Morris v. Jones/Opinion of the Court

This case presents a substantial question under the Full Faith and Credit Clause (Art. IV, § 1) of the Constitution.

Chicago Lloyds, an unincorporated association, was authorized by Illinois to transact an insurance business in Illinois and other States. It qualified to do business in Missouri. In 1934 petitioner sued Chicago Lloyds in a Missouri court for malicious prosecution and false arrest. In 1938, before judgment was obtained in Missouri, respondent's predecessor was appointed by an Illinois court as statutory liquidator for Chicago Lloyds. The Illinois court fixed a time for the filing of claims against Chicago Lloyds and issued an order staying suits against it. Petitioner had notice of the stay order but nevertheless continued to prosecute the Missouri suit. At the instance of the liquidator, however, counsel for Chicago Lloyds withdrew from the suit and did not defend it, stating to the Missouri court that the Illinois liquidation proceedings had vested all the property of Chicago Lloyds in the liquidator. Thereafter petitioner obtained a judgment in the Missouri court and filed an exemplified copy of it as proof of his claim in the Illinois proceedings. An order disallowing the claim was sustained by the Illinois Supreme Court against the contention that its allowance was required by the Full Faith and Credit Clause. People ex rel. Jones v. Chicago Lloyds, 391 Ill. 492, 63 N.E.2d 479.

The case was brought here by appeal. We postponed the question of jurisdiction to the merits. 66 S.Ct. 979. Under the rule of Roche v. McDonald, 275 U.S. 449, 450, 48 S.Ct. 142, 72 L.Ed. 365, 53 A.L.R. 1141, the question whether full faith and credit should have been given the Missouri judgment does not present a ground for appeal. But treating the jurisdictional statement as a petition for certiorari (Judicial Code § 237(c), 28 U.S.C. § 344(c), 28 U.S.C.A. § 344(c), that writ is granted; and we come to the merits of the controversy.

The Full Faith and Credit Clause and the statute which implements it (R.S. § 905, 28 U.S.C. § 687, 28 U.S.C.A. § 687) require the judgments of the courts of one State to be given the same faith and credit in another State as they have by law or usage in the courts of the State rendering them. The Illinois Supreme Court concluded that compliance with that mandate required that precedence be given to the Illinois decree appointing the statutory liquidator. It held that title to all the property of Chicago Lloyds, wherever located, vested in the liquidator; that the liquidator was entitled to keep and retain possession of the property to the exclusion of the process of any other court; that although Missouri might give priority to Missouri creditors in the property of the debtor located there, Clark v. Williard, 292 U.S. 112, 54 S.Ct. 615, 78 L.Ed. 1160, the Missouri judgment could have no priority as respects Illinois assets; that if a liquidator had been appointed in Missouri, petitioner could not have obtained his judgment, or if he had obtained it, he could not have enforced it against the property in the hands of the Missouri liquidator, see McDonald v. Pacific States Life Ins. Co., 344 Mo. 1, 124 S.W.2d 1157; and that to disallow the judgment in the Illinois proceedings is, therefore, to give it the same effect that it would have had under the same circumstances in Missouri.

First. We can put to one side, as irrelevant to the problem at hand, several arguments which have been pressed upon us. We are n t dealing here with any question of priority of claims against the property of the debtor. For in this proceeding petitioner is not seeking, nor is respondent denying him, anything other than the right to prove his claim in judgment form. No question of parity of treatment of creditors, or the lack thereof (see Blake v. McClung, 172 U.S. 239, 19 S.Ct. 165, 43 L.Ed. 432), is in issue. Nor is there involved in this case any challenge to the Illinois rule, which follows Relfe v. Rundle, 103 U.S. 222, 26 L.Ed. 337, that title to all the property of Chicago Lloyds, wherever located, vested in the liquidator. Nor do we have here a challenge to the possession of the liquidator either through an attempt to obtain a lien on the property or otherwise. As pointed out in Riehle v. Margolies, 279 U.S. 218, 224, 49 S.Ct. 310, 312, 73 L.Ed. 669, the distribution of assets of a debtor among creditors ordinarily has a 'two-fold aspect.' It deals 'directly with the property' when it fixes the time and manner of distribution. No one can obtain part of the assets or enforce a right to specific property in the possession of the liquidation court except upon application to it. But proof and allowance of claims are matters distinct from distribution. They do not 'deal directly with any of the property'. 'The latter function, which is spoken of as the liquidation of a claim, is strictly a proceeding in personam.' Id., 279 U.S. at page 224, 49 S.Ct. at page 313, 73 L.Ed. 669. The establishment of the existence and amount of a claim against the debtor in no way disturbs the possession of the liquidation court, in no way affects title to the property, and does not necessarily involve a determination of what priority the claim should have. And see Chicago Title & Trust Co. v. Fox Theatres Corp., 2 Cir., 69 F.2d 60, 91 A.L.R. 991.

