ST.L. &; P. Ry. Co. 'tt aL
(Oircuit Oourt, N. D. OMo,W. D. December Term,1890.)
RBOlIITBB8- BALBII ,.... AsSUKPTION oJ" LUBILITIBII, BY, PuRCHASBR DBMANDS.
Where a railroad which has been In the hands of a receiver a'Ppolnted by the cil'o cuit is sold,. and the, as part of the <X\nsideration, covenants to discharge all eXisting debts and liabilities of the receivership, it is the duty of luch court ,to protect· the purchaser against all demands which are not just and proper demands against the receiver, and to that end to require all such demands to be presented to it for allowance. : ' , Where,on the strength -of. covenant, a -person brings an action in the state Court against the to recover fill" a tort to his realty commiti.ed by the receiver,,\ d.emand bei.n g primar,ilYchargeable on the f, UIikl, in the hands of. the, arising from the of action, and require plaintiff to present his claim to it, for a,judgment thereon in the state court would en title him to satisfy It out of any propertlsubject to levy In the baJ;llD oUbe purchaser. . " '
The purchaser's appearance in the state court Is DO' waiver odtll right to have the
BllrE-AO'J'tON IN STATE COtrRT-JUBlsDICTlON OJ' FEDBRAL CoURT.
BJ.llE-W.UVER BY A,PPBJ.RiNCB.
Proce,edh:l.glll therein restraine.It, where th.,·S nature 01' the,Buit d,id, n. 0,1. B.t once, appe,ar,
buUt the jurisdictiOn of the (edQral revealed by the pleading&. ,_,
ulIjlpIl as iti naht ,to do 80 ,.", "
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InEquity. _ Osborn &: Smith, for petitioner. HiU &:l1ubbard, John W. Winn, and Harris &: ConIel"On, for defendants.
RICX8,-J. In ibis cause an application, was mBdeoll' bebalf of tbe Wabasb,Railroad Company on the 25th ofOctober, 1890, asking for an order to be made requiring ReubenT.Potterf to show ,cause wby he sboulc;l'not be restrained from an action l;l.t law againSt the petitioIlElr ,in the common pleas of Defiance county, Ohio. .In tbat application the petitioner alleged that it was a corporation organized under tbe Jaws of Ohio, and became the purchaser of tbe property of tbe Wabasb, St. Louis & Pacific Railway Company, foreclosed and sold in proceedings in the circuit courts of tbe United States for the several· districts in the states of Illinois, Indiana,and Ohio. The petitioner furtber represents that in September, 1890, tbe said Reuben T. Potterf instituted au action against the petitioner" tbe Wabash Railroad Company, in tbe cotgmon pleas court of Defiance county, Ohio, to recover damages fora tort committed by JobnMcNulty while be was receiver operating tbe railroad property foreclosed in tbe above proceedings under the order and direction of tbis court. It appears froIll the papers filed in connection witb tbis application tbat tbe said Reuben T. Potterf is tbe owner of certain real estate in tbe town of Defiance,Obio, adjacent to the property of the ,Wabasb Railroad Company. " In bis petition filed in the state court the plaintiff alleges that he improved the real estate in his petition by building thereon a suitable dwelling.bouse, ,barn, cistern, and outbouses,and constructed tbe same with reference to the Krade 'ofa certain highway running: ontbesoutb..westedy side of said premi:ses;and with to tbegmge the same bad beenmain-
tained for some 50 years preceding. The plaintiff further alleges that on or about the lst of January, 1888, while the said John McNulty was the receiver in control of the said railroad property, he tore down a certain bridge crossing the railroad trabks adjacent to the plaintiff's property, and so rebuilt the said bridge as to place it on a grade five feet higher than it had theretofore been, and raised and constructed a bank along said premises, and near to said railroad bridge, four feet high, and made a of ten steps by which people would reach said bridge line of said premises. The plainand highway from the tiff alleges that his property, and the improvements thereon, were worth the llum of $2,000, and that the said property was injured to the extent of $1,000 by the changes made by the receiver, and that the same were done without the plaintiff's consent and against his protest, and without' any legal permission from the properly constituted authorities of said town. The plaintiff, in his petition in said court of common pleas, bases his right to recover against the defendant, as the reorganized railroad company and purchaser of the property foreclosed. as above stated, upon the ground that the circuit courts of the United States, in foreclosing said property, made a decree or order providing that the said receiver, John McNulty, should tum over to the purchasers of said railroad property all the assets, books, vouchers, accounts, and property in his custody as such receiver, and be discharged from all further liability as such receiver, Upon the following conditions, which I quote from the order of the court:
"The court orders the delivery of such receivership assets, papers, and property to the Wabash Railroad O«>mpany on the express condition that thelast-named corporation agrees to pay, satisfy, and fully discharge all the debts and liabilities of such receivership of. every kind now remaining unpaid, and that it may further defend in the name of such receiver all litigated claims or demands against such receivership now pending in this or other courts, and will fully abide by and pay any and all judgments and recoveries, together with costs, which may berelldered in any of such actions or litigations. and always protect and save harmless the said receiver from such claims or any of tllem."
