State Ex Rel. Elder, Rec. v. Circuit Ct., Madison County

5 N.E.2d 641, 212 Ind. 1, 1937 Ind. LEXIS 221

• Court: Indiana Supreme Court
• Decided: January 16, 1937
• Docket: No. 26,633.
• Status: Published

Opinions

Treanor, J.

This is an original'action filed in this court by the relators, Bowman Elder, as receiver of Indiana Railroad, and Indiana Railroad, to obtain a writ of prohibition against the Madison Circuit Court of Madison County, Indiana, and Charles E. Smith, Judge of the Madison Circuit Court, to restrain and prohibit respondents from exercising any further jurisdiction over relators or over the property held by Elder as receiver and from requiring relators to appear in the Madison Circuit Court and answer to a supplemental petition filed therein to enforce a decree of the Madison Circuit Court. A temporary writ of prohibition was issued by this Court and respondents filed an answer setting forth their reasons why such temporary writ should not be made permanent.

From relators’ petition and the response filed by respondents, the following facts appear:

On December 31, 1924, Arthur W. Brady was appointed receiver of the property and assets of Union Traction Company of Indiana by the Madison Circuit Court. At the time of such appointment various persons, hereinafter referred to as “tort claimants” held claims against the Union Traction Company and its associated companies on account of injuries to persons and damages to property occurring prior to the appointment of such receiver, which claims aggregated the sum of $142,617.24. After the appointment of the receiver the tort claimants filed their claims with Brady as such receiver and asserted a right to preferential payment from the funds in the hands of such receiver. On June 25, 1929, the Madison Circuit Court allowed the claims as general claims against the assets of Union Traction Company but denied to such tort claimants the right of preferential payment and priority over the claims of various mortgage creditors. From the decree of the court denying such prayer, the tort claimants appealed to this court, presenting upon such appeal the question whether or not these tort claimants had a preference and priority over the mortgage creditors.

While such appeal was pending in this court the receiver filed his petition in 'the Madison Circuit Court asking the authority and order of that court to sell at public sale the various assets and properties of the Union Traction Company and its associated companies, and pursuant to such petition, the Madison Circuit Court on June 6, 1930, made and entered its decree of sale authorizing, ordering and directing the receiver to sell the said assets and properties at public sale. The Madi son Circuit Court’s decree contained the following provisions with respect to the tort claims:

“The property described in Groups ‘A,’ ‘B,’ ‘C,’ ‘D,’ ‘E,’ ‘F,’ and ‘G,’ shall be sold subject to the following express conditions which shall be binding upon the purchaser or purchasers of said respective groups:

“In the event the judgment of the Madison Circuit Court. . . shall be reversed and thereafter the rights of said tort claimants to a preference over the mortgages . . . shall be finally established and to the extent that such preference shall be so established, the holders of said tort claims shall have a first lien . . . upon the property constituting said respective Groups upon or in connection with which said tort claims originated, which lien shall, under such conditions, attach as of the date of the confirmation of the sale hereinafter ordered; . . .

“In the event that said property shall be sold to one purchaser as Group ‘J,’ said property shall be sold subject to the same conditions expressed in the preceding paragraph and said tort claims, if determined to be entitled to preference, and to the extent so determined, shall thereupon constitute a lien upon the entire property so sold as of the date of the confirmation of said sale.

“The purchaser or purchasers of such mortgaged property, or any part thereof, his, its or their nominees or assigns, are hereby given and granted the right, at his or their own expense, to defend in the name of Union Traction Company No. 3 or Arthur W. Brady, Receiver, any suits against said Union Traction Company No. 3 or Arthur W. Brady, Receiver, to file, maintain, and prosecute any and all appeals, petitions for rehearing or petitions to transfer in any of said causes, to file briefs and appear by counsel and are likewise granted and given the right to take and conduct all further proceedings which may be necessary in connection with the appeals now pending in the Appellate Court of Indiana with respect to said tort claims heretofore adjudicated by this court; all such proceedings with respect to said last mentioned tort claims may be taken by such purchaser or purchasers, his, its or their nominees or assigns in the name of said Union Traction Company No. 2 and/or in the name of the mortgage trustees of said respective divisions and shall include the right to appear by counsel, file briefs, petitions for rehearing and petitions to transfer and likewise to conduct in the name of said Union Traction Company No. 3 or said mortgage trustee any further proceedings in the court below or in any subsequent appeal in the event said judgment should be reversed.”

