Colburn v. Hill , 41 C.C.A. 467 ( 1900 )

LURTON, Circuit Judge,

after making the foregoing statement of the case, delivered the opinion of the court.

The bill, as shown by the foregoing statement, is a general creditors’ bill; having for its principal purpose the administration, under the orders and decrees of a court of equity, of the assets of an insolvent corporation, theretofore conveyed under a deed of general assignment. To this end the hill seeks to gather in the assets of the corporation, and to distribute their proceeds in payment of its valid and bona ftde debts. The validity of certain contracts and agreements of the corporation is denied, and the bill seeks to exclude all claiming to be creditors by virtue of said contracts and agreements from'participation, in the benefits of the deed of assignment; and to recover, for the benefit of bona fide creditors, all sums which have been diverted from the assets of the corporation by improper payments made to such claimants by the original trustee under the company’s deed of assignment. Incidental to the elimination of all such illegal liabilities; and the restoration of moneys paid to them improperly, the bill seeks to annul the lien or charge fastened on certain of the property of the company for the purpose of securing the performance of the alleged illegal covenants and agreements. The alleged fictitious creditors against whom relief is sought are the defendants Mrs. Mary T. Hill and certain Massachusetts creditors of the firm of I. M. Hill & Sons, whose debts, it is alleged, were illegally assumed by the Hill Shoe Company. The agreement under which the debts due to the Massachusetts creditors by I. M. Hill & Sons were assumed by the Hill Shoe Company, and the agreement under which.Mrs. Hill occupies a part of the corporate property and receives a stipulated monthly payment, have a common origin. They constitute in large part the consideration for the property conveyed to the corporation by the surviving members of the firm of I. M. Hill & Sons and Mrs. Hill. If that contract was neither fraudulent in fact nor illegal, as in excess of the company’s power, the decree - will be one way; if not, a different result will follow.

The bill attacks the contract as an entirety, — both as a fraud, in law and fact, against future creditors, and also as'void, being in excess of the power of a Tennessee mercantile corporation. The beneficiaries under the contract assailed are the creditors of I. M. Hill & Sons, of Hill & Sons, if that was a distinct firm, and Mrs. I. M. Hill. Their interests may be different, and their defenses to the bill may be different, but the subject-matter of the suit is the contract by which the Hill Shoe Company acquired its assets, and in exchange for which it gave its capital stock, and assumed the obligations alleged to be illegal and Void. The bill may be demurrable in whole or in part., It may be inconsistent. It may be a good bill as to part of the relief sought against Mrs. Hill, and b'ad as to the rest. The complainants may not have such a standing as will enable them to sustain such a bill. They may be estopped in whole or in part. We express no opinion as to the merits of the bill. To do so would be to'assume and exercise jurisdiction. One thing is clear: There is no separable controversy between Mrs. Hill and the complainants, which can be wholly disposed of without the presence of the other defendants. 'She is one of others who are interested in maintaining the validity of the agreement under which the corporation acquired its property, and for which it entered into the covenants and obligations now assailed. The so-called mortgage to her is a mere security. If the engagement thereby secured is void for any reason, the security is' at an end. But the so-called mortgage is not alone for the security of the obligations personal to her. Its object was to secure the performance of all the obligations of the corporation which were entered into as the price of the property it received. One of them was that it would assume and pay the debts of I. M. Hill, individual and firm. The .creditors of I. M. Hill and of I, M.. Hill & Sons liave, therefore, an interest in the mortgage.- The Massachusetts creditors joined as defendants with Mrs. Hill have therefore an interest, not only in maintaining the general validity of the agreement under which their debts against I. M. Hill & Sons were assumed by the Hill Shoe Company, but in maintaining the validity .of the mortgage to Mrs. Hill. The defense of the Massachusetts creditors may be different from that of Mrs. Hill, but it has been repeatedly held that separate defenses do not create separate controversies, within the meaning of the removal act. Railroad Co. v. Ide, 114 U. S. 52, 5 Sup. Ct. 735, 29 L. Ed. 63; Pirie v. Tvedt, 115 U. S. 41, 5 Sup. Ct. 1034, 1161, 29 L. Ed. 331; Starin v. New York, 115 U. S. 248, 6 Sup. Ct. 28, 29 L. Ed. 388; Deposit Co. v. Huntington, 117 U. S. 280, 6 Sup. Ct. 733, 29 L. Ed. 898. The relief sought by the bill against both the Massachusetts creditors made defendants and against Mrs. Hill is incidental to the main purpose of the bill, which is to gather in all the assets, disincumber all of the property, eliminate all void or fraudulent obligations, and to distribute all of the proceeds of the corporate property between all its just and bona fide creditors. These results cannot be accomplished unless all of the defendants are parties. There is, therefore, but a single cause of action, and that is the equitable distribution of the assets of an insolvent corporation between its legal and bona fide creditors. This cause of action is not divisible. The suit is therefore not removable, for the citizenship of some of the necessary defendants is identical with that of the complainants.

