Merritt v. American Steel-Barge Co., 741.

• Decision Date: 01 March 1897
• Docket Number: 741.
• Citation: 79 F. 228
• Parties: MERRITT et al. v. AMERICAN STEEL-BARGE CO.
• Court: U.S. Court of Appeals — Eighth Circuit

79 F. 228

MERRITT et al. v. AMERICAN STEEL-BARGE CO.

No. 741.

United States Court of Appeals, Eighth Circuit.

March 1, 1897

This case was before this court, at the May term, 1896, on a motion to dismiss the writ of error. Merritt v. Barge Co., 40 U.S.App. 127, 21 C.C.A. 525, and 75 F. 813. On the present occasion it is here for determination on the merits. Alfred Merritt and Leonidas Merritt, the plaintiffs in error, who were the plaintiffs below, on April 10, 1894 sued the American Steel-Barge Company, the defendant in error, in the district court for St. Louis county, state of Minnesota, to recover the value of 11,331.3 shares of stock in the Lake Superior Consolidated Iron Mines. The complaint alleged, in substance, the following facts: That in the months of January and February, 1893, the plaintiffs borrowed of Charles W. Wetmore $432,575, giving as an evidence of such indebtedness their five negotiable promissory notes, which were secured by the pledge of certain shares of stock in the Duluth, Missabe & Northern Railway Company and in the Mountain Iron Company and the Missabe Iron Company, the shares of stock in said railway company alone being of the value of $565,000; that at the time said loan was effected it was agreed that said Wetmore 'should not repledge, sell or dispose of' any of said stock, and that, if the plaintiffs so desired, the first four of the aforesaid notes should be extended for a period of six months from their maturity; that on April 24, 1893, said Wetmore, in violation of his agreement, transferred all the shares of stock in said railway company by him held in pledge to John D. Rockefeller as security for an individual debt which he owed to said Rockefeller, which stock was at the time fairly worth $565,000; that the plaintiffs had elected to waive the tort thus committed by said Wetmore, and to consider the transaction last aforesaid as a sale of the stock by said Wetmore for their benefit; that on March 13, 1893, said Wetmore had further converted to his own use certain bonds belonging to the plaintiffs, which were of the value of $90,000, and that the plaintiffs had further elected to treat the conversion of said bonds as a sale of the same by said Wetmore for their account; that after these several transactions said Wetmore had sold and transferred the five promissory notes heretofore mentioned, and the remaining shares of stock which had been pledged to secure the payment of the same, to the American Steel-Barge Company; that said Wetmore was at the time the vice president and chief managing officer of said barge company; that said notes and stocks were so transferred to the barge company to secure an indebtedness of said Wetmore to said company which had been theretofore contracted; that at the time of such transfer said barge company well knew the terms and conditions under which the said Wetmore held the aforesaid notes and stock, and that he had no right or authority to make the transfer in question; that after the last-mentioned transfer the barge company had converted the stocks by it received into 11,331.3 shares of the capital stock of the Lake Superior Consolidated Iron Mines, a corporation organized under the laws of New Jersey; that the plaintiffs had demanded of the barge company the surrender and return of the stocks last aforesaid; that it had refused to accede to such request; and that the plaintiffs had thereupon elected to waive the tort so committed, and to sue the barge company in assumpsit for the value of the shares of stock by it received and retained. The case was removed by the barge company, it being a corporation organized under the laws of New Jersey, from the state court to the circuit court of the United States for the district of Minnesota on April 18, 1894. After such removal the barge company filed an amended answer to the aforesaid complaint, whereby, among other defenses, it interposed the following plea, in substance: That being the legal owner and holder of the five promissory notes referred to in the complaint, and having in its possession, as pledgee, the collateral attached thereto, consisting of 11,331.3 shares of stock in the Lake Superior Consolidated Iron Mines, it had attempted, after the maturity of said notes, and prior to May 18, 1894, to sell the collateral at public auction in the city of New York, where the notes were made payable, for the purpose of satisfying said notes, but that it had been prevented from so doing by an injunction restraining such sale, which had been obtained by the plaintiffs, Alfred Merritt and Leonidas Merritt, in an action brought by them against the defendant barge company in the supreme court of the city and county of New York; that said action so brought by the plaintiffs was dismissed by them prior to a final judgment therein, whereupon the barge company, in May, 1894, had itself brought a suit in said supreme court of the city and county of New York against Alfred Merritt and Leonidas Merritt for the purpose of determining the rights of the parties in and to the five promissory notes mentioned in the complaint, and in and to the aforesaid 11,331.3 shares of stock held as collateral thereto; that in the suit so instituted by the barge company it prayed judgment that the defendants in said suit might be excluded from any interest in said notes, and in said shares of stock so pledged as collateral, except as subordinate to the lien of the barge company; that the lien of the latter company upon said stock might be fixed and defined; that the right to sell the same for the satisfaction of the five notes by it held might be established; that said stock might be sold pursuant to the decree of the court; and that the proceeds might be applied to the payment of said notes. The plea further averred that said notes were payable in the city of New York; that when said suit was brought by the barge company the certificates representing the shares of stock in controversy were situated in the city of New York, and were subject to the jurisdiction of the supreme court for the city and county of New York; that said court then and there had full jurisdiction of said stock for the purpose of establishing and foreclosing the alleged lien of the barge company; that after due proceedings had in said court a final decree was rendered in accordance with the prayer of the complaint, whereby the said Alfred Merritt and Leonidas Merritt were excluded from all interest in said notes and stock, except as subordinate to the lien of the barge company, and whereby the barge company's title to the notes and its title to the stock as a pledgee thereof, were established, and whereby the stock was adjudged to be sold at public auction and the proceeds thereof applied to the payment of the aforesaid notes. The plea further averred that the judgment and decree last aforesaid was rendered upon due and proper notice to the defendants, Alfred Merritt and Leonidas Merritt, and upon testimony duly and properly taken, proving all of the allegations contained in the bill of complaint; that pursuant to the decree so obtained the stock in question was afterwards sold at public auction; and that at such sale it was purchased by the barge company, on the 24th day of October, 1894, for the sum of $25,000. To the aforesaid plea setting up the proceedings in the supreme court of the city and county of New York as a bar to the present action, the plaintiffs demurred, but the demurrer was overruled. Subsequently, the plaintiffs having declined to reply to the facts alleged in the aforesaid plea, a judgment was rendered on the pleadings in favor of the defendant. The writ of error is brought to reverse that judgment.

