Lively v. Picton

• Decision Date: 13 November 1914
• Docket Number: 2491.
• Citation: 218 F. 401
• Parties: LIVELY v. PICTON et al.
• Court: U.S. Court of Appeals — Sixth Circuit

218 F. 401

LIVELY v. PICTON et al.

No. 2491.

United States Court of Appeals, Sixth Circuit.

November 13, 1914

Henry Bentley, of Cincinnati, Ohio, for appellant.

Constant Southworth and C. H. Stephens, both of Cincinnati, Ohio, for appellees.

Before WARRINGTON, KNAPPEN, and DENISON, Circuit Judges.

KNAPPEN Circuit Judge.

This is an appeal from a decree sustaining pleas to the bill of complaint and dismissing the bill. The material facts are these:

In the year 1901 the National Endowment Company was organized as a corporation under the laws of West Virginia, for the purpose of carrying on a co-operative investment business on the partial payment plan. On June 16, 1911, Margaret Frost began suit in a common pleas court of the state of Ohio, alleging that she was a creditor of the Endowment Company; that on or about July 1st then next she would be entitled to receive from defendant nearly $400, by virtue of endowment certificates issued by it; that there was a large number of other such certificate holders, many at least of whose claims would mature on or about the same July 1st; that at least $25,000 in cash would be required to satisfy the Endowment Company's obligations in addition to the amount needed to pay the installment vouchers; that the company's liabilities were largely in excess of its assets; that its expenses and costs of administration absorbed its entire income; that its affairs had been improperly managed; that it had then on hand no funds, securities, or other available assets, and, as then managed, could have no funds to meet its obligations at maturity; that its directors had not held a meeting for more than seven years; that several of them had attempted to resign, but there had been no meeting to act upon the attempted resignations; that it was not meeting its monthly redemption payments; that its principal place of business was originally in Covington, Ky.; that attempt has been made to change such place of business to New York City, but that no business of any kind had ever been transacted there, nor did the Endowment Company have there at any time any assets of any kind; that all the business of every kind transacted by the company for the past nine years was done in the city of Cincinnati (which was within the jurisdiction of the court) where its office, all of its officers, and nearly all, if not all, of its assets were situated. The petition alleged an unlawful diversion and misapplication by the Endowment Company's officers of a trust fund of upwards of $16,000 in which petitioner and other certificate holders were beneficially interested. It prayed judgment in petitioner's favor for upwards of $400, with interest and costs, for a receivership of the property and assets of the Endowment Company within the jurisdiction of the court including the trust fund mentioned, with power to recover the property and assets, including the trust fund, for an accounting of the assets and liabilities of the Endowment Company, and the distribution of its property among its certificate holders in accordance with their respective interests, as the same should be ascertained.

On the same date William J. McCauley was appointed receiver of the Endowment Company's assets of every kind in Ohio, including choses in action, with full powers of suit, recovery, and collection, the Endowment Company and its representatives being required to deliver to the receiver all the company's assets of every description within the state of Ohio, with injunction against interference with the receiver's official action. The receiver at once qualified, and on the next day took possession of all the Endowment Company's tangible property at its office in Cincinnati. This property consisted of the company's books of account, records, letters and papers, stock certificate book, and corporate seal, together with a deposit account of $1.50 in the German National Bank. There have since come into the possession of the receiver further sums of money aggregating $22. It is stipulated that, so far as the parties know, the foregoing are all the tangible assets of the Endowment Company. Its intangible assets, so far as ascertained by the receiver, consist of the disputed claims against the bank and Picton, its then president, on account of the alleged diversion of trust fund, and certain unpaid stock subscriptions amounting to $5,500. On June 19th service of process was made on Picton, the Endowment Company's president. Although the Endowment Company had never obtained authority to do business in Ohio, and its stockholders had passed a resolution changing its place of business from Covington, Ky., to New York City, it is stipulated that since the place of business at Covington was closed, in 1902, it had transacted business and had an office in Cincinnati, which was also Picton's office for the doing of his individual business, and from which office most of the Endowment Company's business was transacted, and at which its records were all kept. On June 26th proof of service on Picton was filed. Meanwhile, on June 24th, the Endowment Company demurred to the bill, and moved to set aside the receivership. On September 9th the demurrer was overruled and the motion denied, and the Endowment Company later answered. On November 17th the receiver was granted leave to sue the bank and Picton on the $16,000 demand, as well as six other parties to recover unpaid subscriptions; and thereupon suits were begun against the bank and Picton and against one of the subscribers mentioned.

