Barley v. Gittings , 15 App. D.C. 427 ( 1899 )

Mr. Justice Shepard

delivered the opinion of the Court:

1. The first contention in support of the decree dismissing the petition of the Virginia receiver is, that the decree of the Circuit Court of Virginia is void, because it was made without service of process upon an authorized agent or attorney of the corporation. This objection comes not from the corporation, but from the receivers appointed in the District of Columbia. Assuming that the question may be raised by them, however, and also that the allegations of their answer are so specific and certain as to warrant the conclusion that there had been no service of process upon any officer, agent or representative, whatsoever, of the corporation in Virginia, we still can not concur in this contention. The corporation was incorporated in Virginia, and confessedly had some assets in that State. Now, where a court has jurisdiction of the subject matter of a suit, service of process upon the defendant therein is not essential to the power to appoint a receiver. Whilst unusual to do so, the power nevertheless exists and may be exercised in a case of emergency; and the existence of such emergency is not subject to collateral inquiry.

2. The next proposition in support of the decree is: That, the receiver appointed by the Virginia court can have no recognition as such, in the courts of the District of Columbia. That he has no absolute right is clear. Booth v. Clark, 17 How. 322, 328. Discussing the powers of a foreign receiver in that case, Mr. Justice Wayne said : “ He has no extra territorial power of official action; none which the court appointing him can confer, with ¡authority to enable him to go into a foreign jurisdiction to take possession of the debtor’s property; none which can give him, upon the principle of comity, a privilege to sue in a foreign court or another jurisdiction, as the judgment creditor himself might have done, where his debtor may be amenable to the tribunal which the creditor may seek.” And we do not understand this doctrine to have been impaired by the decision in Relfe v. Rundle, 103 U. S. 222, 226. The facts of the two cases are essentially different. In the latter, the Insurance Commissioner of the State of Missouri, by the final decree of a court of that State dissolving a corporation, was declared invested with all of the corporate property, in strict accord with an express provision of the charter, a provision of which all stockholders and creditors were charged with notice. Decoming, as was said by the court, “ the successor of the corporation, by operation of law,” he must be recognized as its successor in litigation.instituted in the State of Louisiana.

Following the doctrine of Booth v. Clark, supra, we have held that the decrees of courts of Virginia and West Virginia, appointing receivers for a railway company, operating in those States and in the District of Columbia, could not operate a transfer of the railway property situated in the District, or confer upon the receivers authority that must be respected by its courts. Howard v. C. & O. Rwy. Co., 11 App. D. C. 300, 335. It was, however, said : “ There may probably be cases in which the courts of the District would, upon application and for good cause, recognize the receiver appointed by the court of a State and permit him to become a party to litigation affecting the estate or fund or interest that might be under his management, but that question will not be decided.”

The determination of the question being necessary to. this case, we are of the opinion that what was said in Booth v. Clark, construed in the light of the facts before the court, is not to be given such effect, as that, under no circumstances shall a receiver appointed by the courtof another jurisdiction have recognition” in the courts of this District; and further, that this recognition, which may justly be denied when demanded as a right, may, nevertheless, be sometimes accorded as a privilege on grounds of comity.

There seems to be no controlling reason why the courts of this jurisdiction, exercising a sound discretion in the application of the rules of interstate comity, should not, upon application, permit interventions and suits by receivers appointed by State courts, where important interests of creditors and others would be subserved, and when, to do so, would not contravene the policy of local laws or be detrr mental to the interests of domestic creditors.

Whatever may have been the doctrines of earlier days, the decided tendency of later decisions is towards the maintenance of the views above expressed. Buswell v. Supreme Sitting of Iron Hall, 161 Mass. 224; T. G. T Co. v. C. B. & Q. RR. Co., 123 N. Y. 37, 47; Baldwin v. Hosmer, 101 Mich. 432; Durmord v. Jewett, 46 La. Ann. 559; Gilman v. H. R. B. & S. Co., 84 Wis. 60; Patterson v. Lynde, 112 Ill. 196, 207; Bank v. McLeod, 38 Ohio St. 174; Castleman v. Templeman, 87 Md. 553; Day v. Postal Tel. Co., 66 Md. 354, 370; 20 Am. & Eng. Encyc. L., 242-244, and cases cited.

We think, therefore, that without regard to what the extent of his ultimate recovery might be, the Virginia receiver was rightly permitted to intervene in the proceedings below, and that it was error to dismiss his petition before final decree in the matter of the administration, because he would be entitled, at least, to receive, for transmission to Virginia and administration there, whatever surplus there may be after the discharge of all costs and claims that may be established here. Day v. Postal Tel. Co., 66 Md. 354, 370.

