Hoffman v. Lynch

• Decision Date: 07 January 1928
• Docket Number: No. 465.,465.
• Citation: 23 F.2d 518
• Parties: HOFFMAN v. LYNCH et al.
• Court: U.S. District Court — Northern District of Georgia

23 F.2d 518 (1928)

HOFFMAN v. LYNCH et al.

No. 465.

District Court, N. D. Georgia.

January 7, 1928.

Winfield P. Jones and Watkins, Asbill & Watkins, all of Atlanta, Ga., for trustee.

Alston, Alston, Foster & Moise, of Atlanta, Ga., for defendants.

SIBLEY, District Judge.

Hoffman, as trustee in bankruptcy of Adair & Senter, a corporation of Georgia, brought an elaborate bill in the Fulton superior court, against S. A. Lynch, Lynch Enterprises Finance Corporation (called herein Lynch Company), Adair Realty & Trust Company, and Black, its trustee in bankruptcy, and several other corporations and individuals. The sum of the bill is that the stockholders and officers of Adair & Senter, in order to hinder and defraud the creditors of their company, transferred its entire assets, amounting to a million and a half dollars, to Lynch and the Lynch Company, by means of certain other corporations created, for the purpose of obtaining large advances of money for Adair Realty & Trust Company, but that the latter company also transferred assets belonging to it, of a value equal to the advances, so that Adair & Senter's transfer was not only without consideration moving to it, but without real consideration moving from Lynch and Lynch Company. The transfer was also alleged to be in violation of certain Georgia statutes and of the federal Bankruptcy Law, and to have been conceived and executed in actual fraud, to the injury of Adair & Senter and its creditors. The individual defendants, except Lynch, are joined as participants in the fraud, though they are not alleged to have profited personally, or to have any of the assets or proceeds thereof in their possession. Equitable remedies are sought of cancellation, account of the funds and their proceeds, injunction, and receiver, and mingled with these are several legal causes of action, such as a liability for fraud accompanied with damage, under Civ. Code Ga. 1910, § 4409, which is a tort, and for conversion of property, with right to elect to recover the property or its value, under Civ. Code Ga. 1910, §§ 4483, and 4514, which also is a tort, and an effort at bail process under Civ. Code Ga. 1910, § 5150.

The petitioner and Black, trustee in bankruptcy, and some of the individual defendants, are citizens of Georgia, and Adair Realty & Trust Company is a Georgia corporation. Lynch and the other individual defendants are citizens of other states, and Lynch Company and the other corporations are corporations of other states. Lynch and some of the other defendants were not served. Some of the corporations are contesting the validity of the service on them. The Lynch Company removed the suit as having a separable controversy wholly between citizens of different states, in which it was interested. A motion to remand was made and denied; the judgment pointing out that the complaint against Lynch and Lynch Company, in paragraphs 43 to 48 of the petition, which allege present possession by them of the entire assets, of a stated value, of Adair & Senter, and present title in the trustee, and demand and refusal to deliver, was a complete separate cause of action under Georgia law, in which no one else was concerned, and was a separable controversy authorizing removal.

Thereupon petitioner moved to strike as irrelevant all motions and answers filed in this court by others than the Lynch Company, contending that, since these others have not joined in the removal, nothing has been removed to this court, or is for trial here, save the separate controversy pointed out by the court in refusing to remand. It is contended that the proper construction of the removal statute is that only the separable controversy claimed by the removing defendant is removed, and that any other construction of the removal act would render it unconstitutional, as attempting to give the United States courts jurisdiction over controversies not wholly between citizens of different states, contrary to article 3, § 2, of the Constitution.

In the first place, the motion to strike pleadings is based on a misconception of the judgment refusing to remand. It was not held thereby that there was but one separable controversy. Assuming that the whole suit was removable for one controversy, it was thought enough to point out one. In fact, there are other separable controversies wholly between citizens of different states. Besides the one at law and in tort mentioned in the judgment, that in equity for an accounting of the assets of Adair & Senter is another such. All the defendants alleged to have received or to be now in possession of any of these assets are citizens of different states from the petitioner. Adair Realty & Trust Company and its trustee in bankruptcy have none of them. They would be necessary parties to the cancellation of the contract of November 23, 1926, between Adair & Senter and the trust company; but this cancellation is not necessary to the relief sought, because this contract is itself no muniment of title, and does not purport to transfer anything, but is only an executory agreement, which, if in fraud of creditors, or otherwise void, need not be canceled, but can be invalidated by proof on the trial.

Further, each defendant could be held separately accountable for the assets received and held by it alone, if the others cannot conveniently be sued or served, though it is manifestly better to dispose of the entire matter in one suit, if they can be served. The individuals who are officers and directors of the corporations who received the assets are not proper parties to the accounting. Suing them personally, as tort-feasors causing damage through fraud, is another cause of action altogether. It is probable that there is misjoinder, and even inconsistency, in the several causes of action attempted to be set up; but at present they are all in the bill. The motion to be ruled upon does not amend the bill by eliminating anything. It cannot be foreseen that no one's rights except the Lynch Company will be involved in the trial.

The fact that only the Lynch Company has sought removal is not important. Where the suit contains more than one controversy, and removal is sought because of a separable controversy wholly between citizens of different states, the statute (United States Code, title 28, § 71 28 USCA § 71) is express that "either one or more of the defendants actually interested in such controversy may remove said suit into the District Court of the United States." There is no need of co-operation among the defendants; they all come with the suit.

From the same words in this section, as well as these in section 72 (28 USCA § 72), "It shall then be the duty of the state court to * * * proceed no further in such suit," it is clear that the intent of Congress was to remove the whole suit from the state court. Previously, under the Act of July 27, 1866 (14 Stat. 306), when the separate controversy between parties of diverse citizenship was alone removed, much confusion ensued as to what was triable in the state court and what in the federal court, with expense of double litigation, and sometimes conflicting results. There can be no doubt that the change made in the law by the Act of March 3, 1875 (18 Stat. 470), was deliberately intended to bring the whole suit to the District Court. It was so held in Barney v. Latham, 103 U. S. 205, 26 L. Ed. 514, and often since. Later amendments have not affected this point.

The whole suit having been brought into the District Court, what shall be done with it there? The statutory answer in United States Code, title 28, end of section 72, is: "The cause shall then proceed in the same manner as if it had been originally commenced in the said District Court." These general words, from their context, must be taken to have reference to pleadings and practice rather than to jurisdiction, for the latter is especially dealt with elsewhere. The presence of a defendant of the same citizenship as the petitioner would work dismissal of a suit commenced in the District Court, but so to hold in a removed suit would nullify the whole scheme of removal for separable controversy. A remand, and not a dismissal, is to be made under section 72 if it shall appear that the cause was "improperly removed," or in cases of removal for local prejudice, a partial remand as to defendants not affected by the prejudice, is authorized. Section 80 (28 USCA § 80) provides that suits begun in the United States court shall be dismissed, and those removed from a state court shall be remanded, if at any time it appears that the case does not rea...