Gage v. Riverside Trust Co.

• Decision Date: 10 December 1906
• Docket Number: 1,223.
• Citation: 156 F. 1002
• Court: U.S. District Court — Southern District of California
• Parties: GAGE et al. v. RIVERSIDE TRUST CO., Limited, et al.

156 F. 1002

GAGE et al. v. RIVERSIDE TRUST CO., Limited, et al.

No. 1,223.

United States Circuit Court, S.D. California, Southern Division.

December 10, 1906

Purington & Adair and J. S. Chapman, for complainant.

M. B Kellogg, John G. North, and Hunsaker & Britt, for defendants.

WELLBORN District Judge.

Said motions involve and depend largely upon the construction of section 8 of Act March 3, 1875, c. 137, 18 Stat. 472 (U.S Comp. St. 1901, p. 513), which provides, among other things as follows:

'That when in any suit, commenced in any circuit court of the United States, to enforce any legal or equitable lien upon or claim to, or to remove any incumbrance or lien or cloud upon the title to real or personal property within the district where such suit is brought, one or more of the defendants therein shall not be an inhabitant of, or found within, the said district, or shall not voluntarily appear thereto, it shall be lawful for the court to make an order directing such absent defendants to appear, plead, answer, or demur, by a day certain to be designated, which order shall be served on such absent defendant or defendants, if practicable, wherever found, and also upon the person or persons in possession or charge of said property, if any there be; or where such personal service upon such absent defendant or defendants is not practicable, such order shall be published in such manner as the court may direct, not less than once a week for six consecutive weeks. But said adjudication shall, as regards said absent defendant or defendants without appearance, affect only the property which shall have been the subject of the suit and under the jurisdiction of the court therein, within such district.'

There is no question but that, on a motion to vacate an order for substituted service made under said section, the court must examine the bill in order to ascertain whether or not the case is within the statute; and the first question to be determined on this hearing relates to the scope or extent of such examination. Is it sufficient for the complainant, with such facts alleged in his bill as indicate his good faith and relieve the case from a charge of frivolousness, to pray for one or more of the objects enumerated in said section, or must he also show himself entitled to such relief?

I am of opinion, that an affirmative response to the last clause of this question embodies the law. Certainly substituted service would not be authorized in a case where the bill, although specifically demanding the relief mentioned in the statute, clearly negatived complainant's right thereto; and it seems to me, after careful consideration of the statute, its phraseology and manifest purpose, that such service ought not to be had in any case unless the complainant affirmatively shows his right to the relief, which alone justifies the service. It would be illogical and unreasonable to hold that a statute designed solely to enable a complainant to accomplish certain specified objects includes a case where, from complainants' own showing, it does not appear that either of said objects is attainable. I am forced to conclude that to justify an order for substituted service the bill, if the suit be in equity, should show: First, sufficient grounds for the relief mentioned in the statute; and, second, complainant's right to maintain the suit.

This conclusion is in no way impaired by the contention that it is the office of a general demurrer to determine the sufficiency of a pleading. Nonresident defendants may, unquestionably, if they see fit to do so, thus contest the equities of a bill, but, if the service upon them be invalid, it is no answer to a motion to set it aside to say that the grounds of the motion involve objections, which might, under other procedure, be appropriately raised at a later stage of the case. Nor is such an objection, when made by a defendant, on a motion to vacate an order for substituted service, a general appearance, because, if a plaintiff, to avail himself of the procedure which the statute affords, but expressly limits to particular relief, must, as I have held, show on the face of the bill his right to such relief, then facts, which would otherwise be heard only on the merits, must necessarily be considered in determining the legality of the service.

The authorities cited in complainants' brief do not, so far as I have been able to discover, militate against the views above expressed. From Greeley v. Lowe, 155 U.S. 75, 15 Sup.Ct. 28 (39 L.Ed. 69), complainants quote as follows:

'These objections, however, are not within the question certified to us for decision, which is that it had been 'adjudged and decreed that this court has not jurisdiction over all of the defendants to this action because they are not all citizens and residents of the district in which the land sought to be partitioned lies, and are not all found in said district at the time of service of process, although they are all residents and citizens of other states than that in which complainants have residence and citizenship.' The objections go not to the jurisdiction of the federal court as such, but to the maintenance of such a bill in any court of equity in the state of Florida.'

