Lewis v. Peck

154 F. 273, 83 C.C.A. 211, 1907 U.S. App. LEXIS 4515

• Court: Court of Appeals for the Seventh Circuit
• Decided: April 17, 1907
• Docket: No. 1,335
• Status: Published

Opinions

SEAMAN, Circuit Judge,

after stating the facts, delivered the opinion of the court.

The ultimate facts involved in this review are simple, however serious their import in the administration of equitjr powers and duties, and their effect in the commitment of the plaintiff in error for contempt. The propositions of law upon the general powers of the trial court to restrain the prosecution of cognate suits in other courts, and in reference to the rights and privileges of counsel in actions'so brought — which are presented in one of the aspects of this adjudication and discussed in the arguments — are not free from difficultjr under the authorities. It is not needful, however, to decide either of these important general questions, unless the validity of the commitment rests upon their solution.

The in junctional order of which violation is adjudged was not contained in the express terms of the foreclosure decree, which was entered in 1903 (and affirmed upon appeal to this court), but was made a part of the order or decree entered May 5, 1905, confirming the sale made April 18, 1905, as reported to the court under the decree of 1903. Primarily, therefore, jurisdiction must appear for making, in that proceeding and at that stage, an order which became operative as a personal injunction against the individual bondholders and their special counsel, applicable to the alleged violation by the plaintiff in error, to uphold the commitment. Neither the bondholders nor the plaintiff in error were named as parties to the decree or subsequent order, nor cited in or recognized as parties of record. True, the trustee named in the trust deed securing the bonds in controversy was a party; and the general rule under such instrument and relation is firmly established chat the trustee represents the bondholders in such foreclosure proceedings involving interests under the trust deed, and that his'presence is sufficient to bind the rights and interests of bondholders, who are thus constructively served and present. In the foreclosure proceedings thereupon it may well be assumed that the court possessed ample power to make all needful orders or provisions, interlocutory or final, not only to foreclose interests which are represented, but to protect the res and interests involved in the litigation for complete administration.

The plaintiff in error, as attorney for several holders of bonds secured by one of the trust deeds involved in and foreclosed under the above-mentioned final decree of the federal court, filed a bill in one of the state courts, on behalf of such bondholders, wherein an independent foreclosure was sought under the trust deed, in despite of the prior decree and sale, with the purchasers thereunder named as defendants among other parties. This suit was instituted in March, 1900, when the federal proceedings were closed, with all issues therein settled, sale confirmed, and the purchasers in possession. The question whether the action was well advised or seemly, in any view, is beside the inquiry of contempt in thus attempting another foreclosure, which rests alone on the validity and interpretation of the in junctional order entered in the federal court on May 5, 1905. When that order was made, the matters before the trial court, as disclosed by the record, were the report of the master upon the foreclosure sale made under the decree and of the proceeds arising therefrom, together with the objections filed to confirmation of such sale. The issues were: Shall the sale be confirmed, with direction to convey and deliver possession to the purchasers, and distribute the proceeds in conformity with the decree? Or shall the sale be set aside, and resale or other procedure ordered? Provisions for either course were plainly within the power of the court, and its conclusions and order in conformity with the first-mentioned course are not open to question here. The further order, however, which is challenged, is a provision, not only vesting title in the purchasers “as against each and every party” to the action and “all persons claiming, or to claim, under them,” but that all parties and persons “claiming or to claim by, through, or under” either party, and their attorneys and agents, “are forever prohibited and enjoined from setting up any pretended, or alleged, title as against the title of the said purchasers,” and “from in any way interfering with or disturbing the said purchasers, or their assigns, in the full and free use and occupation and enjoyment of all the said property so acquired.” Passing the contentions on behalf of the plaintiff in error that these terms are not applicable to the individual bondholders, and are not violated by the orderly commencement of an independent suit by bondholders, not made parties, we assume the premise for testing the validity of the injunction, that its scope was sufficient to include such suit, as the commitment for contempt rests wholly upon that purpose and interpretation.

The final decree theretofore entered (1903) was complete and binding upon all parties for the intended foreclosure, and for definition of the title which would be conveyed to the purchaser of the res upon sale, together with provisions for and terms of conveyance and possession. Except for the last-mentioned purposes of sale and conveyance, and the questions and objects reserved in the concluding paragraphs (25, 26, 27), the controversy was closed, and no further relief was open in the suit. To carry forward these specific purposes and determine the reserved questions, orders and directions were authorized at the foot of the decree, but jurisdiction was not retained beyond those which were so specified, all executory in their nature.

