May Hosiery Mills v. F. & W. Grand 5-10-25 Cent Stores

• Decision Date: 18 May 1932
• Docket Number: No. 1301.,1301.
• Citation: 59 F.2d 218
• Parties: MAY HOSIERY MILLS, Inc., v. F. & W. GRAND 5-10-25 CENT STORES, Inc.
• Court: U.S. District Court — District of Montana

59 F.2d 218 (1932)

MAY HOSIERY MILLS, Inc., v. F. & W. GRAND 5-10-25 CENT STORES, Inc.

No. 1301.

District Court, D. Montana.

May 18, 1932.

Kremer, Sanders & Kremer, of Butte, Mont., for plaintiff and its counsel, respondents.

Stewart & Brown, of Helena, Mont., for defendant and its counsel, respondents.

W. D. Rankin, of Helena, Mont., amicus curiæ.

BOURQUIN, District Judge.

March 22, 1932, in the clerk's office counsel filed complaint and answer, and, presenting them to the court with an order-form, applied for ancillary receivers, preferably those three days before appointed in original proceedings in the Southern District of New York. In addition was a rejected tender of some letter and information the like ancillary presently had been or would be sought and granted in some forty federal districts wherein are located some one or more of defendant's more than one hundred stores. The complaint, by a simple contract creditor in behalf of itself and all others who so elect, incorporates the original complaint, in substance that, to plaintiff defendant owes, and on demand failed to pay, $3,482.89; that it owes $2,475,000 due or coming due, and it is or will be unable to pay; that defendant is a going concern of many stores and leaseholds, some for expansion, with assets exceeding liabilities, its cash in banks is $450,000, and its "realizable quick assets exclusive of cash and merchandise" are $175,000; that its credit is impaired, it is or will be unable to keep stocked, and to discontinue business would involve loss, to avoid which it is necessary the court appoint receivers and carry on the business; that other creditors now or will press their claims and will hamper defendant to its and their loss; and that, did plaintiff proceed at law, like loss would result.

The prayer is as usual and for receivers and continuous operation of the business, to perform defendant's existing contracts "to the extent performance shall seem profitable," to enjoin creditors from proceedings to recover their dues, to adjudicate claims, compromise, compound, settle, sell and pay or return the properties and business to defendant "if and to the extent that provision shall be made for the claims" of creditors.

In New York, as here, answer simultaneously filed admits all alleged and joins in the prayer. Forthwith, in New York, Green and Irving Trust were appointed receivers to function as prayed, save, naturally as will appear, without direction to close out, sell and pay creditors, and also naturally with special admonition that "leases" are included in contracts to be repudiated if performance does not "seem profitable."

Green is defendant's executive vice president, in the circumstances an appointment appropriate to the end sought, but obviously impossible, if not downright indecent. See Harkin's Case, 276 U. S. 54, 55, 48 S. Ct. 268, 72 L. Ed. 457. And it seems Irving Trust is the stock or standing receiver set up by the courts to some disarm (if not intimidated by) the vicious propaganda of certain of the bar who insist it is their prerogative to dictate the appointment of their friends as receivers, strikingly illustrated by Hardy's Case (D. C.) 20 F.(2d) 968, and by this at bar, and who criticize and condemn courts which assert, as they indubitably should, their right and duty, not only to appoint disinterested receivers, but also, in the person of the court's qualified friends to that office of alter ego, judicial representative, trusted hand and confidential agent of the court which a receiver is. Those objecting to the courts' friends are desirous of their own friends, with contemplated advantage, profit, and emolument.

After due consideration, taking the pleadings by four corners, looking through forms to discover intent, assuming at least the perspicacity of the average man, ignoring conclusions, giving due weight to facts, having in mind the principles of pleading and equity and the federal statute (Judicial Code § 37 28 USCA § 80), it is clear that the proceedings are collusive, sham, fictitious, in bad faith, of ulterior motive, for the benefit of defendant alone; that there is no showing of necessity in creditors' behalf, no reasonable inference from the facts alleged that without receivership they would lose a dollar; that plaintiff's case-made has adequate remedy at law, and without need to pursue it by scores of counsel in forty jurisdictions, even though at defendant's expense, and is not within equity jurisprudence if within like jurisdiction; that to accomplish the illegal end sought, and as a party to the conspiracy, the aid of the court is solicited; that the latter's co-operation by injunction and receivership would be abuse of the power of the court though within it, in disregard of its right and duty, and perversion of process to the injury of creditors and others without notice and not before the court.

A court of equity should not thus work inequity and convert the temple of justice to a place of injustice. No doubt defendant owes plaintiff, but none the less the case-made, by reason of procedure, motive, strategy, and object, is sham, fictitious, collusive, an affront to equity, insolent, and an imposition upon the court. The suit is all-fours Hardy's Case, supra. Plaintiff is a dummy or mere "tool" of defendant, and the proceedings are "collusive," to adopt the characterization of Chief Justice Taft in the like and later Harkin Case, supra. The only reasonable inference is that the prime object of this suit is receivership as final relief, and unwarranted injunction and moratorium at creditors' expense; is to hinder and delay and so to defraud and oppress creditors; is to enable defendant by its executive vice president receiver to work its will with creditors; is to rid itself of unprofitable leases and other contracts, by repudiation, compromise, settlement on his terms, and to the disadvantage of creditors coerced by the delay and expense of receivership indefinite if not for life prolonged. A creditor in these circumstances thus delayed a day in collection of money presently due him is defrauded.

If the scheme be furthered by the co-operation of, say, an amiable court, what is it but employment of the judicial club to beat off and hold up creditors until, wearied, they settle with or wait the pleasure of the debtor's executive vice president receiver shielded by the judicial gown? That the like is not uncommon is unfortunately true, is a scandal to courts of equity, undermines vital confidence in their impartiality, lessens essential respect due them in so far as their administration merits it and not at all to their antiquated silken gown, impairs necessary prestige and real usefulness, and is of the abuses which incite congressional limitation of the jurisdiction of federal courts until soon they will be little more than police courts, incite amongst others the pending Norris Bill which, enacted as in due time it will be, will end all that jurisdiction based on diverse citizenship as are the instant proceedings and receiverships in general.

There is doubt that thus the problem will be solved, evil checked, situation bettered; but there is no doubt that Congress is resolved, come what may, abuse of the power of federal courts in behalf of the strategy and aggressions of wealth and corporate power in receiverships, injunctions, periodical reorganizations of great profit to the promoter and "reigning family," and what not, shall be ended. A better remedy might be applied: "Wherever reposed, power is abused; but any argument for that reason to withhold it, is headed straight for anarchy," said the great Marshall. Mere shift in the repository of power or change in the mechanics of courts goes for little or nothing. The judge is the court, what he is it is, and power is exercised accordingly. See Great Falls Gas Case (D. C.) 39 F.(2d) 177. A chancery receivership to possess a mercantile corporation's...