Even a cursory examination, however, of that case, shows that the jurisdictional question there involved concerned solely the residences of defendants, while in the case at bar the question of jurisdiction depends entirely upon the stating part and prayer of the bill. The two cases therefore are readily distinguishable, and the quotation from the former is inapplicable to the latter.

Another rule to be observed on this hearing is that a court of equity can administer the property of a corporation as a trust fund for the benefit of stockholders and creditors only when the corporation is insolvent. Mellen v. Moline Malleable Iron Works, 131 U.S. 352, 9 Sup.Ct. 781, 33 L.Ed. 178. It must also be borne in mind that statutes authorizing substituted service are to be strictly construed. Galpin v. Page, 85 U.S. 350, 21 L.Ed. 959; Earle v. McVeigh, 91 U.S. 503, 23 L.Ed. 398;

Settlemier v. Sullivan, 99 U.S. 444, 24 L.Ed. 1110; Woolridge v. McKenna (C.C.) 8 Fed. 680; Batt v. Procter (C.C.) 45 F. 516; Winter v. Koon, Schwarz & Co. (C.C.) 132 F. 27.

In Galpin v. Page, supra, the Supreme Court said:

'When, therefore, by legislation of a state, constructive service of process by publication is substituted in place of personal citation, and the court upon such service is authorized to proceed against the person of an absent party, not a citizen of the state nor found within it, every principle of justice exacts a strict literal compliance with the statutory provisions. And such has been the ruling, we believe, of the courts of every state in the Union. It has been so held by the Supreme Court of California in repeated instances.'

In Earle v. McVeigh, supra, the same high authority declared:

'Doubtless constructive notice may be sufficient in certain cases, but it can only be admitted in cases coming fairly within the provisions of the statute authorizing courts to make orders for publication, and providing that the publication, when made, shall authorize the court to decide the decree.'

In Woolridge v. McKenna, supra, at page 680 of 8 Fed., the rule of strict construction is announced as follows:

'These provisions for substituted process are not favored, and are nowhere more strictly construed than by the federal courts.'

In Batt v. Procter, supra, at page 517 of 45 Fed., the court said:

'Ordinarily in the adjudication of causes courts have before them all parties, either personally or through their representatives, whose interests are to be directly affected by the litigation; and the dictates of justice, equally the policy of the law, requires their presence whenever it is practicable to obtain it. Statutes therefore, which confer the power to proceed to an ex parte hearing in the absence of personal service, as the present one does under certain circumstances, should not be construed with any degree of liberality in favor of him who seeks the exceptional mode of service.'

Applying the foregoing principles, and others which can be more conveniently noted later on, my conclusions are:

First. The bill, so far as it seeks an accounting, injunction, and receiver, affords no ground for substituted service, since, in these respects, it is a proceeding in personam and not in rem. Ellis v. Reynolds (C.C.) 35 F. 394.

Second. The service cannot be upheld on the theory that the suit is one to subject the property of the Riverside Trust Company, as a trust fund, to the claims of stockholders and creditors, for the reason that the company is not insolvent.

Third. So far as the Northern Counties Investment Trust, Limited, and Waterhouse and Winterbotham are concerned, the bill does not seek to enforce a claim or lien, or to remove an incumbrance or lien or cloud; nor does it contain allegations which would justify such relief, and, moreover, my conclusion, hereinafter announced, as to equity rule 94, applies to the mortgage held by Waterhouse and Winterbotham.

Fourth. There remains for consideration only those parts of the bill concerning the mortgage executed by complainants to Newton and the trust deed and mortgages executed by the trust company to Crewdson, Fowler, and Harrison. Complainants pray for the cancellation of these instruments, and, if the prayer of the bill was justified by its allegations, there would be a sufficient showing for substituted service. It is manifest, however, from the bill, that the mortgages held by Newton were given to secure an actual loan, still unpaid, of $150,000 made to Matthew Gage, and those held by Crewdson,...