LATHAMV. OHAFEB.
LATHAM 11. CHAFEE.
(Vircuit Court, D. IlhotUIsZand. May 23, 1881.)
1.
REMOVAL OF TRUSTEE-MISMANAGEMENT-FRAUD-lNJIDlCTION-RIll. CElVER.
In a suit for the removal of a trustee, a court of equity will not summarily interfere, before answer filed, by the granting of a preliminary injunction and the appointment of a receiver,upon charges of fraud and bad business management, unless such charges are clearly established, and the peculiar circumstances of the case imperatively demand the relief sought.-[ED.
In Equity. Motion for a preliminary injunction and the appointment of a receiver. Jerome B. Kimball, Andrew J. Patten, Benj. F. Butler, and Roger Prior; 'for complainant. G. Frank Parkhurst,Jas. Tillinghast, Benj. F. Thurston, and' Chas. Hart, for defendant. COLT, D. J. The bill under which this motion arises is for the remo'val of a trustee; It does not ask that the property may be sold or distributed"and only for such an account as would be rendered necessary by a removal. Upon "the face of the papers it appears that this property has remained in the possession of the trustee for more than seven though no complaint of delay is made in the bill, and there is no prayer to hasten the final discharge of the We are judically informed that a recent decision has grave obstacles in the way of giving title to tkeestates' held by the trustee, and it is to be hoped that nothing in this pro. ceeding will be allowed to interfere with a disposition of said estates in accordance with the trusts under which they are held. The immediate and only question now before us is not whether, upon a full hearing after answer filed, the defend. ant shall be removed as trustee, but whether, at this stage oj the proceedings, such a case has been out as calls for the summary interference of the court by way of a preliminary injunction and the appointment of a receiver. The merits of this controversy, as they may be developed upon a
FEDERAL ,REPORTER.
full hearing and proper proot,'are not now under considera. tion; but only the question whether such an emergency exists, as ahown by the bill and affidavits, as warrants the court, through the exercise of its. extraordinary powers of injunction and receivership, in taking this vast property from the possession of the defendant and into its own custody, during the time that may elapse before a final hearing can be had upon the merits. Whether the defendant shall be removed as trustee is one thing to be determined at the proper time, and upon proper proof; but whether a receiver shall be appointed pendente lite is quite a different thing, to be decided by considerations which may involve in a slight degree the other and principal question raised by this suit. The main object of both an interlocutory injunction and a receiver is to preserve the subject-matter in oontroversy until the rights of the parties are determined. High on Rec. 476. They are invoked for the prevention of future injuries,rather than for the redress of grievances already committed. They are prospective rather than retrospective in their operation. Id. If there are past wrongs to redress, or rights to be determined, the proceedingsll.re to be conducted in the regular way, by and pl:oof. It is the immediate danger to the fund in the immediate future or pending litigation that justifies the court in resorting, before a final hearing, to these summary measures. In the appointment of a receiver pendente lite the court acts with caution, and only under such peculiar circumstances as demand summary relief. High on Receivers, § 3, says: .. The exercise of the extraordinary power of a chancellor in appointing i'eceivers, as in granting writs of injunction or ne exeat, is an exceedingly delicate and responsible duty, to be discharged by the court with the utmost caution, and only under such special or peculiar circumstllnces as demand summary relief; ... ... ... and, because it divests the owner of property of its possession before a final hearing, it is regarded as a severe remedy, not to be adopted save in a strong case, and uM8ssplaintiff' would otherwise b8 in danger ,of Buffering frr8jJaralJ18 loss." . ROBB,
In Crawford v. guage;
39 Ga. 44, the court uses this Ian·
f.ATHAM
V. CHAFEE.
521
," The'high prerogative act of taking property ont of the hands of one and putting it in pound, under the order of a judge, ought not to be taken, except to prevent manifest wrong immediately pending."
