Moran v. Sturges

This was a proceeding in the supreme court of the state of New York for a voluntary dissolution of Schuyler's Steam Towboat Company, in which Frank D. Sturges was appointed temporary receiver of the company. On petition of the receiver the court granted an order for an injunction restraining Michael Moran, Peter Cahill, Cynthia Cahill, and Jarvis Masters from proceeding upon libels in admiralty filed by them in the district court of the United States for the eastern district of New York; and this order was affirmed on appeal by the general term of the court, and by the court of appeals of the state. 32 N. E. 623, 136 N. Y. 169. The parties so enjoined brought error.

The Schuyler Steam Towboat Company was a corporation organized under the laws of New York. On July 31, 1891, the trustees of the company filed a petition in the supreme court of the state of New York, at Albany county, at chambers, for the voluntary dissolution of the company, under sections 2419 and 2423 of the Code of Civil Procedure of that state, and in their petition prayed for the appointment of a temporary receiver under section 2423, as amended, whose powers and duties were specified in section 1788. Code Civ. Proc. N. Y. 1891, pp. 643, 835, 836. The petition stated that the stock, effects, and other property of the corporation were not sufficient to pay the just amounts for which it was liable, nor to afford reasonable security to those who might deal with it, for the reasons that the corporation was indebted to the Holland Trust Company of New York, in a large sum of money, on a demand loan, payment whereof had been demanded, and that there were no available assets to meet the same; that the corporation had already defaulted upon certain claims set forth in the schedule attached, which were secured by notes which had been presented for payment, and payment refused for want of such assets; that 'other claims set forth in the schedule are either due, or rapidly becoming due, and that there is serious danger of the company's vessels, constituting the sole property of the said company, being libeled in the admiralty courts of the United States for such claims as constitute maritime liens, including the claims for services and supplies rendered to said vessels; that, in the event of said vessels being libeled and sold under a decree in admiralty, there would be little hope in realizing the value of said vessels on such sale, and the security of creditors and stockholders would be seriously imperiled;' that the assets must be realized by sale, and would be insufficient to pay all the claims in full, etc. Thereupon, the presiding judge (the attorney general of New York appearing, and consenting thereto) signed an order to show cause before a referee therein named, on November 16, 1891, why the company should not be dissolved, and by the same order appointed Frank D. Sturges temporary receiver of the property, 'with all the powers, and subject to all the duties, that are defined as belonging to temporary receivers appointed in an action in section 1788 of the Code.' It was further ordered 'that all creditors of said corporation be, and they are hereby, restrained and enjoined from bringing any actions against the said corporation for the recovery of a sum of money, and from taking any further proceedings in any action already commenced against the said corporation for such purpose.' A copy of the order was directed to be published at least once in each of the three weeks immediately preceding November 16, 1891, and that a copy be served upon each of the several persons specified in the schedule attached to the petition as a creditor or stockholder of the corporation. It was further ordered that before entering upon the duties of such receivership the said receiver should execute and acknowledge, in due form of law, a bond in the penal sum of $50,000, payable to the state of New York, with sureties. This order was entered, and the petition and accompanying papers filed in the office of the clerk of the court for Albany county in the forenoon of August 1, 1891. On the afternoon of August 1, 1891, which was Saturday, and on Monday, August 3, 1891, plaintiffs in error, Michael Moran and other co-owners of certain tugs, filed libels in admiralty in the district court of the United States for the eastern district of New York against certain steamboats, which were the property of the Schuyler Company. Process was issued under said libels to the United States marshal for that district, and on August 1st he seized and took into his possession the steamboats Niagara, Belle, and Syracuse, and affixed his notice of seizure thereto. On August 3d he seized and took into his custody the steamboats Vanderbilt, Jacob Leonard, and America, and affixed his notice of seizure thereto. On August 4, 1891, the receiver went on board the steamboats mentioned, and ascertained that the marshal was in possession thereof by his keepers, and he also found affixed to the boats the marshal's notice of seizure. The receiver applied to the state court, August 26th, and was duly autnorized, by order that day in that court entered, to contest said libels, or to take such other proceedings therein as might be advisable, and to use the funds in his hands for the purpose of giving such security as he might be able, as required in contesting the libels. In September, 1891, the receiver made a motion in the United States district court for an order directing the marshal to withdraw from the custody of the steamboats held under the admiralty process. The motion was denied on the ground that the question should be raised by answer to the libels, and leave was given to answer accordingly. The receiver availed himself of this permission, and appeared in one action against each vessel, and filed his answer contesting the jurisdiction of the admiralty court. He thereafter made an application to this court for a writ of prohibition to the district court, which was denied November 13, 1891.

