James v. Central Trust Co. of New York

98 F. 489, 39 C.C.A. 126, 1899 U.S. App. LEXIS 2751

• Court: Court of Appeals for the Fourth Circuit
• Decided: November 9, 1899
• Docket: No. 289
• Status: Published

Opinion

MORRIS, District Judge

(after stating the facts as above). In the bill of complaint in the superior court of Rowan county, filed by S. T. Pearson and Mrs. Clemye James, on behalf of themselves and other creditors and stockholders of the Western Forth Carolina Railroad Company, praying for a permanent receiver, two classes of claimants are inextricably mingled: First, the stockholders of the Western Forth Carolina Railroad Company; and, second, the creditors who have become such since the second mortgage was foreclosed and the Southern Railway Company became the purchaser, and since the railroad property, by order of the United States circuit court, was delivered to it. However effectively it might be urged that creditors whose causes of action came into existence two years after the foreclosure sale have a right to prosecute their rights in any court that has jurisdiction, it seems clear to us that the stockholders of the Western Forth Carolina Railroad Company were parties to the foreclosure suit, and are bound by its decree, and that any proceeding on their part to reclaim the property sold under the decree must be made in the court in which the decree was entered. The contention of the stockholders is that the mortgage deed on which the decree was based was null and void as against them, and that by the decree and the sale thereunder their rights were not affected, and that they have a right to have a receiver appointed to retake the property from the purchaser. The bill of complaint does not so much as malte the Southern Railway Company, the purchaser xmder the foreclosure decree, now in possession of the property, a party to the case, but ignores the foreclosure proceedings as of no effect as to these complaining stockholders.

So far as the stockholders are concerned, the correctness of the decree below depends upon two questions: First, are they bound and estopped by the foreclosure decree? and, second, is this a case in which the circuit court of the United States has jurisdiction, as against a party to the foreclosure suit, to make its decree effective by injunction, notwithstanding the prohibition of section 720 of the Revised Statutes, prohibiting the granting of an injunction by a court of the United States to stay proceedings in any court of a state? It is settled that in a suit to foreclose a mortgage executed by a corporation, where there is no fraudulent collusion, the corporation represents all its stockholders, and that a decree against it binds them. Railroad Co. v. Howard, 7 Wall. 392-406, 19 L. Ed. ; Hawkins v. Glenn, 131 U. S. 319-329, 9 Sup. Ct. 739, 33 L. Ed. 184; Sanger v. Upton, 91 U. S. 56-59, 23 L. Ed. 220; Furnald v. Glenn, 12 C. C. A. 27, 64 Fed. 49-53. S.-T. Pearson and the oilier stockholders are attempting to assert in the state court the very same right which was involved in the foreclosure suit against the Western North Carolina Railroad Company, and which was cut off and foreclosed by the decree and sale. The relief asked by the supplementary bill tiled by the purchaser in the United States circuit court is'to prevent the parties thus decreed against from retaking the railroad property in disregard of the court’s decree. In Dietzsch v. Huidekoper, 103 U. S. 494, 497, 26 L. Ed. 497, it is said, “A court of the United states is not prevented! from enforcing its own judgments by the statute which forbids it to grant a writ of injunction to stay proceedings in a state court;” and in that case an injunction restraining the enforcement of a judgment of a state court in a replevin suit was sustained, because the effect of enforcing the judgment in the state court would be to defeat the judgment of the federal court, which had jurisdiction of the subject-matter. In Root v. Woolworth, 150 U. S. 401, 411, 14 Sup. Ct. 136, 37 L. Ed. 1123, a decree had been entered in a circuit court of the United States in-a suit to cpiiet title in favor of one Morton establishing his right to certain land as against Root. Afterwards, notwithstanding this decree, Root, claiming by the same title as before, re-entered, and took possession. Morton’s title had been conveyed to Woolworth, and he filed his supplementary and ancillary bill asking that Root be enjoined from asserting any claim of title to (he land, and from interfering with Woolworth’s sole and exclusive possession. This bill, although filed long after the original decree, and by the assignee of the original complainant, was sustained as a proper exorcise of the jurisdiction of courts of equity to make their decrees effective by injunction and writs of assistance. It seems quiie clear to us that the injunction granted in the present case against S. T. Pearson was proper, and was within the jurisdiction of the circuit court, as ancillary to the original decree of foreclosure, and for the purpose of making that decree effective against persons who were bound by it.