While the applioation for a reoeiver is said to be addressed to the sound disoretion of the court, yet it is a discretion regulated by legal prinoiples. " Lenox v. Notrebe, Ramp. 225. In Clarke v. Ridgely, 1 Md.' Ch. 70, the chancellor observes: "Indeed, it is believed the authority and duty of the court to appoint or not appoint a rebtliver depends 'upon the question whcther the property is or is not in danger in the hands of the party who may at the time be in possession."
And in Orphan Asylum v. McCartie, 1 Hopk. Ch. 435, it is said: "A receiver is proJ:.er if the fund isin danger, and the principle reconciles the cases found in the books."
We are asked, in the case before us, to appoint a receiver before answer, and where, the property is in the hauds of a trustee under an active trlfst.':Vith regard to appointing receivers before answer, it is laid down, in High on Receivers, § 106, as follows: " While the practice of appointing before answer, in cases emergency, is thus shown to be well established and generally followed by courts of equity'iilthis country, yet tLe grounds which will induce the court to interfere, at this stage of a cause, must be very strong, and there.must; be clear proof offraud, or of immedia.te danger to the property, unless it is taken into the custody of the court."
Says the court, in Whitehead v. Worten, 43 Miss.
.
grounds laid. '*' '"' ,.. There must be strong and special reasons for the a,ppointment before answer, as'on proof of fraud by affidavits or immeat once taken in charge by the court." diate danger to the property
"If the application ill made before tbe merits of thjl cause are there must be strong disclosed, as before a pro confesso (·r answer
And, af:{ain, in Baker v. Backus, 32 Ill. 115 : "A receiver is not usually appointed unless fraud is clearly' proved by affidavit,or when it 'is shown that imminentdailger would ensue if the property is not taken under the care of the court before an answer is, in."
Again, it is with extreme reluctance' that in the case of an express trust, either by way of injunction or receiver.
528
FEDElUL REPORTER.
" Nothing but a case of pressing necessity and imminent probability of great danger from delay, will justify a court of equity in divesting a trustee of his trust until he has had an opportunity of answering." High on Injunction, § 14. "It may properly be observed in the outset that courts are averse to the displacement by a receiver of a trustee under an express trust unless for good cause shown. Upon a bill filed by the cestui que trust against a testamentary trustee, seeking an account of his trust, and a receiver to take charge of the property ad interiln, the only ground fOT' relief which the court will consider is whether the trust estate is likely to be wasted before the termination of the litigation; and when this is not shown, the alleged bad habits of the trustee, and his unfitness to execute the trust devolved upon him by the testator's will, are not sufficient to warrant a court of equity in the exercise of its extraordinary powers by the appointment. of a receive·r." High on Receivers,
H 693, 695.
In Orphan Asylum v. McOarter; 1 Ropk. eh. 429, it was held that where a trustee had mingled the trust fund with his own private funds it was not sufficient ground for the appointment of a receiver, it not being shown that the fund was in danger. A careful examination of the authorities, we believe, will show that it is the impending danger to the trust fund which induces the court, to interpose with these extraordinary remedies in the case of an express trust, where a trustee has failed to take possession of the trus' property, and has allowed it to remain in the hands of the debtor, who may dispose of it at any moment, or where he is about to part with it in a fraud. ulent manner, so that it will be lost to the trust estate, or where the trustee is clearly proven to have been guilty of acts of fraud, so that the fund is not safe in his hands for any length of time. There are cases where the protection of the property may call for these summary remedies. In Jones v. Dough8rty, 10 Ga. 273, 288, cited by the complainant's counsel as parallel to the case under consideration, the trustees bad never taken possession of the trust property, but had allowed it to be used and disposed of by the debtor, the administrator of the debtor being also about to sell a portion of the estate in another state. The court observe: " And do not the allegations in the bill establish conclusively that the trust fund was in the most imminent danger of being entirely wasted or placed beyond the reach of the cestui que trust 1 .. .. .. He allowed the assignor, from the time of the execution of the deed to the period of
LATlUlI V. CHAFEE.
