MACKAYE V. MALLORY.
imparts to this court no au Uiority to stlpervise its action. There are cases which, at the instance ora party, may'be' transferred from a state to a federal court, but this is not one of them. If it were, no attempt has been made to bring it here. The probate court atill retains its' jurisdiction of the case, and we cannot stay' its action or encroach upon its authority without violating a pbsitive act of congress: "The writ of injunction shall not be granted by any court of the' United States to stay proceedings in any cotirt;'Of a state,c except in cases where such injunction may be authorized by , any law relating to proceedings inbankrnptcy." Rev. at § 720. And the supreme court, in the very last ease before' it involving an interpietation of this statute, says: "Except where otherwise provided by the bankrupt law, the courts of the United States are expressly prohibited,by section 720 of the Rensed Statutes,from granting a writ of injuDction'tb stay proceedings in a state court." Harris v. Carpenter, 91 U. S. 254. We must, therefore, remit complainant to the probate,coun for such action as that court may, after due consideration. feel bound to take. The injunction will be dissolved. De. fendants' demurrer will be sustained, and complainant's bill dismissed with costs.
MAClUYE
v.
MALLORY
and anothet.
(Circuit Court, 8: D. New York. -----, 1881.) 1. REMOVAL-JURISDICTION-PETITION.
Where a complaint filed in a state court, and a petition for the ,removal of the cause, raised an issue as to the necessary parties to the controversy, upon which the right of removal depended, heZd, upon motion to remand before trial in the federal court, that the allegations of the petition must prevail.-[ED.
In Equity. Motion to Remand. F. N. Bangs, for plaintiff. James C. Carter, for defendants.
FEDERAL REPORTER. ,;BLATCHFORD;, C. J. This sujt was brought in court of common pleas for the city and county of New York. The c9JP.plaint therein sets forth in substance that in July, 1879, the plaintiff and .thedefendant Marshall H. Mallory made a contract, Jl,nder which the former was to devote himself to the. service of the latter as author, manager, actor, director, or in any other capacity having any connection with tgeatrical labor; and the entire product of his labor and skill, and all copyrights and patents therefor, and all income tbEjrefrom, or from any play or invention of the former, and fI'-Qqlthe use 'of any of the services of the former anywhere in. any such capacity, were to be the exclusive property of the lat,ter; and such copyrights and patents and income were to beas&igned and paid to the latter; and the former made certa,in covenants to secure said results; and the latter agreed to pay to the former an annual salary of $5,000, in equal monthly instalments, and also agreed that if the profits of the enterprises in which the services of the former should be employed by him should be equal to twice the amount of with interest, expended by him thereon, or if the amQunt so expended should be less than $30,000, when such profits should equal the amount so expended by him, with interest, and $30,000 in addition, then such annual salary should be increased by a sum equal to one-fourth of the net profits produced in each year thereafter from said enterprises; such agreement to continue for 10 years, with provisions for a renewal of it or for a termination of it at the end of any year, at the option of the latter, and for certain benefits to the former, under certain circumstances, on such termination; that the plaintiff has fully performed said contract; that he assigned to M. H. Mallory the copyright of a play called "Hazel Rirke," of which he was the author, and the exclusive right to a mechanical device, of which he was the inventor, called the "double stage," secured to him by letters patent of the United States; that said copyright and patent were of large value; that M. H. Mallory invested money in fitting up a theater in New York, and in equipping a second comp,l,ny to present said play elsewhere, and in purchasing theatrical
MdCKAYE
r.
MALLORY.
properties, which still exist and have a money value; that the said play and "double stage" have been used by M. H. Mallory in New York, in connection with each other, over 300 consecutive times, and said play has been performed elsewhere over 100 times, and therefrom M. H. Mallory and tHe defendants have received large Bums of money, out of which the current expenses of the performances have been paid, the receipts largely exceeding the expenses, and they have in their possession, as owners, property representing vestment of the value of over$80,000, and they have realized in money more than $80,000 all expenses; that it was the duty of M. H. Mallory and the said contract, to keep accounts of all moneys invested or expended thereunder, and of all received from business transacted thereunder, and give to the plaintiff transcripts thereof, or permit him to inspect them;' that in May, 1880, sOlid agreement was modified so that thereafter the sltlary of the plaintiff was to be $150 per week; and so that he should have 5 per cent. per month and 5 per cent. per aIlllum of all profits above current expenses, instead of the 25 per cent.; that in July, 1880, and since, the plaintiff has applied to the defendants for an account of the receipts and expenditures of moneys under said agreement, but they have refused to render him any account save two scraps of paper, which are set out; that said scraps, as statements of account, are false, crediting to the defendants moneys not expended; that in keeping their accounts the defendants have omitted to set down as profits or earnings certain items named, which ought to be taken in account in determining the results and profits of the business; that since December 8, 1880, the defendants have refused to pay to the plaintiff a salary of more than $100 a week; that they have neglected to perform said agreement in other matters set forth, and have given themselves an erroneous specified credit'; that sometime aftet the/making of said contract, and. during the happening olthe matters above stated, the d.efendant G. S. Mallory obtained from M. H. Mallory an interest ,in said coritract, and in the ,Property and assets which hadbeeuaccUIhulated by said M.H. Mal-
746
FEDERAL REPORTER.
