Appeal from the District Court of the United States for the Eastern District of Pennsylvania; George A. Welsh, Judge.
Before BUFFINGTON, DAVIS, and THOMPSON, Circuit Judges.
This is an appeal from an order of the District Court dismissing the petition of the commonwealth of Pennsylvania, wherein it prayed the court to direct the receivers, appointed by it, of the Mortgage Building & Loan Association, hereinafter called the association, to deliver over to the secretary of banking of Pennsylvania all the assets and records of the association held by them.
This was a stockholder's bill filed against the association for the appointment of receivers by Edward B. Elson, a resident of the state of New York, who owned stock in the association, to the amount of $31,000. The bill alleged that the association was then, and for a long time had been, insolvent, and that the real, actual, and fair value of its assets was far less than its liability to stockholders on dues paid in, together with its general indebtedness; that the association had stopped making loans or collecting dues; and that, "unless its affairs should be liquidated and its assets distributed under the equitable and impartial supervision of a court of competent jurisdiction," immediate and irreparable damage would be suffered. It therefore prayed for the appointment of receivers.
The association filed an answer in which it admitted its insolvency and joined in the prayer of the plaintiff for the appointment of receivers. They were appointed and took over the assets of the association. The commonwealth of Pennsylvania intervened and filed a petition, and, as above stated, prayed that the assets of the association be delivered to the secretary of banking of Pennsylvania. The court denied the prayer and entered an order dismissing the petition. From this order the commonwealth appealed.
Two questions arise: (1) Did the District Court have jurisdiction and consequent power to appoint receivers? (2) If it had, did it abuse its discretion in appointing them?
The District Court derives its power from the Constitution and from Congress and not from the commonwealth. Article 3, section 2, of the Constitution, provides that: "The judicial Power shall extend * * * to Controversies * * * between citizens of different States." Congress, pursuant to this authority, has provided that District Courts shall have original jurisdiction of all suits of a civil nature at common law or in equity, where the matter in controversy exceeds, exclusive of costs and interest, the sum or value of $3,000 and is between citizens of different states. Section 24, Judicial Code (28 USCA § 41). This is the source of the jurisdiction and power of the District Court in this case.
While sitting in a state as a court of the United States, the federal court accepts and gives effect to the laws of the state, so far as they do not affect its jurisdiction and the rights of nonresident creditors. Yet it exercises powers independent of the state. A state cannot take away the plenary power of the federal courts given to them by Congress by conferring exclusive jurisdiction of such controversy upon its own courts and administrative bodies, by prescribing exclusive methods of commencing or conducting litigation, by prohibiting the seizure of the subject of the litigation during its pendency, or by any other means. National Surety Co. v. State Bank of Humboldt (C.C.A.) 120 F. 593, 602, 61 L.R.A. 394; Morrill et al. v. American Reserve Bond Co. (C.C.) 151 F. 305, 313; O'Neil v. Welch (C.C.A.) 245 F. 261, 265; Leadville Coal Co. v. McCreery, 141 U.S. 475, 477, 12 S. Ct. 28, 35 L. Ed. 824.
In the case of National Surety Co. v. State Bank, supra, Judge Sanborn, speaking for the Circuit Court of Appeals for the Eighth Circuit, said: "When the controversy which this bill discloses arose between these citizens of different states, and was presented to the Circuit Court of the United States, that court had jurisdiction to hear and determine it, and the appellants had the legal right to the opinion and the judgment of that court upon the questions which it presented. This right and this jurisdiction were not conditioned by the fact that the complainants had or had not like rights or remedies in the state courts, or by the fact that those courts had or had not concurrent jurisdiction. Indeed, this right and this jurisdiction were provided by the Constitution, and granted by the acts of Congress, for the express purpose of enabling citizens of different states to escape from an adjudication of their rights by state courts which had concurrent jurisdiction to grant the relief and to administer the remedies which they were seeking in the national courts. The rights of these appellants to their hearing and decree in the federal court, and the jurisdiction of that court to determine their controversy, were independent of state legislation. The state of Nebraska did not grant, and it could not revoke or impair, that right or that jurisdiction."
