Commonwealth of Pennsylvania v. Williams

Decision Date04 February 1935
Docket NumberNo. 394,394
Citation294 U.S. 176,96 A.L.R. 1166,55 S.Ct. 380,79 L.Ed. 841
CourtU.S. Supreme Court

Mr. Wm. A. Schnader, of Philadelphia, Pa., for the Commonwealth of Pennsylvania.

Mr. Gordon A. Block, of Philadelphia, Pa., for respondents.

Mr. Justice STONE delivered the opinion of the Court.

In this case certiorari was granted, 293 U.S. 547, 55 S.Ct. 124, 79 L.Ed. —-, directed to the Court of Appeals for the Third Circuit, to resolve questions of public importance growing out of the rival claims of a federal District Court and the department of banking of the commonwealth of Pennsylvania; each asserts authority to liquidate the business and affairs of an insolvent building and loan association, organized under the laws of Pennsylvania.

On February 9, 1933, a New York shareholder in Mortgage Building & Loan Association, a Pennsylvania corporation, on behalf of himself and other shareholders, filed a bill of complaint in the District Court for Eastern Pennsylvania, naming the association as defendant, and alleging that it was the result of the merger of several building and loan associations, in one of which the plaintiff in the suit was a shareholder, and that he had refused to participate in the merger and had demanded of the association cancellation and payment of his shares. The bill alleged the insolvency of the association and a threatened race of diligence by its creditors to satisfy their claims from the assets of the corporation, and prayed the appointment of receivers for the corporation, the liquidation of its business and assets, and the usual injunction restraining creditors and others from interfering with or taking possession of its property. Thereupon, on the same day, and on the appearance of the defendant corporation, which interposed no objection, the District Judge appointed temporary receivers. No notice of the application was given to the corporation's creditors or other shareholders, or to the department of banking of the commonwealth. On the following day the corporation filed its answer, admitting the material allegations in the bill of complaint and joining in its prayer.

On that day the secretary of banking informally requested the District Judge not to make the appointment of the receivers permanent and to allow the property of the defendant to be surrendered to the secretary, to be liquidated and administered in accordance with the state statutes. On March 27, 1933, the commonwealth filed its petition in the District Court, asking leave to intervene in the pending equity proceeding and for an order directing the receivers to surrender the assets of the defendant association to the state secretary of banking. In addition to the matters already stated, the petition alleged the further facts, which are admitted or established: That the association, organized as a building and loan association, is subject to the supervision of the state department of banking, as provided by the Banking Act of June 15, 1923, P.L. 809, as amended (7 PS Pa. § 1 et seq.); that the statutes of the commonwealth afford a complete, comprehensive, and economical scheme for liquidation by the secretary of banking of such a building and loan association, when insolvent or in a financial unsound condition; that section 21 of the statute, as amended by act May 5, 1927, P.L. 765, § 7 (7 PS Pa. § 21), providing that the secretary, after notice and hearing, may, with the consent of the Attorney General, take possession of the business and property of a building and loan association when it appears to be in an 'unsafe or unsound condition to continue business,' specifically authorizes the secretary to take possession of the property of the association when it is 'in the hands of a receiver appointed by any court'; that upon taking such possession the secretary is required, by section 22 (7 PS Pa. § 22), to issue and file his certificate to that effect; that, pursuant to the requirements of the statute, the secretary, after the prescribed hearing, had found the defendant insolvent and in the hands of a receiver; and that, with the consent of the Attorney General, he had on February 17, 1933, duly made and filed his certificate, 'taking possession' of the property and appointing a special deputy as agent to assist in liquidating the defendant's business and property.

The District Court denied the petition of the commonwealth, and later appointed the temporary receivers, with another, as permanent receivers, who are respondents here. It treated the case as though it were one of the rival claims of a state and a federal court to jurisdiction over the same subject-matter and property, see Harkin v. Brundage, 276 U.S. 36, 48 S.Ct. 268, 72 L.Ed. 457, and held that the jurisdiction of the District Court had attached when the bill of complaint was filed, and that it was the duty of the court, under the laws and the Constitution of the United States, to retain that jurisdiction and to proceed with the liquidation to the exclusion of the state authorities. Elson v. Mortgage Bldg. & Loan Ass'n., 4 F.Supp. 779. The Court of Appeals for the Third Circuit affirmed upon like grounds. Com. of Pennsylvania v. Williams, 72 F.(2d) 509.

The Attorney General of the commonwealth argues here, as he did in both courts below: (a) That the federal court is without jurisdiction to direct the liquidation in a suit brought against the corporation by a shareholder, since both parties are subject to, and bound by, the local law, which provides for liquidation of a domestic corporation exclusively through the agency of a state supervisory officer; and (b) that, in any event, the court in its discretion should have refused the appointment of receivers or, having appointed them, it should have granted the petition of the commonwealth and directed the receivers to surrender the property of the association to the state official.