lory under. the operation of said agreement, and G. S. Mallory now has or claims such interest adverse to the plaintiff; that said play aJ;ld said patent .have .no established market value, and it would be difficult, if impossible, to estimate in money the plaintiff's loss by M. H. Mallory having assigned said copyright and said patent, and that any compensation .or indemnity to him for the breach of said contract would be inadequate which did not involve the restoration to him of said copyright and said pp,tent, and that the plaintiff elects to treat said contra.ct as rescinded and no longer obligatory upon him. The complaint prays for judgment-(I) That the contract has been rescinded and is no longer obligatory upon the plaintiff, and that he be restored to all he has lost thereby; (2) that .said copyright and said patent be re-assigned to him, w, if that is impracticable, that the defendants pay the value thereof to him, or such value be accounted for as profits real. ized under said agreement; (3) that an account of said profits be taken, and the plaintiff recover his lawful proportionate share thereof; (4) ,that the defendants be enjoined from ex· hibiting said play or assigning said cppyright; (5) that t4ey be enjoined from using said mechanical device or invention; (6) that a receiver be appointed of said play and invention and patent. Both of the defendants apreared by attorney on Janua'ry 13, 1881. On thetwenty-second of January, 1881, before any answer was put in by ·defendant, M. H. Mallory presented ,to :the state ,court a petition, setting forth that the plaintiff was, at the time of/bringing the suit, and still is, a citizen of New York, and the patitionerwlj,s, at the .time of the this suit, and still is, a citizen of Connecticut, and G. S. MallQry was, at the time of'the bringing of the :suit, and still is, a, citizen of New York; that the suit is one "inwhieh there is a controversy which is wholly between citizens ·of. different plaintiff, a citizen of New York, and this petitioner, a citizen .of the state of Conwhich can, be fully: determined,. as between them, and in yvh\ch controversy this: petitioner is actually
MACKAYE V. MALLOHY.
747
interested, and in which he is the only defendant actually interested; that, so far as it relates to him, the 'said suit is brought for the purpose of restraining and enjoining him, and is a suit in which there can be a final determinationot the controversy, so far as cancerna hhn, without the presence of the other defendant as a party in the cause; that said action or suit is brought by the plaintiff therein to obtain. an adjudication that a contract made between plaintiff and this petitioner has been rescinded, and a reconveyance to the plaintiff of a certain play known as 'Hazel Kirke,' and of a. certain invention, which' said play and invention had been assigned to this defendant by the plaintiff by and in pursuance of said contract, and for an account of profits under aaid contract, and for an injunction restraining thisdefe1J.d.., ant from performing or exhibiting said play or using the said invention, and for a receiver of said play and invention j. that the defendant George S. Mallory, as appears from the complaint in said action, is made a defendant therein by reason of his having obtained from this petitioner an interest in said contract, and in property and assets which had been accumulated by this petitioner under the operation of said contract, and by reason of bishaving or claiming such'interest adverse to the plaintiff; but this petitioner says that said allegations of said complaint:respecting said George S. lory are wholly untrue, and that said Geotge S. Mallory has not, and never has had, any interest in said contract, or in said property or assets so alleged to have: been aCUt1mulated, and has never received any of the profits ,arisirig frOID the. enterprises mentioned in saidcoutract;" and, tbat the "desires to remove the said suit, or to reDlove the same against your petitioner, into the circuit court of the United Statesfor the southern district of New York." On this petition, and a bond, the defendant M. H: Mallory moved in the state court, on notice to the plaintiff, that the court accept said petition/bond, and surety; 'and proceed no further in the action, or no further therein a,gainsthim. motion was opposed by the pl8tintiff, and'the and ordered "that the court do proceed inthe'action." In
748
assigning the real:lons for its action, the court (Daly, J.) held that it was its duty to examine the right of removal; that, as the right of removal depended on the nature of the controversy, such right must be determined by an inspection of the complaint, as the only pleading then before the court; that the petition for removal was not a pleading, and could not vary the cause of action stated in the complaint; that the defendant could not use his petition as a pleading to raise an issue with the plaintiff on the allegations of the complaint, and show a controversy entitling him to remove the cause; that the denial in the petition as to George S. Mallory did not show the controversy to be one wholly between thepetitionar and the plaintiff; that if the ,complaint states a cause of action which ca,l1 be determined only when all .the parties to thl6aetioll are before the court,. a denial by one of the deof the fa.cts forth. ill the complaint does not sever theeontl'oversy to him, nor show that ,the cause 'may proctled ·af:! againsthimselfwitho,at. the presence of the other that an injunoth>ll is not the ,sole object of the. Mtionllf.l'rea.peets M. H. as reqR-ired by sub.division 2,(l!f,sectiQU 639 of the of the United, -States; thai" under that subdivision, the.:re lcannoLbe fa; filfal minatiOJili of the controversy, sp far as concenis him, withopt of G. S. MallQry Il,Ba ;defenda:t;lt, under the gadiioDs in the complaint; iWlder section.2 ot tl;Je act of: ]'da;t:ch 8, 1875., (18 St. at Large, 470,) ,there is, nota conwhich is wholly between the plaintiff and M. H. Mallory, I1nd which can be fully determined as between them, for the. rE:j&son that, on ,the complaint, the plaintiff has no controversy withl\L H. Mallory separate from G. S. Mal· lory. There has be'en filed in this court, on the part of one or both of the defendants, a copy, certified by the clerk of the state,. court, of the record of that court. The plaintiff now moves in this court to remand the cause to the state court. The motion is opposed by counsel for M. H. Mallory. It is contended by him that the question of the existence of the facts on which the right of removal depends is an issuable
as
MACKAYE 1'. IULLORY.
