Commonwealth of Pennsylvania v. Williams

Citation72 F.2d 509
Decision Date24 July 1934
Docket NumberNo. 5238.,5238.
PartiesCOMMONWEALTH OF PENNSYLVANIA v. WILLIAMS et al.
CourtUnited States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Wm. A. Schnader, Atty. Gen., and Harold D. Saylor, Dep. Atty. Gen., for the Commonwealth of Pennsylvania.

Gordon A. Block, of Philadelphia, Pa. (Wolf, Block, Schorr & Solis-Cohen, Ladner & Ladner, and Bernheimer & Sundheim, all of Philadelphia, Pa., of counsel), for appellees.

Before BUFFINGTON, DAVIS, and THOMPSON, Circuit Judges.

DAVIS, Circuit Judge.

This is an appeal from an order of the District Court dismissing the petition of the commonwealth of Pennsylvania, wherein it prayed the court to direct the receivers, appointed by it, of the Mortgage Building & Loan Association, hereinafter called the association, to deliver over to the secretary of banking of Pennsylvania all the assets and records of the association held by them.

This was a stockholder's bill filed against the association for the appointment of receivers by Edward B. Elson, a resident of the state of New York, who owned stock in the association, to the amount of $31,000. The bill alleged that the association was then, and for a long time had been, insolvent, and that the real, actual, and fair value of its assets was far less than its liability to stockholders on dues paid in, together with its general indebtedness; that the association had stopped making loans or collecting dues; and that, "unless its affairs should be liquidated and its assets distributed under the equitable and impartial supervision of a court of competent jurisdiction," immediate and irreparable damage would be suffered. It therefore prayed for the appointment of receivers.

The association filed an answer in which it admitted its insolvency and joined in the prayer of the plaintiff for the appointment of receivers. They were appointed and took over the assets of the association. The commonwealth of Pennsylvania intervened and filed a petition, and, as above stated, prayed that the assets of the association be delivered to the secretary of banking of Pennsylvania. The court denied the prayer and entered an order dismissing the petition. From this order the commonwealth appealed.

Two questions arise: (1) Did the District Court have jurisdiction and consequent power to appoint receivers? (2) If it had, did it abuse its discretion in appointing them?

The District Court derives its power from the Constitution and from Congress and not from the commonwealth. Article 3, section 2, of the Constitution, provides that: "The judicial Power shall extend * * * to Controversies * * * between citizens of different States." Congress, pursuant to this authority, has provided 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 costs and interest, the sum or value of $3,000 and is between citizens of different states. Section 24, Judicial Code (28 USCA § 41). This is the source of the jurisdiction and power of the District Court in this case.

While sitting in a state as a court of the United States, the federal court accepts and gives effect to the laws of the state, so far as they do not affect its jurisdiction and the rights of nonresident creditors. Yet it exercises powers independent of the state. A state cannot take away the plenary power of the federal courts given to them by Congress by conferring exclusive jurisdiction of such controversy upon its own courts and administrative bodies, by prescribing exclusive methods of commencing or conducting litigation, by prohibiting the seizure of the subject of the litigation during its pendency, or by any other means. National Surety Co. v. State Bank of Humboldt (C. C. A.) 120 F. 593, 602, 61 L. R. A. 394; Morrill et al. v. American Reserve Bond Co. (C. C.) 151 F. 305, 313; O'Neil v. Welch (C. C. A.) 245 F. 261, 265; Leadville Coal Co. v. McCreery, 141 U. S. 475, 477, 12 S. Ct. 28, 35 L. Ed. 824.

