National Sur. Co. v. State Bank of Humboldt, Neb.

• Decision Date: 02 February 1903
• Docket Number: 1,753
• Citation: 120 F. 593
• Parties: NATIONAL SURETY CO. OF NEW YORK et al. v. STATE BANK OF HUMBOLDT, HUMBOLDT, NEB., et al.
• Court: U.S. Court of Appeals — Eighth Circuit

120 F. 593

NATIONAL SURETY CO. OF NEW YORK et al. v. STATE BANK OF HUMBOLDT, HUMBOLDT, NEB., et al.

No. 1,753

United States Court of Appeals, Eighth Circuit.

February 2, 1903

Syllabus by the Court.

The national courts have jurisdiction in equity in the absence of an adequate remedy at law in those courts. The test of their equitable jurisdiction is the absence of such a remedy in the federal courts. The presence or absence of a remedy at law in the state courts is not the test of the jurisdiction in equity of the federal courts.

The equitable jurisdiction of the federal courts vested in them under the judiciary act of 1789, and, where it has not been subsequently changed by act of Congress, the test of that jurisdiction is the adequacy of the remedy at law for wrongs of the character under consideration in the year 1789, when the judiciary act was adopted.

The states did not grant, and they cannot by their legislation revoke, impair, or destroy, the equitable jurisdiction of the national courts.

While state legislation may not impair or destroy, it may enlarge the rights and remedies in equity in the national courts. 'A party, by going into a national court, does not lose any right or appropriate remedy of which he might have availed himself in the state courts of the same locality ' Davis v. Gray, 16 Wall. 203, 221, 21 L.Ed 447.

Section 602-611 of the Code of Nebraska, which authorize an original suit in the court, in which an unconscionable judgment, that the defendant was prevented by unavoidable casualty from defending against, was rendered, to enjoin its collection and to annul it, provide a cumulative remedy, and do not impair the original equitable jurisdiction of the circuit courts of the United States to grant appropriate relief for a like cause in cases in which the citizenship of the parties and the amounts in controversy give those courts jurisdiction.

The federal courts have plenary jurisdiction to enjoin the enforcement of unconscionable judgments and decrees, to which the defendants have meritorious defenses, that they were prevented from availing themselves of by fraud, accident, or mistake. They have the same power to relieve on account of accident or mistake as on account of fraud.

A federal circuit court, sitting in equity, has jurisdiction to enjoin the enforcement of an unconscionable judgment of a state or of a national court for new causes, such as fraud accident, or mistake, which prevented the judgment defendants from availing himself of a meritorious defense that was not fairly presented to the court which rendered the judgment.

The national courts, sitting in equity, have the same jurisdiction and power to restrain judgment plaintiffs in unconscionable judgments of the state courts from using them to extort money from defendants who ought not to pay them, that they have to enjoin such plaintiffs in like judgments of the federal courts.

The federal courts are prohibited by section 720, Rev. St. (U.S. Comp. St. 1901, p. 581), from staying proceedings of a state court or of its officers.

The failure of an officer of a state, whom foreign corporations are compelled by the statutes of the state to appoint their agent to receive service of process as a condition of doing business in the state, to comply with a statute which requires him to send a summons to the defendant, to which it is directed, immediately upon its receipt, is not such fault or negligence of the defendant corporation as will estop it from securing equitable relief from an unconscionable judgment, which it was prevented from defending itself against by the neglect of the officer.

Charles J. Greene and Ralph W. Breckenridge, for appellants.

John L. Webster (Isham Reavis and Frank Reavis, on the brief), for appellees.