question, which can be determined ohly in this court, and cannot be finally determined here on this motion,but only on. a regular trial hereafter j that, for the purposes of a removal, nothing can be permitted to contravene the allegations of the petition in the particulars in which those allegations deny the allegatlons of the complaint as to the interest of George S. Mallory, 01' in the particulars in which a case within the removal statutes is affirmatively stated in the petition; and that, as tn'8 petition states that the suit is brought for the purpose of restraining or enjoining M. H. Mallory, that is sufficient u.nder said sectiori639, although the complaint asks 'an.' injunction against G. S. Mallory, also. The principal contention on the part of the defen'd· ant is that, in :this 'case, the' question whether tlWlcon.' troversy between the plaintiff and M. 'If. Mallory'can be fuUy' arid fihalrY' between ,them, presence of 'G. S.Mkllory,can be aMy on the fitia;l trial in ,this' C'O\1rlort illJth'e evidence' to" be taken; [thltt as', on of the petition, Jthecontroversy nis.ybe one which, so far as cOilcerns M.II. MEmory, can be determtist; mined withdut thepresetlce'of G. S. Mallory, be retainedby'thi:s 'courlu.ntil fln:allydooidethat court' caimot grant this motion: rttlless if matter';' that can certainly Bee now thltt G.S.Mallory has suchan hit'etest: that it is cleat the controverSy, as between tlie' plaihtiff"atl'tf M. R. Mallory, cannot be' deterniiried without 1lhe ptes'Mic'e of the other defendant j and that, in respect to the inconsistency between' the aHegatibns of theconlplaint and tnose: of theipetitiotr, the lattet must 'cchitrol, or else the case can never reach that stage matter, caiJ.be definitely determined by this court. Succinctly stated, the view urged is, that where the removal depends on the nature of the controversy, in respect to the necessary parties to it, the nature of the controversy is not dependent on the shape which the plaintiff gives to the controversy when it is developed by the proofs; that when the petition for the removal avers the existence of such a
75Q
.FEDERAL
eontroversy as would, if the allegation were true, authorize a removal, and the. petition admits nothing stated in the complaint, and takes notice of nothingin it except to controvert it, the state court must cease from its jurisdiction; and that. where there is a conflict between the complaint and the petition, the petition alone must be reg!trded. In support of these views it is suggested, t.hat, when the is fully developed by the proofs, it may turnout.that there is in it a controversy between the plaintiff and M. H. Mallory to which G. S. Mallory is not and never was a proper party; that such a state of facts will show that M. H. Mallory, at the time he presented his petition for removal, had a right to remove the suit; and that, if not now allowed to remove it. his formal proceedings being regular, it will then appear that. he has been deprived of a right. In Dennistoun v. Draper, 5 Blatchf. a36, it was held by this court that where the defendant had taken proceedings. under section 3 of the act of March 2, 1833, (4 St. at Large. 633,) to remove into this court a suit brought in a state court, the removal was imperative, if the proceedings were. in conformity with the act; that the question whether the. defendant had in fact a right 'to remove the suit could not be. raised by a motion to this court, before the trial, to remand the cause to the state court; and that any question as to the. jurisdiction of this court iI! the premises, based on the point of all alleged absence of right in the p.efendant to remove the. suit, could be raised at the trial. That was an ,action of replevin brought in the state court to recover the possession of cotton.. The defendant removed the case, under the act of 1838, by certiorari, claiming that he was in possession of the cotton as an officer, under the revenue laws of the United States. The plaintiff moved to remand the cause on affidavits alleging that the defendant. was simply a tort-feasor. The motion was denied, on the. view that it was not proper, if it was competent, for this court to determine, upon motion, the disputed jurisdictional fl1c,ts jpvolving the right or legality of the removal, that.
MACKA.YE
'f).
MALLORY·
'751
.theproper place to hear anaaeterminethemwas on the trial. 'The same view was held' by Mr. Justice Nelson in Fisk v. Union Pa·cific R. Co. 8 Blatchf. 243. Those cases were prior to the enactment of section 5 of the act of March 3, 1815,(18 St. at Large, 472,) which provides that if, in any suit removed, it shall appear to the satisfaction of the circuit court, at anytime after such suit has been removed thereto, that such suit does not really and substantially involve a dispute or controversy properly within the jurisdiction of the circuit court, the circuit court sha.ll proceed no further therein, but shall dismiss the suit or remand it to the court from which it was removed, as justice may require. Under this provision there is no doubt olthe power of this court to remand a cause at any time before a formal trial of the plenary issues in .it, whenever it appears that the court has no jurisdiCtion of the suit. In fact,the statute is imperative that, whenever such want of jurisdiction court shall dismiss or remand the suit. But the provisions do not' require the court to remand the suit unless it appears that the suit does not involve a controversy properly within its jurisdiction. If the suit appears On the removal papers and the prior record, taken together, to be:a suit properly removable, it is not to be remanded if the question arises solely on those papers, as it does in this case. Thib view does not affect casas like Galvin Boutwell, 9 Blatchf. 410, and Heath v. AUstin, 12 Blatchf. 420, where, even before the act of 1875, the question of citizenship was tried on davits in this court on a motion to remand. The same thing was done after the act of 1875 in Sawyer v,. Switzerland Marine Ins. Co. 14 Blatchf. 451. It is the practice of the courts of the United States, under the act of 1875, to try the question of jurisdiction on a motion to remand, and before the plenary trial. In Gold Washing Co. v. Keyes, 96 U. S. 199, the circuit court did' this and remanded the cause, and the supreme court, on a writ of error taken under section 5 of the act of 1875, affirmed the judgment of remand, on the ground that, on the pleadings in
752
the state court and the petition for removal, taken together, the jurisdiction of the circuit court did not appear. Th£, same course was taken in Bible Society v. Grove, 101 U. S. 610, and in Jifkins v. Sweetzer, 1 Morrison's Transcript, 109. The question of jurisdiction was not left to be tried at the formal trial of issues raised by the pleadings. Thequestion to be determined on this motion is whether the record before this court shows jurisdiction or a want of jurisdiction. In Gold Washing Go. v. Keyes, above cited, it is said: "For the purposes of the transfer of a cause, the petition of re,. moval, which the statute requires, performs the office of pleading. Upon its statements, in connection with the other parts of the record, the court must act in declaring the law upon the question it presents." Again: "The record in the state court, which includes the petition for removal, should be in such a condition when the removal takes place as to show jurisdiction in the court to which it goes. If it is not, and the omission is not afterwards supplied, the suit must be remanded." Certainly the petition in this case shows a remarkable case under the act of 1875, because it avers that the allegations of the complaint respecting G. S. Mallory are untrue, and that he has not and never has had any interest in the subjectmatter of the suit. Even taking into view the complaint with the petition, it does not appear that this court has not jurisdiction of the suit. For the purposes of a removal, the allegations of the removing party in the petition must, at this stage of the case, prevail, and the suit must, for the present, be retained in this court.