The sole reliance for support of the in junctional order in the terms of the decree is in the expression of paragraph 27, which includes “enforcing the conditions of this decree” as thus reserved. Various provisions of the decree are stated in the form of conditions, and plainly within this reservation. Thus foreclosure sale is conditioned upon the failure of the defendants to pay the sums adjudged due within the time specified; and, when sale occurs, it is made subject to conditions, both of performance by the purchaser and approval by the court, with provision for resale in the event of disapproval or nonperformance. The terms or recitals which define the interests and title passing to the purchaser upon sale are in no sense “conditions of the decree” which can be enforced by subsequent orders otherwise than by the conveyances and delivery of possession as directed. To that end, it cannot be doubted that needful orders were authorized, injunctional or otherwise, to preserve the integrity of the property and subject-matter in the hands of the court from interference or disturbance in any manner, to complete the performance of such conveyance and delivery. No remedy, however, not within the contemplation of the foreclosure decree was thus left open to be administered at its foot. The purchaser acquired under the sale and conveyance all the title and interests of parties which the decree was competent to confer. With no obstacle in the way of the conveyance and possession can the jurisdiction 'so retained extend to injunctional relief in favor of the purchasers (not parties in any sense until approved as purchasers), to reach these dissatisfied bondholders individually (not parties of record), to enjoin them from suing upon the bonds?'

The right of the purchaser or his successor in interest to invoke the jurisdiction of the trial court, by supplemental bill in the action, against a disturber of title and possession so acquired, in derogation of the decree of foreclosure, is expressly upheld in Julian v. Central Trust Co., 193 U. S. 93, 109, 24 Sup. Ct. 399, 48 L. Ed. 629, so that the exercise of- jurisdiction to prevent actual interference is unquestionable, when the parties are before the court under issues duly made. No authority is brought to our attention, which sanctions either (1) supplementary injunctional orders of the present nature, without personal service and issue raised upon the infringement; or (2) enjoining the mere commencement of suits in a state court, with no disturbance of possession, unless within the exception named in section 720, Rev. St. [U. S. Comp. St. 1901, p. 581]. And we are of opinion that the order in question, in so far, at least, as it was treated as operative against the filing of bills on behalf of individual bondholders, was not within the limited jurisdiction reserved in the trial court.

The doctrine is well established that the right o-f a court of equity to decide all questions arising in the case, when jurisdiction is once acquired, is subject to important limitations; that it extends only to controversies which arise and are submitted by proper proceedings between adverse parties. -As stated in Windsor v. McVeigh, 93 U. S. 274, 282, 23 L. Ed. 914:

“All courts, even tlie highest, are more or less limited in their jurisdiction.. * * * Though the court -may possess jurisdiction of a cause, of the subject-matter, and of the parties, it is still limited in its modes of procedure, and in the extent and character of its judgments. It must act judicially in all things, and cannot then transcend t.he power concurred by the law. ⅜ * ⅞ So a departure from established modes of procedure will often render the judgment void. ⅜ * * The decree oí a court of equity upon oral allegations, without written pleadings, would be an idle act, oí no force beyond that of an advisory proceeding of the chancellor. And the reason is that the courts are not authorized to exert their power in that.way.”

When a court transcends the limits of its authority in a given case, its orders are void, not merely erroneous. Id.

In the proceedings of May 5, 1905, the sole questions before the court, as before stated, were the action to be taken in reference to the sale as reported, and disposition of the proceeds. No individual holders of bonds were cited or called in to answer any application for the injunctional order; nor does it appear that application was made for it. It is true that certain of the bondholders objected to confirmation of the sale, and written specifications were filed on their behalf, by the plaintiff in error, as “appearing separately for bondholders to obj ect to confirmation”; but upon the hearing it was ordered that “the said objections and exceptions” he and they were “overruled and held for naught.” These objectors were there for no other purpose, and were out of the proceeding when their objections were overruled: and uo conduct appears upon the part of either to authorize the exercise of jurisdiction in personam over the plaintiff in error or his clients to restrain them from setting up or suing upon their supposed independent claims, however groundless such claims may appear when brought to hearing.

The contention in support of the order and its application to the suit commenced by the plaintiff in error is twofold and substantially this : That the order was valid against the trustee, who represented the bonds in controversy, and was a party to the proceedings, and was thus authorized and made binding as a personal injunction against each of the bondholders so represented. We are not satisfied that the premise is sound of right to enjoin the trustee; but, however that may he, we are satisfied that the injunction was inoperative as against the proceeding in question on the part of the bondholders.

The property and subject-matter of the decree were neither molested, nor threatened with disturbance in the hands of the court or pending administration, so that no need appears for an injunction to preserve the status. If suit were commenced upon the bonds, either in that court or elsewhere, no deprivation of rights which were lawfully conferred by the prior decree of the federal court could have judicial sanction, as the application for atid grant of a restraining order necessarily assumes to justify the restraint. The mere institution oí suit in such case does not disturb the prior jurisdiction or adjudication in any degree. As said by Judge Grosscup, speaking for this court, in Copeland v. Bruning, 127 Fed. 550, 552, 63 C. C. A. 435, in reference to like contention that a suit in the state court “challenged the decree of the federal court”:

“Let this be' admitted, even then the injunction is not justified, for to the extent that the subject-matter of the suit in the state court was already settled by former adjudication, the defense should have been by plea in the court where the suit was brought, and not by injunction in another jurisdiction. No possession of the res was involved, and no conflict of courts could have followed, that would have affected the decree in the United States court.”

