Equitable Trust Co. of New York v. Connecticut Brass & Mfg. Corp.

• Decision Date: 30 April 1923
• Docket Number: 211.
• Citation: 290 F. 712
• Parties: EQUITABLE TRUST CO. OF NEW YORK v. CONNECTICUT BRASS & MFG. CORPORATION et al.
• Court: U.S. Court of Appeals — Second Circuit

290 F. 712

EQUITABLE TRUST CO. OF NEW YORK v. CONNECTICUT BRASS & MFG. CORPORATION et al.

No. 211.

United States Court of Appeals, Second Circuit.

April 30, 1923

The Connecticut Brass & Manufacturing Corporation, hereinafter called the defendant, is a corporation organized and existing under the laws of the state of Delaware, and having its principal office in Wilmington, in said state. Prior to the bringing of the present suit the Equitable Trust Company of New York, hereinafter called the plaintiff, as a creditor had brought suit against this defendant in the United States District Court for the District of Delaware and obtained the appointment of a receiver of all the defendant's property with power to conduct the defendant's business during such period as the court might approve. It was alleged that defendant's assets amounted at a fair valuation to $1,000,000, together with accounts receivable and other quick assets which aggregate at a fair valuation $700,000, and that its liabilities amount in all to $1,265,000. It was also alleged that the business had been grossly mismanaged by the vice president and managing director, who had resigned a short time prior to the bringing of the suit.

Thereafter the plaintiff, as a creditor, commenced a suit against the same defendant in the United States District Court for the District of Connecticut, in which it asked for the appointment of an ancillary receiver of the property of the defendant in the district of Connecticut, and prayed the court to empower the receiver to conduct the defendant's business within the district during such period as the court approved, and that the receiver be granted all other powers ordinarily vested in receivers in such cases, and it asked that all creditors, stockholders, and other persons be enjoined until the further order of the court from instituting or prosecuting, or continuing the prosecution of any actions, suits, or proceedings at law or in equity against the defendant in any court within the district. It also asked the court to fully administer such of the defendant's property as might be within the district, and determine the respective rights, liens, and priorities of the creditors, and that it make such orders respecting the sale or other disposition of the property and the application of the proceeds of any sale as the circumstances of the case required. It alleged, too, that all the defendant's plants and almost all its other assets (stated to be worth at a fair valuation $1,700,000) were located in the district of Connecticut.

The defendant, in its answer to the bill filed in the Connecticut suit, admitted all the averments contained in said bill and joined in the prayers thereof. The ancillary receiver, as asked, was appointed on September 5, 1918.

Three years later the United States was given leave to intervene in the Connecticut suit. The intervening petition alleged that during the year 1918 the United States supplied the defendant with 2,216,693 pounds of copper for the manufacture of war munitions under certain contracts entered into between the United States and the defendant, which contracts provided that title to said copper should remain in the United States, and that $895,200 pounds of copper had been expended on said contracts, leaving a balance due the United States of 1,321,493 pounds of copper, of the value of $343,588.18, at the rate of 26 cents per pound, and that the defendant had wrongfully and improperly converted to its own use 1,321,493 pounds of copper. It also alleged that, although the defendant was indebted to the United States in the sum of $343,588.18, with lawful interest thereon, by reason of the wrongful conversion of said copper, and although demand had been made therefor neither said sum nor any part thereof had been paid to the United States, and the whole of said sum, with lawful interest thereon, was due.

The United States asked that an order be entered instructing the ancillary receiver to pay the claim of the United States forthwith, with interest, and before any other debt should be paid, asserting that its claim was entitled to a preference over all other claims in accordance with the provisions of section 3466 and 3467 of the Revised Statutes of the United States (Comp. St. Secs. 6372, 6373). An order or decree was thereafter made by the District Judge of Connecticut, which determined that the United States was not entitled to the priority of payment which it asserted, and dismissed the petition of intervention.

Cummings & Lockwood, of Stamford, Conn. (Charles D. Lockwood, of Stamford, Conn., of counsel), for ancillary receiver.

