
    Walter A. Ledbetter, as Receiver of H. Munzesheimer and Sam Daube, Copartners, Composing the Late Firm of Munzesheimer & Daube, Appellant, v. Kaufman Mandell, Respondent.
    First Department,
    December 30, 1910.
    Process — when service of cross MU in suit in foreign State necessary— judgment, when void for failure to serve cross bill.
    While the question as to whether a “ cross bill” as a pleading in the courts of another State is germane to the original bill is not jurisdictional, and an error in deciding it can be corrected only on appeal, ■ the question as to the necessity of the service of the cross bill is jurisdictional.
    After an assignment for the benefit of creditors made in the Indian Territory, and after a distribution of the assets pursuant to an interlocutory decree which granted the only relief prayed for in a suit' brought on behalf of the creditors, a “ cross bill,” so called, which seeks a personal judgment against one-of the creditors upon the ground that lie fraudulently concealed the fact that his claim was secured, must be served upon him, or a-judgment entered thereon is void, for such cross bill is an original bill wholly unconnected with the subject-matter of the other suit, and is based on matters arising subsequent thereto.
    Inqraiiam, P. J., and McLaughlin, J., dissented, with opinion.
    Appeal by the plaintiff, Walter A. Ledbetter, as receiver, etc., from a judgment of the.Supreme Court in favor of the defendant, entered in the office of the clerk of the county of blew York on the 5tli day of April, 1910, upon the .verdict of a jury rendered by direction of the court, and also from ah order entered in said clerk’s-office on the 4th day of April, 1910, granting the defendant an additional allowance. ■ . .
    
      Arthur F. Gotthold, for the appellant.
    
      Louis Marshall, for the respondent.
   Miller, J.:

On a former appeal in this case a judgment entered upon a dismissal of the complaint at the close of the plaintiff’s evidence was reversed (124 App. Div. 854). The present appeal is from a judgment for the defendant entered upon a verdict directed by the court upon motions made by both parties at the close of the case.

The opinion of Mr. Justice Clarke on the prior appeal contains a complete and accurate statement of the proceedings in the United States Court for- the Southern District of the Indian Territory, resulting in- the judgment in suit, and obviates the necessity of a restatement. One change in the record, however, with respect to those proceedings needs to be noted. It now appears that, in addition to the entry of the word “dismissed” on February 3, 1899, upon the clerk’s docket, a similar entry was made upon the judge’s bench docket, and that in form at least a judgment of dismissal ivas entered in the judgment book. While that was called a Court Journal, the evidence shows that it was the book regularly kept for the entry of judgments by the clerk. The evidence also shows how those entries came to be made, and justifies a finding that they were made pursuant to the direction of Bledsoe, the attorney for plaintiffs in that suit. Certain sections of Mansfield’s Digest of the Statutes of Arkansas, which were not in evidence before, were put in evidence, among others, section 3910, which provides: “The proceedings to correct misprisions of the clerk shall be by motion, upon reasonable notice to the adverse party, or his attorney in the action.” Section 5103, which was in evidence before, provides: “ The plaintiff may dismiss any action in vacation in the office of the clerk on the payment of all costs that may have accrued therein.” It appears that said entry of dismissal was actually made in term time. If, however, it was made upon the direction of the plaintiff’s attorney,' it was at most an irregularity, an error of the clerk in treating such direction as one made in vacation and it would seem that it could only be corrected as provided by said section 3910. However, we prefer to put our decision of this appeal on another ground.

The important question in the case is whether this defendant was entitled to notice of the so-called “cross complaint” or “cross bill” of Ledbetter, as receiver, and, of course, that depends upon the law of the jurisdiction in which the judgment was rendered. On the formei trial the plaintiff put in evidence the opinions in certain reported cases of the State of Arkansas, the quotations from which in the opinion of Mr. Justice Clarke certainly supported the con» elusion that service of process was unnecessary to confer jurisdiction upon • the court to render a personal judgment against this defendant on the cross bill. In Pillow v. Sentelle (49 Ark. 430) the plaintiff in the original action actually answered the “cross bill,” and.the question was as to whether codefendants had to be warned or summoned to answer. In Hornor v. Hanks (22 Ark. 572) all the defendants to the “ cross bill ” answered, and the contention was simply that the “ cross bill ” was not sufficiently connected with the subject-matter of the original bill. In Heer Dry Goods Co. v. Shaffer (51 Ark. 368) the action was upon a promissory note, and the defendant pleaded in his answer what the court held to be. a statutory counterclaim or. setoff; of which, of course,- the plaintiff had to take notice. It will thus be seen that the only evidence of the law of the foreign jurisdiction, apart from the judgment itself, which this court had before 'it, consisted of dicta .of judges in eases in which the point was not even remotely involved.

