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Beardslee v. Ingraham

106 A.D. 506 Court N.Y. App. Div. English

Delivered by Hatch, J.:

Contents

Majority

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Nathan S. Beardslee and Frank P. McDermott, as Receivers of the National Salt Company, Respondents, v. George S. Ingraham, Appellant, Impleaded with William R. Compton, as United States Marshal for the Western District of New York.

Headnote

Conflict of law — right of a creditor, under an attachment issued by a United States court, as against receivers in possession of real property under a subsequent appointment by a State court. .
A New Jersey court, in an action in which it had jurisdiction of the parties and of the subject-matter, appointed permanent l'eceivers of a New Jersey corporation and thereafter such receivers were appointed, by an order of' the Supreme Court of the State of New York, ancillary receivers of the property and assets of the corporation in the State of New York. Such receivers, under their ancillary appointment, qualified and took actual possession of all the property, including certain real estate, of the corporation in the State of New York. Subsequently the Supreme Court of the State of New York authorized the receivers to sell such real estate of the corporation, which order contained the following provision: “ Tkat„the sale of said property shall be made freé and clear of all incumbrances, the proceeds of the sale thereof to stand' in the place and stead of the property and the lien of such incumbrances to attach to such proceeds."
Prior to the appointment of the receivers, the plaintiff in a suit pending against the corporation in the United States court obtained a warrant of attachment. After the entry of the order of the New York Supreme Court directing the receivers to sell the real estate, and after the sale had been had pursuant to said order, but before title had passed from the receivers to the purchaser, said plaintiff recovered judgment in the United States court. He then proceeded to issue execution upon such judgment and to cause the United States marshal to advertise for sale at public auction, a portion of the real estate sold by the receivers under the order of the New York Supreme Court.
p. 507
Held, that the receivers were entitled to maintain an action in the Supreme Court of the State of New York to restrain the sale advertised by the United States marshal as an unlawful interference with property in the possession of the New York Supreme Court;
That the New. York Supreme Court having first seized and taken the property in question into its custody (the United States marshal having by the attachment simply obtained a lien but not the possession of the property), the jurisdiction of the New York Supreme Court over the same became exclusive;
That the plaintiff, assuming his attachment to have created a lien upon the property, was entitled to have it paid out of the proceeds of the sale.
Ingraham and McLaughlin, JJ., dissented.
Appeal by the defendant, George S. Ingraham, from an order of the Supreme Court, made at the New York Special Term and entered in the office of the clerk of the county of New York on the 9th day of May, 1905, enjoining the defendants during the pendency of the action from selling certain property belonging to the National Salt Company or its receivers, or from interfering with property in the possession of the plaintiffs.
The motion was made to procure an injunction pendente lite, restraining George S. Ingraham, a judgment creditor of the National Salt Company, from selling or attempting to sell, by means of a levy made by the United States marshal, under a certain attachment issued out of the United States Circuit Court, certain real estate situate in Wyoming county in the State of New York, the title to which is in the. receivers of the National Salt Company. The National Salt Company is a foreign corporation organized under the laws of the State of New Jersey.,