This order was made by this court after the confirmation of the saletheretofore made, and the conditions therein required to be performed by the purchaser were substantially and in fact a part of the considerationexacted from such .purchasers for said railroad property. This court authorized the receiver to deliver to the said purchaser all of the assets and property in his hands, upon the condition that said purchaser would save harmless the said receiver from all claims of every kind that might be preferred against him. It is therefore clearly the duty of this court to see that such purchaser is not required to payor satisfy any claim or judgment of any kind that would not be a proper and just liabilityof said receiver. If this court had not discharged said receiver upon the conditions recited in the order, releasing him from further responsibility in connection with this property, it would· have retained the assets, books; and vouchers in his hands, and adjusted all the liabilities. incurred by.him us receiver, by and through the proceedings customary
WABASH, ST. L. & P. RY. CO.
in such cases. It is clearly the duty of this court to protect tlw purchaser of this property to the same extent, and in the same manner, that it would have protected the recei ver if he had been retained for the purpose of settling all these outstanding claims. When the purchaser bought this property it purchased it upon the conditions named in the decree and order of sale; The purchase price 80 obtainerl became a fund in the hands of this court for distribution to the beneficiaries under its decree. The court would certainly protect this fund from beiug diverted. It would take every precaution to see that no party received any tion of it unless justly entitled thereto. But this agreement to pay such just claims as might be allowed against the receiver, as before stated, is in fact a part of the price paid by said purchaser for the road, and it is the duty of the court to protect it against any unjust claims by the same diligence and care that it would protect the fund if actually in the registry of the court for distribution. The distribution of this fund, and the allowance of claims against the receiver, which is in fact a part of the purchase price, is exclusively within the control of this court. As the court would not allow any other tribunal to distribute any part of the purchase price, so it cannot properly or safely allow any other tribunal to say what are proper claims against the receiver to be paid out of this fund, or by the purchaser as a part of its purchase price for the property. In order to so fully protect the purchaser and fairly retain control of all claims against the receiver which such purchaser should be required to pay, this court must retain jurisdiction of all cases which involve the liability of its receiver. It must retain or acquire such jurisdiction in order that such liability may be adjusted and determined according to the equitable principles controlling this court in such proceedings. The plaintiff in this case had the right, under the act of August, 1888, to sue this receiver in the court of common pleas of Defiance county for the torts committed by him as such receiver. He had the right to bring such action without the leave of this Any judgment that he might have obtained in such court would have been subject to the equitable scrutiny of this court before it would have been allowed as a valid claim against the receiver; but the plaintiff's right to sue the receiver was fixed and indisputable. He chose not to avail himself of this right while it existed, but after the discharge of the receiver; and, when the purchaser of the foreclosed railroad propertyassumed the possession and management of it, he institutes this suit against such purchaser, and seeks to hold it liable for torta committed by the receiver during his management of said property under the orders af this court. While he bases his right to recover upon the express stipulation of the purchaser, made in this court, that it would pay all the liabilities of the receiver upon condition that the assets of the receiver and the control of the property purchased were turned over to it, yet the plaintiff elected to bring this suit against the purchaser instead of the receiver, because of some supposed legal advantage he could derive by reason of a suit against the former instead of the latter. But his right of action no longer exists against the receiver, because the receiver
