Appeal from the District Court of the United States for the Eastern District of Pennsylvania; George A. Welsh, Judge.
Before BUFFINGTON, DAVIS, and THOMPSON, Circuit Judges.
This is an appeal from a decree appointing receivers for two mortgage pools of the Chester County Trust Company located at West Chester, Pa. There are two cases here involving identically the same questions of law and practically the same facts. They will, therefore, be disposed of in a single opinion.
On February 14, 1933, the Secretary of Banking of the Commonwealth of Pennsylvania took "possession of the business and property" of the Chester County Trust Company, hereinafter called the Trust Company, in accordance with the provisions of the Act of Pennsylvania of June 15, 1923, P.L. 809, known as the Banking Act of 1923, as amended by Act May 5, 1927, P.L. 762 (7 PS § 1 et seq.) and the Act of May 15, 1933, P.L. 565, known as the Department of Banking Code (71 PS § 733 -- 1 et seq.). On that day he filed a certificate of possession in his office at Harrisburg and on the following day he filed a certified copy of the certificate in the office of the prothonotary of Chester county in accordance with the requirement of the Act of June 15, 1923, which provides in section 22 (7 PS § 22) that: "When the secretary shall have duly taken possession of the business and property of a corporation or person as provided in section twenty-one of this act, he shall forthwith make, under his hand and official seal, a certificate setting forth that he has so taken possession, and shall file such certificate in his office, and cause a certified copy thereof to be filed in the office of the prothonotary, who shall index the same in the judgment index under the name of the corporation or person as defendant and the name of the secretary as plaintiff."
Among the assets of the Trust Company there were two mortgage pools, consisting of groups of mortgages held by the Trust Company as trustee, against which it had issued participation certificates.
The secretary held possession of these mortgage pools from February 14 to August 25, 1933, when Laura A. Washington, a citizen of the state of Connecticut, and holder of mortgage certificates, filed a bill in equity in one mortgage pool against the secretary and his deputy as agent in possession of the Trust Company, wherein she alleged that because of the little effort made by the secretary or his deputy to collect interest and to pay bonds and taxes, irreparable damage to her and other holders of certificates would result unless receivers were appointed, and prayed for the appointment of receivers. A similar bill was filed by Mary A. O'Brien, a citizen of New Jersey, in the other mortgage pool.
On October 29, 1933, two receivers were appointed for each mortgage pool. They were authorized to hold and preserve all the assets, to collect the principal and interest, and to make quarterly reports to the court.
The receivers on September 1, 1933, demanded possession from the deputy secretary of banking, but this was refused, and on the following day on petition the court issued a rule to show cause why the deputy receiver and his two subordinates in charge should not be adjudged in contempt for such refusal. These three persons in each pool appeared before the District Court, filed an answer in the contempt proceedings, and moved the court to dismiss the bill and vacate the appointment of receivers. The court refused the motions, but entered orders amending his decrees, and made the receivers "temporary" rather than permanent. Appeals were taken from the decrees, appointing receivers, making them temporary, and refusing the motions to dismiss and vacate.
The real question upon which the determination of this case depends is whether or not the filing of the certified copy of the certificate of possession in the prothonotary's office of Chester county conferred jurisdiction on the state court. If it did, this case was erroneously decided, for of two courts, state and federal, having concurrent and co-ordinate jurisdiction of the subject of an action, that court which first obtains jurisdiction has the right to proceed to its final determination without interference from the other. O'Neil v. Welch (C.C.A.) 245 F. 261; Harkin et al. v. Brundage, 276 U.S. 36, 48 S. Ct. 268, 72 L. Ed. 457. This principle of law applies not only to actions involving corporations generally, but to those involving quasi public corporations. This we held in the case of Commonwealth of Pennsylvania v. John G. Williams et al., 72 F.2d 509 (decided July 23, 1934), and it is unnecessary to repeat here what we said there.
The appellants say that "not only has the state officer (Secretary of Banking) long ago taken possession of the assets of the trust company, but the state law has put him in possession as "receiver" and has subjected him to the jurisdiction of a particular state court," and therefore the United States court could not appoint receivers of the fund already in his possession. They base this contention on section 701 of the Act of May 15, 1933, P.L. 565 (71 PS § 733 -- 701) which provides that:
"Status of secretary as receiver. Except as otherwise provided in this act, the secretary, when he has taken possession of the business and property of an institution, shall be responsible to the court in which the certificate of possession is filed, and not to any other court. His rights, powers, and duties shall be those of a general receiver appointed by any court of equity in this Commonwealth, except as such rights, powers, and duties are increased or limited by the provisions of this act. He shall be vested, in his official capacity, with all the rights, powers, and duties of such institution; with the title or the right to possession of all property to which the institution has title or the right to possession, including debts due, and liens and other security therefor; and with the institution's rights of action or redemption. This shall be so whether such property and debts due, such liens or other security therefor, or such rights of action or redemption, are held in the name of such institution, or in the name of some other corporation or person. He shall have power to execute in his name, as receiver, any instrument incident to the exercise of any power granted to or any duty imposed upon him as receiver of such institution.
"The secretary shall be the representative of the creditors of the institution and shall be entitled, as such, to have vacated and set aside, for the benefit of the creditors, any judgment, execution, attachment, sequestration, payment, pledge, assignment, transfer, conveyance, or encumbrance, which could have been avoided by any of the creditors, or by which one creditor is given an unlawful preference over another."
This section defines the status of the secretary as the statutory receiver of the institution and defines his rights, powers, and duties. It "subjects" him to the jurisdiction of a particular court, only in the sense that it points out the state ...