Beaver Boards Cos. v. Imbrie & Co.

• Decision Date: 13 March 1923
• Docket Number: 158.
• Citation: 287 F. 158
• Parties: BEAVER BOARDS COS. v. IMBRIE & CO. J. H. HILLSMAN & CO. et al. v. SAME. Intervention of HOSIER.
• Court: U.S. District Court — Northern District of Georgia

287 F. 158

BEAVER BOARDS COS. v. IMBRIE & CO. J. H. HILLSMAN & CO. et al. v. SAME. Intervention of HOSIER.

No. 158.

United States District Court, N.D. Georgia.

March 13, 1923

Dorsey Brewster, Howell & Heyman, of Atlanta, Ga., for intervener.

Little Powell, Smith & Goldstein, of Atlanta, Ga., for receiver.

Little Powell, Smith & Goldstein and Ronald Ransom, all of Atlanta Ga., for Fulton Nat. Bank.

SIBLEY District Judge.

On March 3, 1921, in the District Court of the United States for the Southern District of New York, was filed a creditors' bill against Imbrie & Co., stock and bond dealers and brokers, citizens of New York, New Jersey, and Massachusetts, whose principal place of business was New York. Receivers were appointed. On the same day, in the superior court of Fulton county, Ga., other creditors, citizens of Georgia, sought and obtained a receiver for assets of Imbrie & Co. in Georgia, connected with a branch office operated in Atlanta. On March 7, 1921, the New York receivers, by direction of the New York court, applied for ancillary receivership in this court and were, with the state court receiver, made such ancillary receivers. On March 8th Imbrie & Co., removed to this court the case in the Fulton superior court. The two proceedings were then consolidated by consent, and numerous interventions have been allowed in this court, among them that of I. S. Hosier. His claim, in brief, is that he gave Imbrie & Co., in Atlanta, on February 21, 1921, a check for $2,656.13, to be used as his brokers in buying certain stocks; that Imbrie & Co. deposited it to their credit in Fulton National Bank on February 23d; that the proceeds of its collection were still to the credit of Imbrie & Co. at said bank, though in equity belonging to Hosier, when the firm failed without having bought the stock, whereupon Fulton National Bank, on March 3d, offset certain notes it held against Imbrie & Co. against the deposit, absorbing it. Hosier prays that the bank be made a party and be required to pay the $2,656.13 to the receivers or to him. By an amendment he asks also a judgment against the estate in the receivers' hands, with a first lien or otherwise, if the bank could not be required to repay the money to them for him. This intervention was allowed, the bank was made a party, and the issues made by answers to the intervention referred to a master. Exceptions to his report raise three principal questions: First, has this court, as a federal court, jurisdiction of this controversy; second, should it pass upon it or remand the parties to the primary jurisdiction in New York; third, on the merits has the bank the right to make the set-off as against Hosier.

1. Such discretion as the court has in allowing interventions has been exercised in the allowance of this one. In testing the federal jurisdiction to entertain it, the case may be considered as a primary creditors' bill. Such the proceeding removed from the state court is.

As to ancillary proceedings, the federal jurisdiction, as distinguished from territorial jurisdiction, would be the same as in the primary court. The purpose of the ancillary receivership is to extend the power of the primary court over a territory which it itself could not otherwise reach. The basis of federal jurisdiction in all the suits is diversity of citizenship. Creditors of Imbrie & Co. having the requisite diversity of citizenship have invoked federal authority, and in the exercise of it the federal court must exercise an equitable jurisdiction in the collection and administration of assets, which may result in following complicated threads of right through all their ramifications in the affairs of Imbrie & Co.

Dependent controversies thus arising are entertained in the federal court, although, standing alone, jurisdiction would not have been exercised over them, only from the necessity for entertaining them in order to execute fully and correctly the original jurisdiction. Let us follow this idea through familiar instances. Receivers having been appointed to collect all assets within the territorial jurisdiction of the court for the purpose of applying them to the claims of the creditors who filed the proceeding, in order to avoid depriving other creditors having equal rights of their share in the assets so collected, the federal court must permit them to intervene and assert their rights, regardless of their citizenship or amount involved. So again the court, having seized control of the assets, must be open to entertain complaints of others seeking to assert title to, a lien upon, or an equity in any of the property so taken by the court to avoid doing wrong to them by the taking. These may intervene or proceed by dependent bill, regardless of citizenship, as was allowed in a branch of this same litigation in Equitable Trust Co. v. Port Wentworth Terminal Corp. et al. (D.C.) 281 F. 883. So the federal court's receiver may be authorized, if assets are withheld, to proceed against persons having them without regard to the citizenship of the parties to that particular controversy or the amount involved. The right thus to control assets is not confined to such as are physical, and of which physical possession may be taken. It applies to collecting choses in action, the control over which may be asserted by actual collection or by the institution of a suit therefor or having an accounting in cases of complication. White v. Ewing, 159 U.S. 36, 15 Sup.Ct. 1018, 40 L.Ed. 67.

Upon the filing of an application for receivership, the power of the court to control all the assets attaches, though actual possession has not been taken, and it will not be interfered with by any other court under proceedings subsequently filed. Palmer v. Texas, 212 U.S. 118, 129, 29 Sup.Ct. 230, 53 L.Ed. 435. This potential control continues until the asset is brought within the receivership or until the court definitely abandons it. Porter v. Sabin, 149 U.S. 473, 13 Sup.Ct. 1008, 37 L.Ed. 815. The deposit account of Imbrie & Co. with Fulton National Bank was an asset within the territorial jurisdiction of the court, when on March 3d application was made for receiver and a receiver appointed in Georgia. The right of this court to direct its receiver to collect it must be considered undoubted. The fact that Fulton National Bank, since the failure and on the same day that the receiver was appointed, undertook to destroy the asset by offsetting it against its debt, would not hinder this court from investigating such disposition and bringing to an accounting the Fulton National Bank. In such accounting Hosier might well have been made a party for the purpose of asserting his right to the asset in question. The disposition sought to be made by Fulton National Bank could not be treated as final, or cutting off this right of inquiry and administration by the court through the receivership.

The question of an independent remedy elsewhere being afforded to Hosier is beside the mark. It may be true that he would have the right to sue Fulton National Bank in equity in a state court under the decision of Union Stockyards Bank v Gillespie, 137 U.S. 411, 11 Sup.Ct. 118, 34 L.Ed. 724; but in such a suit, claiming the deposit in equity to be his, he could not ask a judgment to that effect against Fulton National Bank, without joining, necessarily, as parties in the suit, Imbrie & Co. and the receivers now in charge of their assets, because otherwise the judgment of the court would not do complete justice, but would leave Fulton National Bank exposed to a suit by Imbrie & Co. or the receivers upon the legal liability to them. Shields v. Barrow, 17 How. 130, 15 L.Ed. 158; Porter v. Sabin, 149 U.S. 473, 13 Sup.Ct. 1008, 37 L.Ed. 815. Had Hosier attempted such a remedy, the consent of this court to join its receivers would have been necessary; Judicial Code, Sec. 66 (Comp. St. Sec. 1048), not applying. It could have accorded such consent,...