On the trial now being reviewed it was stipulated that any Arkansas or Indian- Territory case might be cited without printing it in the record. The defendant, called an expert, who testified that the-so-called “cross bill” or “cross complaint” was in the nature of an original bill, and that, in the absence of an appearance, service of process was necessary to confer jurisdiction on the court to render a personal judgment; and he supported that opinion by citation of authority, to which I shall presently refer.

It is, of course, conceded that the document under which this plaintiff procured the judgment in suit was not provided for by the statutes of the State of Arkansas. (Vide Mansfield’s Digest, § 5022 et seq.) But it is claimed that the filing of a “ cross bill ” was permissible under the equity practice in the- State of Arkansas, and that is undoubtedly so. Much difficulty will be encountered in determining precisely wliat a “ cross bill ” is. The tendency in the Federal courts is -to consider “ true cross bills ” ..as defensive only, in which new and distinct matter may not. be embraced. (Bowker v. United States, 186 U. S. 135.) But the extent to which matter not connected with the original cause of action may be brought in controversy by a'“ cross bill ” or “ cross complaint”- appears to vary in different jurisdictions and to be almost a matter of discretion. Wherefore the distinction betwen a “ true cross bill ” and one in the nature of an “ original bill” has" often been overlooked with the result that there is much confusion in the decisions on the subject. The courts of Arkansas recognize the- distinction between a true cross bill,” i. e., one which is merely defensive or intended to obtain full relief touching the matter in the original bill, and one which introduces new matter and is in its nature an original bill. (Trapnall v. Hill, 31 Ark. 345.)

While, of course, the question whether a cross bill ” is germane to the original bill is not jurisdictional and an error in deciding it can be corrected only on appeal, the question as to the necessity of service of process is jurisdictional. Upon that question we have the uncontradicted testimony of the expert, which is supported by a decision squarely in point. (Lowenstein v. Glidewell, 5 Dillon, 325.) In that case the plaintiff tiled a bill to foreclose a deed of trust making one Partee and wife defendants. They answered, alleging that they were the owners in fee of the property and also filed a “ cross bill ” praying for the cancellation of the plaintiff’s deed of trust. Ho process was issued thereon, and the, question was whether the plaintiffs could dismiss their bill and whether the defendants were entitled to a decree pro oonfesso on their cross bill.” It was held that the bill and cross bill ” did not constitute one suit and that.a service of subpoena on the defendants in the cross bill ” or their voluntary appearance was necessary. The opinion of Caldwell, J., in that case is a plain, concise and logical statement of the law applicable to this question. He shows that service of some sort is necessary in every case and points out the single case in which substituted service may be ordered by the court, i. e., when the “ cross bill ” is wholly or partially defensive in character and where,, because of the non-residence of the" plaintiff or his departure from the jurisdiction, substituted service may be necessary to prevent a failuré of justice.

Our attention has riot been called to any case overruling that case or tending to weaken its authority.

In a nutshell the case is this.: Merchants in Hew York send bills for collection to a firm of attorneys in the Indian Territory.; the debtor makes a general assignment for "the benefit of creditors to One of said attorneys ; the other attorney brings an action .oñ behalf of the creditors to enjoin his partner from acting as assignee on the ground that" the law applicable to assignments will compel him to close out the estate at a sacrifice; the assignee and the debtors, the assignors, immediately file voluntary appearances and admit the allegations of the bill-; thereupon an order is made enjoining the assignee from acting as such and appointing him receiver; he closes out the estate and distributes the assets pursuant to the direction of the court; more than two years after the order for distribution he' files with the clerk a so-called “cross complaint” and later files what lie ■ denominates a “ cross bill ” in which as receiver, he asks for a judgment against his client for the amount paid his client on the distribution, on the ground of a fraudulent concealment by the latter of the fact that liis claim was secured, and also that he may be permitted to retain the sum of .$1,750, which lie then has in his hands belonging.to his client, collected from some outside source, and apply it on the judgment: his' partner, ivho had appeared as attorney for the plaintiffs in the original suit, files a so-called “ intervenor ” in which he asks that he be protected from any claim which liis client may make against him because of the money in his hands. And thereupon a personal judgment is rendered against this defendant, who swears that lie never heard of the “cross bill” until long after the judgment was rendered.

