Carpenter v. Ludlum

• Decision Date: 23 February 1934
• Docket Number: No. 5224.,5224.
• Citation: 69 F.2d 191
• Parties: CARPENTER v. LUDLUM et al.
• Court: U.S. Court of Appeals — Third Circuit

69 F.2d 191 (1934)

CARPENTER v. LUDLUM et al.

No. 5224.

Circuit Court of Appeals, Third Circuit.

February 23, 1934.

Albert L. Moise, of Philadelphia, Pa., and Fowler & Fowler, of Knoxville, Tenn., for appellant.

Percival H. Granger, John Arthur Brown, William A. Carr, and Reber, Granger & Montgomery, all of Philadelphia, Pa., for appellees.

Before WOOLLEY, DAVIS, and THOMPSON, Circuit Judges.

WOOLLEY, Circuit Judge.

The Cadet Hosiery Company, a Delaware corporation, was put into receivership by the District Court of the United States for the Eastern District of Pennsylvania. Besides property in Pennsylvania it had assets in Tennessee. Under the law of Tennessee, resident creditors of an insolvent foreign corporation have priority over non-resident simple contract corporation creditors (not registered in Tennessee) in the distribution of its assets located in that state. Section 2552 of Shannon's Code of the State of Tennessee, now section 4134 of the Code of Tennessee, Vol. 2, p. 496.

Holston-Union National Bank of Knoxville, Tennessee, regarded as a resident of Tennessee, is a general creditor of the respondent hosiery company in a considerable sum. Its receiver offered its claim for proof before a master appointed by the District Court in Pennsylvania and the master allowed the claim with the qualification which we shall state presently. In the meantime, the District Court of the United States for the Middle District of Tennessee appointed ancillary receivers for the respondent corporation. The cited Tennessee Act was invoked for the benefit of its creditors resident in that state. The court of ancillary jurisdiction thereupon referred all claims to a master with direction to ascertain the number of Tennessee creditors and the amounts due them. The claim of the receiver of the Holston-Union National Bank was, with others, allowed and accorded priority in distribution of proceeds of Tennessee assets over claims of foreign corporation creditors not registered in that state. Thus the bank has, through its receiver, proved its claim in both courts and is contending that by reason of the priority afforded by the Tennessee statute it is entitled as a general creditor, resident in Tennessee, to be paid its pro rata share of the proceeds of the respondent's Tennessee assets when distributed by the court of ancillary jurisdiction and also to be paid an equal dividend with creditors outside of the State of Tennessee from proceeds of its assets located elsewhere when distributed by the court of primary jurisdiction. Anticipating the effort of the bank's receiver to obtain double dividends, the master for the court of primary jurisdiction in Pennsylvania qualified his allowance of the bank's claim by "reserving judgment" as to the alleged priority of the claim in respect to Tennessee assets until such time as the fund realized from the sale of those assets "comes before him for distribution."

On exceptions, the primary court in Pennsylvania, knowing that the effect of the Tennessee priority is to withdraw for the benefit of a group of creditors part of the assets to which all creditors look for payment, affirmed its master's report after modifying it so that distribution by the primary court among general creditors whose claims were allowed by its master (which includes the claim of the bank's receiver) "shall be such that there will be no inequality in the ultimate distribution of all of the defendant's assets, wherever situated, among all the creditors whose claims may be allowed." That was a recognition by the court of primary jurisdiction of what had happened in Tennessee with respect to the claimant's priority, and a determination on the facts of the case that what the claimant may receive in Tennessee shall be reckoned in or deducted front the amount which otherwise he would receive in distribution of assets outside of Tennessee by the court of primary jurisdiction, the practical effect of which is to ensure, as nearly as may be, equality in the distribution of assets, wherever located, among the respondent's creditors of the same class wherever resident. The receiver of the bank appealed from an order of the court of primary jurisdiction ref using to vacate its order of equality, raising the question:

In a federal equity receivership pending in primary and ancillary jurisdictions, does the priority in distribution afforded by the Tennessee statute enable Tennessee creditors to receive a dividend out of Tennessee assets to the exclusion of foreign corporation creditors not registered in Tennessee and then participate equally with other creditors in the distribution of Pennsylvania assets, thus ultimately giving Tennessee creditors a larger dividend than that received by other general creditors?

The statute in question has been before the courts. "In Blake v. McClung, 172 U. S. 239, 19 S. Ct. 165, 43 L. Ed. 432, it was held that, while * * * the act was unconstitutional in so far as it gave the claims of Tennessee creditors of a foreign corporation priority over those of natural persons who were citizens of other states, it was a constitutional exercise of the power of the state to prescribe the conditions upon which a foreign corporation might enter its territory for purposes of business, in so far as it gave the claims of Tennessee creditors priority over those of other foreign corporations not doing business in Tennessee under the act * * *." In re Standard Oak Veneer Company (D. C.) 173 F. 103, 105.

It should be noted that the Tennessee Act, as interpreted, is not leveled against creditors of an insolvent foreign corporation who are natural persons, citizens of other states, proving claims against Tennessee assets, but is directed, on award of priority to Tennessee creditors, against claims of foreign corporation creditors not doing business in Tennessee under the Act. We assume, therefore, that what the learned trial judge has said, and we state that what we shall say and decide, concerns not personal creditors of a corporation in receivership, or any of several situations which we conceive might arise, but concerns only this case of a creditor, resident in Tennessee, seeking priority in respect to Tennessee assets over the claims of foreign corporation creditors not doing business in Tennessee...