Cherry v. Insull Utility Investments

Decision Date28 May 1932
Docket NumberNo. 11679,11680.,11679
Citation58 F.2d 1022
PartiesCHERRY v. INSULL UTILITY INVESTMENTS Inc. SCHOENEMAN v. CORPORATION SECURITIES CO.
CourtU.S. District Court — Northern District of Illinois

No. 11679:

Allen & Dalbey, of Danville, Ill., and Cassels, Potter & Bentley, of Chicago, Ill., for receivers.

Tenney, Harding, Sherman & Rogers, of Chicago, Ill., for respondents.

Miller, Gorham & Wales, of Chicago, Ill., for defendant.

No. 11680:

Ashcraft & Ashcraft, of Chicago, Ill., for receivers.

Tenney, Harding, Sherman & Rogers, of Chicago, Ill., for respondents.

LINDLEY, District Judge.

On May 15, 1932, upon a creditor's bill and answer thereto, the court appointed receivers for and took jurisdiction of all assets of the defendant corporation. I shall not recount the detailed facts, but direct attention to the final effect of the proceedings, viz., that by a receivership in equity the court took into its custody for administration by its receivers all property of the corporation within the district. By the order the corporation, its officers, all creditors, and other parties in interest were restrained from interfering in any way with the jurisdiction thereby asserted and exercised.

It became apparent at once from the face of the pleadings that the affairs of the company were badly entangled, involved assets and liabilities running into many millions of dollars, and were embroiled in many complications of law and fact of such character as to necessitate a rather tedious and long protracted audit and investigation before the court could obtain adequate knowledge as to the rights and true situations of the various parties in interest. To the court it seemed desirable, in fact, imperative, therefore, in order that no interest suffer from unduly speedy action or be jeopardized otherwise, to consider ways and means, within the limits of proper administration of the estate, to preserve the existing status until some adequate knowledge of conditions might be brought home to the court and its representatives, the receivers.

It appeared that loans representing several millions of dollars had been made to the corporation by banks located in Chicago and New York; that collateral, consisting of the most part of capital stock in prosperous, extensive operating utility companies, had been deposited as security for such loans when originally made and increased in amount, from time to time thereafter, as depreciation of exchange market prices for same increased; that as a result substantially all the valuable assets of the company had eventually found their way to the lenders aforesaid, so that apparently there no longer remained any unpledged assets for distribution amongst unsecured creditors; that debentures and notes for many millions of dollars had been issued and sold to the public under conditions wholly unknown to the court; and that the circumstances under which said collateral security had been deposited were not and could not be ascertained without considerable delay. As a result of this situation, the court, desiring so to administer the estate as to conserve and protect properly the interests of the cestui que trusts of the estate had on the day of issuance of the order herein attacked concluded that it was advisable, in order to prevent disposition of assets with undue haste and consequent impossibility of realization of return for unsecured creditors, to invite the banks extending the loans aforesaid to attend a conference of the interested parties in court at the earliest possible date, and had on the date mentioned prepared a letter to the receivers, suggesting that such invitation be extended looking forward to the adoption of a policy of co-operation between the interested parties and the court in the administration of the estate, and specifically to the desired end that, pending investigation and until the court might upon proper pleadings and evidence duly heard order otherwise, the secured creditors would seek no relief in the way of permission to foreclose liens or to sell collateral security. Without reference to legal rights, it was deemed only fair that, so long as the existing status should be preserved, the income from the securities, that is, dividends, should be delivered to the lenders to be accounted for by them as applied upon interest accruing upon the loans, and in case of surplus above such interest, as applied upon the principal of the indebtedness.

On the same day the receivers and their counsel appeared before the court, with the information that the banks in New York had advertised the collateral security, amounting in value to several millions of dollars, for sale in New York and Jersey City, N. J., the following morning, and upon verified petition, relating said facts, prayed that such sales be restrained. Upon said petition, the banks were restrained from making such sales until the further order of the court. The court acted upon the obvious impossibility of notice, if the sales advertised for the next day were to be prevented.

The banks now move to dissolve this injunctional order. The motion is not one to quash process or to dismiss the petition, or to abate the proceedings or to obtain any relief other than that of dissolving the order. I take it, therefore, that the question before the court is whether it had, in this receivership, this sequestration of assets, such jurisdiction over the res of the estate as to enable it to preserve temporarily the status existing at the time the jurisdiction attached by forbidding lienholders from foreclosing their lien upon pledged property, until the disputed value thereof might be determined and until the court might be fully advised as to whether, without injury to the rights of the lenders, it should further delay the foreclosure or sale.