On the 29th day of September, 1902, the plaintiffs were appointed permanent receivers of said National Salt Company by the Court of Chancery of the State of New Jersey, that court having jurisdiction of the parties and the subject-matter of the action. On the 1st day of October, 1902, an order was made by the Supreme-Court of the State of New York appointing the plaintiffs receivers of the property and assets of the National Salt Company in the State of New York, with full power to take into their possession all property of said company within this State, said appointment being ancillary to the appointment of the receivers of the Court of Chancery of the State of New Jersey. The receivers qualified and took actual possession of the real estate of the National Salt
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Cotnpany in tlie State of New York and continued its business. On the 14th day of March, 1904, this court duly authorized said receivers to sell at public auction the real estate of the National Salt Company, which included the real estate now advertised for. sale by the'United States marshal as hereinafter set forth. ■ Said order contains a provision preserving liens, which is as follows: “ Ordered that the sale of said, property shall be made free and clear of all encumbrances, the proceeds of the sale thereof to stand in the place and stead of the property and the lien of such encumbrances to attach to such proceeds.”
The property was duly advertised, and on the 25tli day of May, 1904, was sold at public auction, and on the 21 th day of July, 1904, an order was made confirming said sale. Under the terms of this order, title was not to be passed until payment of the full purchase price, which, not having been fully paid,.the title still remains in. these receivers. '
Prior to the appointment of the receivers, and on the 16th day of July, 1901, George S. Ingraham brought suit in the Supreme Court of Nassau county against the National Salt Company for $12,495, which said suit was subsequently removed to the United States Circuit Court for the eastern- district of New York. On the 6th day of November, 1901, a warrant of attachment was issued out of said United States Circuit Court- in the said suit -of Ingraham against the National Salt Company, and said warrant was filed in the office of the clerk of the United States Circuit Court for the western district of New York, in Buffalo, N. Y.; and on the-. 2d day of December, 1901, an amended notice of attachment was also filed in said clerk’s office in that city.
Under section 915 of the United States Revised Statutes, the United States Circuit Court for the eastern district of New York, on the 16th day of October, lS'TS, adopted the Code of Civil Procedure of New York as the law under which attachments issued out of said court should be governed. Section 649 of the Code of Civil Procedure of the State of New York provides that a-levy Under a-warrant of attachment must be made upon real property by filing with the clerk of the county where it is situated a notice of the attachment. The warrant of attachment in the suit of George S. Ingraham against the National Salt Company was never filed at any
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time in the county clerk’s office of the county of Wyoming, said Wyoming county being the county within which the property advertised for sale by the United States marshal is situated.
Judgment was entered in the suit of George S. Ingraham against the National Salt Company, in the United States Circuit Court, in favor of the plaintiff, and against" the defendant, on the 9th day of August, 1904, for the sum of $14,812.15. Said Ingraham at once issued his execution against the National Salt Company, and caused the United States marshal for the western district of New York to advertise for sale at public auction, on the 4th day of April, 1905, at the court house in Warsaw, county of Wyoming, the real estate set forth in the notice of sale, which real estate is part of the same real estate to which the receivers now have title, and which was the subject of the sale of May 25, 1904. The receivers then brought this action to restrain said sale as an unlawful interference with property in the possession of this court, and from the restraining ■order this appeal is taken.
George S. Ingraham, for the appellant.
Henry B. Twombly, for the respondents.

