DEPARTMENT OF FI v. Mercantile-Commerce B. & T. Co.

• Decision Date: 23 November 1937
• Docket Number: No. 6257,6309.,6257
• Citation: 92 F.2d 639
• Parties: DEPARTMENT OF FINANCIAL INSTITUTIONS OF INDIANA et al. v. MERCANTILE-COMMERCE BANK & TRUST CO. et al. MERCANTILE-COMMERCE BANK & TRUST CO. et al. v. CENTRAL UNION BANK et al.
• Court: U.S. Court of Appeals — Seventh Circuit

92 F.2d 639 (1937)

DEPARTMENT OF FINANCIAL INSTITUTIONS OF INDIANA et al. v. MERCANTILE-COMMERCE BANK & TRUST CO. et al.

MERCANTILE-COMMERCE BANK & TRUST CO. et al. v. CENTRAL UNION BANK et al.

Nos. 6257, 6309.

Circuit Court of Appeals, Seventh Circuit.

October 21, 1937.

Rehearing Denied November 23, 1937.

Winfield K. Denton, Milford M. Miller, and William C. Welborn, all of Evansville, Ind., for Department of Financial Institutions and another.

Truman Post Young, and Fred Armstrong, Jr., both of St. Louis, Mo., and Richard R. McGinnis, of Evansville, Ind., for trustees.

Before SPARKS and MAJOR, Circuit Judges, and LINDLEY, District Judge.

LINDLEY, District Judge.

This is an appeal from a decree of foreclosure and sale under a trust deed securing $412,500 and covering a ten-story office and bank building, a part of the assets of appellant Central Union Bank. Appellant Department of Financial Institutions of the state of Indiana was in possession of the bank's assets for the purpose of liquidation under the Indiana statute.

Appellants contend that the res of the bank's property, including the bank building, fixtures and equipment mortgaged, being in custodia legis in the state court, it was beyond the jurisdiction of the District Court to enter a decree of foreclosure and sale; that the court should have dismissed the bill; that by virtue of the liquidation proceedings, cause No. 2342 in the superior court of Vanderburgh county, Indiana, exclusive jurisdiction was vested in that court over the res and that no other court might interfere with its custody and jurisdiction; that, further, and irrespective of any right in the trustees, appellees, to prosecute their suit for foreclosure in a federal court because of diversity of citizenship, such right has been waived by their action in filing and proving their claim for the mortgage debt in the superior court.

Appellees contend that the proceeding pending in the Indiana court is administrative in character; that custody and jurisdiction of the property are not in the court but rather in the executive department of the state government; that, consequently, the doctrine of comity requiring the surrender of jurisdiction to a court of co-ordinate jurisdiction first procuring the custody of the res does not apply; that diversity of citizenship existing, appellees have a right to their remedy in a federal court, which cannot be taken away by state statute; that the filing of their claim in the liquidation proceeding and praying for relief therein was no waiver of this right; that the District Court had jurisdiction and that the decree should be affirmed.

Appellee the Evansville Morris Plan Company is an Indiana corporation, incorporated March 14, 1930. On March 15, 1930, it executed the deed of trust to appellee trustees, both citizens and residents of Missouri, to secure $450,000 first lien 6 per cent. real estate gold notes, covering the property here involved, a ten-story office building known as the Central Union Bank building. On September 26, 1930, the Central Union Bank was incorporated under the laws of Indiana. On September 27, 1930, the Evansville Morris Plan Company conveyed to the bank the real estate and on the same date the bank executed an instrument, wherein it assumed and guaranteed payment of the indebtedness secured by the deed of trust.

On July 24, 1933, the Department of Financial Institutions of Indiana, by virtue of the statutes, took possession of all assets of the Central Union Bank, including the office building, and filed a notice of liquidation with the clerk of the superior court as provided by law, because, as was said in the notice, the bank was insolvent and not being administered to the best interests of the creditors and shareholders.

