Hale v. Hardon, 265.

• Decision Date: 31 May 1899
• Docket Number: 265.
• Citation: 95 F. 747
• Parties: HALE v. HARDON.
• Court: U.S. Court of Appeals — First Circuit

95 F. 747

HALE v. HARDON.

No. 265.

United States Court of Appeals, First Circuit.

May 31, 1899

M. H Boutelle (John C. Coombs and Charles H. Hanson, on the brief), for plaintiff in error.

Charles K. Cobb, for defendant in error.

ALDRICH District Judge.

This is an action at law in the Massachusetts district in aid of an equity proceeding in the corporate domicile to enforce a nonresident stockholder's liability under the laws of Minnesota. The provision of the Minnesota constitution, and the provisions of the statutes thereunder, are general and comprehensive, but clearly contemplate a proceeding in the nature of an equity proceeding in that state for the benefit of all the creditors, in which all the debts and assets shall be ascertained, including the amounts due and remaining unpaid on subscriptions for stock, and that the avails of the stockholder's liability to the creditors, wherever found shall be ultimately drawn to the parent proceeding, and all for distribution, upon general insolvency principles and upon equitable grounds, among the creditors, without discrimination in favor of home creditors. The Minnesota law does not specify a particular remedy for regulating and enforcing the statutory right, but provides, in general terms, that a creditor who seeks to charge directors trustees, or stockholders of a corporation, on account of any liability created by law, may file his complaint for that purpose in any district court which possesses jurisdiction to enforce such liability. It also provides that 'the court shall proceed thereon, as in other cases,' and, when necessary, take on account of all property and debts due to and from the corporation, and that the court shall appoint one or more receivers. It also in general terms expressly charges the court with the duty of causing a just and fair distribution of the property of the corporation and of the proceeds to be made among the creditors, and, if the property is insufficient to discharge its debts, to compel each stockholder to pay the amount due and remaining unpaid on the shares of stock by him held, and then, if the debts of the company remain unsatisfied, to ascertain and enforce the liability of the stockholders in the amount payable by each.

Section 3, art. 10, of the Minnesota constitution, declares that:

'Each stockholder in any corporation (excepting those organized for the purpose of carrying on any kind of manufacturing or mechanical business) shall be liable to the amount of stock held or owned by him.'

The Statutes of Minnesota of 1894 (chapter 76), which, so far as the material provisions are concerned, are understood to be the same as the original statute providing a remedy in this class of cases, declare that:

'Sec. 5905. Whenever any creditor of a corporation seeks to charge the directors, trustees, or other superintending officers of such corporation, or the stockholders thereof, on account of any liability created by law, he may file his complain for that purpose in any district court when possess jurisdiction to enforce such liability.

'Sec. 5906. The court shall proceed thereon, as in other cases, and, when necessary, shall cause an account to be taken of the property and debts due to and from such corporation, and shall appoint one or more receivers.

'Sec. 5907. If, on the coming in of the answer or upon the taking of any such account, it appears that such corporation is insolvent, and that it has no property or effects to satisfy such creditors, the court may proceed, without appointing any receiver, to ascertain the respective liabilities of such directors and stockholders, and enforce the same by its judgment, as in other cases.

'Sec. 5908. Upon a final judgment in any such action to restrain a corporation or against directors or stockholders, the court shall cause a just and fair distribution of the property of such corporation and of the proceeds thereof to be made among its creditors.

'Sec. 5909. In all cases in which the directors or other officers of a corporation, or the stockholders thereof, are made parties to an action in which a judgment is rendered, if the property of such corporation is insufficient to discharge its debts, the court shall proceed to compel each stockholder to pay in the amount due and remaining unpaid on the shares of stock held by him, or so much thereof as is necessary to satisfy the debts of the company.

'Sec. 5910. If the debts of the company remain unsatisfied, the court shall proceed to ascertain the respective liabilities of the directors or other officers and of the stockholders, and to adjudge the amount payable by each, and enforce the judgment, as in other cases.

