Lubbock Hotel Co. v. Guaranty Bank & Trust Co.

• Decision Date: 06 June 1935
• Docket Number: No. 7384.,7384.
• Citation: 77 F.2d 152
• Parties: LUBBOCK HOTEL CO. et al. v. GUARANTY BANK & TRUST CO. et al.
• Court: U.S. Court of Appeals — Fifth Circuit

77 F.2d 152 (1935)

LUBBOCK HOTEL CO. et al. v. GUARANTY BANK & TRUST CO. et al.

No. 7384.

Circuit Court of Appeals, Fifth Circuit.

April 23, 1935.

Rehearing Denied June 6, 1935.

James Lawson Goggans, of Dallas, Tex., for appellants.

H. Grady Price, of New Orleans, La., and Chas. C. Crenshaw, of Lubbock, Tex., for appellees.

Before FOSTER, SIBLEY, and HUTCHESON, Circuit Judges.

HUTCHESON, Circuit Judge.

This appeal is from a decree in the suit of the successor trustee against the Lubbock Hotel Company and its receiver, establishing an indebtedness of mortgage bondholders in the sum of $346,480.17, ordering the lien foreclosed, and directing that the decree be certified to the state district court in which the receivership of the Lubbock Hotel Company is pending, for observance and enforcement.

The decree was entered after a full hearing on the merits, and on findings of fact and law fully sustaining it. Summarized, these findings are: That on or about April 15, 1929, the Lubbock Hotel Company executed to the Canal Bank & Trust Company, a corporation of the state of Louisiana, as corporate trustee, and to J. M. Walker, a citizen of Louisiana, as individual trustee, a certain deed of trust and bond indenture bearing that date; that this instrument, executed for the purpose of securing an issue of bonds in the principal amount of $325,000, being 354 coupon bonds, all payable in New Orleans, La., conveyed to the Canal Bank & Trust Company all of the real estate, property rights, etc., described therein, and all of the estate of the Lubbock Hotel Company in possession or expectancy in that property; that at or about the time of the execution of the mortgage the Lubbock Hotel Company, duly authorized to do so, sold the Canal Bank & Trust Company and the Mortgage & Securities Company of New Orleans, La., all of the bonds; that the corporate and the individual trustees accepted the deed of trust and bond indenture and the trust thereunder, and united in executing it, and the Canal Bank & Trust Company continued to act as trustee, until on or about May 21, 1933, when it was placed in liquidation; that the Guaranty Bank & Trust Company of Alexandria, La., has become successor by substitution, and ever since the date of such substitution has continually acted as corporate trustee, and it and J. M. Walker, the individual trustee, are authorized to maintain the suit; that the Lubbock Hotel Company, on or about the 4th of May, 1929, entered into a lease contract with the Lubbock Hotel Operating Company by which it leased the premises to that company, and thereafter, on the same day, it did transfer to the trustees in the bond instrument the said lease as collateral for the better securing of the holders of the bonds; that the Hotel Company made default in the payment of the interest maturing on June 1, 1932, and also in the payment of the principal of the bonds maturing that same day; that by the terms of the indenture the hotel company was to pay the taxes, assessments, governmental charges, etc., and it permitted them to go delinquent; that under the indenture it obligated itself to permit the trustees in the deed of trust, in the event of default, to collect and receive all rents, but, though it has defaulted, it has refused to permit them to do so; that the deed of trust provided that it should constitute a default if it permitted a receiver to be appointed, and did not contest the order and decree; that the company did permit a receiver to be appointed by the district court for the Forty-Fourth judicial district of Texas, and did not appeal therefrom; that on October 8, 1932, the holders of more than one-fourth of the bonds, in accordance with the terms of the instrument, requested the corporate trustee and the individual trustee to declare the principal and interest of all bonds due, and in compliance with the request they did do so; that it is for the best interest of all concerned that all of the properties conveyed in the deed of trust and in the lease assignment be sold as an entirety as one parcel as contemplated by the deed of trust and lease assignment; that the lien of the deed of trust and bond indenture and the lien of the assignment constitute a valid first and superior lien upon the property therein described, superior to the liens or claims of the defendants; that the making of the bonds payable in New Orleans was not done with the intent to evade the usury laws of Texas, and the transfer of the bonds was a sale not in violation of the usury laws of the state of Texas or the state of Louisiana, and the defendant Lubbock Hotel Company and its receiver are not entitled to any offsets or credit on account of usury.