By express provisions in the decree credit upon the purchase price was authorized to be given the successful bidder for mortgage bonds of the Union Traction Company and associate companies and it was also decreed that upon confirmation of sale by the court the deeds executed to the purchaser should operate to release the property from “all right, title, interest, estate, and claim whatsoever, either at law or in equity, of any and all parties to each and every of the above entitled and consolidated causes, . . . except as in this decree otherwise provided.”

Pursuant to the decree of the Madison Circuit Court the receiver on July 2, 1930, sold the assets involved in this action to Barnard P. Shearon who nominated Indiana Railroad to receive the deed of conveyance. The Madison Circuit Court approved the receiver’s report of sale and ordered and approved the execution and delivery of a deed of conveyance to Indiana Railroad, which deed contained a provision that the property was sold and conveyed “in the manner specified and directed in said decree and upon the terms and conditions therein set forth.” In making payment for the assets so sold upon the receiver’s sale the purchaser surrendered and received credit therefor upon the purchase price mortgage bonds of the Union Traction Company, which mortgage bonds, in the case of McCullough et al. v. Union Traction Company of Indiana et al (1934), 206 Ind. 585, 186 N. E. 300, were held to be inferior and junior in order of payment to the claims of the tort claimants herein-above referred to.

The Madison Circuit Court confirmed the sale, its order of confirmation containing the following:

“It is further ordered, adjudged and decreed that the respective purchaser of said several parcels of property herein above referred to shall complete the payment thereof either in cash or otherwise as herein above and as in said decree provided. .. and upon such payment being made, the receiver shall execute his receiver’s deeds, and proper instruments of assignment . . . and in all cases such properties shall be conveyed subject to the several liens, incumbrances and conditions as set forth in the decree of sale entered by this court June 6, 1980.” (Our italics.)

In his final report showing the disposition of the funds received upon sale of the property the receiver alleged that he had received no funds which were not subject to preferential claims of mortgagees, pledgees and certain creditors who by decree of June 6, 1930, were adjudged to be preferred and that “no payments have been made on account of any general or tort claims arising prior to the original appointment” of the receiver, but that said claims, which included the claims of the tort claimants involved in this proceeding, “are wholly unsatisfied.” The report also contained the following :

“The receivership matters undisposed of at this time, as hereinbefore shown, are, in addition to further disbursement and disposition of the said cash on hand, the following:

“ (a) The steps to be taken in the event that the tort claims arising before the receivership, being those scheduled in Exhibit C be finally adjudged to be entitled to preference.”

In his final report the receiver asked the court to “finally order and decree the approval of this report and the settlement and termination of said receivership as to all matters and things, except those relating to the disposition of said undisbursed funds and the steps to be taken with respect to the claims above referred to, as to which such order be made as the Court may find expedient and equitable.”

On January 12, 1931, the Madison Circuit Court approved the report from which the above portions are quoted, and in its order and decree made the following finding:

“The court also finds that no final decision has been made as to the right to preference on the part of the holders of certain unsatisfied tort claims which arose prior to the appointment of said Receiver on December 31, 1924, which tort claimants are those referred to in paragraph A-ll of Article 1 of said decree entered June 6, 1930, and listed in Exhibit C of said report, but that the appeal of such tort claimants for the establishment of such rights of preference is still pending undetermined in the Appellate or Supreme Court of Indiana.

“The court also finds that there are certain tort claims arising during the receivership . . . and that there may be other claims against said Receiver not shown by said Exhibit D, and that all such claims are still pending undisposed of, and, if valid, are a' charge against said Receiver and enforceable against the property sold at said sale by said Receiver July 2, 1930.