In the Morrill Case, supra, Judge Sanborn further said: "A federal court sitting in equity has the plenary jurisdiction of the English Court of Chancery, and one of the inherent powers of each court is to take and to hold by its own hands, by its receivers, the control and the possession of mortgaged, pledged, and trust property during the pendency of suits concerning it in those courts whenever in the exercise of a wise judicial discretion these courts are of the opinion that the most speedy and perfect administration of justice and the rights of the parties interested in the property will be best secured by such action. The statutes of the state of Missouri do not by their terms, and the Legislature of that state never, intended that they should in any way limit or impair this power of the federal courts. Moreover, the power of the Circuit Courts of the United States to adjudicate claims and administer remedies in equity is vested in them as a part of the judicial power of the nation by the Constitution of the United States and the judiciary act of 1789 [1 Stat. 73], and, as it was not granted by, it may not be revoked, impaired, or limited by, the act of any state. Wherever citizens of different states lawfully invoke the jurisdiction of the federal courts to determine controversies between them which involve the requisite amounts, they have the constitutional right to the conduct of that litigation by the methods, to the administration of the remedies, and to the determination of those controversies by the independent judgments of those courts; and no state, by conferring exclusive jurisdiction of such issues upon its own courts, by prescribing exclusive methods of commencing or of conducting litigation, by prohibiting the seizure of the subject of the litigation during its pendency, or by any other means, may lawfully strike down that right or take away the plenary power of the national courts to conduct the litigation, to administer their remedies, and, in the exercise of their judicial discretion, to control the possession of its subject-matter during its pendency in accordance with their established rules of practice, and finally to adjudicate the claims of the parties and to enforce their judgments."
In the case of O'Neil v. Welch, supra, Judge Woolley, speaking for this court said: "It cannot be doubted that the Federal court, in the exercise of its general equity jurisdiction, has power to appoint a receiver on a stockholder's bill, determine a corporation's solvency and distribute its assets, and that no State statute can impair or destroy that power."
In that case the District Court in Pennsylvania had appointed a receiver for an insurance company, for the supervision and liquidation of which the commonwealth had provided the same general complete system that it has for building and loan associations. Judge Woolley further said: "While the two courts have concurrent jurisdiction in the sense that each has the same jurisdiction, it is the policy of the law that the jurisdiction of both shall not be concurrently invoked and exercised; hence it is a well settled rule that as between two courts having concurrent jurisdiction of the subject of an action, the court which first obtains jurisdiction has the right to proceed to its final determination without interference from the other."
In Leadville Coal Co. v. McCreery, supra, the Supreme Court said: "The circuit court takes its jurisdiction, not from the state of Ohio, but from the United States; and the extent of its jurisdiction is not determined by the laws of the state, but by those of the United States. Doubtless, while sitting in the state as a court of the United States, it accepts and gives effect to the laws of the state so far as they do not affect its jurisdiction and the rights of nonresident creditors. It nevertheless exercises powers independent of the laws of the State; and when, in pursuance of the jurisdiction conferred by the laws of the United States, it takes possession of the property of a defendant and proceeds to final decree, determining the rights of all parties to that property, its decree is not superseded and its jurisdiction ended by reason of subsequent proceedings in the courts of the state, looking to an administration of that property in accordance with the laws of the state. It would be an anomaly in legal proceedings if, after a court with full jurisdiction over property in its possession has finally determined all rights to that property, subsequent proceedings in a court of another jurisdiction could annul such decree, and disturb all rights once definitely determined. No such anomaly exists in the relative jurisdiction of state and federal courts. The latter, having once acquired full jurisdiction, and proceeded to a final determination, may rightfully proceed still further, and to an execution of that decree, irrespective of any proceedings in the courts of the state."
These cases are declaratory of the law generally, but they do not deal specifically with controversies arising over quasi public corporations. The commonwealth of Pennsylvania, in the exercise of its public policy, has provided for her quasi public corporations, including building and loan associations, a complete system for incorporation, supervision, and liquidation.
The question is as to whether or not the well-settled rule of law applies when a controversy involving a quasi public corporation, such as a building and loan association, arises between citizens of different states. The question comes to this: Is the jurisdiction of the federal court, conferred by federal statutes in accordance with the power granted to Congress by the Constitution, ousted by the public policy of the commonwealth?
Nowhere has there been any enactment by Congress excepting controversies between citizens of different states involving the liquidation of quasi public corporations from the clear and comprehensive language conferring jurisdiction upon federal courts sitting in equity. But municipal, railroad, insurance, and banking corporations have for years been taken away from the jurisdiction of federal courts sitting in bankruptcy, and in 1932 building and loan associations were added to that list. The fact that Congress expressly removed certain quasi public corporations from the jurisdiction of federal courts sitting in bankruptcy, while it did not remove them from the jurisdiction of federal courts sitting in equity, would indicate that it did not intend to do so, and this inference is rendered more plausible and strengthened when it is recalled that those courts have, in proper cases, for a long time been assuming jurisdiction over and liquidating building and loan associations.
In discussing this subject in his opinion in the court below, Judge Welsh said:
"Finally upon this point it may be said that it is no unusual thing for federal courts to appoint receivers for building and loan associations, and wherever challenged the jurisdiction of the federal court when first invoked seems to have been upheld. See the following cases, all of which are building and loan association cases: Towle v. American Bldg. Loan & Inv. Soc., 60 F. 131 (C.C. Ill.); Sleeper v. Winkel, 122 F. 736 (C.C.E.D. Pa. 1903, Judge McPherson); American B., L. & Investment Soc. (appointed on stockholder's bill), Towle v. American Building, Loan & Investment Soc., supra; Cumberland B. & L. Ass'n (on stockholder's bill), Wilson v. Parvin, 119 F. 652 (C.C.A. 6, 1903, Judge Lurton); Interstate B. & L. Ass'n (on stockholder's bill, primary receiver appointed in C.C.N.D. Ga. 1900), Flinn v. Interstate B. & L. Ass'n, 141 F. 672 (C.C.S.C. 1905); Universal Savings & Trust Co. (on stockholder's bill), Universal Savings & Trust Co. v. Stoneburner, 113 F. 251 (C.C.A. 4, 1902); Bluegrass B. & L. Ass'n (appointed pendente lite on stockholder's bill), Powers v. Blue Grass Bldg. & Loan Ass'n, 86 F. 705 (C.C. Ky. 1898, Judge Lurton); Douglass v. Kavanaugh, * * * 90 F. 373 (C.C.A. 6); Columbia Mutual Building Ass'n (receivers actually appointed in Federal Court in March 1902), Miers v. Columbia Mutual Building & Loan Ass'n, 157 F. 940 (C.C.S.D. of N.Y. 1907); Baltimore B. & L. Ass'n of Baltimore City (primary receiver had been appointed by this court 1900), Coltrane v. Baltimore B. & L. Ass'n of Baltimore City, 110 F. 272 (C.C. Md. 1901); National Home B. & L. Ass'n (primary receiver appointed in Southern District of Illinois), MacMurray v. Gosney, ancillary receiver, in W.D. of Pa., 106 F. 11 (C.C.W.D. Pa. 1901); New South B. & L. Ass'n, Miles v. New South B. & L. Ass'n, 111 F. 946 (C.C.E.D. La. 1900); Southern Home B. & L. Ass'n Alexander v. Southern Home B. & L. Ass'n, 110 F. 267 (C.C. Ga. 1900); Fidelity Trust & Loan Company (receiver had not been appointed), Manorita v. Fidelity Trust & Loan Co., 101 F. 8 (C.C.S.D. Ala. 1900); Michigan Savings & Loan Ass'n (appointed in 1901 by E.D. of Mich.), Galloway v. Mich. Savings & Loan Ass'n, 206 F. 241 (C.C.A. 6, 1913); Southern B. & L. Ass'n (primary receiver in N.D. Ala.), Cooper v. Newton, 160 F. 190 (C.C. Ga. 1908); American B. & L. Ass'n (receiver had been appointed), Solomons v. American B. & L. Ass'n, 116 F. 676 (C.C.N.D. Ga. 1902)."
Our attention has been called to the learned opinion, filed June 30, 1934, of Mr. Justice Schaffer of the Supreme Court of Pennsylvania, Com. ex rel. Schnader v. Penn. General Casualty Co., 173 A. 637, 640, in which that court, for whose members personally and professionally we have the highest regard, reached the conclusion that a federal court is without jurisdiction in cases involving the liquidation of quasi public corporations because it would infringe upon the public policy of the commonwealth which has provided a complete system wherein the liquidation has been restricted to her own courts and administrative officers. This conclusion is based, not only upon the public policy of the commonwealth, but also upon the court's interpretation of certain federal court decisions. Mr. Justice Schaffer said: "As we read the decisions of the federal appellate courts, jurisdiction in situations similar to the present one has been disclaimed by those tribunals."
The following cases are cited and quoted in support of the above statement: Port Newark National Bank v. Waldron (C.C.A.) 46 F.2d 296, 299; O'Neil v. Welch (C.C.A.) 245 F. 261, 267; Lyon v. McKeefrey (C.C.A.) 171 F. 384, 393; Mitchell v. Lay (C.C.A.) 48 F.2d 79; Lee v. Edmunds (C.C.A.) 66 F.2d 122, 125; Bank of Bay Biscayne et al. v. Hankins et al. (C.C.A) 42 F.2d 209; Shapiro v. Wilgus, 287 U.S. 348, 53 S. Ct. 142, 77 L. Ed. 355, 85 A.L.R. 128. If those cases do disclaim jurisdiction over the issue here ...