United States v. McCabe Company

• Decision Date: 12 January 1959
• Docket Number: No. 15984,15988.,15984
• Citation: 261 F.2d 539
• Parties: UNITED STATES of America, Appellant, v. The McCABE COMPANY, a Corporation, Appellee. AMERICAN SURETY COMPANY OF NEW YORK, Appellant, v. The McCABE COMPANY, a Corporation, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

261 F.2d 539 (1958)

UNITED STATES of America, Appellant, v. The McCABE COMPANY, a Corporation, Appellee.

AMERICAN SURETY COMPANY OF NEW YORK, Appellant, v. The McCABE COMPANY, a Corporation, Appellee.

Nos. 15984, 15988.

United States Court of Appeals Eighth Circuit.

November 26, 1958.

Rehearing Denied January 12, 1959.

Alan S. Rosenthal, Atty., Dept. of Justice, Washington, D. C. (George Cochran Doub, Asst. Atty. General, and Robert Vogel, U. S. Atty., Fargo, N. D., were with him on the brief), for appellant United States.

O. C. Adamson, II, Minneapolis, Minn. (William D. Flaskamp and Meagher, Geer, Markham & Anderson, Minneapolis, Minn., were with him on the brief), for appellant American Surety Co. of New York.

Geo. D. McClintock, Jr., Minneapolis, Minn. (John C. Benson, Minneapolis, Minn., Herbert G. Nilles, Fargo, N. D., Faegre & Benson, Minneapolis, Minn., and Nilles, Oehlert & Nilles, Fargo, N. D., were with him on the brief), for appellee.

Before JOHNSEN, VAN OOSTERHOUT, and MATTHES, Circuit Judges.

VAN OOSTERHOUT, Circuit Judge.

The United States has appealed from final judgment dismissing its complaint against The McCabe Company, a corporation (McCabe). American Surety Company of New York (American Surety) has appealed from final judgment dismissing its cross-complaint against McCabe. The judgment dismissing as to McCabe was entered after the court, before trial, had sustained McCabe's motions to dismiss the complaint and the cross-complaint upon the ground that they did not state a cause of action. The appeals involve common questions of law and fact. The relevant facts are stated, and the applicable statutes are quoted in the trial court's opinion. United States v. McDonald Grain and Seed Company, D.C.N.Dak., 154 F.Supp. 329.

This suit was brought by the United States, as the real party in interest, to recover damages from McCabe for conversion of grain upon which the Commodity Credit Corporation (Commodity) held warehouse receipts issued by defendant McDonald Grain & Seed Company (McDonald). McDonald was licensed as a public warehouseman under North Dakota law and was authorized to operate public grain warehouses at Barney and Moselle, North Dakota. Commodity, in carrying out its grain support price program, authorized by 15 U.S.C.A. § 714, entered into a uniform grain storage agreement with McDonald. At the time McDonald became insolvent Commodity was the owner of numerous warehouse receipts covering stored grain, issued by McDonald. McCabe was a licensed grain commission firm. McCabe entered into a grain agent's agreement with Commodity and McDonald, under which it was to act as agent for McDonald in making shipment and delivery of grain covered by warehouse receipts owned by Commodity as ordered by Commodity.

During the period from May 25, 1954, to July 29, 1954, Commodity, through McCabe, directed McDonald to make deliveries on certain warehouse receipts. A substantial number of these orders were not filled. On July 24, 1954, it was established that McDonald did not have sufficient grain in storage to meet its outstanding warehouse receipts. On July 25, 1954, defendant Public Service Commission of the State of North Dakota took possession of all grain remaining in the possession of McDonald, and on the following day instituted state court proceedings which resulted in its appointment as trustee of McDonald, an insolvent warehouseman, in accordance with the provisions of Chapter 60-0403 of the North Dakota Revised Code (1943). McDonald on its own petition was adjudged a bankrupt on August 16, 1954.

The United States commenced this action in the United States District Court on August 10, 1954, naming McDonald, McCabe, the Public Service Commission, American Surety, and other necessary parties as defendants. American Surety, surety on McDonald's statutory warehouse bond, filed a cross-complaint against McCabe, asserting that it is entitled to be subrogated to the rights of Commodity against McCabe. The rights of the surety on its cross-complaint are ancillary to, and dependent upon, the rights of the United States upon its claim against McCabe for conversion.