“And the court further finds . . . that all matters and things arising out of or connected with said receiverships have been completely and finally settled and disposed of, except those relating to undisbursed funds and to said claims as stated in said report, and that said report should be approved and confirmed, and that all matters and things arising out of or connected with the said receiverships, or any of them, should be found and adjudged to be finally and completely settled and terminated, and said Receiver finally and absolutely discharged from liability in connection therewith, except as to the disposition to be made of said undisbursed funds in the hands of said Receiver and except as to the steps, if any to be taken should preference be finally adjudged in the case of tort claims arising prior to December SI, 192A, and should liability be finally established, in the case of unsettled claims arising during the receivership as specified in said report, with respect to which and to no other matter whatsoever said receivership should be continued.” (Our italics.)

Upon the foregoing finding the Madison Circuit Court rendered the following judgment:

“It is therefore considered, ordered, decreed and adjudged by the court that the said final report of said Receiver, which is as follows (here copy) be and the same is in all things approved and confirmed.

“It is further considered, ordered, decreed and adjudged by the court that all matters and things arising out of or connected with the said receivership ... be and hereby are finally and completely settled and terminated, and the said Receiver is finally and absolutely discharged from liability in connection therewith, except as to the disposition to be made of the said undisbursed funds in the hands of said Receiver and except as to the steps to be taken in the event that the tort claims arising before the receivership, being those set forth in Exhibit C of said report, be finally adjudged to be entitled to preference and the steps to be taken in the event that liability should be finally adjudicated or determined to exist on account of claims arising during the receivership, being those listed in Exhibit D of said report, and any other such claims as may hereafter be found to exist; and the said receiver-ships are now continued, subject to further order of the court, only for the purpose of taking such steps as may be necessary or proper to be taken by the Receiver in the event that the tort claims .arising prior to December 31, 1924, be finally adjudged to be entitled to preference, and for the further purpose of taking such steps as may be necessary or proper to be taken by the Receiver in the event that liability should be finally adjudged or determined to exist against said Receiver on account of claims arising during the receivership, and for no other purpose whatsoever.

“It is further considered and ordered that said Receiver make such further reports from time to time as he may deem advisable or as the Court may direct with reference to the above reserved matters.”

On June 27,1933, this court reversed the judgment of the Madison Circuit Court denying the tort claimants preference and priority of payment to payment of the mortgages, and held that the claimants were entitled to payment before payment of the mortgage debts out of “Reserve for Injuries and Damages” and “Surplus Earnings” from which accounts money rightfully belonging to the tort claimants had been wrongfully used to pay interest on mortgage debts and for the purchase of equipment. (McCullough et al. v. Union Traction Co. of Indiana, et al., supra.) The cause was remanded to the Madison Circuit Court with instructions to the trial court to re-state its conclusions of law in favor of the tort-claimants.

In accordance with the opinion of this court the Madison Circuit Court, on December 24, 1934, re-stated its conclusions of law and on January 8, 1935, entered its decree thereon, allowing the claims of the tort-claimants as preferred claims superior and paramount to the mortgage claims, giving judgment therefor, ordering their payment as such by the receiver, and providing that to the extent surplus earnings and reserve for injuries and damages had passed into the general assets of the Union Traction Company the tort-claimants “have an equitable lien upon such assets to secure payment of their claims not exceeding, however, the total amount of said diversions.”

