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175 U.S. 396
THEOPHILUS KING, Adverse Claimant, and the Lippitt Woolen Company, Alleged Trustee, Plffs. in Err.,
JOHN A. CROSS et al.
Argued October 12, 1899.
Decided December 11, 1899.
Statement by Mr. Justice White:
The firm of Brown, Steese, & Clarke, established in Boston, on the 12th day of August, 1889, filed in the proper court in and for the county of Norfolk, Massachusetts, a petition praying to be allowed to take the benefit of the insolvent laws of the state of Massachusetts. On the day after-that is, on the 13th of August, 1889-John A. Cross, a citizen of Rhode Island, residing at Providence in that state, commenced suit in Rhode Island against the members of the firm of Brown, Steese, & Clarke on two negotiable notes drawn by the firm. The Lippitt Woolen Company and two other Rhode Island corporations carrying on business in that state were served, on the day the suit was filed, with trustee process on the averment that these corporations were indebted to the above-named firm. The Lippitt Woolen Company answered under the trustee process, disclosing the sum of its indebtedness. In the insolvency proceedings an assignee was appointed, and he commenced suit in Massachusetts against the Lippitt Woolen Company to recover the debt due by that corporation to the insolvent firm, and against which debt the trustee process had been issued in Rhode Island, and Hiram Leonard, a resident of Massachusetts, and who was indebted to the Lippitt Woolen Company, was made a garnishee. Pending [175 U.S. 396, 397] these proceedings the assignee sold the claim against the Lippitt Woolen Company and one against another corporation to Theophilus King, a resident of Massachusetts, and he was substituted as plaintiff in the action in Massachusetts above referred to. The Lippitt Woolen Company pleaded the pendency of the trustee process against it in the Rhode Island court. The Massachusetts court entered judgment in favor of the plaintiff King and against the Lippitt Woolen Company and the garnishee Leonard. The court, however, directed that execution on the judgment be stayed and the parties enter into a stipulation that no execution should issue until the proceedings in the Rhode Island action had been fully determined. Thereupon King was allowed, by the Rhode Island court, to become a party to the action there pending so far as necessary to enable him to assert his title to the indebtedness due by the Lippitt Woolen Company and other corporations to the firm of Brown, Steese, & Clarke, which debts were covered by the trustee process previously issued in Rhode Island under the circumstances already stated.
In the Rhode Island court both King and the Lippitt Woolen Company pleaded the proceedings under the insolvent laws of Massachusetts, the sale by the assignee to King, and the judgment of the court in Massachusetts, heretofore referred to, and asserted that thereby the title to the indebtedness due by the Lippitt Woolen Company to Brown, Steese, & Clarke passed to King, and that such title was superior to any lien supposed to have arisen from the trustee process which had been issued in the Rhode Island action. The court gave judgment in favor of the plaintiff Cross, charging the Lippitt Woolen Company for the amount of the debt due by that corporation to the firm of Brown, Steese, & Clarke, as stated in the answer of the Lippitt Woolen Company to the trustee proceedings. The court therefore rejected the claim of title preferred by King and acquired by him in the insolvency proceedings in Massachusetts, and in effect decided that the trustee process in Rhode Island operated to create a paramount lien on the debt due by the Lippitt Woolen Company, and was [175 U.S. 396, 398] unaffected by the insolvency proceedings in Massachusetts and the action taken on the subject in the courts of that state. Motions for a new trial upon numerous grounds were filed on behalf of the Lippitt Woolen Company and the claimant King. These motions were heard before the appellate division of the supreme court of Rhode Island, and that court overruled them. (19 R. I. 220.1) The case was then brought to this court by writ of error. In substance, the grounds relied on in this court for a reversal are, that at the time of the service of the trustee process the Rhode Island court was wholly wanting in jurisdiction over the defendants in the action, residents of Massachusetts, and over their property, and that by charging the Lippitt Woolen Company as trustee for the benefit of the plaintiff Cross, the tribunal last mentioned failed to give full faith and credit to the judicial proceedings in the insolvency court in Massachusetts.
Messrs. Chas. H. Hanson, John C. Coombs, and Robert W. Burbank for plaintiffs in error.
