Empire Trust Co. v. Brooks

• Decision Date: 20 April 1916
• Docket Number: 2761.
• Parties: EMPIRE TRUST CO. et al. v. BROOKS.
• Court: U.S. Court of Appeals — Fifth Circuit

232 F. 641

EMPIRE TRUST CO. et al. v. BROOKS.

No. 2761.

United States Court of Appeals, Fifth Circuit.

April 20, 1916

Rehearing Denied May 20, 1916.

Walker Circuit Judge, dissenting.

The original bill in this cause was filed July 31, 1914, in the District Court of the United States for the Western District of Texas, by the appellant, the Empire Trust Company, as trustee under a mortgage, executed May 1, 1911, by the San Antonio Land & Irrigation Company, Limited, to it, against that and others of its subsidiary companies, praying for a foreclosure of the mortgage and the appointment of a receiver of the mortgaged property, pending final decree. One Preston a bondholder and stockholder of the San Antonio Land &amp Irrigation Company, had previously, but on the same day filed a bill in the district court of Bexar county, Tex., the purpose of which was the appointment of a receiver of the corporation, as an insolvent corporation, under the statute of Texas, and, by an amendment, the marshaling of its asserts and its liquidation under the Texas laws. The suit in the state court was filed and brought to the attention of the judge of that court some hours before the filing of the bill in the federal court, and the state court judge had, prior thereto, made an order requiring the defendant corporation to show cause on August 24, 1914, why a receiver should not be appointed of the assets of the corporation. On August 12, 1914, the judge of the District Court of the United States for the Western District of Texas appointed Floyd McGown receiver of the defendant corporation in the foreclosure suit, and he took possession of the assets of the corporation and continued in possession of them up to and after the time of the filing of the intervention of the appellee herein. On August 31, 1914, the district court of Bexar county, Tex., appointed the appellee, Sidney J. Brooks, as receiver of the defendant corporation in that suit, under the petition filed in that court by Preston. On September 23, 1914, the state receiver, Brooks, applied to the judge of the District Court of the United States for the Western District of Texas for leave to intervene in the suit filed by the Empire Trust Company, as trustee, in that court, which leave was granted; and appellee thereupon filed his intervention, asking that the receiver theretofore appointed in the foreclosure suit be directed to turn over the assets in his possession to the intervener, as receiver under the appointment of the state court. This intervention came on for hearing in the District Court of the United States for the Western District of Texas on the 10th day of November, 1914, and the District Court, on that day, entered a decree in the intervention, directing its receiver, McGown, to turn over the property of the defendant corporation, in his possession as receiver, to the appellee, as receiver in the suit pending in the state court, and setting aside the previous order appointing McGown receiver in the foreclosure suit. It is from this decree that the present appeal is taken by the complainant and the receiver, McGown. The appellee has submitted a motion to dismiss the appeal, upon the ground that the decree appealed from is not a final decree.

West & McMillan and Thomas H. Franklin, all of San Antonio, Tex., for appellant Empire Trust Co.

William Aubrey, of San Antonio, Tex., for appellant McGown.

Williams & Hartman, of San Antonio, Tex., for appellant San Antonio Land & Irrigation Co., Limited.

Terrell, Walthall & Terrell, of San Antonio, Tex. (James D. Walthall and Frank C. Davis, both of San Antonio, Tex., and Alex S. Coke, of Dallas, Tex., on the brief), for appellee.

Before PARDEE and WALKER, Circuit Judges, and GRUBB, District Judge.

GRUBB District Judge (after stating the facts as above).

The decree was certainly not determinative of the issues presented by the original bill. It did, however, finally determine the issues presented by the intervention of appellee. If the court below had ruled upon the intervention adversely to appellee, the finality of the decree against him would be obvious. In view of the impossibility of the appellant proceeding with the foreclosure suit, and having a lien declared in it upon the mortgaged property, with the mortgaged property in the possession of another court of concurrent jurisdiction, we think the decree appealed from, directing the receiver in the foreclosure suit to turn the property over to the receiver appointed by the state court, was final. It was fatal to the relief prayed for in the foreclosure suit. The motion to dismiss is overruled, upon the authority of Wabash Railroad Co. v. Adelbert College, 208 U.S. 609, 28 Sup.Ct. 425, 52 L.Ed. 642; Central Trust Co. v. Grant Locomotive Works, 135 U.S. 207-225, 10 Sup.Ct. 736, 34 L.Ed. 97; Grant v. E. & W.R.R. Co., 50 F. 795, 1 C.C.A. 681.