On February 11, 1935, the tort-claimants filed their Supplemental Petition to Enforce Decree in the receivership proceeding which had been commenced in the Madison Circuit Court on Dec. 31,1924. In this supplemental petition were contained allegations concerning the decree of sale, receiver’s report of sale, confirmation thereof, receiver’s final report and approval thereof, the gist of which is above set out. Further allegations were to the following effect: On June 27, 1933, Bowman Elder was appointed receiver of Indiana Railroad by the Superior Court of Marion County, Room 5, and he, as such receiver, and his grantees and grantees of Indiana Railroad, are in possession of the property sold upon order of the Madison Circuit Court on July 2, 1930, which property is subject to the jurisdiction of the Madison Circuit Court. At the time of the appointment of a receiver for the Union Traction Company, on December 31, 1924, that Company’s Reserve for Injuries and Damages showed a balance of $185,-100.08, and at the time the receiver ceased to operate the business of the company in July, 1930, the balance of such Reserve account was $298,885.88. The sum of $190,732.46, constituting income from operations under the receivership, being a part of a fund known as “surplus earnings” and applicable for payment to the tort-claimants, was expended for the purchase of equipment and betterments, which equipment was sold by the receiver as part of the assets of the Union Traction Company to Indiana Railroad, and was paid for by surrendering and receiving credit for mortgage bonds of the Union Traction Company. Such bonds were subordinate to the claims of the tort-claimants. Interest due upon bonds of the Union Traction Company had been paid by that company, leaving an insufficient amount of money in its treasury to equal the balance shown in the Reserve for Injuries and Damages. Upon the Receiver’s sale of the receivership assets he paid over to Indiana Railroad, as purchaser, large sums of money received from operation of the business, leaving insufficient funds in his hands to pay the claims of the tort-claimants. The petitioners asked that the court “enforce their lien upon the property, ... fix a time within which the claims shall be paid by the defendants and on failure to pay the same within the time limited, ... by its order and decree re-sell said property at the risk and cost of the purchaser in case he or it shall fail for a period of ten days to make any payment on account of the purchase price pursuant to an order of this court requiring such payment.” Petitioners also asked that the Madison Circuit Court enjoin and restrain defendants “from selling or otherwise disposing of the property now in their hands, received from the receiver” appointed by that court, until further order of court. James A. Van Osdol, Receiver of the Union Traction Company of Indiana, Bowman Elder, Receiver of Indiana Railroad, Marion Railways, Incorporated, and Indiana Railroad were named as defendants and summons was issued and served upon relators. Relators entered their special appearance to the petition and filed pleas in abatement. The tort claimants, petitioners, filed demurrers to the pleas in abatement and the respondent Madison Circuit Court, by the Judge of the Madison Circuit Court sustained the demurrers. Relators thereupon filed demurrers to the petition, which demurrers were overruled by respondent court and relators were ruled to answer.

In their petition for writ of prohibition relators allege that the respondent Judge of the Madison Circuit Court announced that it proposed and intended to exercise and assert jurisdiction over the persons.of Bowman Elder, Receiver of Indiana Railroad, and Indiana Railroad, and over the property purchased by the Indiana Railroad as above set out.

Upon their petition to this court relators obtained a temporary writ prohibiting the Madison Circuit Court and the Judge thereof from exercising any further jurisdiction over' the persons of Bowman Elder as Receiver of Indiana Railroad and Indiana Railroad, or over the property purchased by Indiana Railroad and now held in the custody and possession of Elder as receiver under the jurisdiction of the Marion Superior Court Room 5 of Marion County, Indiana, and from requiring relators to appear in the Madison Circuit Court and answer the supplemental petition to enforce decree or from making any further orders, judgments or decrees upon or against relators or upon or against the property.

The relators’ case for a writ of prohibition rests entirely upon the assumption that the assets of Indiana Railroad are now exclusively in the control of the Marion Superior Court, by virtue of the Indiana Railroad receivership, and that any action by the Madison Circuit Court to enforce the lien of the tort claimants against the assets of Indiana Railroad constitutes an unlawful invasion of the j urisdiction of the Marion Superior Court. The validity of the foregoing assumption depends upon the legal effect of the orders of the Madison Circuit Court made in connection with the transfer of the assets of the Union Traction Company to Indiana Railroad and the decrees made to safeguard the interests of tort-claimants and to enforce same against properties which were transferred to Indiana Railroad. Consequently the primary inquiry in this original action is not whether the Madison Circuit Court can interfere with the Marion Superior Court in its administration of the Indiana Railroad receivership, but whether the Madison Circuit Court ever lost jurisdiction to give the relief which is sought in the proceedings now pending before it.