Under the title of Strickland v. National Salt Co. ( 105 App. Div. 640 ) the question presented by this appeal was argued and to some extent considered by this court. Therein the motion was made on behalf of a judgment creditor in the interest of the receivers of the property. The court at Special Term expressed the opinion that had the receivers herein begun an action against the defendant Ingraham to restrain the United States marshal from selling the' property, a case would have been made which prima facie entitled the receivers to an in junction; but as the parties to that proceeding were not parties to this action, and had no interest therein, save as the moving party was a judgment creditor, a restraining order would not be granted. Upon appeal to this court, the order was affirmed, without opinion. Such determination, however, is not decisive of the present question, as the parties in interest are quite different, and stand in relation to the property as the representatives of the court. The receivers are parties in interest in this action, and

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the purpose of the action is. to protect the property interest with which they have been invested under the several orders that have been made. In the attachment proceeding instituted by the defendant Ingraham it was required, in order to levy such warrant of attachment upon the real property, and obtain a lien thereon, to tile a notice of the same, stating the names of the parties to the action; the amount of the plaintiff’s claim as stated in the warrant, and a description of the property levied upon, in the office of the clerk of the county, where the real property is situated. Such notice, is required to be subscribed by the plaintiff’s attorney, and must be recorded and indexed by the clerk in the same book and in like manner as a notice of the pendency of an action, and when so filed, it has the same effect as the notice of the pendency of an action. (Code Civ. Proc. § 649.). As the property is not capable of being reduced to the possession of the officer, the effect of the attachment is simply to create alien upon, the property thus attached. ' (Van Camp v. Searle, 79 Hun, 134 ; S. C. on appeal, 147 N. Y. 150 .) The marshal, therefore, by the levying of the attachment, did not acquire the possession of the real property, but only a lien thereon,, assuming the attachment to have been properly levied. Such were the status and rights of the parties when the action was instituted by virtue of which the receivers of the property of the corporation were appointed, and under which they took possession of the same..

Had the .action of Ingraham in which the attachment was levied continued in the courts of this State, he would "have no right to levy his execution obtained pursuant to the judgment in his action so long as the receivers were in possession of the property, and he could in nowise interfere with such possession, although the lien of his attachment was in all respects regular and valid. The attempt to enforce the judgment by execution would constitute a. contempt of court, and any sale thereunder while the property was-in the possession of the receivers would be illegal and void. (Walling v. Miller, 108 N. Y. 173 .) Must a different rule be applied where the same conditions exist and the same rights were obtained, but where the attachment is issued out of a Federal court having-jurisdiction of the subject-matte r

This question seems no longer to be one to be reasoned out on principles of jurisdiction, or of comity ’existing between courts of

p. 511
different jurisdictions and exercising the same powers, as it is settled by an adjudication of' the Supreme Court of the United States in determination of a claimed conflict of jurisdiction between the'Stata and Federal courts in Wiswall v. Sampson (14 How. [U. S.] 52). Therein executions upon judgments issued by the Federal court had been levied upon real property and the-same advertised for sale, when a receiver was appointed by the Court of Chancery of the State of Alabama, in a suit instituted therein, who took possession of the property pursuant to the terms of the order appointing him. It was held that after notice of such appointment no proceedings under the execution could be taken without leave of the court appointing the receiver; that a sale thereunder would be illegal and void and constitute the same a contempt of court. The Wiswall case also-holds that when the party in whose favor the executions have been issued applies to the court having custody of the property for the allowance of his lien, a determination of such court will be res adyudioata of his rights. This case has received uniform approval by the Supreme Court of the United States in a long series of decisions, and is now the settled law of that court. It was said by Mr, Chief J ustice Fullee in Matter of Tyler ( 149 U. S. 181 ): “No rule is better settled than that when a court has appointed a receiver, his possession is the possession of the court, for the benefit of the parties to the suit and all concerned, and cannot be disturbed without the leave of the court; and that if any person, without leave, intentionally interferes with such possession, he necessarily commits a contempt of court and is liable to punishment therefor.” (Citing Wiswall v. Sampson, supra, and other cases.) .In that case the property was in the possession of a receiver appointed by the Federal court, and an attempt was made to seize the property while in such possession under process issued by the State court to enforce the collection of a tax assessed against its owners under the laws of the State.' It was held that the receiver’s right was superior; but it was also held that the State was' entitled to protection for the payment of its claim in accordance with the priority of its lien, and; that the receivers or the court having the custody of the property would protect such right and interest. The same doctrine is announced in Porter v. Sabin ( 149 U. S. 473 , 479), where it was held that, in proceedings in- rem instituted in both the Federal and,
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State courts, the court which first takes possession of the res acquires exclusive jurisdiction, and that process seeking to enforce the judgment of the court out of possession confers no right and ■conveys no title to the property if a sale thereunder be had. In Chautauque County Bank v. Risley ( 19 N. Y. 369 , 377) the Court ■of Appeals seems to deny the doctrine of Wiswall v. Sampson so far as it holds that a sale under a valid lien after possession had been taken by a receiver was illegal and void, although it admitted that the party would be guilty of a contempt in enforcing the process. But in Walling v. Miller (supra) the Court of Appeals, speaking through Judge Earl, repudiates such doctrine, and affirms the holding in Wiswall v. Sampson to its fullest extent. A like conclusion was reached by the Circuit Court of the United States for the southern district of Calif ornia in Matter of Hall & Stilson Co. ( 73 Fed. Rep. 527 ). We have also been furnished with a manuscript opinion of Judge Thomas of the United States Circuit Court for the eastern district of New York- in the case of Ingraham v. National Salt Co., decided on May 17,1905,[1] wherein the same doctrine is announced in an application for an order enjoining these receivers from interfering with the marshal in the execution of his process, the learned judge reaching the conclusion, that that court ought not to stay the pro^ ceedings in the State court.

