Converse v. Mears

• Decision Date: 16 July 1908
• Docket Number: 2.
• Citation: 162 F. 767
• Parties: CONVERSE v. MEARS.
• Court: U.S. District Court — Western District of Wisconsin

162 F. 767

CONVERSE v. MEARS.

No. 2.

United States Circuit Court, W.D. Wisconsin.

July 16, 1908

This is an action brought by the plaintiff, as receiver of a defunct Minnesota corporation, to recover from the defendant, a resident of Wisconsin, the amount of a certain assessment made by a court of equity in Minnesota upon shares of stock owned by the defendant in said corporation.

There has been a long and spirited contest in the courts, both state and national, to settle the correct principles and procedure for the enforcement of the liability of stockholders of insolvent corporations, imposed by the Constitution and statutes of Minnesota and other states. In 1899 (Laws 1899, p. 315, c. 272), the Legislature of Minnesota passed a statute to overcome the difficulty met by a receiver in such cases in the courts of other states, and to confer upon him the authority of a quasi assignee. This statute was in force when the present cause of action accrued.

The complaint sets out in detail the proceedings which were taken in the state court pursuant to the Constitution and statutes of Minnesota to enforce the superadded liability thereby imposed upon stockholders. A complete statement of the facts and details so alleged in the complaint will be found set out in extenso in the case of Bernheimer v. Converse, 206 U.S. 516, 27 Sup.Ct. 755, 51 L.Ed. 1163, to which reference is hereby made, because, mutatis mutandis, the allegations and facts are identical with the instant case and we may thus avoid the lengthy recitations.

The defendant interposed a demurrer to the complaint on the ground that it does not state facts sufficient to constitute a cause of action, that the court has no jurisdiction of the subject-matter, and that the plaintiff has not legal capacity to sue.

Jones &amp Schubring (C.A. Severance, of counsel), for plaintiff.

Sanborn & Blake, for defendant.

QUARLES District Judge.

Every general proposition of law raised by this demurrer has been finally and conclusively settled by the Supreme Court in Bernheimer v. Converse, 206 U.S. 516, 27 Sup.Ct 755, 51 L.Ed. 1163, in favor of the plaintiff's contention. But it is insisted that this court, sitting within the territorial limits of Wisconsin, should follow the adverse ruling of the Supreme Court of Wisconsin, as laid down in Finney v. Guy, 106 Wis. 256, 82 N.W. 595, 49 L.R.A. 486, Eau Claire National Bank v. Benson, 106 Wis. 624, 82 N.W. 604, Hunt v. Whewell, 122 Wis. 33, 99 N.W. 599, on grounds of comity.

To prevent confusion it must, at the outset, be borne in mind that in Finney v. Guy, supra, Eau Claire Bank v. Benson, supra, Hale v. Hardon, 95 F. 747, 37 C.C.A. 240, Hale v. Allinson, 188 U.S. 56, 23 Sup.Ct. 244, 47 L.Ed. 380, and Finney v. Guy, 189 U.S. 335, 23 Sup.Ct. 558, 47 L.Ed. 839, receivers were appointed under chapter 76 of the General Statutes of Minnesota for 1894, whereby the plaintiff became merely a chancery receiver, without title to the cause of action. In the instant case the receiver was appointed pursuant to chapter 272, p. 315, of the General Laws of Minnesota for 1899, whereby the receiver is invested with title to the cause of action against delinquent stockholders, and stands in the position of quasi assignee, and is held to be the representative of all creditors and stockholders of said corporation.

The case of Hunt v. Whewell, supra, originated under the latter statute; but the Supreme Court of Wisconsin adheres substantially to its former ruling, insisting that the suit brought in Wisconsin to enforce the liability of the stockholder is not strictly ancillary to the original suit in Minnesota, and that the Supreme Court of the United States had no occasion to pass upon, and did not pass upon, the doctrine of comity as applied by the Wisconsin court. The order of assessment made by the district court of Washington county, Minn., in this case, was ratified and affirmed by the Supreme Court of Minnesota on appeal. The Minnesota statute has been considered and construed by the Supreme Court of Minnesota in Hanson v. Davison, 73 Minn. 454, 76 N.W. 254. It is true that the opinion goes beyond the requirements of the case, but is at least suggestive of the opinion of the judges of that court as to the scope and functions of the receiver and the true construction of the statute.

With these preliminary suggestions in mind, let us analyze these conflicting rulings of the state and federal courts, in order to ascertain the very point upon which the conflict arises.