1. The statutes of the United States, as incorporated in the Judicial Code, c. 231, § 24(1), 36 Stat. 1087, 1091, 28 U.S.C. § 41(1), 28 USCA § 41(1), provide that District Courts shall have original jurisdiction 'of all suits of a civil nature, at common law or in equity, * * * where the matter in controversy exceeds, exclusive of interest and costs, the sum or value of $3,000, and * * * is between citizens of different States.' We do not doubt that the allegations in the present bill of complaint are sufficient to establish the jurisdiction of the District Court as a federal court; that is to say, it properly invokes the power and the authority, conferred upon the District Court by the Constitution and statutes of the United States, to entertain the suit. The bill alleges diversity of citizenship and the requisite jurisdictional amount, both of which allegations stand unchallenged, see Philadelphia, Wilmington & Baltimore R. Co. v. Quigley, 21 How. 202, 214, 16 L.Ed. 73; Deputron v. Young, 134 U.S. 241, 251, 10 S.Ct. 539, 33 L.Ed. 923; Healy v. Ratta, 292 U.S. 263, 271, 54 S.Ct. 700, 78 L.Ed. 1248, and prays relief which a federal court of equity is competent to give, see Duignan v. United States, 274 U.S. 195, 199, 47 S.Ct. 566, 71 L.Ed. 996.

Although, as will presently appear, the District Judge in the exercise of his discretion might appropriately have given notice, to the officers of the department of banking, of the application for the appointment of receivers, such notice was not prerequisite to the exercise of its jurisdiction. See Harkin v. Brundage, supra; In re Metropolitan Railway Receivership, 208 U.S. 90, 28 S.Ct. 219, 52 L.Ed. 403. Cf. Marin v. Augedahl, 247 U.S. 142, 38 S.Ct. 452, 62 L.Ed. 1038.

The objection that the suit was brought by a shareholder of the insolvant corporation rather than by its judgment creditor, see Burnrite Coal Briquette Co. v. Riggs, 274 U.S. 208, 47 S.Ct. 578, 71 L.Ed. 1002, as well as the opposing contention that under Pennsylvania law the present shareholder has the status of a creditor, see Nice Ball Bearing Co. v. Mortgage Building & Loan Association, 310 Pa. 560, 166 A. 239, need not now be considered. Even if valid, it does not go to the jurisdiction of the District Court as a federal court, but only to the propriety of its action as a court of equity. See Smith v. McKay, 161 U.S. 355, 358, 359, 16 S.Ct. 490, 40 L.Ed. 731; Blythe v. Hinckley, 173 U.S. 501, 507, 19 S.Ct. 497, 43 L.Ed. 783; Pusey & Jones Co. v. Hanssen, 261 U.S. 491, 500, 43 S.Ct. 454, 67 L.Ed. 763; Twist v. Prairie Oil & Gas Co., 274 U.S. 684, 690, 47 S.Ct. 755, 71 L.Ed. 1297. Unlike the objection that the court is without jurisdiction as a federal court, see Mansfield, C. & L.M.R. Co. v. Swan, 111 U.S. 379, 382, 4 S.Ct. 510, 28 L.Ed. 462, the parties may waive their objections to the equity jurisdiction by consent, Hollins v. Brierfield Coal & Iron Co., 150 U.S. 371, 380, 14 S.Ct. 127, 37 L.Ed. 1113; In re Metropolitan Railway Receivership, supra, 208 U.S. 109, 110, 28 S.Ct. 219, 52 L.Ed. 403, or by failure to take it seasonably, Brown, Bonnell & Co. v. Lake Superior Iron Co., 134 U.S. 530, 535, 536, 10 S.Ct. 604, 33 L.Ed. 1021; Southern Pacific R. Co. v. United States (No. 1), 200 U.S. 341, 349, 26 S.Ct. 296, 50 L.Ed. 507. Even if the present objection be regarded as valid and as one which, in some circumstances, the court should take sua sponte at any stage of the proceedings, despite the waiver by the parties, compare Harkin v. Brundage, supra, 276 U.S. 52, 48 S.Ct. 268, 72 L.Ed. 457; Lewis v. Cocks, 23 Wall. 466, 470, 23 L.Ed. 70, the District Court was not without jurisdiction as a federal court, for these are questions which it is competent to decide. It was therefore invested with authority to hear and make disposition of the cause, which is not open to collateral attack, see Bryan v. Kennett, 113 U.S. 179, 198, 5 S.Ct. 407, 28 L.Ed. 908; Johnson v. Manhattan R. Co., 289 U.S. 479, 496, 50 S.Ct. 721, 77 L.Ed. 1331, or subject to diminution or control by...

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