has been discharged and released,fromaH liability by express order of this .court.,., ought., therefQre,to have no greaterrightagl!-ipst the, purchaser than he has against the receiver. Whatever right or' claim he has is against the fund in this court arising from the /3ale of said mortgaged property. , The promise :and agreemeI\t of the purchaser constituted an additional consideration', and thereby added to said fund, as we have before stated; but ingoodfaitb to said purchaser it is, the duty of this court to sift, Bcrqtinize, and finally determine what claims shull be paid, and what claims shall be rejected. In Qrder to do this satisfactorily t.his court should require all parties who assert any claim against fund, or who''Claim any right to recOver against said purchaser because of the ulntion llnd covenant made in thiscou'rt, to establish /:Iuch claim in this tribunal by proceedings usual in this class of cases. But if the said Potterfwere permitted:to prosecQte his. action in the state court, and racbver.a,'judgment thereon, ,he would have a right to satisfy said judgment out ofany property subject to levy in the hands of the purchaser, the Wabash Railway C0111pany;' whereas,under the covenants and agreements-made in this court between the court and the purchaser, placing legal construction hereinbefore given, any claim upon said oovenants he ,might have ap;ainstthe receiver was to be f}atisfied out of the fund arising from the sale of this mortgaged property. While counsel in arguing.the case. assured the court that they expected, incase they recovered a judgment, to COD;le to this court, and ask to have it allowed and paid bytbepurchaser on this covenant, to which reference has been made, yet there is no legal barrier which would prevent the plaintiff from satisfying such judgment by levy and sale of subsequently acquired property in the hands of the purchaser. This places him in a more ad-:vantageouslegal position than he occupied with a claim against the receiver, which could satisfied only out of the fund or property in the receiver's control. . ;BuUt is further contended by counsel that the Wabash Railway Com, pany cannot now ask for this stay of proceedings because it .entered its appearance in the· state court, and thereby conceded its Jurisdiction. The appearance entered by the counsel for the said railway company would not have prevented it from asking the state court to remove said case to thi!:l.court if the citizenship of the parties and the amount involved had been such 'as to justify such a request, and I do not think it prevents the said railway eompany from asking the relief it now demands. The jurisdiction ofthecourt of common pleas, so far as the residence of the parties is concerned, is undisputed. It is because of the subjectmatter of said contention that this court acquires jurisdiction. The exact character and nature oithe suit were only developed by the motions made by the- caunse}; for ,the defendant in the state CQurt after the original suit was instituted; and when the pleadings properly revealed the actual basis upon which the plaintiff founded his action the petitioner at once invoked the,jwrisdiction of this court to restrain said proceedings thereof. 'Forthese·reason8 I think the order here-
BENTLIF u... LONnON & COLONIAL FlNANCE CORP.
tofore made restraining Said plaintiff from furth er proCeeding against the receiver in the state court was properly allowed t and an order may now be drawn authorizing an injunction to issue perpetually restraining him from further prosecuting said'suit. If said Potterf chooses to avail himseUof the privilege of filing his claim in this court against the receiver he may do SOt and such further proceedings will bedireded as the uities of the case demand. A decree may be prepared in accordance with this opinion.'
COLONIAL FINANCE CoRP.,
(Oircuit Oourt, So D. New Yor7r. December 28, 1890.)
SERVIOE Ol!' PROOESS-FOREIGN CORPORATIONS.
Where an action against a foreign corporation, which neither does business nor has a place of business or property inNew York, is begun under Code Civil Froe. N. Y. § by service upon a director thereof, found in the state, hut not there iu any official capacity or in the business of the corporation, the court acquires no jurisdiction. Defendant may have such Buit dismissed on the ground that the state court acquired no jurisdiotion even after removmi it to the federal court
SAlliE-REMOVAL Ol!' CAUSES-DISMISSAL Ol!' BurT.
At Law. Lester W. Clark, for plaintiff. A. W. Evarts, for defendant.
WALLACE, J. Two questions arise in this case: Jiir81, whether the state court from which this BUit was removed acquired any jurisdiction to render !l judgment in the action against the defendant; and, second,. whether the delendant, after removing the suit to this court, can have it dismissed upon the ground that the state court did liot have jurisdiction. The Code of Civil Procedure, of this state, (section 432, subd. 3,) as construed by the highest court of the state, authorizes an action to be commenced against a foreign corporation if the cause of action arose here, which neither does business nor has a place of business or property within the state, by the service of 8 summons upon a director who may be found here, although when found not here in any official capacity or in the business of the corporation. Hillerv. Railroad Co., 70 N. Y. 223; Pope v. Manufacturing Co. , 87 N. Y.137. The question of the jurisdiction of the state court in the present case depends upon the efficacy of such a service of process. For the reasons stated in the judgment of this court in Goodhope Co. v. Railway Barb-Fencing Co., 22 Fed. Rep. 635, a personal judgment obtained in a suit commenced by such a service only, the defendant not appearing, would not be enforced in this court. If the suit had been commenced by the attachment of property of the defendant found here a different case would be presented; but if the action in the state court had proceeded to judgment, and property belonging to