Merryweather v. United States

• Decision Date: 19 April 1926
• Docket Number: No. 4728.,4728.
• Citation: 12 F.2d 407
• Parties: MERRYWEATHER et al. v. UNITED STATES.
• Court: U.S. Court of Appeals — Ninth Circuit

12 F.2d 407 (1926)

MERRYWEATHER et al. v. UNITED STATES.

No. 4728.

Circuit Court of Appeals, Ninth Circuit.

April 19, 1926.

Danson, Lowe & Danson and R. E. Lowe, all of Spokane, Wash., for appellant Merryweather.

Chas. H. Leavy and E. J. Farley, both of Spokane, Wash., for appellants Spokane County and De Graff.

Donald F. Kizer, U. S. Atty., and H. Sylvester Garvin, Asst. U. S. Atty., both of Spokane, Wash., for the United States.

Before GILBERT, HUNT, and RUDKIN, Circuit Judges.

HUNT, Circuit Judge.

This action was brought by the United States to establish a claim for income taxes, penalties, and interest as superior to all other claims against an insolvent corporation of which Merryweather had previously been appointed receiver in an action pending in the superior court of the state of Washington. It is alleged that the collector of internal revenue filed due proofs with the receiver, claiming the amount of taxes and penalties, and that the receiver refused to give priority to the claims over all other debts due by the corporation, as provided in section 3466, Revised Statutes (Comp. St. § 6372). The receiver answered that the receivership proceeding was still pending in the state court, that the estate was not ready to be closed, that the claim of the United States was on file and before the court, and that the United States District Court was without jurisdiction to grant any relief.

By cross-complaint against Spokane county and the treasurer of that county, the receiver alleged that the duty of the treasurer was to collect taxes due the state of Washington and the county of Spokane and the school districts, and that such taxes were prior to all other claims, including those of the United States. He therefore prayed that the bill be dismissed, or, if the court assumed jurisdiction, that the priority between the United States and the cross-defendants be determined. The cross-defendants by answer alleged that certain real and personal property taxes were due the county, which unpaid taxes constituted a superior claim against the assets in the hands of the receiver, and prayed dismissal for lack of jurisdiction, or that the court adjudge their claims to be superior.

Upon receiving evidence, the court found that certain taxes, penalties, and interest were unpaid, and decreed that the receiver should give priority to the claim of the United States in preference to all other claims, except for such expenses in conducting the receivership as might be allowed by the court which appointed the receiver. The receiver and Spokane county took separate appeals.

By thoroughly established rule, when a court, exercising jurisdiction in equity, appoints a receiver of all the property of a corporation, administration of the estate is assumed by the court. The possession of the receiver is the possession of the court and the administration is by the court, acting through the receiver for the benefit of those who may be found by the court to be entitled to the estate. Porter v. Sabin, 149 U. S. 473, 13 S. Ct. 1008, 37 L. Ed. 815. As a consequence the court which holds the estate and administers must decide whether it will determine for itself all claims against the receiver, or will permit suits to be brought and determined in other courts. And as said by Justice Gray in Porter v. Sabin, supra: "* * * No suit, unless expressly authorized by statute, can be brought against the receiver without the permission of the court which appointed him."

The rule rests upon firm ground: One who brings suit against a receiver without leave seeks some advantage over other claimants upon the assets held by the receiver. Should such a claimant bring his suit in another jurisdiction, and succeed in obtaining a judgment against the receiver, he would have a right to an execution against the property in the possession of the receiver, and in enforcing execution issued by one court could seize the property held in trust by the receiver in another court. Thus the property of an estate held in trust by a receiver could be taken and applied to the liquidation of the claim of the holder of the judgment, regardless of the claims of other creditors, or of the directions of the court which appointed the receiver. This would put the court which appointed the receiver in an attitude of helplessness in dealing with the assets lawfully taken into its possession, to be administered as a trust through the receiver. Durand v. Howard, 216 F. 585, 132 C. C. A. 589, L. R. A. 1915B, 998.

Whether failure to secure from the one court leave to sue affects jurisdiction, or is but an irregularity, is a question upon which decisions are at variance. Many cases are collected in Tardy's Smith on Receivers, p. 2018. The Supreme Court of Washington Territory, in Brown v. Rauch, 1 Wash. 497, 20 P. 785, held that obtaining leave to sue was jurisdictional, but in Goodale Co. v. Valentine, 69 Wash. 263, 124 P. 691, and in Schwabacher Bros. Co. v. Schade et al., 99 Wash. 271, 169 P. 783, the Supreme Court of the state adopted a contrary view. But the generally accepted understanding of the decision in Barton v. Barbour, 104 U. S. 126, 26 L. Ed. 672, approved in Porter v. Sabin, supra, is that the Supreme Court holds that obtaining leave to sue is jurisdictional.

In Barton v. Barbour, supra, Barton brought suit in the Supreme Court of the District of Columbia against Barbour as receiver for a railroad company, a Virginia corporation, to recover for personal injuries received. The receiver filed a plea to the jurisdiction of the court, contending that he was receiver by virtue of a decree of a state court in Virginia; that plaintiff had not obtained leave of the state court to bring and maintain the suit. The court held that leave to sue should have been first obtained. Consideration was also given to the contention that want of leave to bring suit did not take away the jurisdiction of the court in which the suit was brought to hear and determine it, but only subjected the plaintiff to liability to be attached for contempt or to be enjoined from further prosecution of the suit; but the decision was that the receiver, having been appointed by the state court of...