Cochrane v. WF Potts Son & Co.

• Decision Date: 24 April 1931
• Docket Number: No. 5810.,5810.
• Citation: 47 F.2d 1026
• Parties: COCHRANE et al. v. W. F. POTTS SON & CO., Inc., et al.
• Court: U.S. Court of Appeals — Fifth Circuit

47 F.2d 1026 (1931)

COCHRANE et al. v. W. F. POTTS SON & CO., Inc., et al.

No. 5810.

Circuit Court of Appeals, Fifth Circuit.

March 13, 1931.

Rehearing Denied April 24, 1931.

Marshall B. Wood, of West Palm Beach, Fla., for appellants.

R. J. Bacon and A. L. Rankin, both of West Palm Beach, Fla., for appellees.

Before FOSTER, Circuit Judge, and HUTCHESON and SIBLEY, District Judges.

HUTCHESON, District Judge.

Appellants, as successor trustees appointed by a Florida state court, appeal from the order of the court below denying the prayer of their intervention for the surrender to them of the securities collateral to five of six separate bond issues, A, B, C, D, and F of the Mortgage Investment Company, each of said bond issues separately secured by collateral trust deed.

The suit in which the intervention was filed was started by the petition of W. F. Potts Son & Co. a corporation of the state of Pennsylvania, as the holder of $3,800 of bonds of series E of the six bond issues above referred to.

In that suit as originally brought the Palm Beach Guaranty Company and its officers and directors were the sole defendants, and it was alleged therein that plaintiff owned certain bonds of series E; that the Mortgage Investment Company which had issued the bonds was a mere fictional creature, invented and set on foot by the Palm Beach Company as guarantor of the bonds, for the purpose of working a fraud.

The petition declared that the bonds of the six issues in the hands of the public aggregated one million and a half dollars; that the original trustees in the bond issue had become disqualified; that the Palm Beach Guaranty Company, which was authorized under the terms of the trust deeds to appoint successors, had made an appointment, but that said appointment was fraudulent and the successor trustee had abandoned the state. The petition concluded with a prayer that the court appoint a receiver to take charge of the securities of, and act as successor trustee in, all the issues. Outside of series E of which plaintiff claimed to own $3,800 of the bonds, no claim of lien, express or implied, was made.

A supplemental petition naming as additional defendants the Mortgage Investment Company, Williamson, trustee in bankruptcy of the Mortgage Investment Company, and John B. Cunningham, as "custodian of the personal property of the Palm Beach Guaranty Company in bankruptcy proceedings pending," reciting the necessity for the appointment of a temporary receiver, and having attached to it and filed with it acceptance of service and notice by John B. Cunningham, as custodian, etc., was on November 24th filed in the cause. No process was issued upon this petition, and neither of the other defendants named in it, the Mortgage Investment Company, nor Williamson, trustee, ever appeared.

Upon the filing of the amended petition the court appointed John B. Cunningham temporary receiver for all the documents, papers, mortgages, securities, and choses in action under the six trust series, and he was directed to take possession of all such securities and hold the same subject to the further orders of the court.

At the time of the appointment of Cunningham, the securities were in the possession of the Florida State Bank, receiver, which bank had, prior to its failure, been trustee under each of the said trusts.

Tunnicliffe, the state bank receiver, delivered all of the securities, documents, etc., to Cunningham, and thereafter C. L. Kegerries, one of the appellees, a citizen of the state of Florida, intervened as party plaintiff, claiming an interest under series C of the bond issues, and adopting the pleadings of Potts prayed for the same relief.

On January 6, though the Palm Beach Guaranty Company had filed pleadings which had never been disposed of, a decree pro confesso was erroneously taken against it. Upon this decree there was afterwards entered a final judgment, making the appointment of the receiver permanent. This decree recited that by default the Palm Beach Guaranty Company had admitted that the Mortgage Investment Company was a fraud and pretense; that it (the Palm Beach Company) was in fact the real primary obligor on the bonds which it had assumed to guarantee.

Following such recitations, the court appointed a permanent receiver and trustee over the properties, the securities for the six series of bonds, as to four of which no person was before the court claiming to have any interest whatever, and as to one of which series C the only claimant by intervention was a resident citizen of Florida, of which state the defendants also were citizens.

While these proceedings were going on in the federal court, persons interested in each of the five series of bonds other than series E applied to and secured the appointment, by the proper Florida state court, of the appellants here, Cochrane and Himes, as trustees for each of said issues. These trustees then filed in this cause what they styled interventions, asking the court to direct the receiver to deliver and turn over to them, as the rightful trustees, the securities in his possession belonging to bond issues A, B, C, D, and F.

The District Court denied appellants' petition upon the ground that it having already appointed Tucker receiver and successor trustee under each of said deeds of trust, and the receiver having taken possession of the res and being in possession of it at the time the suits for the appointment of successor trustees were filed in the state court, such suits constituted an attack upon the jurisdiction of the federal court, and the decrees rendered in them were therefore void and without authority.

From that order appellants prosecute this appeal, asserting under many assignments substantially the following contentions.

That the United States court, though its receiver was in possession of, had never acquired jurisdiction over, any of the securities belonging to series A, B, C, D, and F to retain them against appellants' interventions, because as to such series A, B, D, and F no claim of interest in or right to any of their subject-matter has been asserted in this court; while as to series C jurisdiction is wanting, because both Kegerries, the intervener claimant, and the defendant are citizens of the same state.

Appellants therefore assert that the acts of the federal, rather than of the state, court were coram non judice, and that upon the interventions of appellants pro suo inter esse (Krippendorf v. Hyde, 110 U. S. 276, 4 S. Ct. 27, 28 L. Ed. 145; Phelps v. Oaks, 117 U. S. 236, 6 S. Ct. 714, 29 L. Ed. 888; Simkins on Federal Practice p. 737) the court should have ordered the securities in the physical possession of its receiver delivered to them.

Admitting that if the federal court had jurisdiction of the properties in question, it had a right to continue possession of the property and to refuse to deliver it to them (Lion Bonding Company v. Karatz, 262 U. S. 77, 43 S. Ct. 480, 67 L. Ed. 871), ...