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The defendant, however, strongly urged that if the jurisdictional facts were imperfectly stated on the face of the record, leave should be granted by the Circuit Court to file an amendment curing the imperfections. But the court held the real question was whether an amendment could be allowed in the Circuit Court, when the averments were insufficient to show that the case was a removable one under the statutory provisions. The court said that the only purpose of the amendment was to show that the Circuit Court had rightfully obtained jurisdiction, and that where the purpose of an amendment was to cause the face of the record to show what it did not show, a requisite diversity of citizenship between the adversary parties, the leave to file such proposed amendment would have to be obtained from the state court, and not the Circuit Court of the United States. The learned judge said it was well settled by the decisions of the Supreme Court that the state court did not part with its jurisdiction, nor did the jurisdiction of the federal court attach in a case where removal was sought upon the ground of diversity of citizenship, until the record in the state court was such as to show that court that it had lost its jurisdiction, and could no longer proceed with the case. The case of Stone v. South Carolina, 117 U. S. 430, 6 Sup. Ct. 799, 29 L. Ed. 962, was cited. "It certainly cannot be the fact," said the court in that case, “that in cases wherein a removal is sought on the ground of diverse citizenship, the jurisdiction of the state court can be terminated by petitions. for removal, or by amendments thereto filed in the federal court. In such cases, the jurisdiction of the state court can only be ended by making a proper showing af the facts justifying the removal on the face of the record in that court."
The discussion by Judge Shiras is quite elaborate and learned. The court was asked to adopt a different rule from that just stated, upon the strength of Powers v. Railway Company, supra, Martin v. Railroad Company, 151 U. S. 690, 14 Sup. Ct. 533, 38 L. Ed. 311, and other decisions of the Supreme Court, but Judge Shiras demonstrates that none of the cases cited sustain the contention that an amendment may be made in the Circuit Court of the United States to uphold its jurisdiction in a removal case, where the record, as it exists in the state court, fails to show the facts necessary to terminate the jurisdiction of that court.
In Cameron v. Hodges, 127 U. S. 322, 8 Sup. Ct. 1154, 32 L. Ed. 132, the Supreme Court said that there was no precedent known to it, which authorized an amendment to be made even in the Circuit Court, by which grounds of jurisdiction may be made to appear, which were not presented to the state court on the motion for removal.
In Crehore v. Ohio & Mississippi Railway Company, 131 U. S. 240, 9 Sup. Ct. 692, 33 L. Ed. 144, it was decided that where a case involves a controversy between citizens of different states, it is not removable, unless, at the time the application for removal is made, the record upon its face shows it to be one that is removable. "We say upon its face, because the state court is only at liberty to inquire whether on the face of the record a case has been made, which requires it to proceed
no further, and all issues of fact made upon the petition for removal must be tried in the Circuit Court." Furthermore, it was decided that in such a case no amendment of the record made in the Circuit Court could affect the jurisdiction of the state court, or put the case rightfully on the docket of the Circuit Court as of the date when it was there docketed. It must be taken as true that the record to be considered by the state court includes the petition for removal. This was distinctly stated by Justice Gray, in Powers v. Chesapeake & Ohio Railroad, 169 U. S. 92, 18 Sup. Ct. 264, 42 L. Ed. 673. He said: "A petition for removal, when presented to the state court, becomes part of the record of that court, and must doubtless show, taken in connection with the other matters on that record, the jurisdictional facts upon which the right of removal depends; because, if those facts are not made to appear upon the record of that court, it is not bound or authorized to surrender its jurisdiction, and if it does, the Circuit Court of the United States cannot allow an amendment of the petition, but must remand the case. But if, upon the face of the petition, and of the whole record of the state court, sufficient grounds for removal are shown, the petition may be amended in the Circuit Court of the United States by leave of that court, by stating more fully and distinctly the facts which support those grounds."
Moon, on the Removal of Causes, § 165, states that amendments of form, but not of substance, may be made to a petition for removal in the federal court. From this exposition of the law, the duty of the federal court is not a discretionary one, where an amendment is sought which presents a material ground for retention of jurisdiction, that was not presented or even fairly suggested, as within the scope of the grounds included in the petition presented to the state
Kinney v. Columbia Savings & Loan Association, 191 U. S. 78, 24 Sup. Ct. 30, 48 L. Ed. 103, is not in conflict with the earlier cases of the Supreme Court cited. The petition there alleged that the controversy was between citizens of different states, and that petitioner defendant was at the time of the commencement of the suit, and still was a resident and citizen of Colorado. The cross-complaint filed in the federal court alleged that defendant was a citizen of Colorado, and that complainants were citizens of Utah. Leave to amend was sought by adding to the petition to remove allegations that plaintiffs were citizens of Utah. The Circuit Court denied the motion to remand and granted leave to amend. Justice Brewer said, "the right to remove existed, but the petition for removal was defective," the question being, was it so defective as to be incurable. The power of the Circuit Court was recognized to permit amendments of pleadings to show diverse citizenship, or of removal proceedings, where there is a technical defect, and there are averments sufficient to show jurisdiction; but the court stated that there was a general averment in the petition that it was a case of diverse citizenship, and therefore one in which, by the statute, the party was entitled to removal. To like effect is Flynn v. Fidelity, etc., Co. (C. C.) 145 Fed. 265. These cases are at once distinguishable as the very point wherein the record in this case fails is that it not only contained no intimation of Jackson being a citizen of any state other than Montana, but did contain a positive statement that he was a citizen of that state.