Again, in Royal Trust Co. v. Washburn, B. & I. R. R. Co., 139 Fed. 865, 867, 71 C. C. A. 579:

“The point at which interference with the possession of the federal court begins is not the invoking in the state court of its power in that respect, but the attempt to exercise such' power, to the extent that the exercise of such power would interfere, actually and physically, with the possession of the property by the United States court.”

In the case last cited an adjudication of the federal court-committing attorneys for contempt of that court was reversed, although they had applied for and obtained an injunction in a state court against the execution by officers of the federal court of the final decree of such court, and had delivered the restraining order to the sheriff for enforcement. While commitment of the sheriff was upheld, for actual invasion and interference, the attorneys were held not guilty, as their procedure was not an invasion of the federal jurisdiction. Section 720, Rev. St. [U. S. Comp. St. 1901, p. 581],.expressly proh hits an injunction “to stay proceedings in any court of a state,” except as authorized in bankruptcy; and, while this provision is not applicable when the jurisdiction of the federal court is disturbed thereunder by actual invasions (Julian v. Central Trust Co., supra), it may rightly be applicable to deny injunctional relief against orderly proceedings in any court, even by parties, without such invasion (Guaranty Trust Co. v. North Chicago St. R. Co., 130 Fed. 801, 805, 65 C. C. A. 65). The court may exercise ancillary jurisdiction, as in the Julian Case, when properly invoked on behalf of the purchaser under the decree, to prevent invasion of rights which were adjudicated and vested in such purchaser; but we do not understand that sanction appears in any of the authorities, either for warranty of title or possession upon judicial sale, or for an injunctional order to prevent future litigation against the purchaser, beyond the saving effect of the decree. Under the doctrine of caveat emptor, which is strictly applicable to all judicial sales (The Monte Allegre, 9 Wheat. [U. S.] 616, 645, 6 L. Ed. 174; Sorer on Judicial Sales, §§ 174, 475, 476, 528), authority for such provision in the order may well be doubted, even as against the trustee.

Raying aside, however, the question whether such injunction can be granted as against parties who are personally served, the plaintiff in error and bondholders represented by him were not parties in any sense which would authorize jurisdiction over their persons to make such order binding upon them. Assuming that the foreclosure suit and decree bound the holders of all bonds, through the substituted service upon the trustee, it -was thus effectual only as a proceeding in rem and to the extent of their interest in the res, and authorized no procedure or relief in personam 'against the individual bondholders, constructively bound by such decree. Pennoyer v. Neff, 95 U. S. 714, 727, 24 L. Ed. 565; 9 Notes U. S. Rep. 339. So, if the injunctional order were germane, authorized, and operative as against the trustee, it was not operative against the individual bondholders, who were not served and not subject to jurisdiction in per-sonam. Hawley v. Fairbanks, 108 U. S. 543, 551, 2 Sup. Ct. 816, 27 L. Ed. 820; Parsons v. Greenville, etc., R. Co. (per Mr. Chief Justice Waite), 1 Hughes, 279, Fed. Cas. No. 10,776; In re Reese (C. C.) 98 Fed. 984, 986; Fellows v. Fellows, 4 Johns. Ch. (N. Y.) 25. Whatever the interests or rights of the bondholders ma)r be under the terms of the trust deed — whether within the general rule and thus fully represented and foreclosed by the presence of the trustee, or exceptional as they contend — -they are bound by the decree only Lo the extent authorized by the trust deed in such representation. If they have claims of independent right, not so represented, as they contend, they are neither within the terms of the order, as claimants under the trustee, nor subject to the jurisdiction of the trial court for any form of injunction against their exercise of independent right to sue upon such claim.

While the trust deed was before the trial court, as part of the subject-matter in the foreclosure suit, and (presumptively) construed otherwise in entering the final decree, the bondholders were not personally served and their contention was not heard in such interpretation and entry. Whatever be their actual right, or the effect to be given that adjudication, they cannot be restrained in that proceeding — to say the least, without personal service upon them — through any injunction against the trustee, from the common right of suit upon their alleged independent claim, which arises under their grantor, not under the trustee. If res judicata, or otherwise without merit, such determination, in the first instance at least, is for the forum in which such suit is brought, and the court of prior jurisdiction of the subject-matter cannot, as we believe, enjoin such procedure in another court of coordinate jurisdiction, nor can it rightly be assumed by any court, in thus directing conveyance to a purchaser under its decree, that coordinate judicial tribunals would disregard such decree or fail to give it due effect when so involved in subsequent litigation.

We are of opinion, therefore, that the injunctiouai order in question was without force against the individual bondholders or their attorney, and that the plaintiff in error was not guilty of contempt in his proceedings in the state court.