Dexter v. Edmands

• Decision Date: 24 September 1898
• Docket Number: 631.
• Citation: 89 F. 467
• Parties: DEXTER v. EDMANDS.
• Court: U.S. District Court — District of Massachusetts

89 F. 467

DEXTER v. EDMANDS.

No. 631.

United States Circuit Court, D. Massachusetts.

September 24, 1898

Jaquith & Bigelow, for complainant.

Moses P. White, for defendant.

LOWELL District Judge.

To the plaintiff's declaration the defendant has filed an answer in eight paragraphs. The first of these contains a general denial. To the other seven paragraphs the plaintiff has demurred. In this state of the pleadings, the sufficiency of the declaration must first be determined.

The declaration sets out that the plaintiff is a resident of New York, a creditor of the Western Farm Mortgage Trust Company a corporation organized under the laws of Kansas, against which corporation he recovered judgment in the circuit court of the United States for the district of Kansas; that the execution issued on the judgment was returned nulla bona that the defendant was a stockholder in the corporation at the time of the return; and that the defendant is therefore liable to the plaintiff, under the provisions of paragraph 1192 of the General Statutes of Kansas.

That this declaration duly sets out a cause of action which would be enforced in the state courts of Kansas or in the federal courts for that state there is no doubt. Howell v Manglesdorf, 33 Kan. 194, 5 P. 759; Van Demark v. Barons, 52 Kan. 779, 35 P. 798. I have to decide if the circuit court of the United States for the district of Massachusetts will take cognizance of and enforce against the defendant this cause of action which the circuit court for the district of Kansas would undoubtedly take cognizance of and enforce.

That the legislature of Kansas intended, by paragraph 1192, to give to the creditor of a Kansas corporation, under the circumstances described in the declaration, the right to proceed against a stockholder of the corporation in a forum other than that of Kansas, is clear. Howell v. Manglesdorf, 33 Kan. 194, 5 P. 759. The plaintiff has, then, a right against the defendant given him by the state of Kansas, which created the corporation and established and defined the obligations entered into by its stockholders. This right, thus established and defined, was intended by Kansas to be enforceable in any forum which had jurisdiction of a stockholder's person. The defendant has been found by the plaintiff within the jurisdiction of this court, and this court is asked to enforce the plaintiff's right by giving him the appropriate remedy. See Flash v. Conn, 109 U.S. 371, 3 Sup.Ct. 263; Auer v. Lombard, 19 C.C.A. 72, 72 F. 209.

To this demand the defendant makes several objections.

First. He contends that paragraph 1192 does not, properly speaking, give the plaintiff a right against the defendant, but provides merely a remedy for enforcing a provision of the constitution of Kansas. Inasmuch as remedies pertain to the lex fori, the defendant argues that the plaintiff is not entitled in this court to a remedy peculiar to Kansas, but that, if he sues here, he should seek, for the enforcement of the right given him by the constitution of Kansas, some remedy provided by the forum of Massachusetts. The remedy which the plaintiff should have sought has not been indicated, but the defendant may say that the plaintiff should discover it.

The distinction between remedy and substantive right is incapable of exact definition; indeed, the difference is somewhat a question of degree. Cooley, Const. Lim. 285; Pritchard v. Norton, 106 U.S. 124, 132, 1 Sup.Ct. 102. The constitution of Kansas has laid down a general principle, to wit, that stockholders shall be individually liable to the corporation's creditors for an additional amount equal to their stock. This right of the creditors of the corporation to collect their debts from its stockholders, in order to obtain enforcement, needs not only a remedy, but needs also particularization before it can have a definite meaning. Paragraph 1192 does much more than provide a remedy for the right which is given by the constitution. Indeed, the paragraph is chiefly concerned with particularizing and more fully defining that right which in the constitution is stated in general terms. Paragraph 1192 provides that each stockholder shall be liable individually to each creditor who holds an execution against the corporation which has been returned nulla bona. Now, the difference between a right vested in all the creditors to proceed in one action against all the stockholders, and a right vested in each individual creditor to proceed against any individual stockholder, is much more than a difference between two remedies; it is a difference between two substantive rights. The latter right the plaintiff is trying to enforce in this suit, while the defendant is trying to make him put up with the former right. Whether the latter right shall be enforced by an action of debt, or of assumpsit, by a special action on the case, by an action authorized by some code, or even by a bill in equity, may be a question of remedy, to be determined by the lex fori. If, however, the statute of Kansas gives the individual plaintiff a substantive right to proceed against the individual defendant, and if this substantive right is in any way enforceable in this court, it must be admitted, I think, that the form of action in this case has been well chosen. The declaration, therefore, cannot be held bad on the ground that the defendant has mistaken his remedy. See Rhodes v. Bank, 13 C.C.A. 612, 66 F. 512; Mechanics' Sav. Bank v. Fidelity Insurance, Trust & Safe-Deposit Co., 87 F. 113.

