Ward v. Foulkrod

• Decision Date: 30 March 1920
• Docket Number: 2525.
• Citation: 264 F. 627
• Parties: WARD et al. v. FOULKROD et al.
• Court: U.S. Court of Appeals — Third Circuit

264 F. 627

WARD et al. v. FOULKROD et al.

No. 2525.

United States Court of Appeals, Third Circuit.

March 30, 1920

[Copyrighted Material Omitted]

Henry J. Scott, of Philadelphia, Pa., and Robert H. Richards, of Wilmington, Del., for appellants.

William W. Porter, M. Hampton Todd, and Wm. Y. C. Anderson, all of Philadelphia, Pa., for appellees.

Before BUFFINGTON, WOOLLEY, and HAIGHT, Circuit Judges.

WOOLLEY Circuit Judge.

The receivers of Badenhausen Company (a Delaware corporation) appointed by the Chancellor of the State of Delaware petitioned the District Court of the United States for the Eastern District of Pennsylvania to revoke its appointment of a receiver for the same corporation, made after the commencement of the action in the State court, and to order its receiver to turn over to them all the property of the corporation within its jurisdiction. The District Court dismissed the petition. Thus there occurred a conflict of jurisdiction between State and Federal courts, raising the question, whether the State or the Federal court first acquired jurisdiction.

Control over the property in controversy, it is everywhere conceded, is the test of jurisdiction in a conflict between courts of concurrent jurisdiction. When the question-- which court has control over the property--is determined, it is equally well settled that the court which first acquired such control is the one that first acquired jurisdiction, and has the right thereafter to proceed with the action to its final determination without interference from the other court. Taylor v. Taintor, 16 Wall. 370, 21 L.Ed. 287; Bell v. Trust Co., 1 Biss. 260, Fed. Cas. No. 1,260. But just what constitutes 'control over the property in controversy,' and when and under what circumstances it arises, whether by priority of judicial seizure of the property by one court without regard to the pendency of an action in another, or by the commencement of an action in one court without regard to the subsequent judicial seizure of the property by another, is a question which has troubled, and still troubles, the courts, and has resulted in many perplexing and seemingly irreconcilable rulings. A classification of these rulings,--with reference only to their application to the issues of this case,-- may be made as follows:

Of two courts having concurrent jurisdiction of actions involving different issues and seeking different relief, but affecting the same res, that court which has first gained actual possession of the res will retain jurisdiction thereover, though action was first brought in the other court. Powers v. Blue Grass B. & L. asso. (C.C.) 86 F. 705, 707, 708; Knott v. Evening Post Co. (C.C.) 124 F. 342 and cases; Farmers' Loan & Trust Co. v. Lake Street R.R. Co., 177 U.S. 51, 61, 20 Sup.Ct. 564, 44 L.Ed. 667; DeLaVergne Refg. M. Co. v. Palmetto Brewing Co. (C.C.) 72 F. 579, 584, 585; Empire Trust Co. v. Brooks, 232 F. 641, 146 C.C.A. 567; Gluck & Becker on Receivers, pp. 67, 68 (2d Ed. pp. 89-91); 10 Cyc. 1010.

Where two courts may each take jurisdiction of a matter, that court in which the first action was brought, if the action be of a character that makes the court's dominion over the res essential to its judgment, or if the action be substantially the same as the one later brought in the other court, will acquire jurisdiction of the res on the commencement of the action and retain it to the end, although actual seizure thereof was first made by the other court in the later action. Instances of the application of this rule are found where two suits concern the same res but the suit first brought is in the nature of a suit in rem, requiring the court's dominion thereover in order effectually to grant the relief sought, such as an action brought to assert a government right against corporate property, or to enforce a lien against specific property, marshal assets, administer trusts or 'liquidate insolvent estates.' Farmers' Loan & Trust Co. v. Lake Street R.R. Co., 177 U.S. 51, 61, 20 Sup.Ct. 564, 44 L.Ed. 667; Powers v. Blue Grass B. & L. Asso. (C.C.) 86 F. 705, 708; McDowell v. McCormick, 121 F. 61, 57 C.C.A. 401; McKinney v. Landon, 209 F. 300, 306, 126 C.C.A. 226; Mound City Co. v. Castleman, 187 F. 921, 924, 110 C.C.A. 55; Texas v. Palmer, 158 F. 705, 85 C.C.A. 603, 22 L.R.A. (N.S.) 316; Palmer v. Texas, 212 U.S. 118, 129, 29 Sup.Ct. 230, 53 L.Ed. 435; Adams v. Mercantile Trust Co., 66 F. 617, 15 C.C.A. 1; Hirsch v. Independent Steel Co. (C.C.) 196 F. 104; O'Neil v. Welch, 245 F. 261, 157 C.C.A. 453; Williams v. Neely, 134 F. 1, 67 C.C.A. 171, 69 L.R.A. 232; 15 C.J. 1162; Gluck & Becker on Receivers, pp. 67, 68 (2d Ed. pp. 89-91).