SHAINWALD V. LEWIS.
753 LEWIS.
BHAINWALD,
Assignee, etc., v.
(Di8trict Court, D.
November 11, 1880.)
1.
FRAUo-CONSPIRACt"-COLLUSIVE JUDGMENT-FICTITIOUS ·1NDEBTEDNESS-FABRICATED ANTEDATED NOTES.
Where members of an insolvent firm, with intent to jiefraud firm creditors, conspired with a person to whom the firm was indebted in only a small amount to have an attachment levied on the firm property, and a judgment to be taken upon fictitious and ante-dated firm notes fabricated for the purpose, and to transfer to him all the firm' property then in tran8itu, and for which the. firm held bills oflading; and, in pursuance of such conspiracy. judgment was recovered, the firm property sold on execution, and bid in by the plaintiff in the lusive suit, and the remaining property of the firm secretly'tmnaferred to him, held, that he was liable to the assignees in bankruptcy, as representative of the firm creditors, for the value of all of the firm property so fraudulently obtained by him, and will be decreed a trustee of such property, and of its proceeds, for the benefit of the firm creditors represented by the assignee.
In Equity. James L. Orittenden, for plaintiff. Henry E. Highton, for respondent. HOFFMAN, D. J. The complainant seeks by his bill in equity to have a certain judgment, execution, sheriff's sale, and other proceedings in a suit at law in the nineteenth district court of this state, entitled "Harris Lewis v. Louis H. Shoenfeld, Isaac Newman, and Simon Oohen," declared to be a fraud upon the creditors of the firm of Schoenfeld, Cohen & Co., and upon the complainant, as their assignee in bankruptcy, upon SiIp.on Cohen, and upon said firm; also,that it be declared and decreed that certain promissory notes upon which the suit was brought, to-wit, a note for $17,000, a note for $8,000, and a note for $5,000, were fraudulent and void as against said firm for want of consideration j also, that it be declared and decreed that certain transfers of money, bills of lading, promissory notes, and other property, to the respondent, by said Schoenfeld and Newman, were fraudulent and void as against the creditors of said firm, upon the complainant as their assignee, and upon Simon Cohen, one of the members thereof; also, that it be dech.l'ed and decree(l v.6,no.8-48
754
Ii'EDERAL REl'O!t'fER.
that the respondent is a trustee for the benefit of the complainant of all the moneys, bills of .lading" accounts, merchandise, cbattels, and other property obtained by said Lewis through or by means of said action, attachment, judgment, execution, or sheriff's sale, or transferred or delivered to or received by bim from said Schoenfeld, from said Newman, or from any other person, and also for such furtber and other relief, etc.; also, for an injunction and writ of ne exeat. Tbe facts and circumstances which constituted the fraud are particularly and fully set forth in the bill. Its allegations are sustained beyond all doubt or denial by the proofs. It is, perhaps, not easy to imagine a grosser case of conspiracy by merchants of fair repute to cheat and defraud their creditors, or one where the proofs could be more convincing and indisputable. The testimony is very v{)luminous. But the evidence to establish the fraud is that of seven witnesses only, viz., Lewis, Newman, Hyams, Sehoenfeld, Naphtaly, Sharp, and Bremer, nearly all of whom were active participants in the fraud, either at its inception or during its progress or at its consummation. I shall not attempt to give a detailed account of the various transactions bywhich the respondent, at the instance. and by the aid of Newman and Schoenfeld, two of tbe three members of the firm, succeeded in getting possession of the entire assets of the partnership, to the exclu,sion of all its eastern and foreigu creditors, and of nearly' aii its creditors in this state. It will be sufficient to state the nature and effect of the fraudulent cqnspiracy, and in general way the means by 'which those objects were attained. The' firm of Schoenfeld, Cohen & Co. was compo,sed of three partners-Louis S. Simon Cohen. Its' capital Schoenfeld, Isaac was $30,000, contributea'$15,000 each) by Schoenfeld and Newman. Cohen was, t<? contrib'ute for a certain period his skill 'and experience in the business, and thereafter to furnish $15,000 to the capital, or pay interest on such portion thereof as be sbould fail to furnish. Each partner was to be at lib· per month for personal expenses. In Jan· erty to draw ll11ry, 1877, it was determined bet\\"cen Schoenfeld and Now-
155
man that the former should proceed to the eastern states and Europe to procure, if possible, a large stock of goods on credit. Aware that their credit would depend upon their financial standing.here, and knowing that, if the true condition of their affairs was disclosed, Mr. Schoenfeld's expedition would prove abortive, they presented to one of the banks of this city a. false statement of their profits and business affairs, sustained by false entries in their books as to their profits, and the amount of money loaned to the firm by Newman. Having thus firmly established their credit, Schoenfeld proceeded to the eastern states and to Europe, and succeeded in purchasing goods to the amount of more than $30,000, cost price. Whether, at the time the false credit was obtained, and Mr. Schoenfeld started for Europe to make his purchases, it was the intention of Newman and Schoenfeld to cheat the foreign creditors out of the whole price of any goods the firm might. succeed in obtaining by false pretences as to their financial oondition, or whether· that project was formed after" Mr. Schoenfeld's return, does not clearly appear. It is however, that the preliminary steps for the perpetration of the fraud were taken immediately on his arrival. Mr. Schoenfeldreturned to this city early in June, 1877. On the succeeding,day he met Newman by appointment at their store, where the affairs of the firm were discussed. A subsequent meeting was soOn after held, at which Mr. William Bremer, Mr. Hyams, and Mr. Lewis were also present. For the full understanding of the agreement entered into at this meeting some explanation is necessary. The $15,000 c.ontributed to the capital of the firm by Schoenfeld had been obtained by him by a loan of $8,000 from an old friend and former employer, Mr. H. Bremer, for which he had given his individual notes. He had paid in, in cash, $2,000. The remainder, $5,000, he had borrowed, on his individual note, from Newman, who claimed that the money belonged to a Mrs. Alexander, by whom it had been placed with him for inV:'estment. Newman had paid in cash the whole of the $15,000 to be contributed by him to the capital. He had also lent the .firm on the firm's notes $18,OQO. These notes