Messrs. Wm. R. Tillinghast and James Tillinghast for defendants in error.
Mr. Justice White, after making the foregoing statement, delivered the opinion of the court:
It is first asserted that the judgment of the supreme court of the state of Rhode Island was not due process of law, and was in conflict with the 14th Amendment to the Constitution of the United States, because it recognized the right, in a suit brought in Rhode Island against a nonresident defendant, to garnishee the resident debtor of such defendant. It is contended that a judgment rendered by a court against a defendant who is neither within its jurisdiction by his person or his property is wholly void, and any attempt to enforce such judgment amounts to a denial of due process of law. The Rhode Island court, it is, claimed, had no jurisdiction over the defendant firm because it was a resident of Massachusetts, and [175 U.S. 396, 399] it is asserted that such court had no property of the firm within its control upon which to exercise its jurisdiction. True it is the Lippitt Woolen Company, which alone was charged by the judgment, was made a trustee under the Rhode Island process, and was indebted to the Massachusetts firm; but this fact, it is asserted, did not establish that there was any right in Rhode Island to be subjected to the jurisdiction of the courts of that state, for the following reasons: The situs of movable property is at the domicil of the owner of such property, and therefore the situs of the claim or credit held by the Massachusetts firm against the Lippitt Woolen Company was not in Rhode Island, where the Lippitt Woolen Company was resident, but was in Massachusetts, where the creditor firm was established. The contention in substance is that any process of foreign attachment predicated upon the assumed right to levy on debts due to nonresidents by persons within the state wherein the process issues is absolutely void, hence a denial of due process of law.
We need not enter into a review of the contentions thus presented, since they were all considered by this court at its last term and held to be untenable. Chicago, R. I. & P. R. Co. v. Sturm, 174 U.S. 710 , 43 L. ed. 1144, 19 Sup. Ct. Rep. 797.
Conceding, however, as a general rule, that jurisdiction as to a nonresident can be acquired by trustee or garnishment process against a resident debtor of a nonresident defendant, it is urged that the facts in this case cause it to be an exception to this general principle. The proceedings in involuntary insolvency were begun in Massachusetts before the commencement of the suit in Rhode Island. The legal effect of the insolvency proceedings, it is asserted, was to vest all the credits of the insolvent in the court of insolvency of Massachusetts, and therefore there could legally be no debt due to the nonresident insolvent in Rhode Island, because that debt by operation of the Massachusetts insolvent proceedings had ceased to be a debt due the firm, and had become a debt controlled by the Massachusetts insolvent court. The debt in Rhode Island, originally due to the firm in Massachusetts cannot, it is claimed, be treated as continuing after the insolvency [175 U.S. 396, 400] proceedings to be due to the firm without refusing to give effect to the proceedings in Massachusetts, and such refusal is therefore asserted to be the necessary result of the judgment of the court of Rhode Island which is before us for review.
The contention thus relied upon, it is argued, is not contrary to the settled rule that insolvency proceedings of the several states do not have extraterritorial operation; and it is also asserted that the claim here relied upon is not contrary to the decision of this court in Security Trust Co. v. Dodd, 173 U.S. 624 , 43 L. ed. 835, 19 Sup. Ct. Rep. 545. In that case it was held that a general assignment for the benefit of creditors, made by an insolvent under the insolvent laws of a state, did not operate to exempt tangible property situated at the time of the insolvent assignment in another state from seizure in the state where the tangible property was actually situated. This decision, it is claimed, was but an exemplification of the general rule limiting insolvency proceedings of one state to the jurisdiction of that state and depriving them of extraterritorial operation. A mere credit, however, it is asserted, conceding it to be subject to attachment or trustee process at the residence of the debtor, is governed by a different rule from that which controls tangible property. Such credit, the claim is, being at the situs of the domicil of the creditor, passes to the custody of the insolvent court when the insolvent law so provides, and therefore comes under the dominion and control of the insolvent court having jurisdiction of the person of the creditor. As by operation of law the credit from the date of insolvency proceedings at the residence of the creditor ceases to be under his dominion, but, on the contrary, is in gremio legis, the power to levy by garnishee or trustee process on the same at the residence of the debtor is destroyed. But the predicate upon which this contention rests is that the Massachusetts insolvent proceedings operated to deprive the insolvent of all control over his assets prior to or at the time when the suit in Rhode Island was commenced and the trustee process there issued. If this premise is unsound the whole contention is without merit, and therefore the legal proposition deduced from it need not be examined. [175 U.S. 396, 401] The statutes of the state of Massachusetts on the subject of insolvency provide: First, for the adjudication by the judge of the court of insolvency upon a voluntary petition; second, for the issue of a warrant for the sequestration of the effects of a petitioning debtor; third, for publication of a notice of the issue of this warrant; fourth, for a meeting of creditors and the election of an assignee; and, fifth, for an assignment by the judge of the court of insolvency to the assignee so elected. Mass. Pub. Stat. 1882, chap. 157, 16, 17, 24, 40, 44. The forty-sixth section of the act which provides when proceedings under it shall operate to devest the debtor of control over his property is reproduced in the margin.