3. It is quite clear that the immediate direction of the affairs, and the general conduct of the business of the defendant corporation, were intended by its promoters to be located in the District of Columbia.

The managing officers resided in the District of Columbia; the main office was established there; all records, books and papers were kept in that office, and all contracts were there made and all moneys there received and handled.

For reasons best known to themselves, these promoters, though residing in the District of Columbia, and intending to carry on their business there as aforesaid, went into the State of Virginia and secured articles of incorporation in her courts under the provisions of her laws.

In contemplation, then, of strict law, the corporation is a Virginia corporation; and its domicil is in the legal jurisdiction of its said origin, irrespective of the citizenship or residence of its officers and members, and of the place where its business is in fact carried on. Barbour v. Paige Hotel Co., 2 App. D. C. 174.

4. Based on the conclusion that the legal domicil or habitat of the corporation is in the State of Virginia, it is contended, on behalf of the Virginia receiver, that the Supreme Court of the District had no jurisdiction to appoint a receiver of its property in the District, because expressly prohibited by Act of Congress. Assuming, without conceding, that this is a question which a foreign receiver may be admitted into our courts for the purpose of raising, under the rule of comity before stated, we are of the opinion that the objection is not well taken.

The statutory prohibition is claimed to be found in one of the provisions of an act entitled “An act to provide for the incorporation of trust, loan, mortgage and certain other corporations in the District of Columbia.” Approved October 1, 1890.

This is an elaborate act of thirty-four sections providing not only for the incorporation of corporations of the general class named, but also for their regulation, inspection, and so forth. 26 Stat. 625.

The thirty-third section provides that all corporations engaged in the same kind of business as may be conducted under the incorporation prescribed in the statute, and having their principal places of business in the District, shall comply with the regulations prescribed.

Section 34, which contains the power to alter, amend and repeal, with the saving clause as to liabilities and remedies previously accrued, embodies the following proviso: “That the courts of the District of Columbia shall not have power to appoint any trustee, trustees, guardians, receivers, or other trustee of a fund or property located outside of the District of Columbia, or belonging to a corporation or persons having a legal residence or location outside of said District.” Idem, 632.

Bearing in mind that the foregoing words occur, not in an act relating to the jurisdiction and procedure of our courts, but in a proviso to an act for the creation of a limited class of corporations, the meaning that is to be given them is far from clear. To give them the scope contended for would be to take away, by implication, a jurisdiction always recognized as belonging to courts of equity, in this District and elsewhere, namely, that of taking possession of property actually within the limits of their jurisdiction, and providing for its temporary administration and final disposition when necessary for the protection of creditors and others having special interests therein.

One effect of such a construction would be to prevent an ancillary administration, even, of property belonging to a corporation or a natural person, “having a legal residence or location outside of said District,” notwithstanding it might be imperatively necessary to the protection of the interests of all concerned, and opposed to none. And again, it would confer upon natural persons and corporations, doing a large part, or even all of their business in the District, but having “'a legal residence or location” elsewhere, a privilege and immunity not enjoyed by the same classes of persons whose legal residence or location is in the District.

A construction that would work such great inconvenience, inequality, and possible injustice ought not to be adopted unless no other can be found reasonably to answer the intention of the lawmakers, even where the act, in' which the language occurs, has direct relation to the subject matter claimed to be affected by it. And for stronger reasons should'such a construction be avoided when the particular words occur in an act having relation to an entirely distinct subject matter, and are invoked as repealing another statute, or affecting the settled jurisdiction and practice of the courts, by implication.

Whether the proviso aforesaid is to be limited in its operation to the classes of corporations provided for in the title and body of the act; or whether, more reasonably, perhaps, the disjunctive “or” which connects the first with the last clause of the sentence should be read as if it were and, we need not undertake to determine.

What we do decide is, that it could not have been the intention of Congress to take from the courts of the District the jurisdiction to appoint receivers of property actually situated in the District, when authorized by the ordinary practice of courts of equity, and required for the protection of creditors and persons specially interested therein, in all cases where the property may belong to a “ corpbration or person having a legal residence or location outside of said District.”

5. The next contention on behalf of the appellant is, that the court below had no jurisdiction to appoint a receiver of the Virginia corporation,' for the purpose of collecting its assets, ascertaining its liabilities, winding up its affairs and distributing the proceeds of its property among all parties according to their interests, as prayed in the bill.

