
    Elizabeth M. Byrne and others, as Executors, etc., Plaintiffs, v. Lathrop, Shea & Henwood Company et al., Defendants.
    (Supreme Court, Allegany Special Term,
    August, 1908.)
    Jurisdiction — Jurisdiction of particular courts — Conflicting State and Federal jurisdiction—After removal to Federal court — Incidental matters—Assessing d'amages on injunction bond.
    After the removal to the United States Circuit Court of an action brought in the Supreme Court the Federal Court has jurisdiction to assess the damages under the bond given in the State Court on granting an injunction; or, it may, if it sees fit, deliver the bond to be sued on in an action at common law.
    After the removal of a cause to the Federal Court the State Court can proceed no further in the suit; and the assessment of damages upon an injunction bond previously given, being incidental to the subject-matter of the litigation, can no longer be made by the State Court.
    Motion by defendants for an order directing a reference to ascertain the damages sustained by reason of a preliminary injunction granted in this action.
    J. Henry Metcalf, for motion.
    Frank S. Blair, opposed.
   Wheeler, J.

This is a motion on the part of the defendants for an order directing a reference to ascertain the damages sustained by the defendant Lathrop, Shea & Henwood Company by reason of a preliminary injunction granted in this action, pursuant to the provisions of section 623 of the Code of Civil Procedure. This action was originally begun in the Supreme Court of this State, and a preliminary injunction obtained by the plaintiffs; and, upon the procuring of such injunction, a bond was given by the plaintiffs, as required by the Code, and served with the injunction order and the summons and complaint. Thereafter one of the co-defendants removed the cause into the United States Circuit Court for the Western District of New York upon the ground of diversity of citizenship.

The injunction was subsequently vacated and dissolved by the Circuit Court. Issue was joined and plaintiffs’ complaint was thereafter dismissed, and judgment entered in favor of the defendant Lathrop, Shea & Henwood Company. Lathrop, Shea & Henwood Company then moved in the Federal Court to assess the damages sustained by reason of the granting of the injunction by making a motion in the Circuit Court similar to the motion here made under section 623 of the Code of Civil Procedure. The plaintiffs appeared by counsel and a referee was appointed, who took the proofs of the defendant. The principal item of damages proven was counsel fee incurred by the defendant on the motion to dismiss the injunction and expenses of counsel incurred by reason of the injunction having been'granted. The defendant thereafter applied to the Federal Court for leave to withdraw the proceedings for the assessment of damages in the Federal Court, and the application to discontinue was granted and an order accordingly entered. These proceedings were thereupon instituted in this court.

The plaintiffs oppose the proceedings and the granting of any order, contending that by the removal of the cause into the Federal Court the State Court lost all jurisdiction of the matter and is, therefore, without power to make any order-in the premises; and that the defendants’ relief, if any, must be had in a proceeding in the Federal Court such as that first instituted, or by a common-law action upon the bond. The defendant, on the other hand, contends that this is not a proceeding in the action, but an independent special proceeding given by the Code of Civil Procedure and that it may, notwithstanding the removal of the cause to the Federal Court, maintain the proceeding in the State Court, where the bond was originally filed.

It is not disputed that the action has never been remanded to this court, and the sole question presented at this time is whether this court has jurisdiction to entertain the motion.

It is well established that the Federal Court had ample jurisdiction and authority to assess the damages, if any, on the bond referred to in the moving papers. In the case of Russell v. Farley, 105 U. S. 433, where an injunction bond was given in the State Court and the cause was thereafter removed to the Federal Court, the right of the Federal Court to assess damages in a proceeding in the action was fully discussed, and the power of the court to determine such damages in such a proceeding was affirmed as one of the incidents of a court of equity.

The practice and principle of thus ascertaining the damages resulting from the granting of injunctions is further discussed and affirmed in the ease of Tyler Mining Co. v. Last Chance Mining Co., 90 Fed. Rep. 15. In the case of Lea v. Deakin, 13 Fed. Rep. 515, the court intimates it is the better practice to assess damages caused by the issuance .of an injunction bond, rather than compel the injured party to resort to an independent action at law.