A. A. Harris and Henry E. Harris, for plaintiffs in error.

James H. Hoyt and Frank B. Kellogg (Cushman K. Davis and C. A. Severance with him on brief), for defendants in error.

Before CALDWELL and THAYER, Circuit Judges.

THAYER Circuit Judge, after stating the case as above, .

The suit which was instituted in the supreme court of the city and county of New York by the American Steel-Barge Company against Alfred Merritt and Leonidas Merritt, the plaintiffs in this suit, according to the averments of the plea, was an action to establish and foreclose a lien on personal property alleged to be situated in New York, and it was brought under the provisions of a local statute of that state which authorized such a proceeding to be maintained on constructive or substituted service. Code Civ.Proc.N.y. 1877, Secs 438-444, inclusive. It was a suit in the nature of a proceeding in rem, and it retained that character to the end, inasmuch as the defendants, although served with summons outside of the state of New York, as provided by the laws of that state, did not appear at any stage of the proceedings so as to authorize the rendition of a personal judgment against them. The fundamental fact to be alleged and proven in such proceeding was the existence of a valid lien in favor of the barge company upon the property in controversy, to wit, 11,331.3 shares of stock in the Lake Superior Consolidated Iron Mines. On the other hand, it appears from the complaint in the case at bar that it was a suit which was brought upon the theory that the barge company had no lien upon the property in question, and that it had rendered itself liable to the plaintiffs for the value of said property by refusing to restore it to the plaintiffs when a return thereof was demanded. The plaintiffs do not deny the practical identity of the issues in the two suits,-- the one pending in Minnesota, and the other in New York,-- and they concede, as we understand, that because the issues were identical, each having reference to the existence of the alleged lien, the judgment of The new York...