Marin v. Augedahl, 227

CourtUnited States Supreme Court
Citation38 S.Ct. 452,62 L.Ed. 1038,247 U.S. 142
Docket NumberNo. 227,227
Decision Date20 May 1918

[Syllabus intentionally omitted] Mr. Edward Engerud, of Fargo, N. D., and Mr. Arthur A. Miller, of Crookston, Minn., for plaintiff in error.

Mr. Emerson H. Smith, of Fargo. N. D., for defendant in error.

[Argument of Counsel intentionally omitted] Mr. Justice VAN DEVANTER delivered the opinion of the Court.

This was an action at law in North Dakota by a receiver of an insolvent Minnesota corporation to enforce against one of its stockholders an order of a Minnesota court laying an assessment on the stockholders generally. The defendant prevailed because the North Dakota court was of opinion that the order laying the assessment was made in the absence of such jurisdiction as was essential to bind him (32 N. D. 536, 156 N. W. 101), and the question for decision here is whether that court gave to the laws and proceedings in Minnesota the full faith and credit to which they are entitled under the Constitution and laws of the United States. See Great Western Telegraph Co. v. Purdy, 162 U. S. 329, 16 Sup. Ct. 810, 40 L. Ed. 986; Tilt v. Kelsey, 207 U. S. 43, 51, 28 Sup. Ct. 1, 52 L. Ed. 95.

Under the law of Minnesota, where an execution on a judgment against a corporation of that state is returned unsatisfied, the court, in a suit by the judgment creditor, may sequestrate the property of the corporation, appoint a receiver of the same, cause the property to be sold and apply the proceeds to the payment of the receivership expenses and the corporate debts. And where in such a suit the receiver presents a petition asserting that 'any constitutional, statutory or other liability of stockholders' exists, and that resort thereto is necessary, the court must appoint a time for a hearing on the petition and cause such notice thereof as it deems proper to be given by publication or otherwise. If from the evidence presented at the hearing, including such as may be produced by any creditor or stockholder appearing in person or by attorney, it appears that there is a liability of stockholders and that the available assets are not sufficient to pay the expenses and debts, the court is required to make an order ratably assessing the stockholders on account of such liability and to direct that the assessment be paid to the receiver. If payment be not made, the duty is laid on the receiver of enforcing the same by actions against the defaulting stockholders, 'whether resident or noresident, and wherever found.' The court's order is expressly made 'conclusive as to all matters relating to the amount, propriety, and necessity of the assessment.' Rev. Laws 1905, §§ 3173, 3184-3187.

According to a settled line of local decisions the proceeding on the receiver's petition for an assessment on the stockholders is not an independent suit, but simply a step in the original sequestration suit (Ueland v. Haugan, 70 Minn. 349, 73 N. W. 69) and the conclusive effect of the court's order is not dependent on the personal presence of the stockholders, because they are so far in privity with the corporation as to be represented by it, and a judgment against it is in effect a judgment against them (Hanson v. Davison, 73 Minn. 454, 462, 76 N. W. 254; Town of Hinckley v Kettle River R. R. Co., 80 Minn. 32, 39, 82 N. W. 1088. But while the order is conclusive 'as to all matters relating to the amount, propriety and necessity of the assessment'—matters which concern all stockholders alike—it leaves open the questions whether a particular person is a stockholder or holds the number of shares attributed to him, whether he has discharged his liability or has a claim which may be set off against the assessment, and whether he has any other defense which is 'personal to himself.' Straw & Ellsworth Co. v. Kilbourne Co., 80 Minn. 125, 136, 83 N. W. 36.

As so applied, the Minnesota law has been sustained by this court against various claims that as to stockholders it infringes the due process clause of the Fourteenth Amendment; and we have also recognized and enforced the duty of courts of other states, under the due faith and credit clause of the Constitution and the legislation of Congress on that subject, to give effect to orders of Minnesota courts making assessments under that law, although the stockholders were not personally made parties to the suits wherein the orders were made. Bernheimer v. Converse, 206 U. S. 516, 27 Sup. Ct. 755, 51 L. Ed. 1163; Converse v. Hamilton, 224 U. S. 243, 32 Sup. Ct. 415, 56 L. Ed. 749, Ann. Cas. 1913D, 1292; Selig v. Hamilton, 234 U. S. 652, 34 Sup. Ct. 926, 58 L. Ed. 1518, Ann. Cas. 1917A, 104. And see Royal Arcanum v. Green, 237 U. S. 531, 543-545, 35 Sup. Ct. 724, 59 L. Ed. 1089, L. R. A. 1916A, 771.