Both appellants in their pleadings stated that between July 31, 1953, and July 30, 1954, McCabe purchased from McDonald and converted to its own use substantial quantities of grain owned by Commodity, evidenced by its warehouse receipts, thus causing damages in excess of $100,000.

McCabe filed motions to dismiss the complaint and the cross-complaint for lack of jurisdiction and failure to state a claim upon which relief could be granted. The motions were first heard and overruled by Judge Davies. Due to Judge Davies' absence from the district, the case was placed on Judge Register's assignment. Judge Register vacated Judge Davies' order and, after hearing arguments on the motions to dismiss and on motions for reconsideration, he sustained the motions, and entered judgment dismissing the complaint and the cross-complaint. These appeals are from such judgment.

The court properly found that it had jurisdiction. 15 U.S.C.A. § 714b provides:

"General powers of Corporation

* * * * * *

"(c) May sue and be sued, but no attachment, injunction, garnishment, or other similar process, mesne or final, shall be issued against the Corporation or its property. The district courts of the United States, including the district courts of any Territory or possession, shall have exclusive original jurisdiction, without regard to the amount in controversy, of all suits brought by or against the Corporation: * * * Any suit by or against the United States as the real party in interest based upon any claim by or against the Corporation shall be subject to the provisions of subsection (c) of this section to the same extent as though such suit were by or against the Corporation * * *."

This statute clearly confers jurisdiction of this action upon the United States District Court.

The trial court held that Chapter 60-04 of the North Dakota Revised Code (1943) transferred the conversion cause of action to the Public Service Commission and that, consequently, neither the United States nor American Surety had a cause of action against McCabe for conversion. The North Dakota statutes relied upon by the trial court are set out at pages 332 and 333 of its opinion (154 F.Supp.). The effect of these statutes is to establish, upon insolvency of a licensed warehouseman, a trust fund consisting of, inter alia, any cause of action for conversion of grain covered by warehouse receipts (60-0402). The Public Service Commission is required to apply to the North Dakota state court for appointment of itself as trustee (60-0403). Chapter 60-0405 provides, "No receipt holder shall have a separate cause of action upon the warehouseman's bond, nor for insurance, nor against any person converting said stored grain, nor against any other receipt holder, except through such trustee, unless, upon demand of five or more receipt holders, the commission shall fail or refuse to apply for its own appointment as trustee." Provision is made for legal proceedings by the trustee to marshal trust assets (60-0406). The trustee is authorized to prosecute and compromise all claims (60-0407). The trustee is required to account for and distribute the trust fund, and in the event the fund shall prove insufficient to redeem all receipts, "the same shall be prorated among them in such manner as the trustee shall deem fair and equitable" (60-0409).

The Government makes a rather persuasive argument that the North Dakota warehouse statutes are not intended to apply to a situation such as is here presented, where at the time the court made its ruling Commodity was the only unsatisfied receipt holder, and the Public Service Commission, which was a defendant in the action, acquiesced in the right of the United States to bring the action.

While the motions to dismiss were pending, the United States and the Public Service Commission entered into a stipulation whereby the United States agreed that the Public Service Commission should, out of funds in its hands, pay in full the claims of all other holders of McDonald's warehouse receipts, and the Public Service Commission agreed that it would not actively oppose the right of the United States to prosecute this suit. Certified copies of the final report of the Public Service Commission, as trustee, to the state court and the order approving the report after notice to all claimants are in the record. The report provides for the payment in full of all receipt holders, other than Commodity, and for the payment of the balance remaining to Commodity to apply upon its receipts. The order approves the management of the trust and the recommendation made for the disposition of trust funds, but does not close the trust because of the pendency of this action.

The policy underlying the state warehouse statutes creating the trust fund for the benefit of all receipt holders and prohibiting suits by individual creditors upon assets assigned to the trust fund is stated by the trial court, as follows (at pages 333-334 of 154 F.Supp.):

"* * * It protects the rights of all receipt holders by preventing a race in which the first and the best financed gets paid to the exclusion of others. It eliminates the possibility of collusion between the first claimants and parties liable. It permits the establishing of all claims in one simple, inexpensive proceeding. It does not burden the individual warehouse receipt holder with the expense of litigation against the warehouseman, against the bonding company, against the insurance company and against any convertors. It does not burden the courts with a multiplicity of suits. It also protects the bonding company, fire insurance company, and any grain firm charged with conversion of stored grain, from unlimited claims and the unnecessary expense of multiple suits without in any way releasing them from whatever liability they might

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