The basic principle upon which the opinion in Hunt v. Whewell rests is, to use the language of the court:

'The liability is statutory, the remedy to enforce it is statutory, and the appellant's title is a creature of the statute.'

The doctrine is more fully stated in Finney v. Guy, 106 Wis. 256, 265, 82 N.W. 595, 598, 49 L.R.A. 486:

'(1) The statutory right, coupled with the statutory remedy for its enforcement, clearly intended to be pursued at the home of the corporation, is not transitory. (2) The action in a Minnesota court is a bar to any other action to enforce the liability of stockholders.'

In Hunt v. Whewell, 122 Wis. 38, 99 N.W. 599, the court, in distinguishing that case from Parker v. Stoughton M. Co., 91 Wis. 174, 64 N.W. 751, 51 Am.St.Rep. 881, points out that in the latter case the suit was brought upon an assessment note belonging to the receiver as the representative of the corporation. It was a corporate asset that the liability did not depend upon any statute and was strictly transitory. Moved by these consideration, the Supreme Court of Wisconsin has held that it was not bound by the just requirements of comity to recognize or enforce such statutory remedy.

We now turn to the federal decisions on this vital proposition:

In Flash v. Conn, 109 U.S. 371, 3 Sup.Ct. 263, 27 L.Ed. 966, the court say:

'We think the liability imposed by section 10 is a liability arising upon contract. The stockholders of the company are by that section made severally and individually liable, within certain limits, to the creditors of the company for its debts and contracts. Every one who becomes a member of the company by subscribing to its stock assumes this liability, which continues until the capital stock is all paid up and a certificate of that fact is made, published, and recorded.'

In Richmond v. Irons, 121 U.S. 27, 7 Sup.Ct. 788, 30 L.Ed. 864, the question was presented whether the individual liability of a stockholder in a national bank survived as against his administrator, and on page 55 of 121 U.S., on page 801 of 7 S.Ct. (30 L.Ed. 864), the court say:

'Under that act the individual liability of the stockholders is an essential element in the contract by which the stockholders become members of the corporation. It is voluntarily entered into by subscribing for and accepting shares of stock. Its obligation becomes part of every contract, debt, and engagement of the bank itself, as much as if they were made directly by the stockholder instead of by the corporation. There is nothing in the statute to indicate that the obligation arising upon these undertakings and promises should not have the same force and effect, and be binding in all respects, as any other contracts of the individual stockholder.'

Concord Bank v. Hawkins, 174 U.S. 364, 19 Sup.Ct. 739, 43 L.Ed. 1007:

'In the present case it is sought to escape the force of these decisions by the contention that the liability of the stockholder of a national bank to respond to an assessment in case of insolvency is not contractual, but statutory. Undoubtedly. the obligation is declared by the statute to attach to the ownership of the stock, and in that sense may be said to be statutory. But as the ownership of the stock, in most cases, arises from the voluntary act of the stockholder, he must be regarded as having agreed or contracted to be subject to the obligation.'

The right of the plaintiff to sue upon this liability in any court having jurisdiction of the subject-matter and the parties is therefore clear. Dennick v. Railroad, 103 U.S. 11, 26 L.Ed. 439.

In Whitman v. Oxford Nat. Bank, 176 U.S. 559, 20 Sup.Ct. 477, 44 L.Ed. 587, these cases are elaborately reviewed, and on page 563 of 176 U.S., on page 478 of 20 S.Ct. (44 L.Ed. 587), Mr. Justice Brewer sums up the discussion as follows:

'The liability which by the Constitution and statutes is thus declared to rest upon the stockholders, though statutory in its origin, is contractual in its nature.' In Bernheimer v. Converse, supra, we find the latest expression of the Supreme Court on the subject:

'It may be regarded as settled that upon acquiring stock the stockholder incurred an obligation arising from the constitutional provision, contractual in its nature, and as such capable of being enforced in the courts, not only of that state, but of another state, and of the United States, although the obligation is not entirely contractual, and springs primarily from the law creating the obligation.'

Can there be any doubt that this unfortunate conflict centers about a single proposition involving the nature of the cause of action, whether as here presented it is contractual in nature and therefore transitory? The two tribunals are in harmony as to the legal results that flow from either position. If the cause of action be contractual, and therefore transitory, no court has more thoroughly recognized its obligation to entertain such a case than has the Supreme Court of Wisconsin in Parker v. Stoughton M. Co., 91 Wis. 174, 64 N.W. 751, 51 Am.St.Rep. 881. On the other hand the legal conclusions of the Supreme Court of Wisconsin, that a statutory remedy afforded for the enforcement of a statutory right is exclusive, is concurred in by ...