756
were then held by the London & San Francisco Bank, having been hypothecated by Newman to secure a private loan of $6,000. The money had been originally obtained, as Newman asserted, and as appears to be the fact, from the respondent, and there is evidence tending to show that Newman had, without the knowledge of his partners, executed a note in the firm name to Lewis for $17,000 of the amount. On this point the testimony is con.flicting. It is not material; for the note, if executed, was a fraud upon his other partners, and the respondent well knew that the firm note to Newman for the .loan was outstanding. It had, in fact, been transferred by Newman to Lewis, and had been by the latter lent to Newman to enable him to deposit it as collateral security for his loan from the bank. At the first meeting nothing definite wase:ffected. At the next meeting Mr. New:funn explained the embarrassed condition of thetirm. He stated that he owed $20,000, viz: the $18,000 already mentioned,' and $2;0>')0 which Lewis had loaned to thef1rm, and f.or whichheiheld their gennine note; that Lewis wasb.is only friend ,in the world, etc., and he insisted that he ahGuld be: protected.' Mr. Schoenfeld replied that if Lewis was to be protected,'his confidential creditor also' be secuted. This: was assented to, and it was agreed that a nrmnote for $8,000 should be executed to Bremer, "so that the $8,000 . should stand valid against the firm instead of against an individual member, in case any action should be taken." This accordingly done on the succeeding day. The note was delivered to Mr. William Bremer, agent for H. Bremer, who was to hold it for presentation as a firm debt in case any suit was brought against the firm. Mr. Bremer did not then, nor at any time up to the trial of this cause, surrender the individual notes of Schoenfeld originally given by the latter to his brother. A few days subsequently Mr. Schoenfeld received a peremptory notice from the Anglo-California Bank to make good the firm's indebtedness. This notice he communicated to Mr. Newman. A meeting was at once held to make arrangements for the of the fraud which was in con-
SRAINWALD V. LEWIS.
75"1
templation. It was held in the private office of Lewis, and was attended by Schoenfeld, Newman, Lewis, and Mr. Naph. taly, as legal adviser. Its avowed object was to defraud the firm creditors by placing the entire assets of the firm in Lewis' hands, who was first to satisfy Newman's indebted,. ness to himself and the firm's indebtedness to him of $2,000. He was also to pay Schoenfeld's individual indebtedness of $8,000 to Bremer, and also the balance of his indebtedness of $4,000 to Newman or Mrs. Alexander. Whatever should remain after making these payments was to be divided be", tween Newman and Schoenfeld. To enable Lewis to attach the property of the firm it was necessary that he should ap" pear to be a firm creditor, and for this purpose a further fab. rication of firm notes was required. At Mr. Naphtaly's suggestion', a demand note ,for $17,000, antedated. as of December 23, 1876, was drawn up and signed by Mr. Schoenfeld in the firm name. Mr. Naphtaly, however, objected ,to the fOrm' of, the note, as it. a.ppeared on its face to be long overdue. It was, therefore,destroyed, and a new firm 'note') was madej antedated in like manner, but payable sixmonth8' after ;date. A note was also made, by Mr. Naphtaly'liFad:vice, in favor of Mrs. Alexander for $4;000. This, too-, was ' antedated. These notes were given to Mr. Naphtaly, withthe understanding that an attachment suit sh()uld forthwith' be oommenced upon them-the fabricated firm note gi\len,itOJ. Bremer, and the genuine firm note for $2,000 held iby Lewis. The note for $4,000 was returned on the same evening'by Mr. Naphtaly, who, on reflection, preferred that the trabsac. tion should take the form of an antedated firm guaranty of Schoenfeld's original ,note, rather than of a newly-fabricated note to Mrs. Alexander. The reason assigned for this pref. erence was, according to Schoenfeld, that when there was a genuine note there was no need of resorting to a fabricated one. The difference either in morals or laws between fabricating the entire instrument and fabricating and antedating a firm guaranty of Schoenfeld's note to Newman, he did not, when examined as a witness, attempt to explain. All these preliminary preparations for carrying into effect the fraudui
lent designs of the conspirators were made with the full knowl. edge of the respondent. He acted as their chosen and will. ing instrument. That the firm was insolvent he was well aware. Mr. Schoenfeld testifies that a few days before Lewis had suggested to him and Mr. Newman "to go ahead with the business if we thought we could run it, and he would give us the money to keep it np for a year or two longer, and we could get in a large credit and then bust up." The fraudulent designs of the parties, and the complicity of Lewis, are confessed by Mr. Naphta.ly himself. He testifies that Newman, Schoenfeld, and Lewis desired this attachment suit to be brought, and to secure all the property of the firm of Schoenfeld, Oohen et 00., by means of that suit, and they all acted in concert all the time until Lewis and Schoenfeld had the fight in· the office. Naphtaly's Test. Trans. 878-9. Lewis" knew that he was going to make more than his claim, and he didn't want anything for outsiders." Naphtaly's Test. Trans. 881. By this felicitous epithet Mr. Naphtaly designates the whole body of foreign and eastern creditors, whose shipments, arrived a.nd to arrive, it was proposed to appropriate without the payment of a single dollar of the purchase money. The arrangement being thus completed, the $8,000 firm note in Bremer's hands was obtained from him, and suit was brought in the name of Lewis for $41,000, and, an attachment levied on the stock in trade, on debts and accounts of the firm. No scruple or hesitation seems to have bflen felt by any of the parties, or their attorney, in making the allegations under oath necessary to institute these proceedings. , The seizure by the sheriff of the stock in trade of the firm rendered it impracticable any longer to preserve the secrecy which, up to that time, had been carefully guarded. The banks and the agent for the foreign creditors became alarmed, and pressing in their demands that· the suit should' be defen,ded. The chief danger which threatened the success of the plot w.as the institution of bankruptcy proceedings before alevy under judgment and execution could be made. It was therefore thought that some show or pretence of defending the
SHAINWALDV. ,LE WIS.