The facts presented to the court on the former appeal brought the case within Laing v. Rigney (160 U. S. 531). That case ■involved the jurisdiction of the Court of Chancery in blew Jersey to render a decree of divorce on a supplemental bill which was not served within the State. The only evidence bearing on the question of the blew Jersey Jaw, aside from the decree itself, was the testimony of an expert hot supported by any reference to statutes or decisions, and the court held' that the decree itself, in the absence of any statute or. decision of . the court to the contrary, was the best evidence of the. law of blew Jersey. In that case the decree recited service without the State. In this case the judgment contains this recital: “* * * And,it appearing to the Court, that the'said K. Mandell has been personally served with a copy of the original cross bill of-the said W. A. Ledbetter, and has had ample time and notice to appear and make answer unto the same,' • and, has failed to do so., * * *” The undisputed evidence now shows that recital to be false. Thus it appears that the plaintiff not only undertook to get a judgment, against his client on allegations of fraud, without giving him a day in court, hut actually imposed upon the court in order to accomplish his purpose.

It is unnecessary to determine what kind of a document the so-called “ cross hill ” is. Of course it had no relation whatever to any issue which might he presented by answer to the original bill. While doubtless the original suit was not terminated until a final judgment, the purpose of it was accomplished when the interlocutory order or decree was entered. It matters not whether that be called an order or a judgment. It granted the only relief prayed for. It is difficult to understand what reason the client of Messrs. Ledbetter & Bledsoe could have had for even suspecting that two years later a cross bill ” might be filed, of which he would" be bound to take notice. The cross bill ” was manifestly an original bill, wholly unconnected with the subject-matter of the original bill and based upon matters arising subsequent thereto. It was filed by Ledbetter, receiver, who was not a party to the suit, but who in another capacity, i. e., as assignee, had been for more than two years in default.

Of course, in a sense, the proceeding instituted by Ledbetter, receiver, was connected with the administration of the estate, which had been brought into court on the defendant’s -motion, and I assume that it could have been instituted by petition; but it was a proceeding in personam, not in rem, and was as original in its nature as though it had been an action against a debtor to collect a claim owing the estate, and virtually that is what it was.

For the foregoing reasons and for those well stated by the learned trial justice on granting the defendant’s motion, I am of the - opinion that the judgment is right and should be affirmed.

Laughlin and Dowling, JJ., concurred; Ingraham, P. J., and McLaughlin, J., dissented.

Ingraham, P. J.

(dissenting):

' Upon the former appeal from the judgment in favor of the defendant the nature of this action and the legal proceedings applied were examined and determined (124 App. Div. 854). I do not think that the record is substantially different from that presented upon the former appeal,.and if that appeal was correctly decided, it seems t-o me that the plaintiff was entitled to recover. The pleading presented to the United States Court of the Indian Territory, upon which the judgment now sought to be enforced' was entered, has been treated as a cross-bill in equity, asking for new and affirmative relief, not directly connected with the actual administration by the court of the property which had.come into its possession'to be disposed of according to its judgment. I wish to call" attention to the exact nature of the proceeding that resulted in.the judgment which is the foundation of this action.

The action was commenced by creditors of a firm of Munzesheimer & Daube, a copartnership doing business in the Indian Territory, as then constituted, who had made an assignment for the benefit of creditors, to set. aside the assignment, and to have the property of the copartnership administered by the court for the benefit of the creditors of the assignors. The defendant in this action was one of the plaintiffs in that action, and joined with other creditors in asking the court to set aside the assignment, take possession of .the property assigned and distribute it' according to law among the creditors of the assignor. The plaintiffs in that action appeared by three attorneys, S. T. Bledsoe, Crawford & Crawford and. Potter & Potter, and the bill of complaint in. equity, was verified by Bledsoe, one of the attorneys who, in his affidavit of verification, stated that he was attorney for all the creditors named as the plaintiffs, except. H. B. Claflin Company. Upon filing this complaint, the assignors and assignee, who were parties defendant, appeared in the action and substantially admitted the allegations of the complaint. Whereupon, on the application of the plaintiffs in that action, including the defendant in this action, the court, on December 8, 1896, entered an interlocutory order or judgment appointing one W. A. Ledbetter, who had been the assignee of the property of the debtors, receiver of all of the assigned property conveyed to him as such assignee. This interlocutory order or judgment directed the receiver.to take possession of the property of the debtors for the benefit of the creditors named in the deed of - assignment, to reduce the same to possession, to sell the stock of merchandise transferred and conveyed to him as assignee, to sell the real estate conveyed to him by the deed of assignment, and to collect all the notes, accounts, dioses in action and evidences of debt; and