This is an appeal from a final decree which dismissed the bill of the complainants, National Surety Company of New York and National Surety Company of Missouri, two corporations that sought an injunction against the State Bank of Humboldt, its attorneys, and John F. Cornell, the Auditor of Public Accounts of the State of Nebraska, to restrain them from enforcing a judgment of $7,842.40 and costs which was rendered on May 17, 1900, in the district court of Richardson county, Neb., against the National Surety Company of Missouri, and in favor of the bank. These are the material facts which condition the rights of the parties in this court: The National Surety Company of Missouri made its bond, by which it agreed to indemnify the bank against such losses as it should sustain by reason of the fraud or dishonesty of its cashier between March 31, 1896, and April 1, 1897, and should discover prior to October 1, 1897. The bank sustained losses on account of the fraud and dishonesty of its cashier during the term of the bond, but it did not discover them until more than six months after the expiration of the term, so that no cause of action in favor of the bank upon the bond ever accrued. Nevertheless the bank commenced an action on the bond for the amount of these losses in the district court of Richardson county, in the state of Nebraska, against the National Security Company of Kansas City, Mo., and delivered the summons to the Auditory of Public Accounts of the State of Nebraska, who accepted service of it, but failed to send it to either of the appellants, or to notify them of the pendency of the action. The statutes of Nebraska required every surety company not incorporated under the laws of that state to appoint the Auditor of Public Accounts its attorney, on whom process against it might be served in any action, and commanded him to forward a copy of any process served upon him forthwith to the secretary of the company to which it was addressed. Comp. St. Neb. 1901, c. 16, Secs. 175, 176.

On May 17, 1900, judgment was entered by default in the action in the district court of Richardson county against the National Security Company of Kansas City, No., for $7,842.40 and costs. On July 23, 1900, the term of that court closed, and it adjourned sine die. Neither of the surety companies had any notice or knowledge of the judgment, or of the action in which it was rendered, until August 6, 1900. On June 9, 1897, the National Surety Company of New York received the assets and assumed the liabilities of the National Surety Company of Missouri, so that, if the judgment against the latter is collected, the former must pay it. In this state of the case the surety companies prayed the court below to restrain the bank, its attorneys, and John .f Cornell, from enforcing the judgment, on the ground that they had a perfect defense to the claim on which it was founded, which they were prevented from presenting by the failure of the auditor to send them the summons, without any fault or negligence on their part; and the court below denied their prayer, because, in its opinion, sections 602-622, pp. 1340, 1341, and 1342, of the Complied Statutes of Nebraska of 1901, provided the complainants with an adequate remedy at law, and deprived the federal courts of jurisdiction in equity to grant the relief they sought.

Before CALDWELL, SANBORN, and THAYER, Circuit Judges.

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

The important question in this case is whether or not a federal court has jurisdiction in equity to restrain the parties to an unconscionable judgment of a state court from enforcing it, when the complainants in the bill had a perfect defense to the claim on which the judgment was founded, which they were prevented from presenting to the state court by accident or mistake, and when the statutes of the state have provided an original proceeding in the court in which the judgment is rendered to enable aggrieved parties to obtain relief against such judgments.

Much has been said and written by counsel for the respective parties in this suit upon the question whether or not the service of the summons upon the Auditor of Public Accounts of the State of Nebraska, and his acceptance thereof, constituted a service upon the Missouri corporation, and gave the state court jurisdiction of the action against it, and upon the question whether or not the action and judgment against the National Security Company of Kansas City, Mo., were, in effect, an action and judgment against the National Surety Company of Missouri. But, in our opinion, these questions do not condition the determination of this case; and, without deciding or intimating any opinion concerning them, the positions of counsel for the appellees will be conceded. For the purposes of the discussion and decision of this case, it will be admitted that the judgment against the security company is a judgment against the surety company, and that by virtue of the service upon, and the acceptance thereof by, the Auditor of Public Accounts, the state court acquired jurisdiction of the subject-matter and of the parties to the action, and lawfully rendered the subject against the surety company.

The gravamen of this bill, however, is not that there was no service of the summons in the action at law. It is that in that action a judgment which ought not, in equity and good conscience, to be paid, has been rendered against the surety company, when it had a perfect defense to the action, of which it was prevented from availing itself by accident or mistake, without fault or negligence on its part. It is conceded that the judgment was regularly and legally rendered after due service of the summons. Yet the fact remains that it is a judgment without cause, which the appellants ought not to be required to pay, and which they were prevented from defending themselves against by the failure of John F. Cornell, the Auditor of Public Accounts of the State of...