Texas Railway Company v. Johnson/Opinion of the Court

This is a writ of error to review the judgment of the highest court of a state in which a decision in the suit could be had, under section 709 of the Revised Statutes, providing for such review where the validity of an authority exercised under the United States is drawn in question and the decision is against its validity, or 'where any title, right, privilege, or immunity is claimed under the constitution, or any treaty, or statute of, or commission held or authority exercised under, the United States, and the decision is against the title, right, privilege, or immunity specially set up and claimed, by either party, under such constitution, treaty, statute, commission or authority.'

Because the suit might have been brought in the circuit court of the United States, or removed thereto from the state court on the ground that it was one arising under the laws of the United States, in that the Texas & Pacific Railway Company was a corporation organized under and by virtue of acts of congress, it does not follow that the state court decided against any title, right, privilege, or immunity in exercising its jurisdiction. The rialway company was not exempted from suit in the state courts by the law of its creation, or any other act of congress; and we perceive no title, right, privilege, or immunity secured by that law, which was denied by the judgment under consideration.

Nor can jurisdiction be maintained on the ground that a right or immunity was claimed under the authority exercised by the receiver in virtue of the order of the circuit court of the United States, which right or immunity was denied, as in McNulta v. Lochridge, 141 U.S. 327, 12 Sup. Ct. 11. The judgment was in favor of the receiver, and the writ of error is brought by the company; and it is well settled that the right or immunity must be one of the plaintiff in error, and not of a third person only. Ludeling v. Chaffe, 143 U.S. 301, 12 Sup. Ct. 439; Giles v. Little, 134 U.S. 645, 10 Sup. Ct. 623.

The validity of no treaty or statute of the United States was drawn in question, nor was any claim of right or immunity set up under the constitution or any treaty or statute of or commission under the United States, so that we are confined to the inquiry whether the validity of an authority exercised under the United States in any other regard than above indicated, or any claim under such authority, was denied; and, as the defense was directly made that the plaintiff below was subject to the order of October 26th, and must, therefore, resort to the court which entered it for the collection of his claim, and could not recover a judgment in personam, collectible by the ordinary process, and, moreover, that his claim was thereby barred, the overruling of that defense may properly be held to have amounted to a decision against the validity of the order, or against a claim of right or immunity thereunder.

As respects the contention for the railway company that a personal judgment could not be rendered against it, because it was not liable for acts of negligence committed by the receiver, that was a question of general law, and for the state court to pass upon. In the view of that court, a railway company might be held directly liable when a receiver is appointed in an amicable suit at the instigation of the company, and for the company's own purposes, and, these purposes being accomplished, the property is returned to its owner, the rights of no third persons as purchasers intervening, upon the ground that the acts of the receiver might well be regarded as the acts of its own servant, rather than those of an officer of the court, which, under such circumstances, he would only be sub modo. But as the court did not feel authorized to entertain a conclusion which might carry the implication that this receivership would have been created or continued, although its object had only been to place the property temporarily beyond the reach of creditors until it could be augmented in value by improvements made from earnings under the protection of the court, that rule was not applied in this case. The company was held liable upon the distinct ground that the earnings of the road were subject to the payment of claims for damages; and that as, in this instance, such earnings, to an extent far greater than sufficient to pay the plaintiff, had been diverted into betterments, of which the company had the benefit, it must respond directly for the claim. This was so by reason of the statute, (Laws Tex. 1887, p. 120, c. 131, § 6,) and, irrespective of statute, on equitable principles applicabel under the facts.

The railway company contends that its liability turned upon the fact that it took possession upon condition that its property should be charged with the receivership liabilities, and that it is immaterial whether the property was so charged by the order of the circuit court of the United States, or by operation of general doctrines of equity, because, in either aspect, it was the property alone that was charged. If by the order of the court, it could only be with such liabilities as had been or should be adjudged by that court; if upon equitable principles, then it could only be to the extent of the amount diverted to betterments, and defendant in error should have been confined to a lien on specific improvements, measured by the proportion which the aggregate of like claims would bear to the amount diverted. But the state court decided otherwise, holding, in view of the facts disclosed, that the burden assumed by the company was that of a direct liability, and that judgment against it could be rendered in the usual form, and collected in the ordinary way.