It is alleged in the bill in the court below, and alleged or admitted in the pleas thereto, that on August 4, 1911, and thus 1 month and 18 days after the appointment of receiver by the Ohio common pleas court, appellant was, by a state court of West Virginia, appointed receiver of the National Endowment Company, and the bill alleges that appellant was by said court directed to bring suit in equity in the court below, against the German National Bank and Picton, individually and as trustee, and such other persons as might in the opinion of the receiver be proper parties to such action. This suit was accordingly begun August 12, 1911, for the recovery of the same $16,000 trust fund involved in the proceedings in the state court. Both defendants pleaded the state court receivership and the proceedings thereunder in bar of the present action. Upon hearing had on the pleas and replications thereto, the pleas were adjudged to be true in fact and sufficient in law and equity; and, complainant not desiring to plead further, the bill of complaint was dismissed, with costs.

The ultimate question is simply: Which of these two receivers is entitled, as representing the Endowment Company, to maintain suit upon the alleged cause of action against the bank and Picton? The two pending suits relate to precisely the same cause of action. They cannot properly coexist. The authority of one receiver excludes that of the other. A question of conflict of jurisdiction between the West Virginia court and the Ohio common pleas court is presented. Action by the Ohio state court in appointing its receiver preceded similar action by the West Virginia court, on which the action in the court below is based; and if by its receivership the common pleas court obtained jurisdiction and control of the cause of action in question, and has not lost control by subsequent proceedings, the property right represented thereby was completely withdrawn from the jurisdiction of the West Virginia state court and the court below, and vested in the Ohio Common Pleas Court. Wabash R.R. Co. v. Adelbert College, 208 U.S. 38, 54, 28 Sup.Ct. 182, 52 L.Ed. 379, and cases there cited; Palmer v. Texas, 212 U.S. 118, 125, 29 Sup.Ct. 230, 53 L.Ed. 435; Porter v. Sabin, 149 U.S. 473, 480, 13 Sup.Ct. 1008, 37 L.Ed. 815, and cases there cited; Phelps v. Mutual Reserve, etc., Ass'n (C.C.A. 6th Cir.) 112 F. 453, 464, 50 C.C.A. 339, 61 L.R.A. 717, and following; High on Receivers (4th Ed.) Sec. 47a; McKay v. Van Kleeck, 133 Mich. 27, 33, 94 N.W. 367.

We say this because the record does not justify a finding that the West Virginia court had, on or before June 16, 1911, by virtue of the proceedings under which appellant was appointed receiver, obtained jurisdiction over either the person of the Endowment Company or the subject-matter of its right of action, against the bank and Picton, unless an admission of such fact is contained in the allegation in Mrs. Frost's bill in the Ohio common pleas court that:

'Through the proper legal sources, the officials of the state of West Virginia have begun proceedings to forfeit its charter for noncompliance to the laws of said state, in which proceedings a receiver is prayed for, in addition to the forfeiture of its franchise; said authorities claiming said defendant has not paid its franchise taxes for three years last past. That several of the stockholders are threatening suit against defendant.'

But this allegation was apparently inserted to show the desperate condition of the Endowment Company, and we think falls short of an admission that a court of West Virginia had acquired prior jurisdiction to appoint a receiver over the company's person or the asset in question. Under the statutes of that state, the company was not required to have its principal place of business, or even to have any property or to do any business, therein. Code 1906, Secs. 2270, 2295, 2312 (Code 1913, Secs. 2874, 2899, 2916). Its principal place of business not being within the state, although it was a domestic as distinguished from a foreign corporation, it was classified by the statute as nonresident. Section 1046 (section 1257). The statute provided for suit in equity by the Attorney General for the recovery of...