In Ayres v. Wiswall, 112 U. S. 187, 192, 5 Sup. Ct. 93, 28 L. Ed. 695, the supreme court said:

“The rule is now well established that this clause in the section refers only to suits where there exists ‘a separate and distinct cause of action, on which a separate and distinct suit might have been brought, and complete relief afforded as to such cause of action, wi1h all the parties on one side of that controversy citizens of different states from those on the other. To say the least, ¡he case must be one capable of separation into parts, so that in one of the parts a controversy will be presented with citizens of one or more states on one side, and citizens of other states on the other, which can be fully determined without the presence of the other parUes to the suit as it had been begun. Fraser v. Jennison, 106 U. S. 191, 194. 1 Sup. Ct. 171, 27 L. Ed. 131. As bas already been seen, this is not such a. case. There is here but one cause of action. The fact that separate answers were filed, which raised separate issues in defending against the one cause of action, does not create separate controversies, within the meaning of that term as used in the statute. They simply present different questions to be settled in determining the rights of the parties in respect to the one cause of action for which the suit was brought. Hyde v. Ruble, 104 U. S. 407, 26 L. Ed. 823; Winchester v. Loud, 108 U. S. 130, 2 Sup. Ct. 311, 27 L. Ed. 677; Shainwald v. Lewis, 108 U. S. 158, 2 Sup. Ct. 385, 27 L. Ed. 691.”

The case is, in principle, governed by Shainwald v. Lewis, 108 U. S. 158, 161, 2 Sup. Ct. 385, 27 L. Ed. 691; Deposit Co. v. Huntington, 117 U. S. 280, 6 Sup. Ct. 733, 29 L. Ed. 898; Graves v. Corbin, 132 U. S. 571, 10 Sup. Ct. 196, 33 L. Ed. 462; and Torrence v. Shedd, 144 U. S. 527, 12 Sup. Ct. 726, 36 L. Ed. 528.

In Shainwald v. Lewis, cited above, the suit was brought for the dissolution and settlement of an alleged partnership. The court said there was no-separable or removable controversy. “The main dispute,” said the court, “is about the existence of the partnership. All the other questions in the case are dependent on that. If the partnership is established, the rights of the defendants are to be settled in one way; if not, in another. There is no controversy in the case which now can be separated from that about the partnership, and fully determined by itself.”

In Deposit Co. v. Huntington, cited above, the suit was a creditors’ bill to subject incumbered property to the payment of the creditors’ judgment, by sale and distribution of the proceeds among lien-holders .according to their priority. One lienholder sought to remove the suit, as to him, to a United States court, upon the ground that there was as to him a wholly separable controversy. The court said:

“There is but a single cause of action, and that is the equitable execution of a judgment against the property of the judgment debtor. This cause of action is not divisible. Each of the defendants may have a separate defense to the action, but we have held many times that separate defenses do not create separate controversies, within the meaning of the removal act.”