In the case of Coosaw Mining Co. v. Farmers’ Mining Co., 51 Fed. Rep. 107, the court said: “ There can be no question that the court can either decide for itself what damages, if any, should be given on the dissolution of an injunction, secured by a bond given under its order, or it can deliver the bond to the defendants for the purpose of a suit thereon in a court of law. This court would never send the bond for suit in another jurisdiction, and in very rare cases would it send the bond before a jury. The suit, from its inception, is in this court. The conduct of the parties is always under its supervision. The character of the questions involved, and the ease or difficulty in reaching a conclusion upon them, can nowhere be as well known as in the court which heard, considered and decided them. The court also can determine whether any further proceedings are necessary; and may content itself, after fixing costs on the complainant, with an order that no further damages can he recovered against it. Russell v. Farley, 105 U. S. 446.”

We therefore conclude that the Federal Court has the jurisdiction and power to determine the defendant’s damages by a proceeding in that court or may, if it sees fit, deliver the bond to be sued on in an action at common law; which action, of course may be prosecuted in any court having jurisdiction of the parties.

The question, however, remains whether the jurisdiction of the Federal Court to assess damages by a reference or inquiry in that court excludes the right of the State Court, where the action was originally instituted, from maintaining a similar proceeding under the authority of section 623 of the Code of Civil Procedure.

We are of the opinion that, when this cause was removed into the Federal Court, this court lost all right to proceed under section 623 to assess the defendants’ damages. Section 3 of the Act of 1875, section 629 U. S. Statutes, provides, among other things, that.after a petition and bond for removal has been filed: “ It shall be the duty of the State Court to accept such petition and bond and proceed no further in such suit, and the said copy being entered as aforesaid in said Circuit Court of the United States, the cause shall then proceed in the same manner as if it had been originally commenced in said circuit.” Section 4 of said Act further provides that “All bonds, undertakings or security given by either party in such suit prior to its removal, shall remain valid and effectual notwithstanding said removal; and all injunctions, orders and other proceedings had in such suit prior to its removal, shall remain in full force and effect until dissolved or modified by the court to which such suit shall be removed.”

The State Court could, therefore, from the time of the removal, " proceed no further in the suit.” Upon the removal the bond given in this case was returned to and became a part of the records of the Federal Court. But the defendant argues that this proceeding is not a proceeding in the suit, but' an independent proceeding; that this action was determined by the judgment rendered in the Federal Court dismissing the complainants’ bill, and ended the action, and that a proceeding under section 623 to assess damages on an injunction bond is a special proceeding, and constitutes no part of the action; and defendants’ counsel cites Lawton v. Green, 64 N. Y. 326, in support of his contention.

That was a proceeding under section 222 of the old Code identical with the provisions of section 623 of the Code of Civil Procedure. That case does not decide the question involved in this motion, but simply decided to what extent sureties were liable upon an injunction bond there given. In the course of the opinion rendered in that case Judge Church did say: “I think the learned judge erred in assuming that this was a proceeding, in the action; the action was at an end; final judgment had been entered therein. The reference was had in pursuance of section 222 of the Code, requiring an undertaking to be given upon granting an injunction, and providing for ascertaining the damages, by reference or otherwise, as the court shall decide. This proceeding constituted no part of the action. The section of the Code referred to was adopted as a substitute for the 3lst'rule of the Court of Chancery. Until that rule was adopted, the court had no power to award damages against a person for an injury occasioned by an injunction, even though it was determined in the action that the party was not entitled to it.”

The remarks were largely obiter, but it cannot in any event be claimed for them that they hold to the doctrine that a proceeding to assess damages on an injunction bond can be entertained by the court where the action has been removed to another court.

