the plaintiffs are the exclusive owners of all right, title, and interest in and to patents Nos. 1,580,108, 1,740,720, and 1,760,465, and that the plaintiffs are the owners of the right to manufacture and sell, and to license others to manufacture and sell railroad frogs under said patents. It is alleged that since October 17, 1935, the defendant trustees have had a regular and established place of business within the jurisdiction of this court, and without license and against the will and consent of the plaintiffs herein have used on the railroad right of way of the Chicago, Milwaukee, St. Paul & Pacific railroad within this district, and are still continuing to make and use said inventions and the improvements described and claimed in said letters patent in violation of the rights of these plaintiffs. It is also alleged that there were prior license agreements issued to the debtor railroad company which have been terminated, but that the trustees, notwithstanding the knowledge thereof, have continued since October 17, 1935, to commit the acts of infringement referred to. A permanent injunction is sought with accounting of profits and damages sustained by plaintiffs resulting from said infringement. Service was made on M. P. Graven, local freight agent at St. Paul, Minn.

It appears that the Chicago, Milwaukee, St. Paul & Pacific Railroad Company, hereinafter referred to as the debtor corporation, filed its petition under section 77 of the Bankruptcy Act, as amended (11 U. S.C.A. § 205 note), in the Northern District of Illinois, Eastern Division, on June 29, 1935. The defendant trustees were appointed and qualified on October 17, 1935. It is the latter date that the bill of complaint herein alleges as the date when the acts of infringement began by the trustees. When the debtor's petition was approved on June 29, 1935, the following provision which is still in full force and effect was entered by the court enjoining:

"All persons * * * whatsoever and wheresoever situated, located or domiciled * * * from interfering with, attaching, garnisheeing, levying upon or enforcing liens upon, or in any manner whatsoever disturbing any portion of the assets * * * railroads * * * in possession of the Debtor * * * or in any way interfering with the same or any part thereof, or from interfering in any manner with the operation of its railroad or properties, or the carrying on of its business by the Debtor under the orders of this Court. * * *"

The proceedings under section 77 are still pending and the railroad is being operated by these trustees. No consent to the prosecution of this action has been given by the appointing court. Section 66 of the Judicial Code (28 U.S.C.A. § 125) provides:

"Suits against receiver. Every receiver or manager of any property appointed by any court of the United States may be sued in respect of any act or transaction of his in carrying on the business connected with such property, without the previous leave of the court in which such receiver or manager was appointed; but such suit shall be subject to the general equity jurisdiction of the court in which such manager or receiver was appointed so far as the same may be necessary to the ends of justice."

This statute has been held applicable to receivers appointed by courts of bankruptcy in Re T. L. Kelly Dry-Goods Co. (D.C.) 102 F. 747; In re Kanter (C.C. A.) 121 F. 984; In re Smith (D.C.) 121 F. 1014; In re Kalb, etc., Mfg. Co. (C.C.A.) 165 F. 895. The trustees herein are a combination of ordinary trustees in bankruptcy and receivers in equity. It would seem, therefore, that where there is an operating trusteeship under section 77 of the Bankruptcy Act, and a claim arises against said trustees by reason of the carrying on of said business, suit may be commenced without previous leave of court. Moreover, it is generally recognized that the last clause of section 66 of the Judicial Code (28 U.S.C.A. § 125), reading, "but such suit shall be subject to the general equity jurisdiction of the court in which such manager or receiver was appointed so far as the same may be necessary to the ends of justice," merely reserves to the appointing court the sole power over the matter of satisfaction of the rights determined in such other courts. Dillingham v. Hawk (C.C.A.) 60 F. 494, 23 L.R.A. 517; St. Louis Southwestern R. Co. v. Holbrook (C.C.A.) 73 F. 112; American Brake Shoe, etc., Co. v. Pere Marquette R. Co. (D.C.) 278 F. 832. Nor does the injunction in the order of the appointing court prevent the institution and prosecution of this suit in this jurisdiction. True, an injunction is sought with an accounting of profits and damages, but the determination of the issues herein will not violate the restraining order that was entered, nor will the institution of this suit interfere with the trustees' operation of the railroad. Any injunction that may be entered herein must be limited so as to comply with the appointing court's order; for instance, to permit the railroad to keep the alleged infringing devices upon paying reasonable compensation and to enjoin future infringement. But there is no basis for the contention that suits arising by reason of the operation of this railroad by the trustees must be lodged in the venue of the appointing court. The very impracticability of such procedure is apparent. Certainly, it could not be urged that all the shippers doing business with the railroad company while under trusteeship must proceed with their claims before the appointing court. It is recognized that the appointing court must have complete and exclusive jurisdiction to prevent any interference with the property of the debtor which will hinder or delay the ultimate reorganization, but the determination of claims that will not be discharged by the bankruptcy proceedings may be determined in any forum where jurisdiction is obtained. The relief to be granted, if any, in view of the injunction of the appointing court can be determined later.

The next question to be determined is whether or not this court has jurisdiction of the nonresident trustees by reason of the service upon the local freight agent at St. Paul. Plaintiffs rely on section 9233, Mason's Minnesota Statutes 1927, which reads:

"In any action or proceeding against a railway company, whether domestic or foreign, including proceedings under the right of eminent domain, service of the summons and of all notices required to be served therein may be made by delivering a copy thereof to any ticket or freight agent of such company within the county in which the action or proceeding is begun, with the same effect as though made pursuant to § 9231: Provided that, if such company shall appear in an action by a resident attorney, service shall thereafter be made upon such attorney."

However, it is doubtful if the statute is applicable. The proceedings herein are not against the railroad corporation. The alleged acts of infringement were perpetrated by the trustees. The trustees are natural persons and the manner of service prescribed by section 9233 pertains to service on a railway corporation. See Kading v. Waters et al., 137 Minn. 328, 163 N.W. 521. The case of Ihlan v. Chicago, Rock Island & Pacific Railway Co., 137 Minn. 204, 163 N.W. 283, is not in point because there the claim was against the corporation and not against the receivers. But this being a patent infringement suit, resort must be had to the federal statute in order to determine whether plaintiffs have established jurisdiction in this court. Section 48 of the Judicial Code (28 U.S.C.A. § 109) re...