759
suit should be made. The attorney sele'cted by Mr. Naphtaly for this purpose was Mr. W. H. Sharp.. , It does not appear that- at this time Mr. Sharp was informed that the notes oh which the suit was brought had been fabricated, and tha,t, with the exception of the $2,000 note to Lewis, they represented no real indebtedness of the firm. But he did know, or rather he supposed,that a fraud on the bankruptcy act was intended; that the suit was to be an "amicable" one; that no defence was to be made and no obstacle interposed to prevent the plaintiff from obtaining the preference over all the creditors of the firm which the suit was instituted to Becure. The foreign creditors of the firm were represented by Mr. Shainwald. He was very anxious that the suit should be defended, and was distrustful of Schoenfeld's assurances that a defence was intended. This was communicated, to Mr. Sharp, who replied, "I know Shainwald; I will speak to-him; ,bring him to me." Mr. Shainwald was soon after brought to Mr. Sharp's office, and told by the .latter that the suit would be defended. On this point. Mr. Sharp's testimony is as follows: "Question. Then you said 'bring him to me?' Answer. Yes, sir. Q. Then you told Mr. Shainwald that the suit would be defended? A. That I was employed, and would defend the suit. Q. How could yon make such a statement if you were not so employed? A. The day before that it was understood that I should put in that demurrer-make that defence. Q. A frivolous demurrer for, delay? A.. Yes, sir; that is so. I don't know that I used the word defend; 1 may have said so. Q. What made you tell him so if you were not employed to make a.ny defence, and it,was with the understanding, and to your knowledge, an amicable suit; and you were not to obstruct the plaintiff in getting the judgment at the earliest day, in order to defeat the bankrupt act? A. The object was to assure Mr. Shainwald that the approach. ing default would not beia.llowed to be entered that he was so much concerned about. Q.WaB that a falseMod'J,4. I was not under 'anyobligat-ian to him, I thought." Bharp's Test. 'Trans. ,987.
760
With regard to this interview, Mr. Schoenfeld testifies that Mr. Sharp told Shainwald that "it would be quite a while before the suit would come up, and that he could fight it for a long time; and that Shainwald left the office satisfied that he would have ten days, and that he would have enough claims from the east within that time to put the firm into bankruptcy. It was understood privately, however, between Newman and Sharp and myself, that instead of the usual ten days allowed on overruling a demurrer, Sharp should take only three days. Naphtaly told me he had fixed things with Sharp when he employed him. Mr. Naphtaly employed Sharp for defendants in the Lewis suit, and told me he had an understanding to take judgment in three days after the overruling of the demurrer." Schoenfeld's Test. Trans. 613-14. The judgment was taken accordingly. Mr. Sharp'S assurances do not seem to have allayed Mr. Shainwald's apprehensions. He still continued importunate in his demand on Mr. Schoenfeld that he should at once go into voluntary bankruptcy. He had discovered that there were only three days in which to answer. Unable to find any pretext for evading Shainwald's importunities, Schoenfeld applied for advice to Mr. Naphtaly. Schoenfeld testifies that he was told by Mr. Naphtaly to "tell him (Shainwald) that Mr. Sharp had neglected to put in the answer; that it was an oversight of his which he discovered, and came to me not to take advantage of it. For God's sake do not let him get any papers in the United States district court before 10 o'clock in the morning." Trans. 617. Similar representations with regard to the intended defence of the suit were made to Mr. Belknap, an attorney employed by the banks. Mr. Naphtaly himself admits that he really intended to deceive Mr. Belknap in regard to the matter, and make him believe that Mr. Sharp was employed to de.fend the suit. Trans. 913. The bank, howe.ver, was assured that" it should receive a pro rata share of whatever sum the goods might bring at the sale on execution. I have enterel somewhat minutely into these repulsive details of falsehood and deception, because they were neces,
761
aary to beyond dispute or cavil the fraudulent and collusive character of the suit and the sham defence that was made to it. It is, perhaps, hardly necessary to add that Mr. Sharp, the attorney for defendants, sent his bill to and was paid by Lewis, the plaintiff. The arrangement made with the banks for a pro rata share of the proceeds of the sale on execution made ,it for the interests of the conspirators that Lewis should bid them in for the lowest possible price. No effort was spared to accomplish this object. Only the indis· pensable advertisements were published, and but little oppor,:, tunity was afforded to the public to ascertain the value and quality of the goods. But a private inventory, with the cost prices attached, was made out and given exclusively to Mr. Lewis. Efforts were made to discourage other parties from bidding, and the contents of the store were sold by the floor, and not in lots, as would have been most advantageous. Mr. Lewis succeeded in becoming the purchaser for a. sum insignificant in comparison with the market value of the goods. It is unnecessary to recount in detail the remaining steps taken to consummate the fraudulent designs of the parties. Enough to say that by various methods Lewis succeeded in obtaining possession of almost the entire assets of the firm, including the bills of lading for the goods purchased abroad by Schoenfeld. Nothing has ever been paid to any of these creditors. Several months having elapsed, Mr. Schoenfeld became impatient for the pa,yment to Mr. Bremer of the $8,000 promised as his share of the plunder. To this Lewis demurred. A quarrel ensued, and Schoenfeld disclosed the whole affair to Mr. Cohen, who seems to have been up to that time ignorant of its real nature. Legal advice was at once taken, and Mr. Crittenden, solicitor for complainant in the present suit, on behalf of Cohen requested of Mr. Sharp to consent to his substitution as attorney for Cohen, or that Sharp should unite with him in a motion to set aside the judgment. Mr. Sharp declined both propositions, although he was advised by Mr. Crittenden of the nature and origin of the fabricated notes upon which judgment had been recov·
762
BEDERAL REPORTER.