In a situation arising under the second classification, the court in which the later action is brought, on being informed of the action already brought in the other court and on being shown its priority of jurisdiction on one of the grounds indicated, will either refuse to allow suit to be instituted, State Trust Co. v. National Land Imp. Co. (C.C.) 72 F. 575; Gates v. Bucki, 53 F. 969, 4 C.C.A. 116; Howlett v. Improvement Co. (C.C.) 56 F. 161; 15 C.J. 1162; or, allowing its institution, it will regard the jurisdiction of the other court as exclusive and hold its hand until the court first obtaining jurisdiction has terminated the case there pending, Powers v. Blue Grass B. & L. Asso. (C.C.) 86 F. 705, 708; Vowinckel v. Clark & Sons (C.C.) 162 F. 991; Hardin v. Union Trust Co., 191 F. 152, 154, 111 C.C.A. 632; or, if for some reason the court has taken jurisdiction and has proceeded in the later action, it will, on appropriate proceeding instituted by the court first acquiring jurisdiction of the controversy, arrest its action and yield the jurisdiction it had assumed to the court actually having original jurisdiction, and thereafter lend its aid to that court in protecting and administering the subject matter, Maguire v. Mortgage Co. of America, 203 F. 858, 122 C.C.A. 83.

Thus arises a rule of comity. It is based on infringement of the jurisdiction of one court by the action of another court, not where conflict has arisen from differences in the two actions, but where dominion of the subject matter has been acquired under one action, or where the two actions are substantially the same, and where the orderly administration of justice and a desire to avoid an unseemly conflict require the court which last took jurisdiction-- though the first to acquire possession of the property-- to surrender such possession, on appropriate application, to the court of concurrent jurisdiction which first acquired jurisdiction of the controversy. Empire Trust Co. v. Brooks, 232 F. 641, 645, 146 C.C.A. 567; Palmer v. Texas, 212 U.S. 118, 29 Sup.Ct. 230, 53 L.Ed. 435; Farmers' Loan Co. v. Lake Street R.R. Co., 177 U.S. 51, 20 Sup.Ct. 564, 44 L.Ed. 667; Adams v. Mercantile Trust Co., 66 F. 617, 15 C.C.A. 1; Maguire v. Mortgage Co. of America, 203 F. 858, 122 C.C.A. 83.

Being a rule of comity, we must inquire whether the rule is applicable in this case, considered with reference to the actions in the two courts; and, if so, whether it can be invoked in the proceeding here on review.

The relevant facts, shortly stated, are these:

In August, 1918, Kidwell, a stockholder of Badenhausen Company, a Delaware corporation, filed a bill in the Court of Chancery of the State of Delaware alleging insolvency of the corporation and praying the appointment of receivers

'to take charge of the assets, effects, business, and affairs of the said company * * * and further that such receiver or receivers, be authorized * * * to continue the business of the defendant company to the extent, at least, of completing its existing contracts.'

After service, the defendant appeared, and, by its answer, denied insolvency.

In January, 1919, with the action in the State court pending, Andrew Wheeler and others (citizens of Pennsylvania), trading as Morris, Wheeler & Company, creditors of Badenhausen Company, filed a bill against that corporation in the District Court of the United States for the Eastern District of Pennsylvania, alleging that the corporation was 'unable to provide for the payment of its obligations now maturing or about to mature,' showing generally a situation requiring a receivership to conserve its assets, and praying the appointment of a receiver. Concurrently with the bill, the Badenhausen Company filed its answer, confessing all the allegations of the bill. Whereupon the District Court appointed John J. Foulkrod, Jr., receiver, with authority

'to take immediate possession of the * * * property, real and personal, of the said company, within the jurisdiction of this Court, for the purpose of conserving the assets of the said company; and * * * to continue the business of the said company * * * until the further order of the Court.'

Under this decree the Federal receiver took possession of all property of the corporation within the jurisdiction of the District Court, consisting mainly of two manufacturing plants situate in the State of Pennsylvania.

Ancillary to the receivership thus created by the District Court of the United States for the Eastern District of Pennsylvania, receivers were appointed by the District Court of the United States for the District of New Jersey for property in that State. One of these receivers was Foulkrod, the receiver originally appointed by the District Court in Pennsylvania.

In February, 1919, on hearing by the Court of Chancery of the State of Delaware and on proof of the proceedings in the District Court, including the corporation's answer admitting the plaintiff's allegation of its inability to meet its obligations then maturing, the Chancellor of the State of Delaware entered a decree holding the...