These conclusions did not rest upon the order of October 26th as affirmatively imposing a specific liability upon the company, and the only question for us to determine is, whether in ruling that that order did not preclude such a judgment as was rendered, and did not operate to require the defendant in error to submit his judgment to the circuit court of the United States at New Orleans, to obtain its collection in such manner and to such extent as that court might be advised, a claim of right or immunity under an authority exercised under the United States was erroneously decided against.

The position of plaintiff in error seems to be that the order constituted matter in bar of a recovery against the railway company on the merits, on the theory that the property passed to the company upon certain conditions as to outstanding claims, irrespective of the fact that those conditions were intended to secure payment in that court, and not to defeat it, and that the company only resumed its own, augmented in value by the use of earnings which should have been applied to the extinguishiment of such claims; or that the judgment should have been originally rendered, or been reformed, so as to provide for payment in due course of administration in the circuit court, and not otherwise.

By section 3 of the act of March 3, 1887, c. 373, (24 Stat. 552,) as corrected by the act of August 13, 1888, c. 866, (25 Stat. 433,) every receiver appointed by a court of the United States may be sued in respect of any act or transaction of his in carrying on the business connected with the property, without the previous leave of the court by which such receiver was appointed. Necessarily, such suit may be brought in any court of competent jurisdiction, and proceed to judgment accordingly. This suit was so brought; the railway company, on being made a party, answered in bar, and judgment followed.

Nevertheless it is insisted that this recovery was effective only as a judicial ascertainment of the amount, and that the judgment itself could only be realized out of the property of the company after it had been presented to the court of the receivership cause, and been allowed for payment, subject to the contingency that that court might hold that it was exhibited too late.

This result is declared to arise out of the necessities of the case, and to be recognized in the last clause of the third section of the act of congress of March 3, 1887, which adds to the provision that suit may be brought against a receiver without leave of the appointing court, the words: 'But such suit shall be subject to the general equity jurisdiction of the court in which such receiver or manager was appointed, so far as the same shall be necessary to the ends of justice.' And it is also urged, in repetition of the argument that judgment in personam could not be recovered, that this suit, as against the railway company, was necessarily a proceeding in rem, and could only be instituted, and the property charged, in the court having jurisdiction of the res. In other words, the contention assumes that all the property of the company, after the discharge of the feceiver, was still under the protection of the circuit court of the United States for the eastern district of Louisiana in respect of subjection to this and like claims.

We are of opinion that these are inapplicable to the case. This action was in itself in no sense a proceeding in rem, and the state court has held on other than federal grounds that the company was directly liable. The property was no longer in the custody of the circuit court, and it had no possession that would be interfered with by the of an execution; so that defendant in error was not obliged to resort to an intervention in that court before he could collect, unless he was personally bound to do so by force of an adjudication to that effect operating upon him. In this connection it should be observed that the property was not sold, but merely redelivered, to the company. No judgment in rem was entered; no fund existed through a sale in foreclosure; the earnings far exceeded the debts during the temporary management; and it did not appear that either in reference to expenses incurred in the administration or in the matter of claims resting on controverted priorities or otherwise there were any equities to be adjusted which required the further exercise of jurisdiction.

The order of October 26th was entered by the circuit court for the eastern district of Louisiana, but the record does not disclose that similar action was taken in Texas, although the titles of the petitions and orders of May 31st and October 26th include the names of two cases as pending in the northern district of the latter state, and reference is made to them; but, in any view, the circuit court for the eastern district of Louisiana was deemed the court of primary administration.

