May Hosiery Mills v. United States District Court

• Decision Date: 04 April 1933
• Docket Number: No. 6893.,6893.
• Citation: 64 F.2d 450
• Parties: MAY HOSIERY MILLS, Inc., et al. v. UNITED STATES DISTRICT COURT IN AND FOR DIST. OF MONTANA et al.
• Court: U.S. Court of Appeals — Ninth Circuit

64 F.2d 450 (1933)

MAY HOSIERY MILLS, Inc., et al. v. UNITED STATES DISTRICT COURT IN AND FOR DIST. OF MONTANA et al.

No. 6893.

Circuit Court of Appeals, Ninth Circuit.

April 4, 1933.

J. Bruce Kremer, L. P. Sanders, and Alf. C. Kremer, all of Butte, Mont., for appellant May Hosiery Mills, Inc.

J. Bruce Kremer and L. P. Sanders, both of Butte, Mont., in pro. per.

S. V. Stewart and John G. Brown, both of Helena, Mont., for appellants F. & W. Grand Stores, Inc., and Edwin M. Lamb, and for appellants generally in contempt proceedings.

Wellington D. Rankin, U. S. Atty., and Arthur P. Acher, Asst. U. S. Atty., both of Helena, Mont., for appellees.

Before WILBUR, SAWTELLE, and MACK, Circuit Judges.

SAWTELLE, Circuit Judge.

On March 22, 1932, May Hosiery Mills, Inc., filed a bill in equity in the United States District Court for the District of Montana, praying that an ancillary receiver be appointed for F. & W. Grand 5-10-25 Cent Stores, Inc., the defendant in that action.

J. Bruce Kremer, L. P. Sanders, and Alf. C. Kremer appeared as solicitors for the complainant.

The bill set forth, inter alia, that the complainant was a creditor of the defendant in the sum of $3,482.89; that payment of this amount had been duly demanded and had been refused; upon information and belief, that the complainant had brought a suit in the United States District Court for the Southern District of New York against the same defendant; upon information and belief, that upon the filing of the bill in New York and upon the filing by the defendant of an answer admitting the allegations therein contained, an order was made in the New York federal court on March 19, 1932, appointing the Irving Trust Company and Harold L. Green receivers of the defendant's properties; and that it was necessary that an ancillary receiver or receivers be appointed in the district of Montana.

The complainant set forth that it was filing the bill on behalf of itself and all other creditors who would come in and contribute to the expenses of the suit.

The bill further alleged that the complainant had no adequate remedy at law, and prayed for the appointment of an ancillary receiver or receivers for the defendant's property. There was also a prayer that the court enjoin all creditors, stockholders, and other persons from instituting or prosecuting any suits against the defendant or levying against its property, but that all creditors and other "persons interested in the defendant" be permitted to intervene in the Montana suit "if and as permitted and authorized so to do by this Court."

Attached to the bill and made part thereof were a copy of the bill filed in the United States District Court in New York, a schedule of the defendant's properties, a copy of the answer, admitting the allegations of the bill, filed by the defendant in the New York court, and a copy of the New York court's order appointing receivers.

In addition to the allegations contained in the bill filed in the Montana court, the bill filed in the New York court alleged, on information and belief, that notes payable of the defendant amounting to $1,975,000 had become due and payable on March 15, 1932; that there were numerous other creditors, representing an aggregate indebtedness of more than $500,000; that the defendant's properties consisted in large part of assets that "can only be realized upon gradually in the regular course of its business"; that the "defendant, although having properties and assets which, at a fair valuation, exceeded defendant's liabilities, has not on hand sufficient moneys with which to pay its maturing obligations, nor is it able to obtain sufficient moneys to enable it to meet said obligations as the same mature"; that the defendant "conducts a cash retail business"; that its cash on hand in stores "is sufficient only for the day to day operations of such stores"; that "its cash in banks does not exceed $450,000 and defendant's presently realizable quick assets, exclusive of cash and merchandise, do not exceed $175,000"; that certain other of the defendant's creditors "are pressing, or are about to press, their claims for payment, and complainant apprehends that if such claims be not paid the holders thereof may forthwith bring suit * * * and attach the property of the defendant," etc.; that such action on the part of the creditors will, in the complainant's belief, result in judgments, etc., "with the necessary consequence that the defendant will be compelled to cease the conduct of its business"; that such action on the part of any creditors "will interfere with and obstruct such business * * * and will cause great and irreparable injury and loss to the complainant and other creditors"; and that an attempt by the complainant to enforce at law its claim as a general creditor "might precipitate general action on the part of the other creditors of the defendant, and this in turn would lead to wasteful strife and controversy, which complainant believes could be avoided * * * only through intervention of this Court, including the appointment of receivers."

