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U.S. Supreme Court


255 U.S. 356

CAUBLE et al.
No. 274.

Submitted Jan. 10, 1921.
Decided March 7, 1921.

[255 U.S. 356, 357]   Messrs. Charles M. McCabe, of Crawfordsville, Ind., and Samuel D. Miller, William H. Thompson, and Frank C. Dailey, all of Indianapolis, Ind ., for appellant.

Mr. William C. Bachelder, of Indianapolis, Ind., for appellees.

Mr. Justice DAY delivered the opinion of the Court.

This case is here upon the question of jurisdiction. Jud. Code, 238 ( Comp. St. 1215). Appellant is a fraternal benefit association organized under the laws of the state of Indiana. It filed a bill against Aurelia J. Cauble and others, citizens and residents of Indiana, to enjoin them from prosecuting in the state courts certain suits which, it is averred, would relitigate questions settled by a decree of the United States District Court for Indiana; it being the contention that all the members in Class A in the Supreme Tribe of Ben Hur, including the appellees, were bound and concluded by the federal decree.

The bill was filed upon the theory that it is ancillary in character, and justifies a decree to protect the rights [255 U.S. 356, 358]   adjudicated in the original proceeding. A motion to dismiss for want of jurisdiction was sustained. (D. C.) 264 Fed. 247.

The ancillary bill alleges that the questions decided in the original suit determined:

(1) The right of the Supreme Tribe of Ben Hur to create a new class of benefit certificate holders known as Class B. (The membership in such society up to July 1, 1908, having been in the class thereafter to be designated as Class A.) (2) The right of the society to determine that all benefit certificates issued after July 1, 1908, should be Class B certificates, and that no Class A certificates should be issued after that date, and no new members taken into Class A, from that time. (3) The right of the Supreme Tribe of Ben Hur to require members of Class B to pay different rates for their insurance from members of Class A. (4) The right of the Supreme Tribe of Ben Hur to require that the mortuary funds of the two classes be kept separate and distinct, and that the death losses occurring therein, should be paid out of the funds of each class respectively. (5) The right of the Supreme Tribe of Ben Hur to authorize members of Class A to transfer, upon a written application therefor to Class B, and to take with them into Class B. their interest in the mortuary, and other funds, of the society, created, or arising prior to July 1, 1908, and requiring the Class B members to pay a monthly payment and rate in excess of that paid by Class A members. (6) The right of the Supreme Tribe of Ben Hur to require members remaining in Class A, and not transferring to Class B, to pay a sufficient number of monthly payments, or assessments, to meet the death losses in Class A. (7) The right of the Supreme Tribe of Ben Hur to use the expense fund of the society for the purpose of creating Class B, and induce Class A members to transfer to Class B, and to secure new members in Class B. (8) Whether [255 U.S. 356, 359]   the Supreme Tribe of Ben Hur had used the expense fund in a manner justified by its constitution and by-laws and a general examination of expenditures which had been made by that society, out of its expense fund, and the purpose for which these expenditures had been made, and whether any of them were made in violation of the rights of Class A members. (9) The right of the Supreme Tribe of Ben Hur to use its expense fund, including all questions as to whether payments made out of it were equitable and just, or inequitable, wrongful and unlawful; and the question of whether the maintenance of a general expense fund, and the payments of the entire expenses of the society therefrom, was fair, just and legal. (10) Whether the Supreme Tribe of Ben Hur had wrongfully, or unlawfully inaugurated a campaign to persuade and induce the members of the society belonging to Class A to give up their certificates in Class A, and to apply for and procure membership and certificates in Class B; or whether the action of the society, and its officers in that connection, was rightful, just and equitable. (11) The question of whether the rates in Class A, in effect prior to July 1, 1908, were adequate, or inadequate, or whether they were sufficient to provide for the current death losses in Class A, and the expenses of the society; or whether it was necessary, in order to prevent the insolvency of the Supreme Tribe of Ben Hur, to create a new class, and induce the members of the old class, in so far as it was possible to induce them, to transfer to the new class, and the right of the society to take all action necessary for this purpose.

Other details of the reorganization are set forth, and it is averred that in the original suit it was finally determined and adjudged that the reorganization adopted by the Supreme Tribe of Ben Hur was valid and binding upon all the members of the society, including the members known as Class A. [255 U.S. 356, 360]   The ancillary bill alleges that the commencement of the suit in the state courts of Indiana will have the effect to relitigate questions conclusively adjudicated against the defendants as members of Class A in the action in the United States District Court; that to permit them to do so would destroy the effect of the decree rendered in that suit; that in the several suits commenced in the state courts plaintiffs therein challenged the rights of the society to create Class B; and that the plan of reorganization of the society to create Class B, and the questions of fact and law involved in the causes in the state court are the same questions, and none other than those conclusively adjudged and determined in the main suit.