In reaching the conclusion that the case must be remanded, I do not mean to go beyond a decision holding that there is no authority for the exercise of discretion. If this court had such authority, I would feel that it should be used in favor of granting leave to amend, because if the defendant is, in fact, a citizen of Minnesota, and was such when the suit was brought by plaintiff, and if, for that reason, defendant is entitled to have its rights ascertained in the federal courts, the case ought to be tried here. But, as there is nothing by which defendant company ever obtained a hold in this court, which it can mend, the only proper order is to send the case back to the state court, where, if it can legally do so, defendant may make a sufficient showing to entitle it to transfer the suit, and make substantial its hold in this
The motion to remand is granted.
In re ERIE LUMBER CO.
(District Court, S. D. Georgia, W. D. September 26, 1906.)
1. BANKRUPTCY-CLAIMS ENTITLED TO PRIORITY-WAGES OF LABORERS. In the distribution of the assets of a bankrupt manufacturing corporation whose business has been continued by receivers under orders of the court of bankruptcy, wages due laborers for labor performed within three months prior to the bankruptcy, and also under the receivership, will be given priority over all other liens or claims, except taxes.
2. SAME-ATTORNEY'S FEES.
Under Bankr. Act July 1, 1898, c. 541, § 64b (3), 30 Stat. 563 [U. S. Comp. St. 1901, p. 3447], fees of attorneys for the petitioning creditors in a proceeding in involuntary bankruptcy are allowable and given priority as a part of the cost of administration, and such claims rank next after the wages of laborers, taking precedence, subject to tax claims, of all other mortgage or other liens on funds in the hands of the court for distribution. 8. SAME-CLAIM OF MORTGAGE NOT PARTY TO PROCEEDINGS.
A mortgagee of property of a bankrupt, who had no notice of the bankruptcy proceedings in which, at the request of the other parties interested. the business was continued at a loss and the property sold, is entitled to priority of payment from its proceeds after they have contributed ratably to the payment of labor claims and the costs of administration. 4. SAME-APPOINTMENT OF RECEIVERS-RECEIVERS' CERTIFICATES.
Under the authority given by Bankr. Act July 1, 1898, c. 541. § 2 (5). 30 Stat. 546 [U. S. Comp. St. 1901, p. 3421], to continue the business of bankrupts by receivers, courts of bankruptcy have implied power to authorize the issuance of receivers' certificates to provide funds necessary for operating expenses.
5. SAME-MORTGAGEE-ACQUIESCENCE IN RECEIVERSHIP.
A mortgagee of a bankrupt who has notice of and participates in the bankruptcy proceedings, and makes no objection to the appointment of receivers to continue the bankrupt's business, but does a banking business with the receivers, is thereby precluded from insisting on the priority of his mortgage over the operating expenses or other obligations incurred by the receivers under orders of the court in carrying on the business which was intended to conserve his security.
6. SAME-ALLOWABLE CLAIMS-UNLIQUIDATED CLAIM FOR DAMAGES AGAINST RECEIVERS.
An unliquidated claim for damages for breach of a contract by receivers of a bankrupt is not entitled to priority as against antecedent liens against the estate.
7. SAME-UNAUTHORIZED INDEBTEDNESS CONTRACTED BY RECEIVERS.
Where an order appointing receivers to continue the business of a bankrupt authorized them to borrow money and incur obligations in an amount not exceeding $3,000, as might thereafter be directed by the court, and the court subsequently authorized them to issue receivers' certificates to the amount of $3,000, such order was notice to all dealing with the receivers that they had no authority to contract further indebtedness, and persons who thereafter sold them property on credit in excess of that amount cannot have priority of their claims therefor against the estate. 8. SAME-CONTINUING BUSINESS.
The power to continue business of a bankrupt corporation through a receiver or trustee implies the power to make debts, to provide for their payment, and to borrow money for urgent necessities.
In Bankruptcy. On exceptions to report of special master fixing priorities of claims.
Walter A. Harris, for Charles Schimmelfing, mortgagee.
Lane & Park, for American National Bank, holder of receiver's certificates.