On the other hand, in the case of Wilson v. Dreyer, 65 App. Div. 249, it was held that a motion for the appointment of a referee to ascertain the damages sustained by reason of an injunction granted in an action brought in Queens county must necessarily be made upon notice and be entitled in the action and that, under the provisions of section 769 of the Code of Civil Procedure, such motion must be made in the judicial district where the original action was brought. The court, among other things, said: “We are of the opinon that this is a motion in the action within the meaning and intent of the provisions of the Code heretofore quoted.”

Whether we deem this a proceeding in the action or in the nature of a special proceeding, it seems to us quite immaterial. Such a proceeding is an incident of the action and in aid of the final determination and disposition of the rights of the parties growing out of the litigation in which the injunction bond was given. The provisions of section 623 of the Code of Civil Procedure were enacted and the rules of the old Court of Chancery were adopted upon the theory that the court, by reason of the pendency of the action and the presence of the parties before the court, had jurisdiction to do complete justice between all parties: “ That, when litigants came before the court asking the exercise of its equitable powers to grant an injunction pendente lite, it had the right to impose conditions on which such injunction should be granted and to exact a bond for the payment of damages suffered by the party enjoined, in case it should be finally determined the party procuring the injunction was not entitled to it "and, as an incident to the power of exacting a bond on granting an injunction, to determine and assess the damages sustained. Discussing this question in the case of Russell v. Farley, 105 U. S. 433, 445, Mr. Justice Bradley said: “ But upon a careful examination we are not satisfied that they furnish any good authority for disaffirming the power of the court having possession of the case, in the absence of any statute to the contrary, to have the damages assessed under its own direction. This is the ordinary course in the Court of Chancery in England, by whose practice the Courts of the United States are governed, and seems to be in accordance with sound principle. The imposition of terms and conditions upon the parties before the court is an incident to its jurisdiction over the case; and having possession of the principal case, it is fitting that it should have power to dispose of the incidents arising therein, and thus do complete justice, and put an end to further litigation: We are inclined to think that the court has this power; and that it is an inherent power, which does not depend on any provision in the bond that the party shall abide by snch order as the court may make as to damages (which is the usual formula in England) ; nor on the existence of an express law or rule of court (as adopted in some of the States) that the damages may be ascertained by reference or otherwise, as the court may direct; this being a mere appendage to the principal provision requiring a bond to be taken, and not conferring the power to take one, or to deal with it after it has been taken. But whilst the court may have (we do not undertake to decide that it has) the power to assess the damages, yet if it has that power, it is in its discretion to exercise it, or to leave the parties to an action at law. No doubt in many cases the latter course would be the more suitable and convenient one.”

It is to be observed that the rule seems to proceed upon the theory that the court has jurisdiction of the parties and of the subject matter of the litigation and, by reason of that jurisdiction, has the inherent equitable power to do complete justice. It was in aid of this power that the Legislature saw fit to embody the practice theretofore exercised by courts of equity in the section of the Code relied on here. But, in order to exercise the powers therein given to assess damages, the action must be pending or have been brought in the court which undertakes to assess the damages; and it must have jurisdiction of the parties to the action. It cannot be assumed that the Legislature intended a court to exercise the right to assess damages except in cases where it had itself rendered judgment. It cannot and should not assume to assess damages in any case or action not actually pending before it or decided by it and where parties were not before the court.

When this case was removed into the Federal Court, this court was ousted of any jurisdiction over the parties or the subject matter of the litigation. It could render no order or decree binding on any party to the action or connected with it. That jurisdiction has never been restored; and we are of the opinion, when the cause of action was removed to the Federal Court, the right and authority to make any order or decree incidental to the action or supplementary to it was gone.

We therefore conclude that the motion must be denied.

This doubtless still leaves to the defendants the right to sue on the bond in an action at common law. What the rule of damages would be in such a case, whether the rule prevailing in the Federal Courts or the more liberal one recognized by the State Courts, we do not undertake to determine.

The defendants’ motion, however, is denied with ten dollars costs.

Motion denied, with ten dollars costs.  