Fischer-Schein Syndicate v. Lee

295 F. 485, 1924 U.S. App. LEXIS 3194
CourtCourt of Appeals for the Seventh Circuit
DecidedJanuary 5, 1924
DocketNo. 3308
StatusPublished
Cited by1 cases

This text of 295 F. 485 (Fischer-Schein Syndicate v. Lee) is published on Counsel Stack Legal Research, covering Court of Appeals for the Seventh Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Fischer-Schein Syndicate v. Lee, 295 F. 485, 1924 U.S. App. LEXIS 3194 (7th Cir. 1924).

Opinion

PAGE^ Circuit Judge.

Appellants, original defendants, challenge the jurisdiction of the District Court, first, because of want of capacity in Anna Lee, plaintiff appellee, to sue; second, because the bill was not properly verified; third, because there is shown no diversity of citizenship.

[486]*486In 1915 the Fischer-Schein Syndicate, a voluntary organization, was formed under a written agreement. Its signers were subscribers to what may be termed the syndicate’s capital stock, for which certificates were issued to the individual defendants, the managers of the syndicate business, and a large numher of others, who were signers, including one Eva, Metzger and her daughter, Mathilda Wenger.. Appellee was not a signer. The general purpose of the organization was to do a real estate and loan business. The syndicate, some time in 1922, changed,its name to, and was thereafter known as, Mon-Clair Realty Company. Eva Metzger and Mathilda Wenger, residents and citizens of Illinois, becoming dissatisfied, made, on April 6, 1923, an alleged sale of their certificates to appellee, a resident and citizen of Missouri.

On May 19, 1923, appellee filed her bill in the United States District Court for the Eastern District of Illinois, naming appellants only as defendants, and alleging herself to be a citizen and resident of Missouri, and that the defendants were citizens and residents of the Eastern district of Illinois. The prayer of the bill is: (1) For subpoena for named defendants; (2) that the court order service by publication or otherwise, as provided in section 57 of the Judicial Code (Comp. St. § 1039), on all defendants not residing within the Eastern district of Illinois, although no such defendants are named; (3) for a restraining order and a receiver to wind up the syndicate business; (4) while the plaintiff says that she brings the suit on her own behalf and on behalf of other bona fide certificate holders, share owners, and creditors of said defendant Fischer-Schein Syndicate and Mon-Clair Realty Company, who may intervene in the cause, yet her prayer further is that she may be decreed to have an equitable lien upon all of the property of the “said defendant association” (there is no such prayer on behalf of others who might intervene); (5) for general relief.

There was at the time of suit a large number of persons holding syndicate certificates identical, except as to amount, with those of the plaintiff. Some of the certificate holders resided in and were citizens of the state of Missouri. One resided in Arizona, and others at various places outside of the Eastern district of Illinois. Most of the matters charged against the defendants happened, if at all, long before plaintiff had any interest in the certificates that are the basis of this suit. No one states the facts involved in the alleged sale, and we are of.opinion, from the facts that do appear in the record, that the sale was colorable only, and made for the purpose of giving jurisdiction to the federal court.

1. The affidavit in support of the bill was sworn to before a deputy clerk of the city court of East St. Eoifis. Upon the bill and that affidavit alone, the court, on the day the bill was filed, without notice and without requiring bond from.the plaintiff, issued a broad restraining order against all defendants, and at the same time appointed a receiver and appointed appellee’s attorneys as attorneys for the receiver. The verification of the bill was insufficient to meet tire requirements of - equity rule 36.

[487]*4872. Four days after the granting of the restraining order, defendants filed verified answers, circumstantially denying every material allegation in the bill. On June 2, 1923, Charles A. Hartnett, describing himself as a certificate holder and a creditor of the syndicate company, filed an intervening petition, by permission of court, in the form of an answer and a cross-bill, in which he states that his cross-bill is brought to dissolve a partnership, distribute the assets, and for the appointment of a-receiver and for injunction. There is no prayer for subpoena and no new parties defendant are named. Anna Kettler and August Heise, citizens and residents of the Eastern district of Illinois, were permitted to intervene, and they filed their petition on June 8, 1923, which is substantially an adoption of plaintiff’s bill and prayer for relief. The court denied a petition to vacate the restraining order and refused to dismiss the bill.

It is urged that appellee’s bill is brought under section 57 of the Judicial Code to enforce a lien upon real estate, and that therefore the District Court, in the district where the real estate is situated, had the right to entertain the bill. The allegation made to bring the bill within the provision stated is as follows:

“Sixteenth — Your complainant further shows that this suit is brought to enforce an equitable lien upon, or claim to, or to remove an encumbrance, lien, or cloud upon the title to the personal property and real estate, within the Eastern district of Illinois, as provided by section 8 of the Act of March 8, 1875, now section 57 of the present Judicial Code.”

The bill shows that appellee’s suit is based upon her ownership of the syndicate certificates, issued subject to all of the provisions, terms, and conditions of the syndicate agreement. It is not claimed in the bill that, the syndicate agreement gives any lien to certificate holders, but, to support appellee’s theory of a lien, it is alleged in paragraph 7 of the bill,

“That said defendants further represented in order to sell the said syndicate certificates that said syndicate certificates were in effect mortgages on the real estate owned by the said Fischer-Schein Syndicate; that they were in fact a first lien on the real estate owned by the said Fischer-Schein Syndicate, and that the holders of such syndicate certificates would have a lien for the interest, or dividend, due them on the principal, and would have similar rights to' that of a holder of the usual, ordinary real estate mortgage.”

Admittedly such representations were not made to appellee. The syndicate agreement, signed by Mathilda Wenger and Eva Metzger, and in possession of appellee’s attorney months before that allegation was made, shows that certificate holders had no such rights. Mathilda Wenger’s affidavit, filed on behalf- of appellee, does not show that any certificates were bought on the faith of any such representations. Appellee cannot, maintain a bill to establish a lien upon-the real estate and other property of the syndicate because of false representations made many years before to Mathilda Wenger and Eva Metzger. 27 Corpus Juris, 4; Western Union Tel. Co. v. Schriver, 141 Fed. 538, 542, 72 C. C. A. 596, 4 L. R. A. (N. S.) 678; Cheney v. Dickinson, 172 Fed. 109, 96 C. C. A. 314, 28 L. R. A. (N. S.) 359.

Hartnett, in his cross-bill, does ask for a lien in his own favor, but does not claim to he proceeding under the terms of section 57, nor on behalf of any one else. He avers s

[488]*488“This cross-bill is brought to dissolve a partnership and distribute the assets thereof, and for the appointment of a receiver and for injunction.”

Fairly considered, appellee’s original bill is nothing more. The holders of the syndicate certificates are not lien holders, but are owners of the syndicate property, and possibly liable as partners, though that question is not before us. Jones v. Gould, 149 Fed. 153, 80 C. C. A.

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Bluebook (online)
295 F. 485, 1924 U.S. App. LEXIS 3194, Counsel Stack Legal Research, https://law.counselstack.com/opinion/fischer-schein-syndicate-v-lee-ca7-1924.