Now the petition in insolvency on behalf of the firm of Brown, Steese , & Clarke was filed in the court of insolvency on August 12, 1889, a day prior to the commencement by Cross of his action in Rhode Island and the service of the trustee process. The warrant, however, addressed by the Massachusetts insolvent court to the sheriff, directing him, as messenger, to take possession of the estate of the insolvent, was not issued until August 21, 1889, the first publication of notice of the issue of such warrant was made on August 23, 1889, and [175 U.S. 396, 402] the assignment to the assignees elected by the creditors was made by the judge of the insolvency court on September 4, 1889. The first question presented then is: At what date was the firm of Brown, Steese, & Clarke, by force of the insolvent laws of Massachusetts, devested of the title and control of their personal property, tangible and intangible? If the Massachusetts insolvent law did not, from the mere fact of filing the petition of insolvency, operate to devest the insolvent of all control of his credits, it is obvious that such control existed in the creditor when the suit was begun in Rhode Island, for the only step taken in the Massachusetts proceedings prior to the commencement of the suit in Rhode Island was the filing of the petition in insolvency. Every other step in the insolvency was taken after the Rhode Island suit was begun, and the trustee process there levied. Now the text of the Massachusetts statute clearly provides that 'the assignment shall vest in the assignee all the property of the debtor, real and personal, which he could have lawfully sold, assigned, or conveyed, or which might have been taken on execution upon a judgment against him, at the time of the first publication of the notice of the issuing of the warrant in case of voluntary proceedings.' The decisions of the supreme judicial court of Massachusetts leave no doubt that up to the first publication of notice of the issuing of the warrant the insolvency proceedings do not devest the insolvent of all control of his assets and credit. We premise, however, before reviewing these decisions, that the portions of the present insolvent statutes of Massachusetts, as contained in chapter 157 of the Public Statutes of 1882, so far as they bear upon the question now under consideration, substantially reproduce the provisions of chapter 163 of the statutes of 1838. We place in the margin a portion of 5 of the latter act, which, it will be seen, declares the effect of a formal assignment by the judge of the court of insolvency in practically similar language to that contained in 46 of chapter 157 of the Public Statutes of 1882, already referred to. [175 U.S. 396, 403] Under the statute of 1838, it was early settled in Massachusetts that the property of an insolvent debtor was not to be regarded as in the custody of the law until the publication of the first notice of the issuance of the warrant, and that until such time the insolvent might bona fide transfer his property, and that it was subject to seizure under judicial process. Thus, in Briggs v. Parkman (1841) 2 Met. 258, 37 Am. Dec. 89, it was held that an assignment, under the statute of 1838, vested in the assignee only the property which the debtor had at the time of the first publication of the notice of the issuing of the warrant against him. In 1842, in Judd v. Ives, 4 Met. 401, on a petition of Judd, an insolvent debtor, asking that proceedings be set aside which had been instituted before a master in chancery under Stat. 1838, chap. 163, in considering the question whether the United States bankrupt act which went into operation on the 1st of February, 1842, superseded or suspended the insolvency proceedings referred to, the court, at page 402, said (italics ours):
In Clarke v. Minot (1842) 4 Met. 346, in the course of the opinion, the court, in speaking, through Chief Justice Shaw, of the time when under the insolvency laws the insolvent debtor was devested of control over his assets, said:
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In Butler v. Mullen (1868) 100 Mass. 453, the rulings above referred to were reiterated. The syllabus of the case is as follows: [175 U.S. 396, 406] 'One who has been charged as the trustes of H, by a judgment in the trustee process, and has paid to the judgment creditor, on execution, the sum with which he has been so charged, will not be protected against H's assignee in insolvency, if the first publication of the warrant in insolvency against H was before the rendition of the judgment in the trustee process, though he had no actual notice of H's insolvency until after payment.