ered, and was informed that. Cohen had never been served with process in the suit, and had been kept in ignorance of the proceedings. Mr. Crittenden thereupon to move in the nineteenth court that he be substituted as attorney for Cohen, and that the judgment be aside. The motion was accordingly made on affidavits. alleging in substance what has been proved in this cause, and narrated in this opinion. The motion was opposed by Mr. Naphtaly, assisted by Mr.. Sharp, who furnished him with an affidavit, and gave him "all the co-operation in his power that the judgment sb10uld stand." Mr. Sharp states that his reason, or one of his reasonS', for this, was that the rights of other persons were concerned. When asked to whom he referred; he replied that he referred to Mr. Lewis· . . The motion to set aside the judgment was denied by the. court. The 'motion to substitute has never been decided. On the twenty-sixth day of April, 1878, a voluntary petition in bankruptcy was tiled by Cohen and Schoenfeld, under which the firm was adjudicated bankrupt. Mr. Shainwald was subsequently ·appointed assignee, and the present suit was commenced. ,No comment is necessary upon the facts related in the foregoing narrative. They exhibit as flagrant a case of gross and deliberate·fraud upon creditors as can be well imagined. The fraud derives an additional heinousness from the fact that a court of justice was made the instrument of its perpetration by its own officers, whose highest professional duty was to demean themselves uprightly before it, and to scrupulously abstain from all attempts to deceive or impose upon it. The court was not only induced by falsehood and deceit to render judgment for the plaintiff in a collusive suit, brought on fictitious demands, but it was prevented from correcting its error by the strenuous opposition of both the attorneys, supported by their own affidavits. If practices like these are suffered to pass without exposure and rebuke, the legal profession will rapidly decline in public esteem, the authority of the courts will be weakened, and even respect for the law itself, without which free institutions are impossible, will be
763
gradually, but surely, destroyed. The frauds perpetrated in this case are, therefore, more than a private wrong. They rise to the bad eminence of a public crime. In fixing the amount of the decree I have sought to ascertain the value of the firm's assets which came into the possession of the respondent. .The nature of the inquiry forbade the hope of any very accurate result. I have indicated in a memorandum filed with the decree the various items of which the aggregate sum decreed is composed. To enumerate them here and to give in detail the testimony in regard to them, would greatly increase the length of this opinion, already longer than I could have wished. It will, perhaps, not be thought· unreasonably long when it is considered that the testimony in the case covers more than 2,200 written pages. Besides, non sunt longa ubi nihil est quod demere posiis. The following decree was entered November 5, iS80: This cause came on to be heard at this term, and was argued by counsel; and thereupon, upon consideration thereof, it was ordered, adjudged, and decreed as follows, viz.: First. That the judgment of the district court of the nineteenth judi. cial district of the state of California, in and for the city and county of San Francisco, in the action in said court entitled "H. Lewis, plaintiff, v. Louis 8. 8clwenfeld, liimon Cohen, and Isaac Ne'UYman, defendants," which was rendered, entered, and recorded on or about the seventeenth day of July, A. D. 1877, being the judgment mentioned and described in the plaintiff's bill in this cause, was procured and obtained by the said Harris Lewis, respondent herein, by fraud and collusion, and was and is a fraud upon and against said Simon Cohen, also upon and against the said firm of Schoenfeld, Cohen & Co., also upon and against the creditors of said· firm of 8choenfeld, Cohen & Co., and also upon and against the complainant, the said Herman Schainwalrl, as assignee in bankruptcy of the firm of Schoenfeld, Cohen & Co., and of Louis S. Schoenfeld, Isaac Newman, and Simon Coben, bankrupts. Second. That said judgment of said ninteenth district court of tbe state of California, and also the entry and record of said judgment, be and the same and each of the same is and are hereby declared, adjudged, and decreed null and void, and of no effect. Third. That said action in said district court of the nineteenth judicial district of the state of California, the writs of attacllment and the writ of execution issued therein, each and every levy and all levies made on or under or by virtue of said writs, or of either of tbem, the sale under said writ of exp,cution by the sheriff of the city and county of San Francisco, the purchase and purchases made at said sheriff's sale by said Harris
764
Lewis, respondent herein, the order 'made and rendered by said district court pf the ninteenth judicial district of the state of California denying the application of said Simon Cohen and said Louis S. Schoenfeld for an order vacating and setting aside said judgment, and each, all, and every of the proceedings in said action, was and were commenced" had, done, taken, obtained, and procured by and through fraud and collusion on the part of the said Harris Lewis and of his agents and attorneys, and with the intent, object, purpose, and design of cheating and defrauding the creditors of said firm of Schoenfeld, Cohen & Co., and in pursuance of a secret, illegal, alld fraudulent combination, conspiracy, and agreeement between said Harris Lewis, Louis S. Schoenfeld, and Isaac Newman to defraud the creditors of said firm; and said action and the aforesaid writs, levies, sales, purchases, and orders, and each, all, and every proceeding and proceedings in said action, is and are hereby declared, adjudged, and decreed to be a fraud upon and against said Simon Cohen, also upon and against the said firm of Schoenfeld, Cohen & Co., also upon and against the creditors of said firm of Schoenfeld, Cohen & Co., and also upon and against the said Herman Shainwald, as assignee in bankruptcy of the firm of Schoenfeld, Cohen & Co" and of Louis S. Schoenfeld, Isaac Newman, and Simon Cohen, bankrupts, and is and are hereby declared, adjudged, and decreed null and void, and of no effect. Fourth. That the said district court of the nineteenth judicial district of the state of California did not acquire any jnrisdiction in said action over said Simon Cohen, and the judgment and writ of execution therein, and all proceedings thereon, were and are, and each and everyone of them is, null and. void for want of jurisdiction in or on the part of said court over the person of said Simon Cohen. Fifth. That the $17,000, $8,000, and $5,000 promissory notes mentioned and described in the complainant's bill