Whether the circuit court had jurisdiction, and could, notwithstanding section 720 of the Revised Statutes, enjoin Mrs. James and Mrs. Howard from proceeding with the suit entered by them, or any similar suit, or from in any manner interfering with the property of the Western North Carolina Railroad or the Southern Railway, purchased at the foreclosure sale, is, to our minds, quite a different question. The rule that a sale of real estate under judicial proceedings concludes no one who is not in some form a party to the proceedings (Dupasseur v. Rochereau, 21 Wall. 130-135, 22 L. Ed. 588) has been applied by the supreme court of the United States to a foreclosure sale of telegraph lines (United Lines Tel. Co. v. Boston Safe-Deposit & Trust Co., 147 U. S. 431-448, 13 Sup. Ct. 396, 37 L. Ed. 231), and to a foreclosure sale of a railroad (Pittsburgh, C., C. & St. L. R. Co. v. Long Island Loan & Trust Co., 172 U. S. 493-515, 19 Sup. Ct. 238, 43 L. Ed. 528). Neither Mrs. James nor Mrs. Howard could be said, we think, to have been in any sense a party to, or claiming under any party to, the foreclosure suit, or bound by it. Whatever rights they have accrued to them three years after ' the sale, and had no connection whatever with the rights which were adjudicated by the decree. It may be, notwithstanding anything adjudicated by that decree, that under the laws of North Carolina the Western North Carolina Railroad Company was answerable to them for the damages for which they obtained their judgments, and the railroad, now in possession of the Southern Railway Company, also liable. Those are questions not litigated in the foreclosure suit, and which the appellees, in our judgment, could not, by this supplementary and ancillary proceeding, compel Mrs. James and Mrs. Howard to bring before the circuit court. Sargent v. Helton, 115 U. S. 348, 6 Sup. Ct. 78, 29 L. Ed. 412; Dial v. Reynolds, 96 U. S. 340, 24 L. Ed. 644; Haines v. Carpenter, 91 U. S. 254, 23 L. Ed. 345.

The sale to the Southern Railway Company under the foreclosure decree is a defense which can be pleaded in any state court, and, if the state court should fail to give that effect to the decree of the United States circuit court which the parties claiming under it are advised it should have, the law provides an appeal for the revision of that refusal by the supreme court of the United States. Dupasseur v. Rochereau, 21 Wall. 130-134, 22 L. Ed. 588; Bank v. Stevens, 169 U. S. 432-456, 18 Sup. Ct. 403, 42 L. Ed. 807; Crescent City Live-Stock Co. v. Butchers’ Union Slaughter-House Co., 120 U. S. 141, 7 Sup. Ct. 472, 30 L. Ed. 614; Pittsburgh, C., C. & St. L. R. Co. v. Long Island Loan & Trust Co., 172 U. S. 493-507, 19 Sup. Ct. 238, 43 L. Ed. 528. In the bill which was filed by Pearson and Mrs. James in the superior court of Rowan county on behalf of themselves and others, stockholders and creditors, the allegations on which relief is asked are largely based on the alleged invalidity of the mortgage foreclosed by reason of the supposed rights of Pearson and other stockholders, and it is charged that the pretended mortgage deeds and pretended foreclosure sale have cast a cloud upon the property sold, which makes it impossible for Mrs. James to realize her judgment claim. . Thus it appears that the scheme of the bill is based, not upon the sup- ■ posed right contended for in argument as the result of the opinion of the supreme court of North Carolina in James v. Railroad Co., supra, viz. that the old Western North Carolina Railroad Company continues to exist, and to be answerable for damages incurred in the operation of the railroad, and the railroad in the hands of the Southern Railway Company liable for the judgment, but upon the allegation that by reason of the rights of certain stockholders the mortgage foreclosed was invalid, and the foreclosure sale to be disregarded and treated as a nullity, and a receiver appointed in that collateral proceeding in another court, to take the property from the purchaser. It is not a creditors’ bill, based upon legal and equitable rights as creditor, but a stockholder’s bill, in which a creditor has joined, basing her claim to relief mainly upon the alleged invalidity of the mortgage foreclosed because of the nonassent of certain stockholders. At least this supposed ground of relief is the gravamen of the whole bill.

Without passing upon any other questions argued by counsel, and which we do not consider necessary to the decision ol the case before us, we hold that the injunction, so far as it enjoins the further prosecution of the bill which was filed in the superior court of Rowan county, should be continued, and the decree, so far as it grants that injunction, should be affirmed, but that the decree should be so modified as not to prohibit Mrs. James and Mrs. Howard from proceeding as they may be advised with any other suit not based upon the supposed rights of'stockholders with respect to enforcing their judgment claims. The cause is remanded, with directions to modify the decree in accox*dance with this opinion.

1 As to enjoining proceedings in state courts, see note to Garner v. Bank, 16 C. C. A. 90, and, supplementary thereto, note to Trust Co. v. Grantham, 27 C. C. A. 575.