Gordon v. Washington Same v. Brien

• Decision Date: 01 April 1935
• Docket Number: Nos. 549 and 550,s. 549 and 550
• Citation: 295 U.S. 30,79 L.Ed. 1282,55 S.Ct. 584
• Parties: GORDON, Secretary of Banking, et al. v. WASHINGTON et al. SAME v. O'BRIEN et al
• Court: U.S. Supreme Court

295 U.S. 30

55 S.Ct. 584

79 L.Ed. 1282

GORDON, Secretary of Banking, et al.

v WASHINGTON et al.

SAME

v. O'BRIEN et al.

Nos. 549 and 550.

Argued March 7, 1935.

Decided April 1, 1935.

Messrs. Joseph K. Willing and William A. Schnader, both of Philadelphia, Pa., for petitioners.

Mr. David Bortin, of Philadelphia, Pa., for respondents.

Mr. Justice STONE delivered the opinion of the Court.

In these cases certiorari was granted, 293 U.S. 553, 55 S.Ct. 347, 79 L.Ed. —-, to review a decree of the Court of Appeals for the Third Circuit, 73 F. (2d) 577, which affirmed a decree of the District Court overruling motions to dismiss the bills of complaint and to vacate the appointments of receivers. The questions involved are of public importance. See Pennsylvania v. Williams, 294 U.S. 176, 55 S.Ct. 380, 79 L.Ed. 841; Gordon v. Ominsky, 294 U.S. 186, 55 S.Ct. 391, 79 L.Ed. 848; No. 431, Penn General Casualty Co. v. Pennsylvania, 294 U.S. 189, 55 S.Ct. 386, 79 L.Ed. 850, decided February 4, 1935.

On February 14, 1933, petitioner, the secretary of banking of the commonwealth of Pennsylvania, took possession of the business and property of the Chester County Trust Company, a Pennsylvania banking corporation. By section 21 of the Banking Act of 1923, P.L. 809, as amended by Act May 5, 1927, P.L. 762, § 7 (7 PS Pa. § 21), he is authorized to take possession of and to liquidate the business and property of banking corporations of the commonwealth which are in 'an unsafe or unsound condition.' Pursuant to section 22 (7 PS PA. § 22), he filed a 'certificate of possession' in his office, and on the following day filed a certified copy of the certificate with the prothonotary of the court of common pleas of Chester county. When this is done, he has, by section 29, as amended by Act May 5, 1927, P.L. 762, § 11 (7 PS Pa. § 29), the status of a receiver appointed by any court of equity of the commonwealth.

Included in the business and property taken over by the secretary were two trust funds, or 'mortgage pools,' consisting of mortgages held by the trust company as fiduciary, against which it had issued participation certificates entitling the holder to an undivided share in the principal and interest of mortgages aggregating in excess of $2,900,000 in one pool and of $1,700,000 in the other. The Department of Banking Code of May 15, 1933, P.L. 565 (71 PS Pa. §§ 733—1 to 733—1203), which became effective July 3, 1933, provides in section 701 (71 PS Pa. § 733—701) that the secretary, when in possession of the business and property of a banking corporation, shall have the status of a general receiver and be responsible to the court in which his certificate of possession is filed, in this case the court of common pleas of Chester county, and that he shall exercise all the rights, powers, and duties of the corporation and succeed to its title and right to possession of all property and securities. Article 9 of the Code, §§ 901—906 (71 PS Pa. §§ 733—901 to 733—906), provides for the disposition of the trust funds and mortgage pools of a trust company taken over by the secretary. After he has filed a notice of his intention to proceed with its liquidation, any certificate holder of a mortgage pool is authorized to apply to the court for the appointment of a substituted fiduciary of the pool. The secretary is required, 'as soon as it may be convenient,' to file in court an account of the securities in any mortgage pool conducted by the trust company, and he is directed to apply for the appointment of a substituted fiduciary of the mortgage pool if, within thirty days after the filing of the account, no certificate holder has made such an application. The Code thus provides for the secretary's possession and administration of the mortgage pools of a closed bank until such time as a substituted fiduciary is appointed.