One line of cases holds that where a statutory liquidator or receiver is appointed, the court taking jurisdiction of the property draws unto itself exclusive control over the proof of all claims. But the notion that such control over the proof of claims is necessary for the protection of the exclusive jurisdiction of the court over the property is a mistaken one. As Justice Beach of the Supreme Court of Errors of Connecticut aptly said, 'The question is simply one of the admissibility and effect of evidence; and the obligation to receive a judgment in evidence is no more derogatory to the jurisdiction in rem than the obligation to receive in evidence a promissory note or other admissible evidence of debt.' Beach, Judgment Claims in Receivership Proceedings, 30 Yale L. Journ. 674, 680.

Moreover, we do not have here a situation like that involved in Pendleton v. Russell, 144 U.S. 640, 12 S.Ct. 743, 36 L.Ed. 574, where it was sought to prove in a New York receivership of a dissolved corporation a judgment obtained in Tennessee after dissolution. The proof was disallowed, dissolution having operated, like death, as an abatement of the suit. No such infirmity appears to be present in the Missouri judgment; and the Illinois Supreme Court did not hold that the appointment of a liquidator f r Chicago Lloyds operated as an abatement of the suit. Nor is it sought on any other ground to bring the Missouri judgment within the exception on which Williams v. State of North Carolina, 325 U.S. 226, 65 S.Ct. 1092, 89 L.Ed. 1577, 157 A.L.R. 1366, rests, by challenging the jurisdiction of the Missouri court over either the parties or the subject matter. Nor is there any lack of privity between Chicago Lloyds and the Illinois liquidator. Cf. Ingersoll v. Coram, 211 U.S. 335, 362-364, 29 S.Ct. 92, 98, 99, 53 L.Ed. 208. There is no difference in the cause of action, cf. United States v. California Bridge & Construction Co., 245 U.S. 337, 38 S.Ct. 91, 62 L.Ed. 332, whether Chicago Lloyds or the liquidator is sued. The Missouri judgment represents a liability for acts committed by Chicago Lloyds, not for those of the liquidator. The claims for which the Illinois assets are being administered are claims against Chicago Lloyds. The Missouri judgment represents one of them. There is no more reason for discharging a liquidator from the responsibility for defending pending actions than there is for relieving a receiver of that task. Riehle v. Margolies, supra.

Second. 'A judgment of a court having jurisdiction of the parties and of the subject matter operates as res judicata, in the absence of fraud or collusion, even if obtained upon a default.' Riehle v. Margolies, supra, 279 U.S. at page 225, 49 S.Ct. at page 313, 73 L.Ed. 669. Such a judgment obtained in a sister State is, with exceptions not relevant here, see Williams v. State of North Carolina, 317 U.S. 287, 294, 295, 63 S.Ct. 207, 211, 87 L.Ed. 279, 143 A.L.R. 1273, entitled to full faith and credit in another State, though the underlying claim would not be enforced in the State of the forum. Christmas v. Russell, 5 Wall. 290, 18 L.Ed. 475; Fauntleroy v. Lum, 210 U.S. 230, 28 S.Ct. 641, 52 L.Ed. 1039; Roche v. McDonald, supra; Titus v. Wallick, 306 U.S. 282, 291, 59 S.Ct. 557, 562, 83 L.Ed. 653. It is no more important that the suit on this underlying claim could not have been maintained in Illinois after the liquidator had been appointed than the fact that a statute of limitations of the State of the forum might have barred it. See Christmas v. Russell, supra; Roche v. McDonald, supra. And the Missouri judgment may not be defeated by virtue of the fact that under other circumstances petitioner might not have been able to obtain it in Missouri or to have received any benefit from it there, as, for example, if a liquidator had been appointed for the debtor in Missouri prior to judgment. The full faith and credit to which a judgment is entitled is the credit which it has in the State from which it is taken, not the credit that under other circumstances and conditions it might have had. Moreover, the question whether a judgment is entitled to full faith and credit does not depend on the presence of reciprocal engagements between the States.

Under Missouri law petitioner's judgment was a final determination of the nature and amount of his claim. See Pitts v. Fugate, 41 Mo. 405; Central Trust Co. of Mobile v. D'Arcy, 238 Mo. 676, 142 S.W. 294; State ex rel. Robb v. Shain, 347 Mo. 928, 149 S.W.2d 812. That determination is final and conclusive in all courts. 'Because there is a full faith and credit clause a defendant may not a second time challenge the validity of the plaintiff's right which has ripened into a judgment'. Magnolia Petroleum Co. v. Hunt, 320 U.S. 430, 439, 440, 64 S.Ct. 208, 214, 88 L.Ed. 149, 150 A.L.R. 413. For the Full Faith and Credit Clause established 'throughout the federal system the salutary principle of the common law that a litigation once pursued to judgment shall be as conclusive of the rights of the parties in every other court as in that where the judgment was rendered'. Id., 320 U.S. at page 439, 64 S.Ct. at page 214, 88 L.Ed. 149, 150 A.L.R. 413. And see Riley v. New York Trust Co., 315 U.S. 343, 348, 349, 62 S.Ct. 608, 612, 86 L.Ed. 885. The nature and amount of etitioner's claim may not, therefore, be challenged or retried in the Illinois proceedings.