529
his death, to keep the property in his own possession, and to appropriate the same to his own use, as if the deed had never been made, and even to sell and otherwise dispose thereof at his pleasure; and that since the .ieath of the debtor the trustee has suffered his widow and other persons to retain said trust property, and to receive and appropriate the rents, issues, and profits accruing therefrom, the annual income of which is worth some $8,000; .. .. .. that the administrator of the assignor in Ala· bama is proceeding to dispose of so much of the trust property as is sit. uated in that state, and thus impair its validity by creating conflicting titles thereto. It is apparent that here the trust propeJt.v was in great peril unless action was taken at once."
In the light of the foregoing authorities we come to the special consideration of the case before us. The defendant, Chafee, has been in possession of the property and administering this trust for a period of OVfjr seven years. He was appointed trustee at the request of the assignors,'and with the assent of a large majority of the creditors, as shown by their acceptance of the trust notes. . The court is now asked, upon a bill filed by one creditor, before answer and a hearing upon the merits, to enjoin the defendant from further managing the estate, and to deprive him at once of its possession. If there is not great danger that the complainant will suffer irreparable loss by any delay, it would seem better, in a cause of such magnitude, and where the interests of so many'are affected, to proceed to a full hearing upon the merits before calling into action these extraordinary remedies, which might .possibly work great injury. An examination of the facts as disclosed in the affidavits do not in our opinion show such an impending danger to the fund as will justify the court in granting this motion. The charges against the defendant relate largely to the sale at a sacrifice of a portion of the trust estate, the purchase of supplies for the mills, especially cotton, at a high price, and the sale of the products at a low price. No fraud is here charged, but rather bad business mana@"ement, which the defendant denies. As to the alleged purchase by the defendant, as treasurer, of the stock of the SindnickCompany, it can hardly be said to apply to the matter now before us. Whatever bearing all these and other like charges may have, at a hearing upon the merits, for the purpose of this motion it is not v.7,no.5-34
580
FEDERAL REPORTER.
necessary to consider them further. As:to any specifid charges in the nature of fraud, (except the purchase of the trust notes,) it may be said, in the present condition of the proof, being affirmed on the one side and denied on the other, that they are not sufficiently established to warrant the granting of this motion upon that ground. With respect to the purchase of the trust notes,. we are of the opinion that the trustee should be enjoined .from any purchase or sale of the same until the further order of this court. The motion is therefore denied, e'xcept in' the above particular, and a decree may be entered accordingly.
UNITED STATES
'D.
THE GLOBE WORKS and others.
(Circuit Oourt, n. Ma88aMuaett,. May 19,1881,) 1. EQUITY PLEADING-CORPORATE AsSETS-EQUITABLE LIENS.
A bill to charge the assets of a corporation, in the hands of shareholders, with an equitable lien in favor of creditors, must allege that such assets were divided among the shareholders before the corporate debts were paid, 2. SAME-RECEIVER-PERSONAL LIABILITY.
Where such bill also seeks to make the receiver of the corporation personally liable,due notice of the debts must be alleged. 3. SAME-STOCKHOLDERS-PERSONAL LIABILITY.
Where such bill also seeks to charge the individual stockholders facts necessary to make them personally liaof such corporation, ble under their charter must be alleged. 4. SAME-UNITED STATES-PRIORITY OF CLAIM.
Where sueh bill seeks to establish the priority of a claim in favor of the United States, it must also show whether the corporation was insolvent at the time it was being wound up, and 'whether the receiver of the corporation had notice of the debt.-[ED.
In Equity. Demurrer. Henry Howland, Asst. U. S. Att'y, for complainant. Wm. S. Hall, for defendants. LOWELL, C. J. Thisisademurrer to a bill filed by the United States against the Globe Works and John George Souther, Daniel N. Pickerin3, and Aristides Talbot.