An answer to the Montana bill was filed on March 22, 1932, admitting the allegations of the bill and joining in the prayer for the appointment of a receiver, etc. Edwin M. Lamb appeared as solicitor for the defendant.

Immediately after the complaint and answer had been filed, they were presented to Judge George M. Bourquin of the United States District Court of Montana, in his chambers. A proposed order appointing ancillary receivers was also presented to Judge Bourquin.

On March 23, 1932, Judge Bourquin denied the application for ancillary receivership, saying: "The suit is friendly, without real controversy, strategic, fictitious, presumptuous to put it mildly, and of the too common — yes, in plain English, collusion, if not conspiracy between embarrassed corporations and amiable courts to hinder and delay the former's creditors, quasi a crime."

On March 25, 1932, the District Judge ordered that parties and counsel in the Montana suit show cause, on April 11, 1932, why they should not be punished for contempt, saying: "So transparent is the attempt to employ this court of justice to work injustice, in a collusive and fictitious proceeding to issue orders prima facie valid but void, an abuse of receivership and injunction to intimidate and injure parties — creditors not before the court, that it is highly reprehensible and in contempt of the court within the Rule of Lord's Case, 8 How. 251 12 L. Ed. 1067, and Cleveland's Case, 1 Black 419, 17 L. Ed. 93, and cannot be ignored."

On April 11, 1932, a hearing was held, at which the respondents to the contempt citation, including the appellants herein, presented their verified returns and answers, and offered in evidence exemplified copies of the pleadings, orders, and proceedings had in the court of primary jurisdiction, and certified copies of orders appointing a receiver or receivers in ancillary proceedings based upon bills of complaint and answers identical with the pleadings filed in the instant case, the orders being substantially the same as the proposed order submitted to the court below on March 22, 1932.

The orders referred to above were made in various United States District Courts throughout the country, and were dated March 21, 22, or 23, 1932. According to the transcript, twenty-nine federal judges signed such orders, including Judge A. F. St. Sure, of the Northern District of California, and Judge Jeremiah Neterer of the Western District of Washington, both in this circuit.

In their answers all the respondents disclaimed and denied any intentional or unlawful act in contempt of court. Affidavits and other exhibits accompanied some of the answers and returns.

Among the exhibits attached to the affidavit of L. P. Sanders, one of the solicitors for May Hosiery Mills, Inc., and himself one of the appellants herein, were the following pertinent documents:

1. A letter, dated at New York City March 17, 1932, signed jointly by Wickes & Nielson, attorneys for May Hosiery Mills, Inc., and by Nathan Burkan, attorney for F. & W. Grand 5-10-25 Cent Stores, Inc., and addressed to Kremer, Sanders & Kremer, attorneys, of Butte, Mont. This letter contained a statement regarding the financial situation of the hosiery company, asserting that it was unable to meet its maturing indebtedness and that its credit was impaired. The letter inclosed, among other papers, an ancillary bill of complaint, and requested the Butte attorneys to verify and file the complaint in their district. The Montana attorneys were also authorized by the defendant below, the Grand Stores, to select an attorney in their district, who was thereby "authorized to appear and file on its behalf the enclosed answer." The letter also announced that it was the intention to file a bill for a primary receiver in the New York federal court on March 19, 1932.

2. A telegram, dated March 19, 1932, from the New York attorneys, stating that the primary receivers had been appointed in New York, and authorizing the Montana attorneys for the complainant and the defendant to file the bill and the answer, respectively, theretofore sent to Kremer, Sanders & Kremer.

3. A telegram, dated March 21, 1932, from the New York attorneys to the solicitors for the complainant below, reporting that the order appointing the receivers had been signed by Judge Wm. Bondy, of the United States District Court for the Southern District of New York.

4. A telegram, dated March 22, 1932, from the New York attorneys to Kremer, Sanders & Kremer, announcing that out of 32 ancillary receiverships granted on that date throughout the country, the New York attorneys had "secured the appointment of the Irving Trust Company and/or Green in 28 instances."

On the presentation of the returns, Judge Bourquin appointed Wellington D. Rankin, the United States District Attorney for Montana, to act as amicus curiÊ in the...