Murray, Prentice & Aldrich, of New York City (William Roberts, of New York City, of counsel), for creditors' committee.

Allan K. Smith, U.S. Atty., of Hartford, Conn.

Before ROGERS, HOUGH, and MAYER, Circuit Judges.

ROGERS Circuit Judge (after stating the facts as above).

It appears that a New York corporation obtained in the district of Delaware the appointment of a receiver by a decree entered on August 31, 1918, of all the property of the defendant, a Delaware corporation, with power to conduct the defendant's business. Thereafter the New York corporation filed a bill in the District Court of Connecticut in which it asked that court to appoint the Delaware receiver an ancillary receiver over the defendant, and alleged that all of the defendant's plants and almost all of its assets were located in the district of Connecticut, and that almost all of its business was carried on there. This application was granted on September 4, 1918. On September 6, 1921, the United States moved for leave to intervene in the suit in the District Court of Connecticut and to be made a party defendant. Its petition alleged that the defendant was indebted to it in the sum of $343,588.18, with interest, and that its claim was entitled to be preferred over all other claims in accordance with the provisions of sections 3466 and 3467 of the Revised Statutes of the United States. It asked that the ancillary receiver be instructed to pay the said claim forthwith, with interest, and before any other debt of the defendant corporation was paid. The court granted leave to intervene. Thereafter, the cause having been heard upon the intervening petition, its petition was dismissed by an order or decree signed on September 28, 1922. This dismissal was based on the ground that the United States did not possess the right of priority which it asserted. The United States thereupon appealed to this court.

If the United States had asked in its petition of intervention for an order on the receiver for a delivery to it of the copper which it delivered to the defendant under its contract with it, in which it was expressly agreed that the title to the copper should remain in it, the United States would have acted in accordance with the usual and proper procedure. Winchester v. Davis Pyrites Co. (C.C.) 64 F. 664, affirmed in 67 F. 45, 14 C.C.A. 300. That was not, however, the course pursued. It asked instead to be permitted to intervene to assert the priority of its claim over all other claims. The plaintiff, in its complaint, asking for the appointment of an ancillary receiver in the district of Connecticut, asked that the indebtedness of the defendant to the plaintiff and to all other creditors be ascertained, and that the court administer the defendant's property and determine the respective rights, liens, and priorities of the defendant's creditors, and the order appointing the ancillary receiver had authorized him to carry on the defendant's business within the district to such extent and in such manner as would in his judgment produce the best financial results. But it does not appear that any order had ever been entered or any steps taken to determine the respective rights, liens, or priorities of the defendant's creditors. If the ancillary receiver had not been authorized to conduct the defendant's business, and the purpose had been simply to wind up the defendant's business in the state of Connecticut, collect the assets, and determine the respective rights, liens, and priorities of the creditors, there would clearly have been no necessity for any intervention by the United States as the government might have appeared before a master on reference and proved its claim in accordance with the order of reference. To permit a creditor to intervene under such circumstances on the ground that his claim was entitled to a priority would certainly have been an unusual and unnecessary course of procedure. The fact that intervention was allowed in this case was no doubt due to the fact that the ancillary receiver was carrying on the business, and in doing so might prejudice the payment in full of the claim of the United States, if it should be found entitled to priority over all other claims.

While intervention seems to have been employed to some extent in the ecclesiastical courts of England, and was permitted in the courts of bankruptcy, it was not recognized at common law; and it has been said that there can be no intervention in a suit in equity, in the absence of a statute authorizing it. The Rules of Practice for the Courts of Equity, promulgated by the Supreme Court on November 4, 1912, and which became effective February 1, 1913, made provision for intervention in equity in the federal courts. Rule 37 (198 F. xxix, 115 C.C.A. xxix) declares that:

' * * * Any one claiming an interest in the litigation may at any time be permitted to assert his right by intervention, but the intervention shall be in subordination to, and in recognition of, the propriety of the main proceeding.'

In some cases intervention is an absolute right, while in others it rests in the discretion of the trial...