Riehle v. Margolies 1929

• Citation: 279 U.S. 218,49 S.Ct. 310,73 L.Ed. 669
• Decision Date: 08 April 1929
• Docket Number: No. 347,347
• Parties: RIEHLE v. MARGOLIES. Argued March 1-5, 1929
• Court: United States Supreme Court

279 U.S. 218

49 S.Ct. 310

73 L.Ed. 669

RIEHLE

v MARGOLIES.

No. 347.

Argued March 1-5, 1929.

Decided April 8, 1929.

Messrs. F. Wright Moxley, of New York City, and Harry F. White, of Washington, D. C., for petitioner.

Mr. Sol. A. Rosenblatt, of New York City, for respondent.

Mr. Justice BRANDEIS delivered the opinion of the Court.

This proceeding, commenced in 1923 in the federal court for southern New York, is what is called a friendly receivership. The federal jurisdiction was invoked solely on the ground of diversity of citizenship. The plaintiff, Hatch, a citizen of New York, is the holder of a dishonored check of the sole defendant, the Morosco Holding Company, Inc., a Delaware corporation, apparently with its principal place of business in New York. The bill alleges that the company has a variety of assets, largely intangible, and many liabilities, and that, although financially embarrassed, it is solvent. The prayers are that the court administer its entire property, appoint for this purpose a receiver, and enjoin all persons from interfering with his possession. An answer presented with the bill admitted its allegations and joined in its prayers. Riehle was appointed receiver. Thereafter orders were entered restraining the prosecution of suits against the company and directing creditors to file with the receiver their claims against the company. So far as appears, no order of distribution has been made.

Among the company's creditors, but not mentioned in the bill, was Margolies. Two months before the institution of this suit in the federal court, he had commenced in the Supreme Court of New York an action against the company to recover $124,381 for breach of a contract. That action, in which the company had filed an answer and counterclaim, was pending when the receiver was appointed. It was stayed by the order of the federal court. Margolies did not, so far as appears, challenge the jurisdiction of the federal court. Compare Harkin v. Brundage, 276 U. S. 36, 51-52, 48 S. Ct. 268, 72 L. Ed. 457; Lion Bonding & Surety Co. v. Karatz, 262 U. S. 77, 85, 43 S. Ct. 480, 67 L. Ed. 871; Pusey & Jones Co. v. Hanssen, 261 U. S. 491, 500, 43 S. Ct. 454, 67 L. Ed. 763. He applied to it for a modification of the order so that he might prosecute his action in the state court, and he sought to have the receiver directed to contest or liquidate the claim there. The denial by the District Court of that motion, and the contention by the receiver that the judgment later recovered in the state court is not to be accepted in the receivership proceedings as conclusive proof of the existence and amount of Margolies' claim, have been the subject of four decisions by the Circuit Court of Appeals for the Second Circuit. The last of them only is here for review, but what happened earlier must be stated. The record of the proceedings is fragmentary, but supplemented by the opinions of the Circuit Court of Appeals shows the following.

On the first appeal, Hatch v. Morosco Holding Co. (C. C. A.) 5 F.(2d) 1015, the unanimous court reversed, with costs as 'a plain violation of section 265 of the Judicial Code' (28 USCA § 379), the refusal of the District Court to permit Margolies to prosecute his claim in the state court. In doing so, the ap- pellate court said: 'A direction will, however, be included in our mandate, and in the order to be entered thereupon, that should any judgment be entered in said action in the state court, such judgment shall not be taken to be a liquidation of any claim filed or capable of being filed under the judgment (sic) creditors' bill herein, or as in any way affecting the right of the receiver to contest the claim so reduced to judgment de novo. Nothing, however, in our mandate shall be taken to prevent the court below permitting liquidation of Margolies' claim by suit in the state court, should it prefer so to do.'

Upon the coming down of the mandate, Margolies moved in the District Court that the receiver be directed to liquidate the claim in the action pending in the state court. The motion was denied. Thereupon formal notice of trial of that action was served upon both the receiver and the attorney of record of the company. Neither appeared at the trial. Judgment by default was taken against the company, and, upon an inquest as to the amount of damages, judgment was entered in the sum of $55,283.88, which included interest and costs. Thereupon Margolies moved in the Circuit Court of Appeals that its mandate on the first appeal be recalled and corrected, so that the receiver should not be permitted to try de novo in the District Court the issue on his claim. This motion was denied by the Circuit Court of Appeals, apparently without an opinion.