If the Hen of the defendant’s attachment be -upheld, it will become the duty of the State court to recognize it as such and pay it from the funds, the proceeds of sale of the property, in the priority to which it is entitled. But until the defendant obtains leave of the State court to prosecute his lien, or procures some direction respecting its allowance, he is stayed in the enforcement of his judgment, so far as it affects that property, is guilty of a contempt of court if he attempts to proceed, and no title to the, property can be acquired* even though the execution were enforced by a sale.

It is said, however, that this doctrine is in conflict with that announced in the Supreme Court of the United States in Central National Bank v. Stevens ( 169 U. S. 432 ), which holds that where jurisdiction by a court is once obtained it continues, and that such

* This case will be published in November, 1905. See — Fed. Rep. —.— [Rep.

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jurisdiction is not exhausted until the rendition of the judgment and the judgment is satisfied. Such'rule is also asserted; by the Court of Appeals of this State, and the doctrine of the Federa) court is cited with approval. (Matter of Schuylers S. T. B. Co., 136 N. Y. 169 .) Many other cases might- be cited to support this rule, which now exists unquestioned and unassailed, recognized by Federal and State courts alike. The rule is not in conflict with that to which we have called attention, as was very clearly pointed out by Mr. Justice Miller in the leading case of Buck v. Colbath ( 3 Wall. 334 ), where the. learned judge says: “ But it is not true that a court, having obtained jurisdiction of a subject-matter of a suit, and of parties before it, thereby excludes all other courts from the right to adjudicate upon other matters having a very close connection with those before the first court, and, in some instances, requiring the decision of the same questions exactly.” The doctrine announced by this case lias never heen questioned either by Federal or State courts.

Sometimes it is referred to as a question of jurisdiction; sometimes as a question of comity. It may be called either; but it is not true, under circumstances such -as are presented in this case, that the court in which an action or proceeding is first instituted acquires jurisdiction to enable it to deal with the property. The distinction is plain. The jurisdiction is made to depend upon possession and is acquired by the court first seizing and taking the property into its custody. At this point the exclusive jurisdiction attaches, so far as that particular property is concerned, and the jurisdiction of the other court is at an end with respect thereto. The reason for the rule is stated in the several authorities to which we first called attention. It finds admirable expression in Matter of Hall & Stilson Co. ( 73 Fed. Rep. 527 ). It is not necessary, therefore, that-we further pursue tins subject-

The defendant Iugraliam is entitled to payment out of the proceeds of the sale of the land- in the .hands of the receivers,-if he establish that he obtained a valid lien upon the land. If he does not, he takes nothing thereby. The order appointing the receivers makes special provision for guarding his interests, as well as the interests'of all other lienors and claimants. The State court, having

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possession of the property, must be left to exercise its jurisdiction and such as is essential to be exercised in the determination of these claims. To permit the defendant to sell under his execution would precipitate inextricable embarrassment and confusion. A case is presented, therefore, in which- it was proper to issue an injunction. . The order granting the injunction should, therefore, be affirmed, with ten dollars ¿osts and disbursements.

O’Brien, P. J., and Patterson, J., concurred; Ingraham, and ¡McLaughlin, Jj., dissented.

Order affirmed, with ten dollars costs and disbursements.

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