The Madison Circuit Court did not intend to discharge the receiver of the Union Traction Company; but, on the contrary, expressly decreed the continuance of the receivership for the purpose, among others, of disposing of the tort claims in accordance with the decision of this Court in the then pending appeal in the case of McCullough v. Union Traction Company of Indiana, supra. In its decree of sale the Madison Circuit Court had provided for the contingency of this court’s holding that the tort claims should be perferred to the mortgage claims and had decreed that in such event “the holders of said tort claims shall have a first lien . . . upon the property consistuting said respective groups upon, or in connection with which, said tort claims originated, which lien shall under such conditions attach as of the date of the confirmation of the sale hereinafter ordered.” And when this court on June 27, 1933, decided that the tort claimants were entitled to payment of their claims out of “surplus earnings” and out of any sum represented by the item “Reserved for Injuries and Damages” and that such claims, as respects the foregoing funds, were superior to claims of mortgage bondholders the Madison Circuit Court properly took judicial action to give effect to this court’s judgment. By decree and judgment these claims were given their lawful priority and the receiver was ordered to pay same. The Madison Circuit Court expressly adjudged that to the extent surplus earnings and reserve for injuries and damages had passed into the general assets of the Union Traction Company the tort claimants had “an equitable lien upon such assets to secure payment of their claims, not exceeding however, the total amount of said diversion.”

The legal effect of the judgment of this court in McCullough v . Union Traction Company, supra, and the foregoing action of the Madison Circuit Court was to establish a lien on the assets of the Union Traction Company in favor of the tort claimants as of the date of the confirmation of the sale, and the assets passed to the Indiana Railroad subject to such lien. Furthermore, in passing upon the “final” report of the receiver of the Union Traction Company the Madison Circuit Court found “that all such claims (including claims in question) are still pending and undisposed of, and, if valid, are a charge against said receiver and enforceable against the property sold at said sale by said receiver . . .” and the court expressly decreed that the receivership be continued for the purpose of disposing of the tort claims, which necessarily included the reservation of jurisdiction to enforce the priority of the tort claims and the lien based thereon by a re-sale of the properties if necessary.

In view of the foregoing there can be no doubt that the Madison Circuit Court would still have jurisdiction to enforce the claims of the tort claimants by sale of the Property of the Indiana Railroad if a receiver had not been appointed for Indiana Railroad. See Henry, Receiver v . Claffey (1920), 189 Ind. 609, 621, 127 N. E. 193, 128 N. E. 694. 1

We are of the opinion that the power of the Madison Circuit Court to enforce the claims by sale of the property has not been limited by the fact that such property is now in the control of a receiver who is operating Indiana Railroad. The retroactive effect of this court’s decision in McCullough et al. v. Union Traction Company of Indiana et al., supra, and of the action of the Madison Circuit Court based thereon, was to impress upon the property of Indiana Railroad a lien to secure payment of the debts due the tort-claimants, as of the date of the confirmation, of the sale of the railway properties to Indiana Railroad. In other words the legal ■situation became the same as if the Madison Circuit Court had expressly provided in its order of sale that the property was being conveyed subject to a lien to secure payment of the obligations owing to the tort-claimants and upon the express condition that the Madison Circuit Court was reserving jurisdiction over the property thus conveyed to compel payment of such obligations by enforcing the liens, if necessary. Since “the usual mode of enforcing an equitable lien is by a decree for the sale of the property to which it is attached and for the application of the proceeds to the payment of the debt secured by it” the jurisdiction reserved by the Madison Circuit Court must have been broad enough to include the power to decree a sale of any property which was conveyed to Indiana Railroad subject to a lien for the payment of the tort claims which this court held to be entitled to priority over the mortgage bond claims.

It should be noted that the Madison Circuit Court is not seeking to control the discretion or activities of Bowman Elder as the operating receiver of Indiana Railroad; nor to interfere with the jurisdiction of the Marion Superior Court in its control of the operating receivership. No judgment of the Mad ison. Circuit Court can bind the receiver personally or limit the judicial power of the Marion Superior Court. The proceeding which relator seeks to prohibit is not an independent suit against Bowman Elder, Receiver; but is, as disclosed by the “Supplemental Petition” a defendant proceeding for the purpose of making effective the Madison Circuit Court's own judgment and decrees through the exercise of a properly reserved jurisdiction over a cause pending in the Union Traction Company receivership. The proceeding is analogous to an action in rem, insofar as it affects the property of Indiana Railroad, and it was neither necessary nor proper to make Bowman Elder, the Receiver of Indiana Railroad, a party defendant, since he could not be bound personally by any decree or judgment rendered therein. But his interest is such that he was entitled to notice and an opportunity to be heard. He cannot be compelled to appear, but his non-appearance cannot prevent the Madison Circuit Court’s taking proper action to enforce the liens.