in pursuance of this interlocutory order or judgment the receiver took possession of all ■ the property of the debtors that had been assigned him and proceeded to administer the estate. On the 24th day of February, 1897, an order was entered reciting that it appeared that the receiver had sold and disposed of all the property and effects in his hands as such receiver belonging to the estate of Munzesheimer & Daube, and that lie had then in his hands funds which ought to be distributed among the creditors of the estate of Munzesheimer & Daube; and the said receiver was ordered and directed to file in court a full and complete report and statement exhibiting his dealings with the said estate, and referring it to a master in chancery to examine the report; and further ordering the said receiver to disburse among the creditors of said estate all funds in his hands as such receiver, according to the terms of the deed of assignment; the receiver to reserve sufficient funds in his hands to pay the commission to which he was entitled, and all other expenses incurred in the management and control of the said estate as assignee and receiver. Acting under this order the receiver paid to tlie defendant, who was one of the plaintiffs in that action, on the 13th day of April, 1897, the sum of $3,304.50, and on the 14th day of May, 1897, paid a further sum of $3,304.50. On the 3lst day of July, 1899, Ledbetter, as such receiver, also being a defendant in that action, filed what is called a cross bill, and later tiled an amended cross bill, alleging that this defendant, one of the plaintiffs in that action, had made a proof of claim as creditor of the assignors, based upon certain promissory notes of the assignors which were recited in the proof of claim; that in said proof of claim it was alleged that no payment had been made on any of these notes; and that the defendant did not hold any collateral or other security, to secure either one or all of them; that proof of claim was verified' by the defendant in the city of New York on the 20th of Februray, 1897; that this proof of claim was false; that the defendant held as collateral security for the indebtedness of the assignors certain notes aggregating $16,731.71; that these notes were good, and that the collateral pledged with the defendant to secure the assignor’s notes exceeded in actual cash value the sum of $16,736.71 ;' and that this defendant had collected a large amount upon these collaterals; that the defendant held as additional collateral for the indebtedness mortgages upon certain real estate,situated in the city of New York, so that this defendant was amply secured as to all the indebtedness of the assignors to him, and was not entitled to receive any portion of the money in the hands of the court in payment of the indebtedness of the assignors; and this cross bill prayed that the petitioner be permitted to appropriate the $1,750 in liis possession belonging to the defendant in part satisfaction and reimbursement of the sum of $6,609 so wrongfully and fraudulently collected by the defendant from the receiver; and, further, that the-receiver have judgment against the defendant in this action, the plaintiff in the action then before the .-court, for the'money paid by the petitioner (the receiver), in order that he might restore the same to the trust funds in his hands and pay it to the persons entitled theréto under the order of the court, and that the said Ti. Mandell & Co. be directed and required to refund to the petitioner the funds aforesaid. This amended'cross bill having.been tiled on September 5, 1899, Bledsoe, who was the attorney for the defendant in this action as the plaintiff in that action, intervened and alleged that the sum of $1,750 which the cross bill sought to impound and apply on account of the money claimed to be due by the defendant in t-liis action to the receiver, was money cbllected by the said receiver and Bledsoe, who were partners as attorneys in the' practice of the law, and he prays that in case this sum is held by the receiver to be subject to the payment of the sum claimed by the receiver in his cross bill filed against K. Mandell & Go., he (Bledsoe) be, by thé decree of the court,' protected and discharged from liability to the said K. Mandell & Go. on account of said sum so collected by him and the said Ledbetter, as attorneys of' the said K. Mandell & Co. This intervention was filed in open court on June 5, 1900. On- the same day an order or judgment of the court was duly filed reciting Bledsoe’s intervention ; that the action had come on to be heard ■ on the amended cross bill of Ledbetter, as assignee and receiver, filed on the 5th of September, 1899, against K: Mandell doing business under the trade name of K. Mandell & Co., one of the plaintiffs in that action; that the clerk of the court, through mistake and inadvertence and without any order of the court to that effect, but bn account of a confusion of the number of the case with the numbers of a list of cases, which, had been ordered stricken from the docket, wrote opposite this case on the minutes of the court the word “ Dismissed,” it was ordered that the said entry be, and the same was thereby annulled, held for naught and expunged from the minutes of the court, and it having appeared to the court that the said K. Mandell had been personally served with a copy of the original cross bill of the said W. A. Ledbetter, and had had ample time and notice to appear and make answer unto the same, and had failed to do so, the court was then of the opinion that the material allegations of said cross bill as amended should be, and the same were taken for confessed as against the said IL Mandell, and it was ordered and decreed that the said W. A. Ledbetter, as receiver of the property and effects of the said Munzesheimer & Danbe in the custody of the court in that cause, do have and recover of and from the said IL Mandell the sum of $7,792, which he was directed to distribute and pay out to the parties entitled thereto under the orders of the court in that cause. It was “ further ordered and decreed that the said Ledbetter retain and appropriate to-'the payment and satisfaction of said sum so adjudged in his favor against the said IL Man-dell, as far as it will go, the sum of One Thousand Seven Hundred and Fifty-five Dollars in his hands and the property of the said IL Mandell, * * * and further that execution for the difference between the sum adjudged as-aforesaid to the said Ledbetter, Beceiver, and the sum of One Thousand Seven Hundred and Fifty-five Dollars, now in his hands, and all proper and necessary process issue in favor of the said Ledbetter, Beceiver, for the enforcement of this decree.”