In Graves v. Corbin, already cited, the suit was a bill in equity filed in a state court by a creditor of a partnership to reach its entire property. Certain judgments confessed by the firm, on which levies had been made, were attacked for fraud. One of the judgment creditors removed the cause to the circuit court upon the ground that as to him there was a separable controversy. After a final decree for the plaintiff, the supreme court, on an appeal therefrom, held that the case was not removable. That court, among other things, said:

“The case as made by the bill, and as it stood at the time of the petition for removal, is the test of the right of removal. The bill was filed to reach the entire property of the partnership. In order to do that, it was necessary to sweep away, not some, but all, of the confessed judgments, and all of the rights obtained by executions and liens thereunder, and to restore to the assets and moneys of the partnership in the hands of the court the assets and moneys which had been diverted therefrom by the members of the partnership, with the corporation of the various defendants.”

The removing defendant was a citizen of a state different from that of the complainant, but the citizenship of other of the judgment creditors joined as defendants with the removing defendant was identical with that of complainant. The court held that under the averments of the bill there was but a single controversy as to all the defendants, and that the relief sought could not be obtained unless all who were made defendants were parties.

It is to be deplored that after years of litigation it should now become the duty of this court to reverse the decree, and direct that the suit be remanded to the state court from which it was improperly removed. We cannot escape the duty imposed by the fifth section of the act of 1875, which makes it the duty of the circuit court, when it shall appear “at any time after such suit has been brought or removed thereto, that such suit does not really and substantially involve a dispute or controversy properly within the jurisdiction of said circuit court or that the parties to said suit have been improperly or collusively made or joined, either as plaintiffs or defendants, for the purpose of creating a case cognizable or removable under this act, the said circuit court shall proceed no further (herein, but shall dismiss the suit or remand it to the court from which it was removed, as justice may require, and shall make such order as to costs as shall be just.” This act has been repeatedly enforced by the supreme court, even to the extent of taking notice of the want of jurisdiction in the circuit court, although the point was not formally raised in either court. Graves v. Corbin, 132 U. S. 571, 590, 10 Sup. Ct. 196, 33 L. Ed. 462; Turner v. Trust Co., 106 U. S. 552, 555, 1 Sup. Ct. 519, 27 L. Ed. 273; King Bridge Co. v. Otoe Co., 120 U. S. 225, 226, 7 Sup. Ct. 552, 30 L. Ed. 623; Stevens v. Nichols, 130 U. S. 230, 9 Sup. Ct. 518, 32 L. Ed. 914.

The subsequent consolidation of the removal suit with a suit in which Mrs. Hill was sole complainant, and O. W. Edmonds, as trustee, the only defendant, is of no serious consequence. The jurisdiction of the court in respect to the issues made by the bill of Colburn, Fuller, and others, and over the parties thereto, was not widened by the consolidation. Mrs. Hill’s hill was for the purpose of collect - ing arrearages due her under the agreement, and secured by the mortgage assailed by the bill to which she was a defendant. Subsequently she filed an answer and cross bill, and under the latter sought the same relief prayed under her original bill. None of the creditors interested in the lien or charge created by the so-called mortgage to Mrs. Hill were parties to her bill. If, as we have elsewhere said, the creditors of I. M. Hill, individual and Arm, were also interested in the security provided by the so-called mortgage to Mrs. Hill, she could not appropriate to her exclusive personal beneAt the advantages of that security.

The decrees appealed from are entitled under the style of the two consolidated cases and that of Mrs. Hill’s cross bill. The decree allowing the appeal is entitled in the same way, and allows an appeal from speciAc decrees. The decrees appealed from must he reversed. The circuit court, was without jurisdiction to render them. The suit of Colburn, Fuller & Co. and others must be remanded to the state court from which it was removed. This will leave the hill of Mrs. Hill against C. W. Edmonds pending and undisposed of, except in so far as distinct decrees have been entered therein, unaffected by the decrees here reversed. Mrs. Hill will pay all the costs of this court and of the circuit court incurred since date of removal.