On November 10th the receiver verified a petition addressed to the supreme court of the state of New York, in which he asked that plaintiffs in error herein might be enjoined from prosecuting the libels which they had filed in the district court of the United States for the eastern district of New York. Affidavits were attached to the petition, and on these papers and the preceding record one of the justices of the supreme court of the state entered an order November 11, 1891, that plaintiffs in error show cause at a special term of the court, November 14, 1891, why they should not be enjoined from taking any further proceedings on their libels in the United States courts, and in the mean time plaintiffs in error were enjoined and restrained from taking any further action under their libels, and from attempting any proceeding looking to the condemnation or sale of the steamboats, or any of them. Affidavits in opposition were presented by plaintiffs in error on the hearing of the order to show cause. Certain allegations were made in the petition and the moving affidavit of a knowledge by Moran, at the time he filed the first libel, that a receiver of the company had been appointed. These were denied, and Moran set forth under oath all his information and sources of information on the subject of the proceedings contemplated to dissolve the company, with the dates. The petition set forth that if libelants were permitted to prosecute their libels, and obtain decrees thereunder, and the steamboats were condemned and sold to satisfy the same, it would result in the vessels being sold for less than their value, and that the interest of the corporation and the general creditors thereof would be greatly sacrificed; that the vessels would bring a much larger price if sold as a fleet; that all creditors who were entitled to a preference by having liens, as well as all unsecured creditors, could be fully protected in this proceeding; that petitioner was advised that a larger portion of the claims for which libels had been filed did not constitute liens against the vessels, nor were libelants entitled to any preference for such portion of their claims. The petition further stated that under the order of August 26th the receiver had not sufficient funds to give security to contest all of the libels, and was wholly unable to give the security necessary to release the vessels from the marshal's custody, and for which reason, unless the libelants were restrained from prosecuting the libels, the receiver would be unable to prevent the condemnation and sale of the steamboats. The petition also set forth the receiver's application to the district court of the United States for the eastern district of New York for an order directing the marshal of the district to surrender the custody of the steamboats; the denial thereof on the ground that the question of jurisdiction ought not to be decided upon motion; the leave to the receiver to answer the libels and contest the jurisdiction by answer; his appearance and answer in one action brought against each steamboat for the purpose of testing the jurisdiction of that court, he not being able, as he alleged, to furnish the security necessary in order to answer all the libels, which were some 40 in number. It was also averred that a motion had been made in the district court by Moran for the sale of the steamboats, and that the proceeds be deposited in court to await the result of the action; that the motion was opposed by the receiver, and withdrawn, as to the libels in which he had answered; that the motion had since been urged in the actions in which the receiver had not appeared and answered; and that the district court had intimated that the motion would be granted November 13th. Petitioner denied the jurisdiction of the district court over the steamboats, or any of them, at the time the libels were filed, and asserted that they were at that time in the custody of the state court, and not liable or subject to the attachment made by the marshal. On December 7, 1891, the special term of the supreme court granted the prayer of the receiver, and entered an order for an injunction enjoining plaintiffs in error from taking any further proceedings upon their libels in the district court of the United States for the eastern district of New York against the steamboat company, or against the steamboats of that company, except the Niagara, and from taking any action whatsoever under said libels, and in proceedings looking to the condemnation and sale of the steamboats, or any of them, except the Niagara.

Plaintiffs in error appealed from that order to the general term, by which it was affirmed; and they then carried the case to the court of appeals of the state of New York, which affirmed the order of the general term (136 N. Y. 169, 32 N. E. 623), and directed that its judgment be made the judgment of the supreme court, which was done December 6, 1892, whereupon this writ of error was sued out.

Jas. E. Carpenter, Jos. F. Mosher, and R. D. Benedict, for plaintiffs in error.

Jas. W. Eaton, for defendant in error.

[Argument of Counsel from pages 262-267 intentionally omitted]

Mr. Chief Justice FULLER, after stating the facts in the foregoing language, delivered the opinion of the court.