In the case of National Surety Co. v. State Bank, supra, Judge Sanborn, speaking for the Circuit Court of Appeals for the Eighth Circuit, said: "When the controversy which this bill discloses arose between these citizens of different states, and was presented to the Circuit Court of the United States, that court had jurisdiction to hear and determine it, and the appellants had the legal right to the opinion and the judgment of that court upon the questions which it presented. This right and this jurisdiction were not conditioned by the fact that the complainants had or had not like rights or remedies in the state courts, or by the fact that those courts had or had not concurrent jurisdiction. Indeed, this right and this jurisdiction were provided by the Constitution, and granted by the acts of Congress, for the express purpose of enabling citizens of different states to escape from an adjudication of their rights by state courts which had concurrent jurisdiction to grant the relief and to administer the remedies which they were seeking in the national courts. The rights of these appellants to their hearing and decree in the federal court, and the jurisdiction of that court to determine their controversy, were independent of state legislation. The state of Nebraska did not grant, and it could not revoke or impair, that right or that jurisdiction."

In the Morrill Case, supra, Judge Sanborn further said: "A federal court sitting in equity has the plenary jurisdiction of the English Court of Chancery, and one of the inherent powers of each court is to take and to hold by its own hands, by its receivers, the control and the possession of mortgaged, pledged, and trust property during the pendency of suits concerning it in those courts whenever in the exercise of a wise judicial discretion these courts are of the opinion that the most speedy and perfect administration of justice and the rights of the parties interested in the property will be best secured by such action. The statutes of the state of Missouri do not by their terms, and the Legislature of that state never, intended that they should in any way limit or impair this power of the federal courts. Moreover, the power of the Circuit Courts of the United States to adjudicate claims and administer remedies in equity is vested in them as a part of the judicial power of the nation by the Constitution of the United States and the judiciary act of 1789 1 Stat. 73, and, as it was not granted by, it may not be revoked, impaired, or limited by, the act of any state. Wherever citizens of different states lawfully invoke the jurisdiction of the federal courts to determine controversies between them which involve the requisite amounts, they have the constitutional right to the conduct of that litigation by the methods, to the administration of the remedies, and to the determination of those controversies by the independent judgments of those courts; and no state, by conferring exclusive jurisdiction of such issues upon its own courts, by prescribing exclusive methods of commencing or of conducting litigation, by prohibiting the seizure of the subject of the litigation during its pendency, or by any other means, may lawfully strike down that right or take away the plenary power of the national courts to conduct the litigation, to administer their remedies, and, in the exercise of their judicial discretion, to control the possession of its subject-matter during its pendency in accordance with their established rules of practice, and finally to adjudicate the claims of the parties and to enforce their judgments."

In the case of O'Neil v. Welch, supra, Judge Woolley, speaking for this court said: "It cannot be doubted that the Federal court, in the exercise of its general equity jurisdiction, has power to appoint a receiver on a stockholder's bill, determine a corporation's solvency and distribute its assets, and that no State statute can impair or destroy that power."

In that case the District Court in Pennsylvania had appointed a receiver for an insurance company, for the supervision and liquidation of which the commonwealth had provided the same general complete system that it has for building and loan associations. Judge Woolley further said: "While the two courts have concurrent jurisdiction in the sense that each has the same jurisdiction, it is the policy of the law that the jurisdiction of both shall not be concurrently invoked and exercised; hence it is a well settled rule that as between two courts having concurrent jurisdiction of the subject of an action, the court which first obtains jurisdiction has the right to proceed to its final determination without interference from the other."

In Leadville Coal Co. v. McCreery, supra, the Supreme Court said: "The circuit court takes its jurisdiction, not from the state of Ohio, but from the United States; and the extent of its jurisdiction is not determined by the laws of the state, but by those of the United States. Doubtless, while sitting in the state as a court of the United States, it accepts and gives effect to the laws of the state so far as they do not affect its jurisdiction and the rights of nonresident creditors. It nevertheless exercises powers independent of the laws of the State; and when, in pursuance of the jurisdiction conferred by the laws of the United States, it takes possession of the property of a defendant and proceeds to final decree, determining the rights of all parties to that property, its decree is not superseded and its jurisdiction ended by reason of subsequent proceedings in the courts of the state, looking to an administration of that property in accordance with the laws of the state. It would be an anomaly in legal proceedings if, after a court with full jurisdiction over property in its possession has finally determined all rights to that property, subsequent proceedings in a court of another jurisdiction could annul such decree, and disturb all rights once...

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