In accordance with the banking act, the clerk of the superior court thereupon entered a civil action upon the court docket, entitled "In the matter of the Liquidation of Central Union Bank," and numbered it 2342. Summons issued and was served upon the Central Union Bank. It appeared in court on the 4th day of August, 1933, consenting to the action of the department, and the court thereupon, after hearing, entered an order directing the department to take possession of the assets and to proceed with liquidation thereof, subject to further orders. Ten days later the department filed in the cause its petition in which it alleged that part of the assets was a ten-story office building, the Central Union Bank building, and prayed directions relative to the operation and management thereof. The court entered an order directing the department as to the operation and management of the building, fixing the wages of the various employees and the amounts to be paid for coal and electricity and various other services. On September 5, 1933, the department filed in the cause its petition for authority to pay the sum of $7,573.07 to the trustees in satisfaction of interest due on September 15, 1933, and the court entered an order granting the petition and directing the department to make the payment. The department complied with the order and paid the money to the trustees who accepted and retained it.

On November 24, 1933, the trustees filed their claim and petition in the liquidation cause, making a part thereof the deed of trust and the supplemental indenture, in which they prayed that their claim should be allowed in the sum of $412,500 as a general claim against the assets of the bank; that the court decree that they have a prior lien upon the building, and that the revenues and profits from the building be set aside for the benefit of the holders of the notes and "all other equitable and proper relief." Upon hearing upon this claim and petition on the 24th day of February, 1934, the court entered an order decreeing that the trustees have a first lien upon the building and the rents and profits and ordering the department to set aside and segregate such rentals for the benefits of the noteholders. The court reserved disposition of the question of whether the trustees were entitled to have their claim allowed also as a general claim.

On March 21, 1934, the trustees filed in the liquidation cause their motion for the payment of interest due March 15, 1934, upon the deed of trust, and, after hearing, the court took the motion under advisement. On May 22, 1934 counsel for the trustees entered their general appearance for the interveners, the trustees, in the liquidation cause. On June 8, 1934, the court entered an order disallowing the claim of the trustees as a general claim and denying the motion of the trustees for the payment of interest. The trustees thereupon filed a motion for a new trial and upon denial of same perfected an appeal to the Appellate Court of Indiana, which, in December, 1936, dismissed the same.

On June 27, 1934, the department filed its petition for authority to pay out of the rents collected the sum of $12,375 to the trustees in satisfaction of the interest due March 15, 1934, as provided in the deed of trust. The court allowed the petition and directed the payment, which was made to and retained by the trustees. On June 11, 1935, the department filed in the cause its petition for the sale of the building, free and clear of liens, with provision that the lien of the trust deed be transferred and attach to the net proceeds of the sale. This petition was set for hearing July 1, 1935.

At this state of the proceedings, on June 29, 1935, almost two years after the institution of the liquidation proceeding in the state court, the trustees filed their bill for foreclosure and sale in the District Court of the United States (on June 25, 1935), making defendants thereto the department, the bank and the original mortgagor, the Evansville Morris Plan Company, seeking foreclosure and sale of the building, the appointment of a receiver of the premises to collect rents and profits, a personal judgment against the bank and Morris Plan Company and an injunction against appellants from proceeding further in the superior court of Indiana with their petition for the sale of the mortgaged property.

The department and the bank filed their verified motions to dismiss for want of jurisdiction, in that the bill disclosed on its face that the subject matter was in the exclusive jurisdiction of the superior court of Indiana in the liquidation proceedings. The motions were overruled. Appellants thereupon filed verified answers in abatement to the jurisdiction of the court over the persons of appellants and the subject matter of the action and an additional answer upon the merits.

After trial the court entered findings of fact and conclusions of law, finding that the equities were with appellees; that they were entitled to foreclosure of their mortgage and that there was due the trustees $488,402.07 for which they were entitled to judgment against the Evansville Morris Plan Company, and entered a decree of foreclosure, directing the sum found due be paid within five days and that, upon default in such payment, the deed of trust be foreclosed and the bank building sold by a special master under the deed of trust, foreclosing appellants and all persons claiming under them from any further interest in the property.

Burns Indiana Statutes Annotated 1933, § 18-301, as amended in 1935 (Acts 1935, c. 5, § 6), provides that the Department of Financial Institutions of the state of Indiana may take possession of any financial institution whenever it shall appear that it is insolvent or being operated in violation of the laws and the rights of creditors and shareholders. The department, under section 18-302, may demand the surrender of all property of a corporation and upon refusal it may bring an action in the name of the state in the circuit court or superior court of the county. The court, after notice and hearing, has jurisdiction by order and decree to compel the surrender of the property to the...