The question presented on the merits is whether the court below properly directed its receiver to surrender the mortgaged property, of which he had taken possession, to the receiver appointed by the district court of Bexar county, in the insolvency proceedings pending in that court. The record fails to show that the property had been delivered to the trustee under the mortgage by the defendant corporation prior to the institution of the suit in the state court by Preston. While the naked legal title to the real property was then in trustees for the defendant corporation, the record does not satisfactorily show that the mortgaged property was adversely held or possessed by such trustees or any one against the defendant corporation. Nor are we prepared to hold that the district court of Bexar county, Tex., was without jurisdiction to entertain the suit instituted by Preston therein and to appoint a receiver of the assets of the defendant corporation on his application. It is conceded that the suit in the state court was filed, and that an order, notice of which was afterwards served, was made by the judge of the state court, requiring the defendant to show cause why a receiver should not be appointed, before the filing of the foreclosure suit. It may also be conceded that possession of the assets of the defendant corporation would have become necessary to the exercise of the jurisdiction of the state court, at least, as it was invoked under the amended petition, which prayed for the marshaling of assets and liens and a distribution of assets among all creditors, according to their priorities. It is also true that mere irregularities in the process or procedure in the state court, which do not avail to show a want of jurisdiction, cannot be considered in the United States court, upon an application to it to surrender its possession to the receiver of the state court.

At the time the District Court of the United States for the Western District of Texas appointed its receiver, and at the time the receiver qualified and took possession of the mortgage property, the district court of Bexar county had made no order appointing a receiver in the cause there pending. The Texas state court had neither actual nor constructive possession of the mortgaged property at that time. The seizure by the receiver in the foreclosure suit, subsequently filed in the federal court, was therefore no interference with the possession of the state court or its receiver, since it then had none. The prior jurisdiction of the state court had, however, been invoked in a way that might thereafter require the possession by the state court of the mortgaged property for the accomplishment of the relief prayed for in the suit there pending. The question for determination is whether the federal court must surrender its first acquired possession to the state court, because the jurisdiction of the latter was first invoked in a matter which required possession of the res for its proper disposition.

The rule is stated by the Supreme Court in the case of Wabash Railroad v. Adelbert College, 208 U.S. 38-54, 28 Sup.Ct 182, 187 (52 L.Ed. 379), as follows: 'When a court of competent jurisdiction has, by appropriate proceedings, taken property into its possession through its officers, the property is thereby withdrawn from the jurisdiction of all other courts. The latter courts, though of concurrent jurisdiction, are without power to render any judgment which invades or disturbs the possession of the property while it is in the custody of the court which has seized it. For the purpose of avoiding injustice which otherwise might result, a court during the continuance of its possession, as incident thereto and as ancillary to the suit in which the possession was acquired, has jurisdiction to hear and determine all questions respecting the title, the possession, or the control of the property. In the courts of the United States this incidental and ancillary jurisdiction exists, although in the subordinate suit there is no jurisdiction arising out of diversity of citizenship or the nature of the controversy. Those principles are of general application, and not peculiar to the relations of the courts of the United States to the courts of the states. They are, however, of especial importance with respect to the relations of those courts, which exercise independent jurisdiction in the same territory, often over the same property, persons, and controversies. They are not based upon any supposed superiority of one court over the others, but serve to prevent a conflict over the possession of property, which would be unseemly and subversive of justice, and have been applied by this court in many cases, some of which are cited, sometimes in favor of the jurisdiction of the courts of the states, and sometimes in favor of the jurisdiction of the courts of the United States, but always, it is...