The determination of this question involves some exposition of various fact and legal situations. Obviously the court has no jurisdiction over property the situs of which is beyond its territorial limits. On the other hand, all assets, the situs of which is within those limits, are in the custody of the court — sequestered by the court, removed beyond the power of interference therewith by any other court or by any public or private party without permission of the court. So the Supreme Court in Riehle v. Margolies, 279 U. S. 223, 49 S. Ct. 310, 312, 73 L. Ed. 669, said:

"The appointment of a receiver of a debtor's property by a federal court confers upon it, regardless of citizenship and of the amount in controversy, federal jurisdiction to decide all questions incident to the preservation, collection, and distribution of the assets. It may do this either in the original suit, Rouse v. Letcher, 156 U. S. 47, 49, 50, 15 S. Ct. 266, 39 L. Ed. 341; or by ancillary proceedings, White v. Ewing, 159 U. S. 36, 15 S. Ct. 1018, 40 L. Ed. 67. Compare Kelley v. Gill, 245 U. S. 116, 119, 38 S. Ct. 38, 62 L. Ed. 185. And it may, despite section 265 of the Judicial Code (28 USCA § 379), issue under section 262 (28 USCA § 377), or otherwise, all writs necessary to protect from interference all property in its possession. Julian v. Central Trust Co., 193 U. S. 93, 112, 24 S. Ct. 399, 48 L. Ed. 629."

In Mississippi Valley Trust Company v. Railway Steel Spring Company, 258 F. 346, 355 (C. C. A. 8) the court said: "A court which is administering property * * * through a receivership may properly draw to itself all disputes as to liens and other rights upon or pertaining to such property." See, also, Porter v. Sabin, 149 U. S. 473, at 479, 13 S. Ct. 1008, 37 L. Ed. 815; Ross-Meehan Brake Shoe Co. v. Southern, etc., Co. (C. C.) 72 F. 957; Hollander v. Heaslip (C. C. A.) 222 F. 808; Durand & Co. v. Howard & Co. (C. C. A.) 216 F. 585, L. R. A. 1915B, 998.

In People's Bank v. Calhoun, 102 U. S. 256, 261, 26 L. Ed. 101, the court said: "It was for the court having such possession to determine how far it would permit any other court to interfere with that possession, and what effect it would give to the attempt of another court to seize the property so under its control."

"The rule is not to be understood as absolutely preventing the acquisition of new rights to the fund in controversy after the commencement of the proceedings. Any person claiming to have acquired such an interest, while he cannot interfere under the process of another court, may, under the old equity practice, apply to the court which has jurisdiction of the fund, pro interesse suo, and his claim will be heard. The same result can now be accomplished by a petition and motion in the cause; and in administering the fund, the court will take care that the rights of prior liens or incumbrances shall not be destroyed; and will adopt proper measures, by reference to the master or otherwise, to ascertain them, and bring them before it."

The securities, sale of which was advertised, are capital stock of Illinois corporations; they are owned by the corporation, defendant in the original bill, likewise an Illinois corporation, whose property has passed to the court, through its receivers, subject to all valid liens thereon. Such property is of that species known as intangibles, as distinguished from real or chattel property. After conflict in the courts of various states and in the federal courts, the Supreme Court of the United States, reversing its prior decisions to the contrary, held in First National Bank v. Maine, 284 U. S. 312, 52 S. Ct. 174, 178, 76 L. Ed. ___, on January 4, 1932, that the situs of such property as capital stock is not that of the corporation issuing same as previously held in Blackstone v. Miller, 188 U. S. 189, 23 S. Ct. 277, 47 L. Ed. 439; Baker v. Baker, etc., Co., 242 U. S. 394, 37 S. Ct. 152, 61 L. Ed. 386; Jellenik v. Huron Copper Mining Co., 177 U. S. 1, 20 S. Ct. 559, 44 L. Ed. 647, and Illinois in Harris v. Chicago T. & T. Co., 358 Ill. 245, 170 N. E. 285, but is that of the owner thereof. It follows that the situs of the securities...

To continue reading

Request your trial
2 cases
  • United States v. Hall
    • United States
    • U.S. Court of Appeals — Fifth Circuit
    • January 30, 1973
    ...Co., 1946, W.D.Mo., 71 F.Supp. 96; Converse v. Highway Construction Co., 6 Cir. 1939, 107 F.2d 127; Cherry v. Insull Utility Investments, Inc., 1932, N.D.Ill., 58 F.2d 1022, rev'd on other grounds sub nom. Guaranty Trust Co. v. Fentress, 7 Cir., 61 F.2d 329. A court entering a decree bindin......
  • Hannigan v. Italo Petroleum Corp. of America
    • United States
    • Delaware Superior Court
    • December 3, 1935
    ... ... Margolies, 279 U.S. 218, 49 S.Ct. 310, 73 ... L.Ed. 669; Cherry v. Insull Investments (D ... C.), 58 F.2d 1022; Nolte v. Hudson Nav. Co ... ...

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT