
    BECKER v. HOKE et al.
    (Circuit Court of Appeals, Seventh Circuit.
    June 19, 1897.)
    No. 412.
    1. Corporations—Stockholder’s Bill for Rf.ceiver—Equity Jurisdiction.
    A bill by a stockholder for the appointment of a receiver cannot be sustained where it declares no contest concerning property, no dispute of any kind between the parties, and no dereliction in duty by the corporation or its officers, but merely alleges its insolvency, the recovery of certain judgments against it from which it desires to appeal, but which it will be unable to supersede because of its insolvency, and that its assets will be wasted if sold under such judgments.
    2. Same—Collusive Bill—Dismissal.
    A bill by one owning an insignificant amount of stock, asking a federal court to appoint a receiver, should be dismissed by the court sua sponte, where it appears on the face of the bill that the same is collusive, and is brought to hinder and delay creditors who have recovered judgments in the state courts, and are there seeking the appointment of a receiver and the setting aside of mortgages and judgments on judgment notes, made by the directors to themselves as individuals.
    Appeal from the Circuit Court of the- United States for the Southern District of Illinois.
    This is an appeal from a decree of the court below denying the intervening petition of Charles Becker, receiver of the North & South Rolling-Stock Company, appointed by the circuit court of St. Clair county in the state of Illinois, on November 30, 1896. The North & South Rolling-Stock Company is a corporation organized under the laws of the state of Illinois, its principal business being to make, purchase, or lease various kinds of freight ears, and to hire them out to railroads for a compensation. At the times in question it was the owner of .76 stock cars, 242 box freight cars, 100 refrigerator cars, and held under lease 100 refrigerator cars, 156 box cars, and 61 coal ears. John S. Berthold was president of the company, and Curtis M. Jennings was its secretary and treasurer. They were also co-partners in a business carried on at the city of St. Louis, under the firm name and style of Berthold & Jennings. George S. Hoke was a clerk of the firm of Berthold & Jennings, and claimed to be the owner of one share of the North & South Rolling-Stock Company. The capital stock of that company was $300,000, divided into shares of $100 each; its board of directors consisting of three members, Berthold, Jennings, and Hoke. Berthold and Jennings were each the holders of 1,000 shares of the capital stock, but it was alleged that nothing had been paid thereon. Henry O’Hara was also a subscriber for 1,000 shares of the capital stock of the com-party, and it is charged that nothing whatever had been paid by him on such subscription. The management of the company was under the control of Berthold and Jennings. On June 24, 1896, Henry O’Hara obtained a judgment in the state court of East St. Louis, St. Clair county, 111., against the North & South Rolling-Stock Company, for the sum of $60,639.70 and costs of suit. On the 14th day of August, 1896, an execution was sued out upon the judgment, and a demand made of the company for its payment, which was not complied with, nor was any property turned out upon which to levy or satisfy the execution, and the same was returned, “No property found.” On the same day, and in the same court, Henry O’Hara obtained a certain other judgment against the North & South Rolling-Stock Company for the sum of $2,620.28 and costs of suit, upon which execution was issued to the sheriff, and under which the sheriff threatened to levy .upon and sell the cars of the defendant corporation. On August 11, 1896, the rolling-stock company, by J. S. Berthold, its president, and O. M. Jennings, its secretary, executed to the firm of Berthold & Jennings a chattel mortgage upon 100 refrigerator cars, 16 box cars, 226 box cars, and 76 stock cars, described, to secure three promissory notes, dated August 11, 1896, executed by the North & South Rolling-Stock Company, by its president, Berthold, and its secretary, Jennings, each payable to the order of Berthold & Jennings, one of said notes being for the sum of $20,096.75, payable at six months from that date, with interest at 6 per cent., and each of the other notes being for the sum of $7,682.40, one maturing February 1, 1897, and the other February 1, 1898, each bearing 6 per cent, interest after due. This mortgage was filed for record August 12, 1896. On the same day, the North & South Rolling-Stock Company, by its said president and its said secretary, executed to C. M. Jennings, its secretary and treasurer, the promissory note of the corporation, payable upon demand for the sum $8,260.60, in the form of a judgment note, and this note was indorsed by C. M. Jennings to the firm of Berthold & Jennings. On the same day, that corporation, by the same officers, executed a like note to the order of J. S. Berthold, its president, and for the sum of $8,300, which note was indorsed by Berthold to the firm of Berthold & Jennings. On August 12, 1896, judgment by confession in favor of Berthold & Jennings was entered in the circuit court of St. Clair county, Ill., upon the two notes of $8,300 and $8,260.60, respectively, and execution upon the judgment was issued to the sheriff of the county of St. Clair, who levied the same upon all the property of the North & South Rolling-Stock Company which could be found within the county, including the property embraced in the chattel mortgage.- On the 1st day of September, 1896, O’Hara and the Bannantine Galvanized Iron Manufacturing Company (the latter claiming as assignee of O’Hara) filed in the circuit court of St. Clair county, 111., a bill in the nature of a creditors’ bill, setting forth the judgments obtained by O’Hara; the organization of the company, with Berthold as its president and Jennings as its secretary, and their subscription to the stock of the company, and that nothing had been paid thereon; their possession of the funds of the company; the execution by them as officers to themselves as creditors of the chattel mortgage hereinbefore set forth, and the execution of the several notes, and the entry of judgment thereon, as hereinbefore described; that, to obtain an undue advantage over other creditors of the North & South Rolling-Stock Company, Berthold and Jennings, at the time of the execution of the chattel mortgage and notes, paid to themselves, on an alleged indebtedness of their own, out of the funds of the company, a sum in excess of $40,000, and kept the property and effects of the company out of the state,-and concealed and covered up, so that the same cannot be reached by execution. The bill prayed that the chattel mortgage be vacated and set aside; that the judgment obtained by Berthold & Jennings be vacated, and the execution thereon be quashed, and that they be required to discover, make known, and surrender all property of the North & South Rolling-Stock Company that could be applied in satisfaction of the O’Hara judgments; that Berthold and Jennings be required to refund and bring into court all money obtained by them as preferences; that disposition may be made thereof as might accord with equity; that they be required to surrender any propérty that they may have belonging to the company; that they be required to pay whateter may be due by them, respectively, upon the stock held by them, so far as may be necessary to satisfy tbe O’Hara judgments; that a receiver be appointed to take charge of the property, funds, and possessions of the North & South Rolling-Stock Company, with the usual powers of receivers; and that an injunction issue to restrain them from selling, transferring, or mortgaging the property of the company, and from removing the same from out of the state; and that they and the sheriff be enjoined from the further enforcement of the execution issued upon the judgment set forth, and for such equitable relief as the nature of the ease may require. On October 7, 1897, the North & South Rolling-Stock Company filed its answer to this bill, as did also the sheriff. On the 30th day of November, 1896, the circuit court of the county of St. Clair, upon that bill, appointed Charles Becker, the appellant here, receiver of the property of the North & South Rolling-Stock Company, with the usual powers of receivers in like cases, and he duly qualified as such officer.
    On the 10th day of September, 1896, George S. Hoke, who is a clerk in the office of Berthold & Jennings, and holds one share of the capital stock of the rolling-stock company, and who was one of the three directors of the company, filed his bill in the circuit court of the United States for the Southern district of Illinois as a stockholder, setting forth the property of the company; the recovery by O’Hara of his judgments; the issuance of the execution and demand for its payment; the recovery of judgment by Berthold & Jennings; the levy of execution issued thereon upon the property of the company; the execution of the chattel mortgage to Berthold & Jennings; the insolvency of the North & South Rolling-Stock Company; that that company believes the judgments obtained by O’Hara to be excessive, illegal, and unjust, and was seeking to perfect an appeal from such judgments, but was unable to give the necessary bonds; that it had prepared bills of exceptions, which had been presented to the judge of the court who tried the causes; and that, as soon as these bills were signed, the company would sue out writs of error to the appellate court of the Fourth district of Illinois, and expect that the appellate court will reverse both of such judgments; that the cars of the company are not in service, and are not being maintained, and are subject to charges for traffic, storage, and switching charges, and are scattered over the country; that the cars are not equipped with air brakes and automatic couplers, and by law should be so equipped by the 1st day of January, 1898, which will require the expenditure of a very large sum of money which it is impossible for the company to raise. It further represents that, if the sale of the property is permitted upon execution under the judgments, the as-sets of the company will be sacrificed, wasted, and destroyed, and the interest of the stockholders ruined. This bill was filed against the North & South Rolling-Stock Company, as sole defendant. The prayer of the bill was for a receiver of the property of the North & South Rolling-Stock Company to operate and manage the business of the company, subject to the further orders of the court, and to restrain the North & South Rolling-Stock Company, its officers, agents, and servants, from in any manner interfering with the possession or occupation of the property and business of the company by the receiver so to be appointed. Upon the same day, without the issuance of process, the defendant corporation appeared to the suit of George S. Hoke, and, without answer or opposition from it, the court below entered an order appointing Frederick C. Dodds, one of the appellees, receiver of the property of the North & South Rolling-Stock Company, “subject to all prior liens of any person or corporation, as the same may hereafter be established or determined by the court,” directing the receiver to lease the rolling stock, and requiring the defendant corporation to deliver to the receiver all property and effects belonging to it, and restraining the company as prayed in the bill. It will thus be seen that, while the bill in the state court was filed nine days before the bill was filed in the United States court by Hoke, the receiver appointed in the state court was not appointed until nearly two months subsequent to the appointment of the receiver in the United States court. The order or decree of the state court appointing the receiver recognized that fact, which had been brought to its attention, and directed its receiver that, as to all the property in actual possession and custody of the receiver appointed by the circuit court of the United States, the receiver in the state court should apply in due and legal form of law to the United States circuit court for the release of said property from such possession and custody, “which application he is hereby authorized to make, and to institute and carry on all proceedings, legal and equitable, necessary and proper for that purpose.” In conformity with that direction, Mr. Becker, the receiver appointed by the state court, filed his intervening petition in the circuit court of the United States in the suit of Hoke against the North & South BollingStock Company, setting forth substantially the facts herein stated, and representing that the jurisdiction of the circuit court of St. Clair county attached before the filing of the bill by Hoke in the circuit court of the United States, and that the fact of the filing of such bill in the state court was concealed from the circuit court of the United States by Hoke, and was not filed in good faith, but was filed at the instance of the North & South Bolling-Stock Company, and through Berthold and Jennings, for the purpose of preventing the collection of the judgments of O’Hara; and he prayed that ¿Hoke, the North & South Bolling-Stock Company, and Dodds, receiver, might be required to answer the petition, and that the property of the North & South Bolling-Stock Company which had Iseen taken possession of by Dodds, receiver, should be turned over to him, and that all moneys and earnings of the property and cars should be accounted for to him. This petition was answered by Hoke, and by the North & South Bolling-Stock Company, but these answers do not vary the statement of facts as here made. On the 14th day of January, 1897, the intervening petition of Becker, as receiver, was heard in the court below, and on the 6th day of April, 1897, a decree was entered denying the prayer of the petition, and dismissing the same, with costs. An appeal was allowed to this court to review that ruling.
    Gustavus A. Koerner, Mortimer Millard, and W. L. Granger, for appellant.
    Samuel P. Wheeler, Charles P. Wise, and George P. McNulty, for appellees.
    Before WOODS, JENKINS, and SHOWALTER, Circuit Judges.
   JENKINS, Circuit Judge

(after stating the facts as above). The argument sought to present for our determination a question both interesting and delicate: Which court—that of the United States or of the state—first acquired jurisdiction of the property of the North & South Rolling-Stock Company? We are relieved from the consideration of that question by other matters which must control our judgment. We are of opinion that the bill filed by Hoke in the circuit court of the United States exhibited no ground for the exercise of the equitable jurisdiction of the court, and that the proceedings of that court thereon are without warrant of law. It would be difficult to classify the bill under any known head of equity jurisdiction. It declares no contest concerning property, no dispute of any kind between the parties thereto. It asserts no dereliction in duty by the defendant corporation or its officers, and no ground to warrant the interference of a stockholder for the protection of his rights. There is no dispute to be adjudged, no right to be asserted, no decree prayed. The court is merely asked to take the property of the defendant corporation under its management during the pend-ency of a writ of error to be sued out by the company with respect to judgments obtained in another court, because, if such writ should be sued out, the company, by reason of its insolvency, would be unable to supersede the judgments. In other words, it is sought to make a bill in equity operate as a supersedeas bond upon writ of error in a court of another jurisdiction, and to demand that for such purpose a court of the United States should become the manager of the business of the corporation. A new nomenclature must be adopted to properly designate the bill in question. We know of no better name by which to characterize it than a bill to hinder and delay creditors.

The indisputable facts disclose, also, that this suit in the United States court is manifestly, and upon the face of the bill, collusive. If any right is asserted by this bill,—and we are unable to discover any,—it was a right which could properly be asserted by the corporation. Mo effort is stated to procure proper action by the directors, of which the complainant was one, nor is a failure therein asserted, and the bill contains no allegation negativing collusion. The ninety-fourth rule in equity requires that these things should be stated. These necessary averments are doubtless wanting, for the reason that they could not truthfully be asserted. The complainant is the owner of one share of the capital stock out of 3,000, and is one of the directors of the company. He is the clerk of Berthold & Jennings, the other directors, and the owners of two-thirds of the capital stock of the company, and who have, as officers of the company, with the knowledge and consent of Hoke, executed to themselves, as individuals, a mortgage upon all the property of the company, and also judgment notes which have passed into judgment and the property of the company levied upon thereunder; and all this subsequent to the obtaining of judgments by O’Hara, and, as is asserted by the bill in the state court, for the purpose of hindering, delaying, and defrauding him in the collection of his debt. He asks that these liens be recognized. It is a significant fact, also, that the bill contains no reference to or mention of the creditors’ bill that had previously been filed in the state court. There can be no question that the suit is collusive and vexatious. We cannot forbear to say that this proceeding is not deserving of judicial sanction. It is not to be tolerated that the courts of the United States shall be thus used. It cannot be permitted that a conflict between courts of federal and state jurisdiction—always to be deprecated, and to be avoided, if possible—may thus be projected to further the supposed interest of desperate litigants. The courts of the United States will not sanction such proceedings, nor become party to an unwarranted conflict with the courts of another jurisdiction. Upon its face, the bill is without equity to sustain it, and should have been dismissed by the court sua sponte. It presented no case for the exercise of equitable jurisdiction, and no warrant or justification for the appointment of a receiver.

It is objected that the appellant had not obtained leave of the court appointing him to prosecute this appeal. We had occasion in Bosworth v. Association (decided at the present session) 80 Fed. 969, to consider the question of the right of a receiver to appeal. This case is distinguishable from that, in this: that the receiver here is not the appointee of the court from whose decree the appeal is taken. If it be necessary that in all cases a receiver should obtain the authority and the direction of the court appointing him to appeal in any case pending in another jurisdiction, and if it be true that the appellees here can properly object for want of such leave, we do not doubt that the authority conferred by the order of appointment to apply to the circuit court of the United States for the restoration of the property to the rightful jurisdiction of the state court, and to carry on all proceedings necessary and proper for that purpose, is ample to warrant this appeal, which was, in fact, allowed by the court below. The decree is reversed, and the cause is remanded, with directions to the court below to grant the prayer of the petition, and to direct its receiver to release and turn over to the appellant, as receiver, all the property of the North & South Rolling-Stock Company which at any time has come to his possession as such receiver, and to account for and pay over to the appellant, as such receiver, all moneys in his hands or property received by him as earnings of the property and railroad cars of which he at any time has had possession, under the order of the court below.  