The decree, after providing for and allowing all credits to which the defendants were entitled and fixing the amount due as above, adjudged and decreed a foreclosure for the collection of the sum found due. Finding that the Lubbock Hotel Company was in receivership and that the property covered by the bonds and mortgage was in the possession of the receiver, it was ordered that complainants may have their judgment certified to the state district court and may make such motions and applications as may be necessary to secure the issuance of order of sale, execution, or other writs to enforce the foreclosure.

Paragraph 18 of the decree directs (1) that the application of the funds arising from the sale should be applied first to the payment of costs, allowances, and disbursements, including the compensation of the officer making the sale; (2) to the payment of a reasonable compensation to the complainants and their attorneys, as provided in the deed of trust; (3) to the payment of the amount due, the surplus, if any, to be paid to the persons who may show themselves entitled to it.

Paragraph 19 provides that, in the event a sale is had under the orders of the state district court, if the proceeds of the sale shall not be sufficient to pay the debt in full, complainants shall have a deficiency judgment for the balance, and may apply to the state district court for execution therefor. Paragraph 20 assesses the costs against the defendants. Paragraph 21 directs the purchaser to pay in cash sufficient to pay the costs and the disbursements in the foreclosure cause, all expenses of the sale, including the compensation of the master, taxes, assessments, and other prior charges, and all expenses, fees, and other charges of complainants and their attorneys. It provides that all questions relating to the amount of compensation, allowances, disbursements, and expenses are reserved by the court for further hearing, and that all payments to be made under this paragraph of the decree shall be hereafter determined by it. It provides that the balance of the purchase price may be paid in cash or by delivering to the special master the first mortgage bonds. It further provides that the special master may accept temporarily on account of the purchase price, instead of bonds and coupons, the certificates of banks or trust companies that it holds and will deliver bonds. Paragraph 23 provides that, if the state district court should refuse to order the foreclosure sale, or if the receivership should be terminated before it may be had, any party may apply to this court for further relief.

While there are many assignments, the substantial points made by the appeal are four: (1) That the court was without power to entertain jurisdiction and should have dismissed the bill, because the property of the hotel company was in the possession of a receiver appointed by the state court; (2) that the court should not have entertained the bill, but should have dismissed it, because the Guaranty Bank & Trust Company which brought it as successor trustee had not been properly selected and was without right to prosecute it; (3) that so much of the decree which reserved jurisdiction over the foreclosure sale, directing how it should be conducted, and how the proceeds of the sale should be applied in payment of all allowances which the court reserved the power to make, was unauthorized, because an invasion of the power and jurisdiction of the state court over the res in its possession; (4) that the trial court erred in rejecting the defense of usury and refusing the relief sought on that score.

The proposition advanced in support of the first point is the familiar one that: "When a court of competent jurisdiction has, by appropriate proceedings, taken property into its possession through its officers, the property is thereby withdrawn from the jurisdiction of all other courts. The latter courts, though of concurrent jurisdiction, are without power to render any judgment which invades or disturbs the possession of the property while it is in the custody of the court which has seized it." Wabash Ry. v. Adelbert College, 208 U. S. 38, 28 S. Ct. 182, 187, 52 L. Ed. 379; Bryan v. Speakman (C. C. A.) 53 F.(2d) 463; In re White Star Ref. Co. (State of Texas v. Porter) (C. C. A.) 74 F.(2d) 269. This principle, of especial force when it operates to prevent unseemly conflict between state and federal equity courts, Harkin v. Brundage, 276 U. S. 36, 43, 48 S. Ct. 268, 72 L. Ed. 457; Bryan v. Speakman, supra, does not prevent one entitled to invoke federal jurisdiction from resort to that court to establish there the amount of his debt, and the validity of his mortgage, and to obtain, but not to execute, a decree of foreclosure. Ingersoll v. Coram, 211 U. S. 335, 29 S. Ct. 92, 53 L. Ed. 208; Waterman v. Canal Bank & Trust Co., 215 U. S. 33, 30 S. Ct. 10, 54 L. Ed. 80; Ley & Co. v. Wheat (C. C. A.) 64 F.(2d) 257; Brown v. Crawford (D. C.) 254 F. 146; Equitable Trust Co. v....