In delivering the opinion of the court, Hoar, J., at page 454, said ( italics ours):
It being thus made patent that there is no merit in the contention that the operation of the Massachusetts insolvent law was to devest the insolvent of all control over his assets from the mere date of the filing of the petition in insolvency, but, on the contrary, that the Massachusetts law only produced such effect from the time of the first publication of the notice of issuing the warrant, it follows, as the levy of the trustee process in Rhode Island was prior to the first publication of the warrant, that the whole theory upon which the argument in this case proceeds is fallacious. It is therefore unnecessary to express any opinion on the legal proposition urged upon our attention on an erroneous conception of the Massachusetts [175 U.S. 396, 407] law. This becomes evident when it is considered that the case as presented does not involve the power of a Massachusetts court to assert control over a citizen of that state in order to prevent him from prosecuting in Rhode Island an attachment levied by him upon property in Rhode Island, in supposed violation of the laws of Massachusetts. On the contrary, the question here is simply whether a citizen of Rhode Island was prevented in the courts of his own state from levying an attachment upon a debt due by a citizen and resident of Rhode Island to a citizen and resident of Massachusetts because such levy was in conflict with the Massachusetts insolvent statutes. And this, although by the statutes of Massachusetts the debt levied on in Rhode Island by the citizen of the latter state, if such debt had been situate in Massachusetts, would have been subject to the disposition and control of the insolvent.
The foregoing considerations would suffice to dispose of the case but for the fact that it is claimed that as by the Massachusetts statute an assignment by the judge of the insolvent court dissolved attachments made within four months from the first publication aforesaid, therefore, although the trustee process in Rhode Island was issued at a time when the debtor was not devested of control of the claim, nevertheless, by the operation of the Massachusetts law upon the Rhode Island levy, the latter should be dissolved. This contention, however, but asserts that the Massachusetts insolvent statute had, in this particular, an extraterritorial operation, and thereby controlled proceedings validly instituted in Rhode Island. This, however, is in conflict with the elementary doctrine that the insolvent statutes of the respective states do not, to the extent claimed, operate extraterritorially. Security Trust Co. v. Dodd, 173 U.S. 624 , 43 L. ed. 835, 19 Sup. Ct. Rep. 545, and authorities there cited. Indeed, the fact that the provision of the Massachusetts statutes retroactively vacating attachments does not control attachments levied in other states at a time when, under the Massachusetts insolvent law, the insolvent had not by operation of law been deprived of the dominion and control over his credits, is recognized in the courts of Massachusetts. Thus, in [175 U.S. 396, 408] Lawrence v. Batcheller (1881) 131 Mass. 504, assignees in Massachusetts of an insolvent debtor were held not entitled to recover from a creditor of such insolvent, though the creditor was a resident and citizen of Massachusetts, the amount of sums realized through garnishment proceedings in New York, Alabama, and Arkansas against persons who were indebted to the Massachusetts insolvent. The garnishment proceedings were instituted before the publication of the warrant, but it was not until after the adjudication in insolvency, and after the assignment by the judge of the court of insolvency to the assignees in insolvency, that the attachment proceedings were prosecuted to final judgment, and the collections were made under the trustee process. In the course of the opinion, delivered by Field, J., at pages 506, 508, he said (italics ours):
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See also Proctor v. National Bank of the Republic, 152 Mass. 223, 9 L. R. A. 122, 25 N. E. 81.
[ Footnote 1 ] 33 Atl. 147.