Elson v. Mortgage Bldg. & Loan Ass'n

• Decision Date: 17 June 1933
• Docket Number: No. 7535.,7535.
• Citation: 4 F. Supp. 779
• Parties: ELSON v. MORTGAGE BLDG. & LOAN ASS'N.
• Court: U.S. District Court — Western District of Pennsylvania

4 F. Supp. 779

ELSON v. MORTGAGE BLDG. & LOAN ASS'N.

No. 7535.

District Court, E. D. Pennsylvania.

June 17, 1933.

Harold D. Saylor, Deputy Atty. Gen., for the rule.

Gordon A. Block, of Philadelphia, Pa. (Grover C. Ladner and Joseph H. Sundheim, both of Philadelphia, Pa., of counsel), opposed.

WELSH, District Judge.

In this matter the Attorney General in the name of the commonwealth of Pennsylvania filed a petition on which this court granted an order on its receivers to show cause why the petitioner should not be granted leave to intervene and why an order should not be made directing the receivers to turn over to the secretary of banking of the state of Pennsylvania all assets and records of the Mortgage Building & Loan Association. To this petition an answer was filed and the cause set down for argument on petition and answer. From the record, the petition, and answer, the following material facts appear:

Edwin B. Elson, plaintiff, is a citizen of the state of New York. He is a stockholder of the Mortgage Building & Loan Association, hereinafter for brevity referred to as defendant. By bill in equity containing adequate averments as to jurisdiction as well as sufficient grounds (see Flersheim et al. v. Natl. Radiator Co., 64 F.(2d) 847 C. C. A. 3, 1933), and confessing answer admitting facts, this court appointed John G. Williams and Joseph B. Simon, receivers, and later added Charles Denby, Jr. No question has been raised as to the regularity of the appointment.

Among the reasons averred in the bill and strongly urged upon the court for its action in appointing a receiver was the fact that the defendant had been organized by a merger of seven organizations; that a nonconsenting stockholder of one of the constituent associations comprising this merger, to wit, the Nice Ball Bearing Company, had obtained a judgment of $40,044, and was threatening to issue execution against the defendant, levy upon, seize, and apply its assets to the collection of its judgment to the exclusion of other creditors whose claims did not arise out of a former status of stockholder, as well as other nonassenting stockholders of the same class, whose rights were in parity with that of the Nice Ball Bearing Company (see Stone v. Schiller B. & L. Ass'n, 302 Pa. 544, 553, 153 A. 758; Weinroth v. Homer B. & L. Ass'n, 310 Pa. 265, 165 A. 28); and that appointment of a receiver was necessary to properly conserve the assets and prevent such stockholder from obtaining preference over others of the same class.

Pursuant to said bill and answer, receivers were appointed on the 9th day of February, 1933. Thereafter on February 14, 1933, the secretary of banking sent a notice to the officers of the association and to the receivers to appear at a hearing before him, to show cause why possession should not be taken of the defendant's business and property, because it was "insolvent and in an unsafe and unsound condition to continue business and in the hands of receivers." The receivers respectfully declined to attend, and made known their position to the effect that having been appointed by a court of competent jurisdiction and in possession of the assets, the court of their appointment, having first taken jurisdiction, must now be regarded as having exclusive jurisdiction.

On February 17, 1933, after hearing, the secretary of banking filed what is called a "Certificate of Possession" in court of common pleas No. 5 of Philadelphia county, in which Richard Ennis was designated by the secretary of banking, special deputy to take charge of defendant's business and property. On March 1, 1933, due demand was made on the receivers of this court by said special deputy to turn over the assets and records of the defendant, which demand was refused, and on March 27, 1933, the petition now before the court was filed.