The order with which we here are concerned was made by a Minnesota court in a sequestration suit against a Minnesota corporation. Besides being a court of general jurisdiction, both at law and in equity, the court making the order had full jurisdiction of that suit. The suit was begun by a judgment creditor after an execution on his judgment was returned unsatisfied. The defendant corporation had its principal place of business in the county where the suit was begun, and was brought into the suit by due service of process. Thus much is not questioned. Nor is it questioned that a receiver was appointed, or that by a petition in the suit he sought an assessment on the stockholders, or that public notice of the hearing on the petition was given as the court directed, or that there was a hearing as contemplated. But it is insisted that the court was without jurisdiction to make the assessment and that in consequence the order is open to collateral attack. In support of this contention it is said that in making the assessement the court evidently proceeded on the mistaken assumption that the corporation was one on whose stockholders a liability was imposed by section 3 of article 10 of the state Constitution,1 whereas in truth the corporation was one of a class whose stockholders were excepted from the operation of that provision. But is this anything other than saying that the court erred in ruling on a matter of substantive law regularly presented to it for decision in a pending suit? The constitutional provision does no more than to declare a general rule of liability and to except therefrom stockholders of a certain class of corporations. It does not purport to deal with the jurisdiction of courts—their power to hear and determine—but only to prescribe in a general way the relative rights of stockholders and creditors. It therefore must be taken as going to the merits rather than to the jurisdiction. The Minnesota courts evidently so regard it; and they also treat the question whether a particular corporation belongs to one class or another as a matter the decision of which in a suit against the corporation is binding on the stockholders in subsequent litigation with the latter. Merchants' National Bank v. Minnesota Thresher Manufacturing Co., 90 Minn. 144, 149, 95 N. W. 767.

Four Minnesota cases are cited as making against these views, but we do not so understand them. In Dwinnell v. Kramer, 87 Minn. 392, 92 N. W. 227, a policy holder in an in- solvent mutual fire insurance company, against whom a general assessment on the policy holders was sought to be enforced, successfully defended on the ground that his policy did not conform to the mutual plan, but was an 'ordinary contract of insurance' issued on receipt of a cash premium. The defense plainly was personal to him. Swing v. Humbird, 94 Minn. 1, 101 N. W. 938, arose under an Ohio law and not the law of Minnesota. An assessment made in Ohio on the policy holders of an insolvent fire insurance company was sought to be enforced in Minnesota, and the defendant prevailed because his policy had been fully paid for and had terminated prior to the assessment. That also was a personal defense. In Swing v. Red River Lumber Co., 105 Minn. 336, 117 N. W. 442, an attempt was made to enforce a similar Ohio assessment, but it failed for the reason, among others, that when the defendant's policy was issued the insurance company was doing business in Minnesota in violation of the laws of that state—a matter which was personal to him and to other Minnesota policy holders if there were such. In Finch, Van Slyck & McConville v. Vanasek, 132 Minn. 9, 155 N. W. 754, there was a direct appeal from an order levying an assessment on stockholders in a sequestration suit. The character of the corporation was not in controversy, and the 'only controverted question before the [trial] court was the amount to be levied.' There also was a question in the appellate court as to whether the trial should have been to a jury. With this in mind, it seems plain that what was said can have no particular bearing here.

Had the Minnesota court in this instance held that the corporation was in the excepted class and then denied the receiver's petition, is it not certain that the order, if neither vacated nor reversed, would have settled conclusively the nonexistence of the asserted liability? And if in a subsequent suit the receiver or the creditors represented by him had again asserted such a liability on the part of the stockholders, is there any doubt that the latter could have relied safely on the order as a prior adjudication in their favor? The answers seem obvious. Charged with the duty, as the court was, of ascertaining whether there was any liability to be enforced, it was its province to consider and decide every question which was an element in that problem, including the one of whether the corporation was in the excepted class. That question required solution and the power to solve it was lodged in the court. The court did solve it, for, as is said in Neff v. Lamm, 99 Minn. 115, 117, 108 N. W. 849, 850, the order making the assessment is 'necessarily based upon a...

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