Margolies then filed in the District Court his verified proof of claim, and at a hearing thereon had before a special master presented an exemplified copy of the judgment in the state court. The receiver thereupon announced his election 'to have the claim tried de novo,' the master recommended that the claim be dismissed 'upon the authority of the opinion of the Circuit Court of Appeals,' and the District Court ordered that Margolies' claim be dismissed. The order was the subject of another appeal by Margolies. Hatch v. Morosco Holding Co., Inc. (Appeal of Margolies) 19 F.(2d) 766 (C. C. A.). There the court held, by a majority decision, that the direction in the mandate to the effect that any judgment recovered in the state court should not affect the right of the receiver to contest the claim de novo in the federal court had been improvidently made. It, therefore, reversed the judgment of the District Court and remanded the cause for further proceedings.

At the hearing then had before the special master Margolies put in evidence the judgment and rested. The receiver offered to prove that the claim was less than the amount of the judgment. The master excluded the evidence and recommended that judgment be entered for the full amount save for a small deduction directed by the Circuit Court of Appeals on the interest allowed by the state court, which is not challenged here. His report was confirmed by the District Court. The receiver appealed to the Circuit Court of Appeals. It affirmed the judgment, Hatch v. Morosco Holding Co., Inc. (Ex parte Margolies) 26 F.(2d) 247; but, in doing so, said: 'A majority of the court, as it is now constituted, think that our first decision impairs the jurisdiction of the District Court over assets already in its custody when the judgment of the state court was entered. They believe that the liquidation of claims is a part of the distribution of the estate, since it determines how much each creditor shall get, and that the distribution of the estate is part of what is usually understood as jurisdiction over the res. However, the former decision was reached after unusual deliberation and full presentation of all the questions involved. If it is to be changed, only the Supreme Court may do so; in the same case and on the same claim the first ruling must stand.' This court then granted a writ of certiorari. 278 U. S. 591, 46 S. Ct. 29, 73 L. Ed. —. We are of opinion that the view there expressed by the majority is erroneous and that the judgment should be affirmed.

The appointment of a receiver of a debtor's property by a federal court confers upon it, regardless of citizenship and of the amount in controversy, federal jurisdiction to decide all questions incident to the preservation, collection, and distribution of the assets. It may do this either in the original suit, Rouse v. Letcher, 156 U. S. 47, 49, 50, 15 S. Ct. 266, 39 L. Ed. 341; or by ancillary proceedings, White v. Ewing, 159 U. S. 36, 15 S. Ct. 1018, 40 L. Ed. 67. Compare Kelley v. Gill, 245 U. S. 116, 119, 38 S. Ct. 38, 62 L. Ed. 185. And it may, despite section 265 of the Judicial Code (28 USCA § 379), issue under section 262 (28 USCA § 377), or otherwise, all writs necessary to protect from interference all property in its possession. Julian v. Central Trust Co., 193 U. S. 93, 112, 24 S. Ct. 399, 48 L. Ed. 629. But the appointment of the receiver does not necessarily draw to the federal court the exclusive right to determine all questions or rights of action affecting the debtor's estate. Calhoun v. Lanaux, 127 U. S. 634, 637-639, 8 S. Ct. 1345, 32 L. Ed. 297. This is true, a fortiori, as to the subject-matter of a suit pending in a state court when the receivership suit was begun. Compare Haines v. Carpenter, 91 U. S. 254, 23 L. Ed. 345. The rule that, when the jurisdiction of a court, and the right of a plaintiff to prosecute his suit in it have once attached the right cannot be restrained by proceedings in any other court, applies to protect the jurisdiction of the court unless the case is within some recognized exception to section 265 of the Judicial Code. Compare Hull v. Burr, 234 U. S. 712, 723, 34 S. Ct. 892, 58 L. Ed. 1577. Wells Fargo & Co. v. Taylor, 254 U. S. 175, 182-184, 41 S. Ct. 93, 65 L. Ed. 205; Essanay Film Co. v. Kane, 258 U. S. 358, 361, 42 S. Ct. 318, 66 L. Ed. 658; Atchison, Topeka & Santa Fe Ry. Co. v. Wells, 265 U. S. 101, 103, 44 S. Ct. 469, 68 L. Ed. 928. Here there is no basis for any such exception.

The contention that the judgment is not conclusive rests upon the argument that, because the appointment of the receiver draws to the appointing court control of the assets and in the distribution of them among creditors there is necessarily involved a determination, both of the existence of the claim and of the amount of the indebtedness, the federal court must have the exclusive power to make that determination. The argument ignores the fact that an order which results in the distribution of assets among creditors has ordinarily a twofold aspect. In so far as it directs distribution, and fixes the time and manner of distribution, it deals directly with the property. In so far as it determines, or recognizes a prior...