Cohn v. Dowling

• Decision Date: 04 November 1941
• Docket Number: No. 8815.,8815.
• Citation: 123 F.2d 408
• Parties: COHN v. DOWLING.
• Court: U.S. Court of Appeals — Sixth Circuit

123 F.2d 408 (1941)

COHN v.DOWLING.

No. 8815.

Circuit Court of Appeals, Sixth Circuit.

November 4, 1941.

Milton M. Maddin, of Detroit, Mich. (David I. Hubar and Milton M. Maddin, both of Detroit, Mich., on the brief), for appellant.

William M. Donnelly, of Detroit, Mich. (Atkinson & Donnelly, of Detroit, Mich., on the brief), for appellee.

Before HICKS, SIMONS, and ALLEN, Circuit Judges.

SIMONS, Circuit Judge.

The appellant challenges an order of the District Judge denying his motion to vacate the appointment of a receiver for the assets of a Michigan corporation, and denying his prayer to dismiss the action upon jurisdictional grounds.

The appellee, who was the plaintiff below, is a stockholder in the Park Sproat Corporation, organized by the bondholders of an unprofitable hotel enterprise but which itself had failed to conduct a successful operation of the hotel property.The corporation had been obliged to negotiate a substantial mortgage loan to liquidate existing tax liens and was threatened by the mortgagee with foreclosure proceedings.At the suit of one of its stockholders in the Circuit Court for Wayne County, upon a bill charging that its affairs had been grossly mismanaged and that serious losses were impending, the mortgage foreclosure had been stayed and a receiver had been appointed who took possession, operated the hotel for a time, and subsequently leased it to a tenant still in possession, the lease, approved by the court, providing sufficient income to meet maturing obligations under the mortgage as extended.

Prior to the filing of the bill in the present suit, the state court receiver, having an offer from responsible persons to lease the premises at a substantial increase in rental over and above that provided in the existing lease, applied to the Wayne County Circuit Court for leave to terminate the present lease under provisions therein permitting cancellation, and for leave to enter upon a new lease at an advanced rental.The receivership has never been terminated and the state court receiver is still actually, or constructively, through his tenant, in possession of the corporate property.The corporation charter had, however, been permitted to lapse by reason of failure to file annual reports, and to pay the statutory fees required by Act 327 of the Public Acts of 1931.Reinstatement was not sought within the time permitted by the statute or its subsequent amendments.

The appellee, conceiving that under the statute as construed by the Michigan Supreme Court, failure of the corporation to keep its charter alive resulted in its dissolution and the vesting of the property in the stockholders, filed his bill in the present suit praying for a partition of the property, according to the respective rights of the parties in interest, and for its sale and distribution of proceeds if partition might not be made without prejudice.The plaintiff is a citizen and resident of the State of Missouri, and the bill named as defendants numerous persons, most of them being citizens of and residing in Michigan, and some being citizens of other states, though none of those named are residents or citizens of Missouri.The bill, however, recites that numerous persons whose names are unknown to the plaintiff, are either stockholders of the dissolved corporation or have some interest, unknown to the plaintiff, in its assets, and seeks to make such unknown persons partiesdefendant by prayer that they be brought in by publication in the appropriate form prescribed by law.Finally, the bill asks that a receiver be appointed for the corporation property with the usual powers of receivers in like cases.

The state court receiver was not joined as a partydefendant, the bill alleging that the state court proceedings were not proceedings to dissolve, or to wind up the affairs of the corporation, but that it became dissolved by operation of law and that when dissolved the Wayne County Circuit Court lost jurisdiction of its assets and properties and its receiver because one in name only and so but a mere custodian of its assets.The District Judge, upon the application of the plaintiff, appointed a receiver for the purpose of conserving the corporation assets pending partition or sale, empowered him to take possession of the hotel property and to operate it in accordance with the terms and conditions of the existing lease, and commanded all other parties claiming to be in possession of the hotel, to deliver up such possession to its receiver together with all papers or documents relating to the management and operation of the property.

The appellant, claiming a substantial interest in the property of the Park Sproat Corporation, as the owner of approximately 20% of its outstanding stock, entered an appearance and moved to dismiss the bill on the ground that the court was without jurisdiction to grant the relief therein prayed because the property was in the custody of the Wayne County Circuit Court, and because among the stockholders of the corporation are some who are residents and citizens of Missouri, and that by reason thereof there is not diversity of citizenship requisite to confer upon a federal court jurisdiction to entertain the complaint.It is from the order denying the appellant's motion to vacate the order appointing the receiver and to dismiss the bill, that the appeal is...