United States v. Kensington Shipyard & Drydock Corp.

• Decision Date: 30 June 1948
• Docket Number: No. 9575.,9575.
• Citation: 169 F.2d 9
• Parties: UNITED STATES v. KENSINGTON SHIPYARD & DRYDOCK CORPORATION et al.
• Court: U.S. Court of Appeals — Third Circuit

169 F.2d 9 (1948)

UNITED STATES v. KENSINGTON SHIPYARD & DRYDOCK CORPORATION et al.

No. 9575.

Circuit Court of Appeals, Third Circuit.

Argued May 4, 1948.

Decided June 30, 1948.

Hyman Zuckerman, of Philadelphia, Pa. (Alexander N. Rubin and Goff & Rubin, on the brief), all of Philadelphia, Pa., for appellant.

William B. Waldo, of Washington, D. C., (Theron Lamar Caudle, Asst. Atty. Gen., Sewall Key, George A. Stinson and C. Moxley Featherston, Sp. Assts. to the Atty. Gen., Gerald A. Gleeson, U. S. Atty., and Thomas J. Curtin, Asst. U. S. Atty, both of Philadelphia, Pa., on the brief), for United States.

Thomas C. Egan, of Philadelphia, Pa., for receivers of Kensington Shipyard & Drydock.

Richard E. Wellford, of Washington, D. C., Mark Willcox, Jr., and MacCoy, Brittain, Evans & Lewis, all of Philadelphia, Pa. (James S. Clifford, Jr., of Philadelphia, Pa., on the brief), for Primary and Ancillary Receivers of Aerodynamic Research Corporation.

William T. Campbell, of Philadelphia, Pa., (Herbert A. Barton and Swartz, Campbell & Henry, all of Philadelphia, Pa., on the brief), for Maryland Casualty Co.

Before McLAUGHLIN and O'CONNELL, Circuit Judges, and RODNEY, District Judge.

McLAUGHLIN, Circuit Judge.

This appeal is from an order denying appellant's motion to dismiss the government's action under Section 3678 of the Internal Revenue Code, 26 U.S.C.A.Int. Rev.Code, § 3678,¹ to enforce the tax lien of the United States for over $2,000,000 against Kensington Shipyard and Drydock Corporation, a Pennsylvania corporation, and its parent company, Aerodynamic Research Corporation.

Aerodynamic, chartered as a non-business corporation of the District of Columbia, was actually a holding company for several business concerns, including Kensington. Federal tax liens against Aerodynamic were filed on March 31, 1947 and April 3, 1947 in the District of Columbia. Because Aerodynamic had transferred some of its assets to Kensington, the Commissioner of Internal Revenue levied a jeopardy assessment against the latter as such transferee. This lien was in the same amount as against Aerodynamic and was properly filed in Philadelphia, April 3, 1947.

Thereafter on May 20, 1947 the government filed a bill of complaint against Aerodynamic in Washington under Section 3678, supra, for the collection of the tax. John Lewis Smith was appointed receiver of the corporation and, by a supplemental order dated June 13, 1947, he was directed "to take complete possession and control" of the subsidiaries, including Kensington. On June 25, 1947 Smith, as receiver, entered into possession and control of Kensington.

Appellant, the Commonwealth of Pennsylvania, has two tax liens totaling $35,000 which were settled June 25, 1947 and August 6, 1947 respectively. On August 27, 1947 the Commonwealth brought what was in effect a general creditor's bill against Kensington in the state court. Neither the United States nor Aerodynamic was a party to this suit. The complaint sought to have Kensington's property "charged primarily with the payment of Pennsylvania Creditors of Aerodynamic Company and the Kensington Company". Appellant's motion to appoint a receiver in the cause was postponed until Kensington's contracts with the United States Maritime Commission to reconvert two vessels (The Todd and The Woodford) were completed. Prior to anything further happening in that litigation, the present suit was started jointly by the United States and the Receiver of Aerodynamic. All known creditors were made parties. Among other things, the complaint prayed for the appointment of Smith as ancillary receiver of Aerodynamic and Kensington; for the determining and foreclosing of the government tax lien and for the determining and marshaling of the other liens upon the property. The court below appointed temporary receivers, and, on December 4, 1947, denying the motion of appellants to dismiss the bill of complaint, made the receivers permanent.

Appellant urges that its suit vested jurisdiction over the assets of Kensington in the state court and that the latter was entitled to retain that jurisdiction to the exclusion of the receivers appointed in the government's suit under the Internal Revenue Code. Relying upon Princess Lida v. Thompson, 305 U.S. 456, 59 S.Ct. 275, 280, 83 L.Ed. 285, it asserts that this is so even though the property of Kensington had not been physically seized under state court process. In a proper case, unquestionably, actual possession of the property involved is not essential.² As Mr. Justice Roberts said in the Thompson opinion, "The doctrine is necessary to the harmonious cooperation of federal and state tribunals." "* * * but where the jurisdiction is not the same or concurrent, and the subject-matter in litigation in the one is not within the cognizance of the other, or there is no constructive possession of the property in dispute by the filing of a bill, it is the date of the actual possession of the receiver that determines the priority of jurisdiction." Harkin v. Brundage, 276 U.S. 36, 43, 48 S.Ct. 268, 271, 72 L.Ed. 457. This principle is reiterated in Penn General Casualty Co. v. Pennsylvania, 294 U.S. 189, at page 196, 55 S.Ct. 386, 389, 79 L.Ed. 850, where the court said: "If the two suits do not have substantially the same purpose, and thus the jurisdiction of the two courts may not be said to be strictly concurrent, and if neither court can act effectively without acquiring * * * control of the property pendente lite, the time of acquiring actual possession may perhaps be the decisive factor." Judge Phillips in his oft cited opinion in Ingram v. Jones, 10 Cir., 47 F.2d 135, 141, stated the rule to be:

"On the other hand, where the issues in the subsequent suit are different from those involved in the first suit and the subject-matter is not identical, that is, where the two suits involve different controversies notwithstanding they relate to the same property, there can be no infringement of the jurisdiction of the court in which the first suit is pending by reason of the institution of the second suit in a court of concurrent jurisdiction. Under such circumstances, the court first acquiring possession of the property may retain it until the suit pending before it is determined."

In Empire Trust Co. v. Brooks, 5 Cir., 232 F. 641, there was a pending state court proceeding for the dissolution of a corporation and distribution of its assets under a state statute. No order appointing a receiver had been made and there had been no actual or constructive possession of the property by that court at the time a suit against the property to foreclose a mortgage was commenced in a federal court, where a receiver was appointed who took possession of the mortgaged property. The court said 232 F. at page 645: "The only identity between the two suits in that event is that they relate to the same property, and, this being true, there is no apparent reason why the court which first acquires possession of the property should surrender its possession and thereby defeat its own jurisdiction, a jurisdiction which does not infringe upon the prior jurisdiction of the court in which...