The District Judge dismissed the suit for want of jurisdiction upon the following certificate:

From this statement of the case it is apparent that two points are involved in determining the jurisdictional question before us: First. Was the original decree binding upon citizens of Indiana who were in the class for whom the suit was prosecuted, but not otherwise parties to the bill? Second. Was the present suit ancillary in character, and such as to justify an injunction in the federal court to restrain the proceedings in the state court?

Class suits have long been recognized in federal jurisprudence. In the leading case of Smith et al. v. Swormstedt et al., 16 How. 288, 302 ( 14 L. Ed. 942) of such suits this court said:

The subject is provided for by rule 38 (33 Sup. Ct. xxix) of the equity rules of this court promulgated in 1912, which reads:

As the rule formerly read, it contained the following provision:

The District Court held that this change in the rule could not affect the jurisdictional authority of the court, and added that in its view rule 39 (33 Sup. Ct. xxix) was the applicable one. Rule 39 provides:

Under the latter rule the District Court held that the Indiana citizens were out of the jurisdiction of the federal court in the original suit, and that their joinder would have ousted the jurisdiction of the court, although that fact would not prevent the court from proceeding in the case to a decree without prejudice to their rights. 'In other words,' said the judge, 'although the original bill was a class suit, the class did not include Indiana citizens.'

That the persons in Class A of the society were so numerous that it would have been impossible to bring them all before the court is apparent from a statement of the case. They numbered many thousands of persons, and resided in many different states of the Union. There was the requisite diversity of citizenship to justify the bringing of a class suit in the United States District Court for the District of Indiana. The court, therefore, properly acquired jurisdiction of the suit, and was authorized to proceed to a final decree.

The District Court held that in its view joinder of Indiana [255 U.S. 356, 365]   citizens would have defeated jurisdiction in the federal court, which conclusion was necessarily decisive of the case.

In Stewart v. Dunham, 115 U.S. 61 , 5 Sup. Ct. 1163, a creditor's bill was filed in equity to set aside a conveyance of a stock of merchandise. The suit was removed from the state court to the Circuit Court of the United States on the ground of diversity of citizenship. After the cause was removed co-claimants, citizens of the same state as were the defendants, were admitted into the suit. This, it was contended, prevented the court from proceeding to a decree, as it was without jurisdiction because the controversy became one not wholly between citizens of different states. Of this contention this court said ( 115 U.S. 64 , 5 Sup. Ct. 1164):

This principle controls this case. The original suit was [255 U.S. 356, 366]   a class suit brought by a large number of the class as representatives of all its membership.

The change in rule 38 by the omission of the qualifying clause is significant. It is true that jurisdiction, not warranted by the Constitution and laws of the United States, cannot be conferred by a rule of court, but class suits were known before the adoption of our judicial system, and were in use in English chancery. Street's Federal Equity Practice, vol. 1, 549.

The District Courts of the United States are courts of equity jurisdiction, with equity powers as broad as those of state courts. That a class suit of this nature might have been maintained in a state court, and would have been binding on all of the class, we can have no doubt. Hartford Insurance Co. v. Ibs, 237 U.S. 662, 672 , 35 S. Sup. Ct. 692, L. R. A. 1916A, 765; Royal Arcanum v. Green, 237 U.S. 531 , 35 Sup. Ct. 724, L. R. A. 1916A, 771.

Owing to the number of interested parties and the impossibility of bringing them all before the court, the original suit was peculiarly one which could only be prosecuted by a part of those interested suing for all in a representative suit. Diversity of citizenship gave the District Court jurisdiction. Indiana citizens were of the class represented, their rights were duly represented by those before the court. The intervention of the Indiana citizens in the suit would not have defeated the jurisdiction already acquired. Stewart v. Dunham, supra. Being thus represented, we think it must necessarily follow that their rights were concluded by the original decree.

Rule 38, as amended, was intended to apply to just such cases. Rule 39 does not apply to a subject already specifically covered in rule 38. Of course, mere considerations of inconvenience cannot confer jurisdiction, but it is to be noted that if the Indiana citizens are not concluded by the decree, and all others in the class are, this unfortunate situation may result in the determination of the rights of most of the class by a decree rendered upon a theory which [255 U.S. 356, 367]   may be repudiated in another forum as to a part of the same class.

If the federal courts are to have the jurisdiction in class suits to which they are obviously entitled, the decree when rendered must bind all of the class properly represented. The parties and the subject-matter are within the court's jurisdiction. It is impossible to name all of the class as parties, where, as here, its membership is too numerous to bring into court. The subject-matter included the control and disposition of the funds of a beneficial organization, and was properly cognizable in a court of equity. The parties bringing the suit truly represented the interested class. If the decree is to be effective and conflicting judgments are to be avoided, all of the class must be concluded by the decree.

As to the other question herein involved, holding, as we do, that the membership of Class A were concluded by the decree of the District Court, an ancillary bill may be prosecuted from the same court to protect the rights secured to all in the class by the decree rendered. Looney v. East Texas R. R. Co., 247 U.S. 214 , 38 Sup. Ct. 460, and cases cited.

It follows that the decree of the District Court, dismissing the ancillary bill for want of jurisdiction, must be reversed.

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