This decree recites the service upon the defendant Mandell of a copy of the cross bill. Bledsoe, Mandell’s attorney in the action, and who had-appeared for him and instituted the suit,on his behalf, was before the court and was heard upon the granting of this decree. Service upon him as attorney for Mandell would have been proper service to bring Mandell before the court, for the action had never been finally determined. Ho final decree, so far as appears, had ever been entered. The court was still engaged in administering the estate. We must assume that the court had jurisdiction of the subject-matter of the action; that it had under its general equity powers intervened for the protection of the plaintiffs in that action which included the defendant in this action, and had undertaken to distribute the estate of the debtors among their creditors. Mandell, the defendant in- this action, had heen an active intervener, asking for the intervention of the court, for the proper distribution of the property within the jurisdiction of the court among the creditors of Munzesheimer & Daube. The court had intervened, reduced the property of the' debtors to possession and had decreed that this property be distributed among the creditors; and the court was still conducting the proceeding for the purpose of making a proper distribution of the assets and property of the debtors. In the course of such administration it' appeared that this, defendant, one of the plaintiffs in that action, had obtained from the receiver a sum of money to which he was not entitled and which really belonged, under the order of the court, to other creditors.

Upon these facts being presented to the court by its receiver, it seems to me that the court had complete jurisdiction to decree the repayment by a party to the action of a sum of money which he had received from the receivers in excess of what he was entitled to, and -that notice-to or the appearance of the attorney who had appeared for such party in the action was sufficient notice to the defendant and-made the order or judgment, whatever it may be called, binding upon the defendant. E.very fact, it seems to me, existed which was necessary to give the court jurisdiction. The plaintiff in the action then before the court appeared by an attorney asking for the intervention of the court to endeavor to procure for him payment of. his claim against those assignors who resided in the jurisdiction in which the court was administering justice. The intervention of the court by which it had undertaken to administer the estate of the assignors, the receipt by an officer of.- the court of the property of the assignors for distribution among its Creditors, the payment of a portion of the money by the officer of the court to one of the plaintiffs in the action before the court to which that plaintiff was not entitled,, the appearance before the court of the attorney who had appeared for the plaintiff, and a final determination by the court that th'e plaintiff who had received a sum of money from its receiver should repay that money to the receiver, and a formal.legal judgment to that effect, duly entered, bound a. person against whom the judgment was directed, and. the courts of this State are required to give full faith and credit to that order or judgment and enforce it.

It is suggested that Bledsoe, this present defendant’s attorney, did not properly protect his client’s interest and apparently intervened individually so as to be protécted as against his client in any judgment that the court might render in relation to the proceeding; but if that is so, this defendant has a remedy against his attorney who failed to protect him. It cannot affect the jurisdiction of the court who had the parties and their attorneys before it and who was required to prevent a misapplication of the funds in court which were applicable to the payment of certain claims presented to the court and which the court was engaged in administering.

I think, therefore, that this judgment, until reversed or vacated, was an adjudication which bound the. defendant, and the - courts of this State are bound to enforce it. .

I think that the judgment should' be reversed.

McLaughlin, J., concurred.

Judgment affirmed, with costs.  