The bills of complaint in the present suits, naming the secretary as defendant, were respectively filed in the District Court on August 25 and August 28, 1933, approximately a month and three weeks after the mortgage pool provisions of the Banking Code had become effective. There is no material difference between the two bills of complaint. The plaintiff in No. 549, respondent here, a citizen of Connecticut, is alleged to be the owner of a participation certificate in the larger of the two pools, and the plaintiff in No. 550, respondent here, a citizen of New Jersey, is alleged to be the owner of a participation certificate in the smaller. Each bill, after stating the facts already detailed with respect to the secretary's possession of the property of the trust company, including the mortgage pools, alleged that the plaintiff had received no interest or income on his participation certificate after the secretary had taken possession; that the secretary had filed no account of the mortgage pools; and avers, on information and belief, 'that interest on many of the mortgages comprising said pool has not been paid * * * and that little effort is made to secure the collection of the interest. * * *' It is also alleged that: 'There is danger of sales by the respective authorities by reason of the non-payment of taxes on said properties and that little effort is being made to compel the payment of taxes. * * *' The bills contain no charge of improper conduct, neglect, or mismanagement, or any allegation that the failure of the mortgagors to pay interest and taxes was due to want of diligence on the part of the secretary. They pray the appointment of a receiver to take charge of, conserve, and administer all the assets comprising the mortgage pools, but they do not ask the appointment of a new trustee or the removal of the secretary, or pray any directions or instructions to him, or any other relief except the usual injunction in aid of the receivership.

On the day the bill of complaint in the second suit was filed, attorneys for the plaintiffs filed motions for the appointment of receivers. Two days later, on August 30, 1933, upon telephone notice to the petitioners of an hour and a half, the District Judge heard the motions and appointed receivers. The secretary failed to surrender the mortgage pools to the receivers, and the District Court issued, on September 2, 1933, a rule to show cause why the secretary should not be adjudged in contempt. On September 4th, the court of common pleas of Chester county, upon application by a mortgage pool certificate holder, issued an injunction restraining the secretary from relinquishing possession of the mortgage pool assets until further order of the court. On September 5th, the petitioner filed answers to the petitions to punish for contempt, and made motions, on affidavits and petitions, to dismiss the bills and to vacate the appointment of the receivers. Both motions assailed the bills as not stating facts to show that damage would be suffered by any party in interest if receivers were not appointed. The motions to dismiss also challenged the 'authority' of the District Court to appoint receivers. In the petitions to vacate the orders appointing receivers, it was alleged that since the closing of the trust company the secretary had continued to operate the mortgage pools and was ready to file with the court of common pleas his account of assets compris- ing the pools, that his management of them was in accordance with the Pennsylvania statutes, and that he had conducted the mortgage pools 'with the utmost regard for the interests of the participants.' No action appears to have been taken upon the motion to adjudge the petitioners in contempt, but in denying, upon the pleadings and motion papers, the motions to dismiss and to vacate the orders appointing receivers, the District Court ruled that it had jurisdiction of the cause as a federal court, and found that nothing had been done by the Banking Department 'to provide the means for an active, intelligent, responsible administration of its pools.'

The Court of Appeals ruled that the District Court had jurisdiction, since the secretary, in taking possession of the mortgage pools, had acted by authority of the statute and not under any order or decree of the state court. The assets, it was said, were not in the actual or constructive possession of the state court, and consequently there was no occasion to apply the rule of comity under which a federal court will relinquish its jurisdiction in favor of a state court which has first acquired possession of the property which is the subject of suit. See Penn Casualty Co. v. Pennsylvania, supra. Upon the basis of the finding of the District Court that the Banking Department had failed to provide suitable means for the administration of the pools, it concluded that no abuse of discretion in the appointment of receivers had been shown.

From what this Court has recently said in Pennsylvania v. Williams, supra, it is evident that the District Court correctly determined that it had jurisdiction of the cause. The requisite diversity of citizenship and the jurisdictional amount in controversy are shown by the record and are unchallenged. The relief prayed was that which a court of equity is competent to give. The bills of complaint were therefore sufficient to invoke the power and authority conferred on the District Court, by the Consti- tution and statutes of the United States, to entertain the suit and render an appropriate decree.

Since the court had power to act, it is necessary to consider the various objections urged to the decree only in so far as they are addressed to the propriety of its action as a court of equity. These objections were not foreclosed by the determination that the court had jurisdiction. By the Judiciary Act of 1789, c. 20, § 11, 1 Stat. 73, 78; U.S.C., tit. 28, § 41(1), 28 USCA § 41(1), the lower federal courts were given original jurisdiction 'of all suits * * * in equity,' where the other jurisdictional requisites are satisfied. From the beginning, the phrase ...