herein, and upon which said Hal'. ris Lewis obtained said judgment in said district court of the nineteenth judicial district of the state of California, were, and'each of them was, manufactured and delivered by said Louis S. Schoenfeld and Isaac New. man to said Harris Lewis, and was and were procured and received by and through fraud by and on the part of said Harris Lewis, without any con. sideration being paid therefor to s(lid firm of Schoenfeld, Cohen &; Co., and with the intent, object, and design to cheat and defraud the creditors of said firm, and in execution of the aforesaid combination, conspiracy, and agreement; and the said notes are, and each of them is, hereby declared, adjndged, and decreed to be uull and void, and the said Harris Lewis is hereby ordered to deliver and surrender each, all, and everyone of said promissory notes to said Herman Shainwald, as assignee as aforesaid, within five days. Sixth. That all the money and property of the firm of Schoenfeld, Co'hen & Co, which was received or obtained possession of by the respondent, Harris Lewis, on or subsequent to the twenty-third day of June, A. D. 1877, by or through any purchase at sheriff's sale or from William R. Bremer, Isaac Newman, Louis S. Schoenfeld, or from any other person, was and were obtained possession of, delivered to, and received by him by and through fraud, and by and through an illegal and fraudulent
765
combination and conspiracy between said Harris Lewis and the said Isaac Newman, Louis S. Schoenfeld, and other persons, to cheat and defraud the creditors of sai4 firm of Schoenfeld, Cohen & Co.; and the said respondent, Harry Lewis, is hereby declared, adjudged, and decreed to be a trustee for the benefit of the creditors of said firm of Schoenfeld, Cohen & Co., and for the benefit of said Herman Shainwald, as assignee in bankruptcy of said firm, and of the members of said firm as aforesaid, of all the money and property of said firm as received, delivered to, or possession of by him, the said Harris Lewis, and also of any and all interest, profit, profits, income, and proceeds made, secured, obtained, or in any way or manner or form realized by him, the said Harris Lewis, by or from, or by means of the use of, said money and property, or any part thereof, or by the use of any such interests, profits, or proceeds; and the said Harris Lewis is hereby declared, adjudged, and decreed to be a trustee of the sum of $81,425.07, in lawful money of the United States, for the benefit of said Herman Shainwald, as assignee in bankruptcy of the firm of Schoenfeld, Cohen & Co., and of Louis B. Schoenfeld, Isaac Newman, and Simon Cohen, bankrupts, the same being the aggregate amount of the said moneys and property of said firm received and obtained by said respondent as aforesaid by fraud and collusion before the first day of November, .A.. D. 1877. Seventh. That the complainant, Herman Shainwald, recover from the respondent, Harris Lewis, and that the respondent, Harris Lewis, forthwith pay to the said Herman Shainwald, the complainant herein, the sum of $81,425.07, and the further sum of $17,091.26, interest on the aforesaid sum of $81,425.07 from the first day of November, A. D. 1877. Eighth. That the injunction heretofore issued in this suit on the eighteenth day of November, A. D. 1879, be and the same is hereby made and declared to be perpetual. Ninth. That the complainant, Herman Shainwald, as assignee as aforesaid, recover from the respondent, Harris Lewis, and that the respondent pay to the complainant, all the costs and disbursements by said complainant incurred or paid out in this cause, the same to be taxed. by the clerk of this court. Tenth. That the writ of injunction issueti forthwith out of this coUrt commanding the said Harris Lewis, his agents, attorneys,servants, and assigns, to cease, desist, and refrain forever from claiming or asserting any right to said judgment, or to any writ or levy of execution, or to any order, relief, or other proceeding, in the said action in the said district court of the nineteenth judicial district of the state of California, and from prosecuting said action or taking any other or further proceeding therein, and from issuing or procuring to be issued therein any writ or other process, mesne or final, and from doing any other act or thing therein, and from assigning, transferring, or otherwise disposing of said judgment, or any part or portion thereof, and also from asserting or setting up in any way, manner, or form any claim, right, title, interest, or ownership of, in, or to the promissQry notes for $17,000, $8,000, and .5,000 hereinabove mentioned, or of, in, or to any or either of them.
766
, . FEDERAL REPORTER.
SH,HNWALD, Assignee, etc., (District Court, D. California.
'lJ. LEWIS.
March 30, 1881.)
EQUITABLE RELIEF-EXECmTIoN":-INJUNCTION-REcEIVER.
Where a in equity is obtaihed against a <;lefendant for a sum of money, and execution has been returned unsatisfied, a court of equity has jurisdiction of a bill alleging that the defendant has secreted his property, and is disposing of the same with the avowed intent of defrauding the complainant, and depriving himof the fruits of his decree, and praying an injunction and receiver. It is not necessary in such a bill to particularly describe the assets, whether equitable or not, sought to be reached, and a court of equity will issue an injunction, appoint a receiver, and compel an assignment of .all the property of the defendant, when such action is necessary to defeat the fraudulent designs of the defendant. 2. SEQUESTRATION.
QUaJre, whether, upon such a showing to the court by petition in the original suit, a writ of sequestration may not issue.
3.
INJUNC'rION-CREDITOR'S BILL.
QUaJre, whether, under such an original decree, and upon the showing above mentioned, the court has not the power to issue an injunction, and make an order for a receiver and assignment, without requiring the complainant to file a so-called creditor's bill, or to wait for the return of an execution unsatisfied.
In Equity. Motion to Revoke Appointment of Receiver. James L. Crittenden, for plaintiff. Delos Lake, for respondent. HOFFMAN, D. J. On the fifth day of November, 1880, a decree was entered in. this court against the above-named respondent, by which he was adjudged to have obtained possession of the funds of the bankrupt firm, of which the complainant is assignee, by fraud and collusion, and by means of fraudulent and collusive judgments against the firm founded on fictitious debts. He was, therefore, decreed to be a trustee for the complainant of all such funds, and was required to pay over to the complainant the amount thereof as ascertained by the decree. On this decree an execution was issued and returned unsatisfied. A bill was thereupon filed by the complainant setting forth the previous proceedings in the cause, and averring that respondent had procured a homestead to