We see no grounds for relator’s fear of an “unseemly conflict” between the Madison Circuit Court and the Marion Superior Court. When the Madison Circuit Court has determined the balance due on the tort claims and the particular properties subject to the liens it may proceed to fix a time for the payment of the sums due; and, in default of payment at the specified time, prescribe a proper order of sale. Comity would require that the receiver of Indiana Railroad be notified of such action in order to enable the Marion Superior Court to decide whether it would be feasible to authorize its receiver to make the payment and to continue the operation of Indiana Railroad. In case of failure of the receiver of Indiana Railroad to make payment at the specified time, or to make arrangements with the receiver of Union Traction Company, which would be satisfactory to the Madison Circuit Court and the Marion Superior Court, the Madison Circuit Court has the power to sell the property which is subject to the lien; and to transfer to the purchaser such right, title and interest therein as to entitle him to possession of the property as against the receiver of Indiana Railroad. In case of any further uncertainty as to the limits of the respective jurisdictions of the Madison Circuit Court and the Marion Superior Court we assume that recourse will be had to this court rather than to “unseemly conflict” between the two courts.

Nothing in this opinion is intended to intimate that the Madison Circuit Court cannot, in its discretion, order its receiver to petition the Marion Superior Court to direct its receiver to pay the amount due or at the receiver’s option to deliver possession of the properties subject to the liens to the receiver of the Madison Circuit Court; and thus enable the Madison Circuit Court to obtain possession of the properties before the sale to satisfy the liens is consummated.

We conclude that the effect of the action of the Madison Circuit Court was to continue its jurisdiction, through the Union Traction Company receivership, over the assets transferred to Indiana Railroad to whatever extent was necessary to enforce the tort claims in question and that the action of the Marion Superior Court in appointing a receiver for Indiana Railroad could not terminate the reserved jurisdiction of the Madison Circuit Court, the Madison Circuit Court being a court of general jurisdiction and of coordinate jurisdiction with the Marion Superior Court.

Since the Union Traction Company receivership is still pending in the Madison Circuit Court, with jurisdiction in that court to entertain the proceeding instituted by tort-claimants to enforce their claims by appropriate action of that court in such receivership, the temporary writ of prohibition heretofore ordered is dissolved and relators’ petition is denied.

1 (1) In this case appellee began a suit against a receiver of a railroad company to recover for injuries occurring during operation of the road by the receiver. The suit was not begun until after transfer of the property by the receiver to a purchaser at a receiver’s sale ordered by the court. Judgment was recovered against the receiver who appealed. In reversing the judgment, this Court, by Lairy, J., said:

“The court in this case, by its order of sale, retained jurisdiction to enforce against the property sold certain claims arising out of the receivership. Where this is done, the court does not lose jurisdiction by the discharge of the receiver, but it may retain or reassume jurisdiction thereafter for the purpose of enforcing such a claim. Jesup v. Wabash R. Co. (1890) 44 Fed. 663. In discussing the procedure to be adopted in the enforcement of such a claim after the discharge of a receiver, a well-known text-writer on the subject of receivers says: ‘If the court retains jurisdiction of the original cause after the sale of a railroad and the discharge of its receiver, for the purpose of enforcing payment of claims remaining unpaid against the receiver, a claimant’s proceedings thereunder are analogous to an action in rem. And it is well settled, that, in order to give a court full and complete jurisdiction in rem, some form of notice must be given to parties whose rights and interests may be affected by the decree; and, where no form of notice is prescribed by law, the court is empowered to direct the notice to be given. Therefore, the purchaser and those in possession of the railroad after the sale—whose interests would be affected by a decree establishing a claim against the property—must have notice of such a claim and the presentation of it to the court; and thereafter it is competent for the court, if the claimant is by law entitled to a lien, to- establish the same against the property, and to fix a time for the payment of the sum found to be due; and in default of payment at the specified time to prescribe a proper order of sale.’ Gluck and Becker, Receivers (2d ed.) §93.” Henry, Receiver, v. Claffey (1920), 189 Ind. 609, 621, 127 N. E. 193, 128 N. E. 694.