Before discussing the questions raised by the Deputy Attorney General in support of the petition, it should be preliminarily observed that the filing of this petition in the name of the commonwealth of Pennsylvania is hardly a proper practice, in that the state of Pennsylvania is not a proper party to this proceeding, for in its sovereign capacity it has no interest in these proceedings. Its attempted intervention, therefore, makes the case no stronger than if a receiver of a state court had filed the petition. The correct practice would seem to require that Richard Ennis, special deputy secretary of banking appointed by the secretary to take possession of the defendant, should be the petitioner as in the case of O'Neil v. Welch (C. C. A.) 245 F. 261. However, since no objection has been raised on this score, the court will treat the petition as though filed by the deputy secretary of banking.

If the Court understands the Deputy Attorney General's argument, he urges in support of his petition the following propositions:

1. The federal courts have no jurisdiction to appoint receivers for building and loan associations.

2. That the proceedings taken by the secretary of banking must be held to relate back to a meeting called by him of the officers and directors prior to June, 1931, as a result of which the association was permitted to continue business on what was termed a restricted basis, as a consequence of which the proceedings in the state court, if so related back, become first in point of time.

3. In any event, by virtue of a provision in the state statute any receiver appointed by any court, state or federal, must be held to be superseded whenever the secretary of banking asks.

The court cannot agree to any of these propositions, which will now be considered in order.

1. Have the federal courts jurisdiction to appoint receivers for building and loan associations? The appointment of receivers in equity in proper cases for corporations is but a branch of the equity jurisdiction of this court, and in absence of an act of Congress specifically exempting building and loan associations from such jurisdiction, it is hard to see upon what ground the assertion of lack of jurisdiction can logically rest. No extensive review of pertinent authorities should be necessary in view of the clear and convincing opinion of Judge Woolley of our Circuit Court of Appeals in the case of O'Neil v. Welch, 245 F. 261, 265 (C. C. A. 3, 1917), where in setting aside the appointment of a receiver of an insurance company at the instance of the insurance commissioner of Pennsylvania, because the doctrine of comity required the federal courts to refuse to take jurisdiction after proceedings had first been begun in the state court, it was 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. It is equally clear that the State court has power, in the exercise of its special jurisdiction, to determine on the Attorney General's suggestion the solvency of an insurance corporation, deliver its property to an officer with the function of a receiver, and distribute its assets; and that there is no Federal statute which impairs or destroys that power. Therefore, in considering the one question of priority of jurisdiction, we assume that the Federal and State courts named have concurrent jurisdiction in the appointment of receivers and in administering the affairs of insolvent corporations, though invoked and proceeded with in different ways.

"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. Pitt v. Rodgers, 104 F. 387, 389, 43 C. C. A. 600. In our mixed system of State and Federal jurisprudence, such a rule is found not only desirable but necessary. It was therefore early held (Taylor v. Taintor, 16 Wall. 366, 21 L. Ed. 287), that: `Where a state court and a court of the United States may each take jurisdiction, the tribunal which first gets it holds it to the exclusion of the other until its duty is fully performed and the jurisdiction invoked is exhausted; and this rule applies alike in both civil and criminal cases. It is indeed a principle of universal jurisprudence that where jurisdiction has attached to a person or thing, it is (unless there is some provision to the contrary) exclusive in effect until it has wrought its function.' When, therefore, we find which court first obtained jurisdiction of this controversy, we have answered the question as to which should retain it." The italics are ours.

In the O'Neil v. Welch Case, the Circuit Court of Appeals then found that the state court had first obtained jurisdiction by reason of the fact that the petition for an order to show cause why the insurance commissioner should not take possession was first filed in that court by the Attorney General, and consequently set aside the appointment of receivers by the District Court which was made subsequently.

That is not true in the instant case. As will be hereinafter pointed out, it is clear that proceedings were first begun in this court and not in the state court, and since a proper observance of the doctrine of comity required the court in the O'Neil Case to decline jurisdiction because the jurisdiction of the state court was first invoked, so here the state court should reciprocally decline jurisdiction by reason of the jurisdiction having been here first invoked. See also, for the same general principle involved, Ward v. Foulkrod, 264 F. 627, 629 (C. C. A. 3).

These decisions of our Circuit Court of Appeals above quoted from...