This contention is founded on the assumption that the complainants are not creditors, but stockholders, and that the object of the bill is to regulate the internal affairs of the corporation, by winding it up completely, adjusting the relations of stockholders to it and to each other, and distributing its assets among the stockholders according to these relations.

If this assumption were sustained by the record in its representation of the relations of the complainants to the corporation, and the purpose of their bill, we should have great difficulty in the proper determination of the question raised.

We have heretofore held that a bill will not lie in this District by a stockholder or member of a corporation of the State of New York, the substantial purpose of which is to inquire into internal administration of its affairs and regulate its course of dealing with its members. Clark v. Mutual Reserve Fund Life Assn., 14 App. D. C. 154, 179, 180.

In that case, however, the corporation was not only created under the laws of New York, but its principal office, where its books and papers were kept, was also in that State. From its central office in New York it carried on business through agencies, and received members by contract, in the District of Columbia and in some of the States.

In another case, quite like this in respect of the nature of the corporation and its business, and the contention whether the members engaged in the litigation had standing as stockholders of the corporation or as creditors, it was said : “As we understand it, the controversy before us is not for the final settlement and winding up of the affairs of this association, which, as it is a corporation of the State of Virginia, it may not be competent for the courts of this District to entertain.” Armstrong v. U.S. Building and Loan Asso., ante, p. 1. In that case it did not appear, nor was it important in view of the manner in which the litigation arose, what were the particular facts concerning the places of carrying on business.

Conceding the general rule in respect of the exercise of jurisdiction in a controversy involving the internal affairs of a foreign corporation, the contention of the appellees is, that the facts of this case afford good ground for an exception.

Whether the general rule, founded, as it is, on considerations of expediency and propriety, as well as on reason, ought to be made to include the case of an association which, for convenience or some ulterior purpose, obtains a certificate of incorporation in another State, and then immediately migrates to this jurisdiction, where there is no statute forbidding or regulating such proceedings, perfects its organization, locates its principal office, carries on its corporate as well as other business, and keeps its officers, its money, its books, papers and records here, presents a question, as we have said, of great difficulty. In the view that we have taken of the relations of the complaining members to the corporation, the decision of this question is not necessary to the complete determination of the matters actually involved. Because of its difficulty and probable importance also to others not engaged in this controversy, we will pass the point until it shall come before us in a manner requiring its settlement.

5. Looking beyond the formal terms of “stock” and “stockholders,” used in the by-laws, into.the substance of the contract made with subscribers to the operating fund, our view of the relations referred to is, that the complaining subscribers are not stockholders of the corporation in the ordinary legal signification of the term; but are its creditors.

The association is not what is ordinarily considered a corporation having a substantial capital stock divided among subscribers who contract to pay for the shares taken. It makes no such contracts and issues no certificates of such stock.

Membership is acquired in a very different manner. According to the by-laws, heretofore set out fully, parties are invited to pay in money, in various amounts and ways, to create a fund for the expenses and business of the concern.

What liability, if any, the subscribers under these by-laws might incur as stockholders or individuals, in law or equity, to creditors of the corporation, is a question that is not involved. Clearly, as to the corporation itself and to each other, they were not stockholders in any legal sense. They were mere depositors of money, after the manner of time depositors in the ordinary savings bank, under by-laws forming the contract between them and the corporation, which conferred the right, after the lapse of a stated period, to demand the return of the deposit with its guaranteed interest.

When this period was reached, and the demand for payment was made, as alleged in the bill, the subscribers became nothing more than ordinary creditors of the corporation whose claims had accrued due.

Being creditors, and finding the corporation, with its officers, records, papers, and assets within the jurisdiction of the Supreme Court of the District of Columbia, they had the right to bring their suits and to demand the enforcement of all equitable remedies appropriate to their demands.

6. We are of the opinion, therefore, that the prayer of the Virginia receiver for the recovery of the assets of the corporation before the satisfaction of all the proper demands of creditors who may be before the court, was rightly denied.

The assets of the corporation within the District should be collected and converted into money for equitable distribution among all creditors, no matter where they may reside, who shall seasonably make themselves parties to the proceedings and establish their demands by satisfactory proofs. If, after the payment of these demands” and the expenses of administration, there be any funds remaining, the court may then, in the exercise of a sound discretion, order the same to be delivered to the Virginia receiver, for transmission to the court whence his authority has been derived.

For the reason that the petition of the Virginia receiver was dismissed entirely and standing denied him even for the limited purpose aforesaid, the decree must be reversed, with costs to be taxed as part of the expenses of administration, and the cause remanded for further proceedings not inconsistent with this opinion. Reversed.