The order provided that the property should be delivered to the railroad company subject to 'such judgments as may be hereafter rendered by the court in favor of interveners, while it retains the cases for these determinations or interventions now pending and undetermined, or which may be filed prior to February 1, 1889,' and that such as were not so presented and prosecuted by intervention by that date should be barred, and should not 'be a charge on the property of said company;' and, further, that 'the court may, if needful, for the protection of the receiver's obligations and liabilities so recognized by this court, resume possession of said property.' The general equity jurisdiction of the circuit court no doubt embraced the authority to hold possession of the property, and to determine the rights of all persons who were parties, or who made themselves parties, to the proceedings before it; and if the property sequestrated had gone to sale, and a fund been realized for distribution, then, upon notice appropriate to proceedings in rem, the defendant in error might have been bound by the disposition thereupon made; yet, not only was there no proof that the notice required by the order was ever given, or any other notice, but the receiver was discharged, his bond canceled, and the property surrendered, without sale or transfer, so that it is in effect sought to have defendant in error held personally bound by an order to which he was not a party, entered by a court into which he was not brought in any manner. It is impossible to concede that he was in contempt in the recovery of his judgment, or would be in enforcing it against the company's property, but that is the necessary result of the position taken by counsel.

Certainly the preservation of general equity jurisdiction over suits instituted against receivers without leave does not, in promotion of the ends of justice, make it competent for the appointing court to determine the rights of persons who are not before it, or subject to its jurisdiction; and the right to sue without resorting to the appointing court, which involves the right to obtain judgment, cannot be assumed to have been rendered practically valueless by this further provision in the same section of the statute which granted it.

The order was not a decree in rem condemning the particular thing seized, but an order providing for the resumption of possession thereafter, if found necessary, to the end that such decree might then be granted; and we are aware of no principle which would justify us in holding that a court, under the circumstances which existed here, could part with its jurisdiction over property by the complete surrender thereof to its owner, and at the same time constructively retain jurisdiction over such property so as in that respect to bind those who would otherwise be unaffected by its orders.

The case was not one of a fund in court, and the authorities upon the question of limitation of time for the presentation of claims to share in the distribution of such a fund are not in point. It was not a case of purchase in which compliance with stipulated conditions forms part of the consideration, and the extent of the burdens assumed is defined. It did not present the question of the power of the court in the instance of a sale to deliver the property free from any liabilities whatever incurred in administration; and we do not think the circuit court attempted to accomplish the result contended for, or that its order is open to the interpretation put upon it by counsel for the company.

The receiver was about to be discharged, and the property redelivered to the company. On the one hand, the receiver was entitled to protection from liability, and on the other just claims were entitled to be paid. The circuit court sought to secure both objects by the terms of the order and the conditions annexed to the acceptance of possession, but did not regard itself as constrained to indefinitely proling the pendency of the equity proceedings for that purpose. It reserved those proceedings, therefore, for the disposition of pending interventions, and such as might be filed within a time fixed, at the expiration of which the court could not be called on to allow further claims, and assert control over the property for their satisfaction. They would thereafter be barred from prosecution under those proceedings.

In this way the circuit court recognized and relieved itself from the obligation to see that no injustice resulted from the action it was taking, which action operated to withdraw from claimants against the receiver the security of his bond, and possibly of the property. But after February 1, 1889, those who had not intervened would cease to be entitled to resort to the circuit court in the equity suits, and would be remitted to such other remedies as might be within their reach. If the recovery of defendant in error and the collection of his judgment had been dependent upon the order or upon any action of the circuit court in his favor in the original suits, a different question would have been presented; but, as the matter stands, we perceive no aspect in which that order can be treated as operating in limitation of the rights of defendant in error except in the particular of resort to the circuit court as above indicated.

From these considerations we conclude that there was no error in the result arrived at by the supreme court of Texas in the disposition of federal questions, and its judgment is accordingly affirmed.