As to respondent's contention that the Illinois decree, of which petitioner had notice, should have been given full faith and credit by the Missouri court, only a word need be said. Roche v. McDonald, supra, 275 U.S. at pages 454, 455, 48 S.Ct. at page 144, 72 L.Ed. 365, 53 A.L.R. 1141, makes plain that the place to raise that defense was in the Missouri proceedings. And see Treinies v. Sunshine Mining Co., 308 U.S. 66, 77, 60 S.Ct. 44, 50, 84 L.Ed. 85. And whatever might have been the ruling on the question, the rights of the parties could have been preserved by a resort to this Court which is the final arbiter of questions arising under the Full Faith and Credit Clause. Williams v. State of North Carolina, 317 U.S. 287, 302, 63 S.Ct. 207, 215, 87 L.Ed. 279, 143 A.L.R. 1273. In any event the Missouri judgment is res judicata as to the nature and amount of petitioner's claim as against all defenses which could have been raised. Roche v. McDonald, supra; Milwaukee County v. M. E. White Co., 296 U.S. 268, 275, 56 S.Ct. 229, 233, 80 L.Ed. 220; Magnolia Petroleum Co. v. Hunt, supra, 320 U.S. at page 438, 64 S.Ct. at page 213, 88 L.Ed. 149, 150 A.L.R. 413.

It is finally suggested that since the Federal Bankruptcy Act provides for exclusive adjudication of claims by the bankruptcy court and excepts insurance companies from the Act (§ 4, 52 Stat. 840, 845, 11 U.S.C. § 22, 11 U.S.C.A. § 22; Vallely v. Northern Fire & Marine Ins. Co., 254 U.S. 348, 41 S.Ct. 116, 65 L.Ed. 297), the state liquidators of insolvent insurance companies should have the same control over the determination of claims as the bankruptcy court has. This is to argue that by reason of its police power a State may determine the method and manner of proving claims against property which is in its jurisdiction and which is being administered by its courts or administrative agencies. We have no doubt that it may do so except as such procedure collides with the federal Constitution or an Act of Congress. See Broderick v. Rosner, 294 U.S. 629, 55 S.Ct. 589, 79 L.Ed. 1100, 100 A.L.R. 1133. But where there is such a collision, the action of a State under its police power must give way by virtue of the Supremacy Clause. Article VI, Clause 2. There is such a collision here. When we look to the general statute which Congress has enacted pursuant to the Full Faith and Credit Clause, we find no exception in case of liquidations of insolvent insurance companies. The command is to give full faith and credit to every judgment of a sister State. And where there is no jurisdictional infirmity, exceptions have rarely, if ever, been read into the constitutional provision or the Act of Congress in cases involving money judgments rendered in civil suits. Magnolia Petroleum Co. v. Hunt, supra, 320 U.S. at page 438, 64 S.Ct. at page 213, 88 L.Ed. 149, 150 A.L.R. 413; Williams v. State of North Carolina, 317 U.S. 287, 294, footnote 6, 63 S.Ct. 207, 211, 87 L.Ed. 279, 143 A.L.R. 1273.

The function of the Full Faith and Credit Clause is to resolve controversies where state policies differ. Its need might not be so greatly felt in situations there there was no clash of interests between the States. The argument of convenience in administration is at best only another illustration of how the enforcement of a judgment of one State in another State may run counter to the latter's policies. But the answer given by Fauntleroy v. Lum, supra, is conclusive. If full faith and credit is not given in that situation, the Clause and the statute fail where their need is the greatest. The argument of convenience, moreover, proves too much. In the first place, it would often be equally appealing to in ividuals or corporations engaging in multistate activities which might well prefer to defend law suits at home. In the second place, against the convenience of the administration of assets in Illinois is the hardship on the Missouri credits if he were forced to drop his Missouri litigation, bring his witnesses to Illinois, and start all over again. But full faith and credit is a more inexorable command; its applicability does not turn on a balance of convenience as between litigants. If this were a situation where Missouri's policy would result in the dismemberment of the Illinois estate so that Illinois creditors would go begging, Illinois would have such a large interest at stake as to prevent it. See Clark v. Williard, 294 U.S. 211, 55 S.Ct. 356, 79 L.Ed. 865, 98 A.L.R. 347. But, as we have said, proof and allowance of claims are matters distinct from distribution of assets.

The single point of our decision is that the nature and amount of petitioner's claim has been conclusively determined by the Missouri judgment and may not be relitigated in the Illinois proceedings, it not appearing that the Missouri court lacked jurisdiction over either the parties or the subject matter. We do not suggest that petitioner by proving his claim in judgment form can gain a priority which he would not have had if he had to relitigate his claim in Illinois. And, as we have said, there is not involved in this case any rule of distribution which departs from the principle of parity as between Illinois creditors and creditors from other States. See Clark v. Williard, 294 U.S. 211, 55 S.Ct. 356, 79 L.Ed. 865, 98 A.L.R. 347; Blake v. McClung, supra.

Reversed.

Mr. Justice FRANKFURTER, with whom concur Mr. Justice BLACK and Mr. Justice RUTLEDGE, dissenting.