Second. The defendant contends that the plaintiff cannot by any remedy enforce in this court this right given him by the laws of Kansas. The laws of one sovereignty have not the force of laws, properly speaking, outside the limits of that sovereignty, and the rights arising by virtue of those laws are not enforceable in a court foreign to that sovereignty, except through what is known as the comity of nations. Generally speaking, the court of one sovereignty does enforce, ex comitate, the rights which arise by virtue of the laws of another sovereignty; but to this general rule there are several exceptions, and under one or more of these exceptions the defendant has attempted to bring this case. The two sovereignties involved are the United States and the state of Kansas, and it is at least doubtful if a circuit court of the United States, even the circuit court of the United States for the district of Massachusetts, can be said to be the court of a sovereignty foreign to the state of Kansas; but I will here assume, for the sake of argument, that the laws of Kansas and the rights arising thereunder are to be treated by this court as if Kansas were technically a foreign sovereignty. It is a general rule of international law that the courts of one state do not enforce the rights arising by virtue of the penal laws of another state, and this principle is applied to the enforcement in a federal court of a penalty due by virtue of the laws of a state. The statute of Kansas here relied upon, however, is not penal. Huntington v. Attrill, 146 U.S. 657, 13 Sup.Ct. 224. The other grounds upon which the court of one sovereignty will refuse to enforce the rights given by the laws of another are well stated in Higgins v. Railroad Co., 155 Mass. 176, 180, 29 N.E. 534, quoted with approval in Huntington v. Attrill, 146 U.S. 675, 13 Sup.Ct. 231: 'If the foreign law offends our public policy, or is repugnant to justice or to good morals, or is calculated to injure this state or its citizens, we are at liberty to decline jurisdiction.'

Can this court say that paragraph 1192 of the Laws of Kansas offends the public policy of the United States, or is repugnant to justice or good morals, or is calculated to injure the United States or its citizens? I think not. Indeed, I find it difficult to imagine what would be the condition of this government if the federal courts should refuse, on any of the grounds just mentioned, to recognize and enforce the rights arising under a state statute which had been formally adopted, and was not contrary either to the constitution of the United States or to that of the state adopting it. Therefore, though I were to think this law of Kansas to be highly injurious and even immoral, my objection to it would give me no discretion to refuse to recognize it, or to enforce rights arising thereunder.

The state of Massachusetts is, for the purpose of this discussion, undoubtedly a sovereignty foreign to Kansas. The courts of Massachusetts can, if they see fit, determine that this statute of Kansas is contrary to the public policy of Massachusetts and injurious to its citizens. That the courts of Massachusetts can refuse to enforce obligations arising under this statute is undoubted, and the defendant argues that, if Massachusetts has determined that the enforcement of these obligations is not to be undertaken by the courts of Massachusetts, the circuit court of the United States for Massachusetts is thereby precluded from enforcing them. The cases of Bank v. Rindge, 154 Mass. 203, 27 N.E 1015, and Coffing v. Dodge, 167 Mass. 231, 45 N.E. 928, are cited as settling that the enforcement of these obligations is against the public policy of Massachusetts. ^[1] But, even if the state courts refuse to enforce rights like the plaintiff's, the federal courts do not follow their decisions. Boyce v. Tabb, 18 Wall. 546; Whitman v. Bank, 28 C.C.A. 404, 83 F. 288. The intimations given in the opinions of the supreme court in Railway Co. v. Cox, 145 U.S. 593, 605, 12 Sup.Ct. 908, and in Stewart v. Railroad Co., 168 U.S. 445, 448, 18 Sup.Ct. 106, concerning the refusal of the federal courts to recognize rights given by a statute of one state, if the policy of the statute conflicts with the declared...