Horn v. Pere Marquette R. Co.

• Decision Date: 11 February 1907
• Citation: 151 F. 626
• Parties: HORN v. PERE MARQUETTE R. CO. et al.
• Court: U.S. District Court — Eastern District of Michigan

151 F. 626

HORN v. PERE MARQUETTE R. CO. et al.

United States Circuit Court, E.D. Michigan, Southern Division.

February 11, 1907

Edward Colston and F. W. Stevens, for receiver.

Walker & Spalding and H. M. Campbell, for State Savings Bank.

LURTON Circuit Judge.

At the outset I must make my acknowledgments to the learned counsel who have appeared in this case. Their assistance in investigating the numerous and interesting questions which are herein discussed has been unusually profitable to me, and I trust will tend to the better understanding of several mooted questions which concern matters of interest touching the appointment and authority of receivers.

The matters now to be considered arise upon an intervening petition filed by Judson Harmon, as receiver of the Pere Marquette Railroad Company, and the answer of the State Savings Bank, a banking corporation of the state of Michigan carrying on a general banking business at Detroit. The petition, in substance, avers that the petitioner had been appointed receiver of the Pere Marquette Railroad Company under a bill filed at Grand Rapids, in the Western District of Michigan, at 9:30 o'clock a.m., December 5, 1905, and also under an ancillary bill filed at Detroit, in the Eastern District of Michigan, on the 8th of December, 1905. The contention of the petitioner is that, as to the property and assets of the Pere Marquette Railroad Company within both Michigan Districts, the appointment of the petitioner as receiver became effective at least from 9:30 o'clock a.m., December 5, 1905, that being the time of the filing of the original bill at Grand Rapids; petitioner having given bond simultaneously with his appointment. By this order the petitioner was appointed receiver of the entire Pere Marquette System of railroads, its rolling stock, property and assets of every kind wherever situated, including its books of accounts, bills receivable, choses in action, bonds notes, stocks, moneys and valuables, and directed to take immediate possession of the same, and to operate the said railway, and hold possession of all its said properties for the benefit of whomsoever might be entitled, and subject to the orders and direction of the court. By the same order, the corporation, and all its agents and employes, 'and all other persons,' were required to turn over and deliver to the said receiver all property held by them for the said company upon demand of the said receiver, and all said officers and agents, and all other persons were enjoined and restrained from interfering in any way with his possession or management of same. The petition then avers that prior to the appointment of the receiver the Pere Marquette Railroad Company had kept an ordinary deposit account with the defendant bank against which it was accustomed to check; that from time to time the agents of said company, under its direction, made deposits of moneys received in the conduct of its business at many points within the state, and that the treasurer of said company, whose office was in Cincinnati, was also accustomed to transmit funds to the defendant bank subject to check. At the close of business on December 4, 1905, there was on deposit to the general credit of the said company $29,166.04. It is then averred that, after petitioner's appointment took effect, deposits sent by express to said bank were received as follows: December 5, 1905, remittances from agents, $2,625.88; December 5, 1905, remittances from treasurer, $29,722.63; December 6, 1905, remittances from agents, $4,811.46; December 7, 1905, remittances from agents, $3,272.21; December 8, 1905, remittances from agents, $2,892.21. At the date of this appointment the said railroad company was indebted to the said bank by two notes, dated May 1, 1905, each for the sum of $50,000, and payable on demand. It is then averred that after the said appointment had been made, and with knowledge of the fact, the said bank applied the said sums so deposited to the credit of said railroad, to the payment of said obligations, and, though requested so to do, has failed and refused to pay such funds over to petitioner, thereby disobeying the order and direction of the court and in obstruction to the receiver's duty and obligation, and has thereby committed a contempt. The prayer was for a rule requiring said bank to show cause why it should not be required to pay into the hands of the petitioner the funds so withheld, and why it should not be punished for contempt. The bank so made a defendant, answered and set up its right to apply such deposits in payment of the debt of the railroad company upon the demand notes so held by it, and that it had made this application as the funds came in, and with knowledge of the receivership.

