Youtsey v. Hoffman

• Decision Date: 25 March 1901
• Parties: YOUTSEY v. HOFFMAN et al. BAILEY v. CINCINNATI LEAF TOBACCO WAREHOUSE CO.
• Court: United States Circuit Court, District of Kentucky

108 F. 693

YOUTSEY v. HOFFMAN et al.

BAILEY v. CINCINNATI LEAF TOBACCO WAREHOUSE CO.

United States Circuit Court, D. Kentucky.

March 25, 1901

C. J. &amp W. W. Helm (Paxton Warrington and A. J. Marsh, of counsel) for receiver.

Lawrence Maxwell, Jr. Wright & Anderson, and S. J. Crawford, for defendant Hoffman.

EVANS District Judge.

On July 2, 1900, S. C. Bailey, a citizen of Kentucky, brought an equitable action in the Campbell circuit court against the Cincinnati Leaf Tobacco Warehouse Company, a Kentucky corporation, as sole defendant, in which the plaintiff sought to have the affairs of the corporation wound up, and its assets distributed among the persons entitled thereto. Soon afterwards James C. Ernst was appointed the court's receiver in the action, and subsequently the case was referred to the master commissioner, who was directed to take proof and ascertain and report the claims against the defendant. Under this reference, H. H. Hoffman and Henry Feltman, among others, proved before the master their claims against the corporation. Objection was made to this proof, and the commissioner so reported. This being the situation, and before the commissioner finally reported on those claims Ernst, on August 17, 1900, was discharged as receiver, and J. J. Youtsey was appointed in his stead. On October 6, 1900, Youtsey, as receiver, as the order of that date shows, 'moved for leave to file an answer and set-off, and he was given leave to do so,' but it did not otherwise specify the purpose in view. There was no notice given of this motion of this outside person, nor was any order entered making the receiver a party to the action. On the 10th of October, but without any actual notice of his application to do so, unless the very brief publication in the court's bulletin can be called such, he accordingly filed his answer and set-off. It had reference alone to the claims which H. H. Hoffman and Henry Feltman had proved before the master, the validity and justice of all of which he therein expressly admitted, thus avoiding all litigation as to them so far as he was concerned; but he insisted that the defendant corporation had a large demand against them, which he then proceeded to plead as a set-off. This demand was based entirely upon the charge that Hoffman and Feltman were, respectively, the president and treasurer of the corporation (each being also a director), and that, being so, they had violated their respective duties and obligations as such, by reason of which the company had been greatly injured and damaged, by paying dividends which were not earned, and under cover of which they sold their holdings or the company's stock. Youtsey, the receiver and officer of the court, had never theretofore in any wise been made a party to the action. As stated, he admitted the justice of the claims filed by Hoffman, and sued him upon a different one, and in respect to which Hoffman had never appeared in court. No summons or other process was issued upon the pleading thus filed in the case by the receiver; nor was any appearance thereto entered, though its pendency and the proposed prospective steps to be taken thereon were noted in a vague way upon the official bulletin of the court, published under its general rules. Assuming that it had in this way acquired jurisdiction of the persons both of Hoffman and of Feltman, the court rendered judgment against them jointly for nearly $90,000 on October 27, 1900. Early in November, 1900, Hoffman and Feltman appeared specially, and only for that purpose, and, upon grounds stated in writing, moved the court to vacate and set aside the judgment thus rendered against them; and these motions were set for hearing at a future date. On the 9th of December the receiver filed his written objections to the pending motions of Hoffman and Feltman, unless, as he therein expressed it, they would file pleadings to the merits and waive all technical objections. Thus matters stood for more than 20 days, and until in January, 1901, when Hoffman did plead to the merits, and, at the time of doing so, he being a citizen of Ohio, also filed his petition and bond for a removal of the action to this court. Upon the filing of the record here, Youtsey, the receiver, moved to remand the case to the state court, and thus raised the interesting and difficult questions which have been very ably argued, and which are now to be determined.

Under the practice in Kentucky, it would have been admissible for the corporation or any of its creditors, or for any party to the suit, when Hoffman and Feltman attempted, pro interesse suo, to prove and establish their claims before the master and thereby, quoad those claims, became parties to the suit, to contest the same either before the commissioner, or upon exceptions to his report after it was made. The parties in interest were perfectly competent to do this, and had the undoubted right to do it. It may be possible, also, that in this way those parties might have disclosed to the court the claims of the corporation against Hoffman and Feltman as demands which ought to be insisted upon and litigated. The court would doubtless then, especially if the justice of their claims was admitted, have directed the withholding from distribution of their shares of the assets until the counter demands against them had been settled or adjudicated. Then the work of the officer of the court-- the receiver-- could have begun with a suit or suits at law against Hoffman and Feltman. The receiver, as the officer of the court in a case, is not in any sense a party to the litigation in which he is appointed, but he has power, under section 302 of the Civil Code of Practice, and under the control of the court, 'to bring and defend actions.' The latter part of this phrase must, of necessity, however, mean that he may defend actions to which he is a party, inasmuch as it may be regarded as axiomatic that no one not a party to an action can plead therein. True, under the practice of the courts persons may be made parties to a suit either by a pleading, or, in a qualified way, by intervention pro interesse suo, under a reference to a master; or, upon an application by one who shows the propriety of it, the court may, by an order, cause him to be made a party. But neither of these courses was pursued by the receiver in this instance; nor did he ever become a party, unless, ipso facto the filing of his so-called answer and set-off, he became such without further order of the court. The receiver did not apply for leave to intervene before the master, nor did he bring a separate action. He elected, after the possibly intrusive order of October 6, 1900, to proceed otherwise; and, by a movement which seems to be more ingenious than correct, he has sought not to do either of those things, but, while avoiding both, to come nearer to a plenary proceeding than would have been the case had he obtained permission to contest before the master. Whether, if the corporation, or any of its stockholders or creditors who might have proved claims against the corporation, had excepted to his demands, Hoffman could have removed the case, even if the settlement of those demands had involved a determination of a claim plead by any of his opponents similar to the one now irregularly presented by the receiver in the form of a set-off, may admit of much doubt, as he had, as to his demands, probably submitted himself to the jurisdiction of the state court in...