George S. Jones and William E. Martin, Jr., for creditors furnishing supplies to receivers.
Merrill P. Callaway, for bankrupt.
SPEER, District Judge. The Erie Lumber Company had its manufacturing plant near Lumber City, in this district. It was a venture of an important character in the manufacture of lumber. In addition to the sawmill, there was extensive machinery for the manufacure of veneering, which is largely used in furniture and cabinet work. The plant was under the control of one Alfred Short, who represented certain interests, and Sylvester J. Tinthoff, who represented others. There was an utter disagreement between these men, and finally Tinthoff, who represented the creditors, filed a proceeding praying that the Erie Lumber Company be adjudged an involuntary bankrupt. This petition was filed on November 8, 1901. Shortly thereafter the creditors filed an ancillary petition for the appointment of a receiver. It alleged, among other facts, that the property of the company consisted principally of steam sawmills, planing mill, veneering mill, kilns, lumber, logs, and timber; that a great deal of timber had been felled and was lying in the woods unprotected; that this was subject to be carried off and appropriated; and that there were other properties consisting of mules and live stock used in connection with the mills which were not receiving proper care. The representations of the petition were of that urgent character which induced the action authorized by the bankruptcy law, and the court appointed the marshal to take charge of the property and assets and preserve them. Thereafter Alfred Short, secretary and treasurer of the company, filed an answer in its behalf. This answer, however, was subsequently withdrawn. It denied the bankruptcy, and charged that the original petition had been collusively brought. There had been, as stated, great friction between the Short and Tinthoff interests. It seemed now that this would be removed. An agreement was drawn, signed by counsel representing Short, party of the one part, and the petitioning creditors, of the other part. The
agreement provided that the parties should jointly apply to the court for an order providing for the operation of the business by joint receivers, according to the stipulations outlined in the agreement. A pertinent clause is the following:
"Alfred Short and Sylvester J. Tinthoff, by leave of the court, are to be appointed joint receivers of the Erie Lumber Company, and shall be by the court authorized to carry on the business of the said Erie Lumber Company as a going concern under the provisions of the acts of Congress relating to bankruptcy. In the apportionment of the duties between the said receivers, the said Sylvester J. Tinthoff shall keep and have charge of the books and correspondence of the said receivers operating said company, and shall be responsible for the correct keeping of said books. The said Alfred Short shall give his entire time to the business of operating the saw-mill and plant, and both receivers shall be consulted and shall act jointly in the operation of the business; and that no money obligations shall be incurred except by the joint act of both receivers, and no money shall be paid out except upon check signed by both receivers."
The recital of the agreement was that it was "advantageous to the said Erie Lumber Company and its creditors that said business be conducted by receivers of the court of bankruptcy." All parties at interest represented to the court that it was highly advantageous, both to the Lankrupt and to the creditors, to keep the estate as a going business, and, having been convinced that this was true, on December 21, 1904, by a decree of that date, the agreement was approved and made effective. The order authorizing this policy was carefully considered and was drawn with great care. It attempted to guard the interests of all the creditors, and to provide for every reasonable contingency which could be anticipated. Substantially the full order is as follows:
"It appearing to the court, from the representations of parties at interest, and from the facts agreed upon by the petitioning creditors and the debtor in bankruptcy, the Erie Lumber Company, that it is necessary in the best interests of the estate of the said Erie Lumber Company and of all persons interested therein as creditors or stockholders that the business of the said Erie Lumber Company be conducted by receivers, and that it is absolutely necessary for the preservation of said estate that the property of the said Erie Lumber Company be taken charge of and held by receivers, with full power and authority to conduct and operate its business as a going concern, and that great loss will accrue if the mills and the business of said company should remain idle and shut down during the pendency of bankruptcy proceedings, it is thereupon ordered by the court, that, in lieu of the custodian heretofore appointed by the court to take charge of the property of the said Erie Lumber Company, Alfred Short and Sylvester J. Tinthoff be, and they are hereby, appointed joint receivers of the said Erie Lumber Company: and the said Alfred Short and Sylvester J. Tinthoff as receivers of this court are hereby authorized and directed to carry on the business of the said Erie Lumber Company as a going concern until the further order of the court. And it is ordered that said receivers shall, as early as practicable, put in operation the sawmill, the planing mill, and the veneer mill, and shall continue to operate said mill business, including the purchasing and stocking of said mills. with logs, and they also have authority to conduct and carry on in connection with said mills a commissary in the usual way such commissaries are conducted, if they deem it expedient.
"It is ordered that, for the purpose of starting the operation of said mills and the defraying of necessary expenses until such time as moneys shall be coming in from the operation of the business sufficient to defray expenses of operation, and the said receivers shall have authority to borrow money and incur obligations to an amount, however, not to exceed, in the aggregate $3,000, and for the purpose of preventing unnecessary expense in the carrying