'Sec. 5911. Whenever any action is brought against any corporation, its directors or other superintending officers, or stockholders, according to the provisions of this chapter, the court, whenever it appears necessary or proper, may order notice to be published, in such a manner as it shall direct, requiring all the creditors of such corporation to exhibit their claims and become parties to the action, within a reasonable time, not less than six months from the first publication of such order, and, in default thereof, to be precluded from all benefit of the judgment which shall be rendered in such action, and from any distribution which shall be made under such judgment.'

It is especially important to notice section 5911 of chapter 76, for it shows the comprehensiveness of the proceeding intended by the statute; provides for calling in creditors other than those bringing the complaint; and regulates the status of creditors, who fail to come in on statutory notice, in respect to their right to participate in the benefits resulting from such proceeding.

In a recent case in this circuit involving the Ohio statute (State Nat. Bank of Cleveland, Ohio, v. Sayward, 33 C.C.A. 564, 91 F. 443), some observations were made as to what the Ohio statute contemplated as to procedure, and what was intended should be done in the home state before liability under that statute could be enforced extraterritorial, without intimating what would have been done in that case if the joinder and ascertainments contemplated by such statute had been made. Relief was denied therein, for the reason that what was contemplated as to ascertainments and joinder had not been done.

We are now confronted with a statute somewhat similar, but with more comprehensive provisions as to ascertainments, and a remedy for enforcement of liability expressed in broader and more comprehensive terms, where, as a matter of substance, the creditors, but, strictly speaking, a receiver representing the interests of the creditors, claims to have taken all the steps, and secured all the ascertainments, in the parent forum, which the statute intended, and who now, in an extraterritorial forum, by an action at law in aid of the parent proceeding in the nature of equity, seeks to enforce the individual liability of a nonresident stockholder. So far as we know, this is the first instance in which the precise situation has been presented to the courts of a different sovereignty, exercising a distinct and dependent jurisdiction.

The questions presented are-- First, as to how far, if at all, this defendant and nonresident stockholder is bound by the action of the Minnesota court; and, second, whether this plaintiff, in his capacity as receiver for the creditors, appointed in the parent proceeding in Minnesota for the purpose of enforcing the liability of stockholders, may, in aid of that proceeding, maintain his action at law for such purpose in another and a federal jurisdiction, upon grounds of comity or otherwise.

We shall take up these questions in order stated, and consider, first, the binding force of the ascertainments, judgments, and decrees in the parent proceeding.

We may well observe at the outset that for many years the steady trend of federal decision has been in the direction of upholding and enforcing extraterritorially this class of liabilities according to the fair intendment of the local law in cases properly within the provisions thereof, except where enforcement would unreasonably interfere with local vested creditor interests in states where enforcement is sought extraterritorially on grounds of comity, and perhaps, in some cases, where such enforcement would offend the general public policy of the state, while among the courts of the states there has been a diminishing diversity of decisions upon questions growing out of such statutory liabilities. It does not seem necessary to refer to the numerous decisions of the supreme court, and those of the various circuit courts of appeal and of the circuit courts, so often cited, which sustain this general proposition. We shall, therefore, only refer, in this connection, to the more recent cases in the United States courts, of Rhodes v. Bank, 13 C.C.A. 612, 66 F. 512, Whitman v. Bank, 28 C.C.A. 404, 83 F. 288; Elkhart Nat. Bank v. Northwestern Guaranty Loan Co., 30 C.C.A. 632, 87 F. 252; Dexter v. Edmands, 89 F. 467; and to the more recent decisions of the state courts, as showing the present tendency of judicial decision in such jurisdictions (Bagley v. Tyler, 43 Mo.App. 195; Guerney v. Moore, 131 Mo. 650, 32 S.W. 1132; Ferguson v. Sherman, 116 Cal. 169, 47 P. 1023; Cushing v. Perot, 175 Pac.St. 66, 34 A. 447; Bank v. Ellis, 172 Mass. 39, 51 N.E. 207, and the admirable opinion of Chief Justice Field in that case); and to the exceedingly well-reasoned cases of Bank v. Lawrence (decided in Michigan, July, 1898) 76 N.W. 105; and Bell v. Farwell (decided by the Illinois supreme court in December, 1898), 52 N.E. 346.

It would not be useful to undertake a review of the decisions of the various...