1. Objection is made to the right of the receiver to proceed by an intervening petition against the defendant, and, it is said, that he should have sued at law or some other independent suit. This objection, if tenable at all, should have been made by plea, demurrer, or motion. It was not. The defendant came in and answered to the merits. So far as the petition seeks to recover funds actually in the hands of the defendants at date of his appointment, against which a lien in good faith is asserted, the receiver could not have proceeded summarily if objection had been taken in time. The bank might well say:

'As to that fund, I claim adversely and demand that you proceed in the ordinary way to try the question whether my prior possession can be rightfully disturbed by an order in a case to which I was not a party. ' Wheaton v. Daily Telegraph Co., 124 F. 61, 59 C.C.A. 427.

But as to so much of this fund as was actually in possession of the defendant bank at the close of business on December 4, 1905, the receiver has conceded the right of the bank to apply it upon the indebtedness of the railroad company to the bank. As to the deposits made after the appointment of the receiver, a very different question arises. If, as claimed, the deposits made on December 5, 1905, were made after they had been sequestrated or equitably seized, the appropriation by the bank to the payment of its own claim is a claim to hold and appropriate same in defiance of the receiver and in disobedience of the order placing him in possession of all the assets of the railroad company. The right to maintain such an intervening petition does not depend upon whether some actual manual possession by the receiver has been disturbed. If the funds in question did not come into the actual possession of the bank prior to the appointment of the receiver, the conduct of the bank in preventing the receiver from obtaining the possession of that which he was appointed to receive is a defiance of the court's order. In such circumstances the bank should have intervened interesse suo and set up its right, for the possession of the receiver is but the possession of those having a right thereto, and would not defeat any title, claim, or right which it might have in the fund which it thus received after the receiver's title to the possession accrued. The distinction which I call attention to is noted in Vermont, etc., Co. v. Vermont Central R.R. Co., 46 Vt. 792;

Am. Const. Co. v. Jacksonville, etc., Ry. Co. (C.C.) 52 F. 937; and Bibber-- White Co. v. White River Valley Electric Co. (C.C.) 107 F. 176. In respect to such deposits, a petition by the receiver to prevent such interference and to compel the surrender of the funds so seized is not bad practice, and does not deprive the defendant of a full and orderly hearing, and its rights are and will be as fully protected as in an independent suit. Such a proceeding was expressly sanctioned by the Court of Appeals of this circuit, in Lake Shore & M.S. Ry. Co. v. Felton, 103 F. 227, 43 C.C.A. 189. The opinion is authoritative in this circuit, and is a complete answer to any objection to the mode of proceeding adopted by the receiver, assuming that the defendant could raise such a question after answering to the merits.

2. It is said that the bill under which Harmon was appointed receiver was filed in the wrong district; that the principal offices of the railroad company are at Detroit in the Eastern District of Michigan, while the bill was originally filed at Grand Rapids in the Western District of the same state. Horn was not a citizen of Michigan. The Pere Marquette Railroad Company is a corporation of that state, and the other defendant, the Cincinnati, Hamilton & Dayton Railroad Company, is a corporation of Ohio. The district of Western Michigan was not the district of either the sole complainant or of either of the only two defendants. That the defendant the Pere Marquette Railroad Company could have objected to being sued in the Western District may be conceded. But constitutional jurisdiction, through diversity of citizenship, existed, and this statutory right of being sued only in the district of which it was an 'inhabitant,' was a personal privilege which it might waive, and did waive, by its appearance and answer to the merits, and more distinctly in its joinder in the prayer for the appointment of a receiver. This waiver is equally effective as against this defendant. St. Louis R.R. Co. v. McBride, 141 U.S. 127, 11 Sup.Ct. 982, 35 L.Ed. 659; Central Trust Co. v. McGeorge, 151 U.S. 129, 14 Sup Ct. 286, 38 L.Ed. 98. In Central Trust Company v. McGeorge, cited above, the complainant was a New York corporation and the defendant a corporation of New Jersey. The bill was filed in the Circuit Court for the Western District of Virginia. The defendant appeared, as in this case, and consented to the appointment of a receiver. The validity of this appointment was contested by certain persons, claiming to be creditors and stockholders of the...