NUNN v. FELTINTON

RIVES, Circuit Judge.

On the merits the question is whether the district court correctly held that a valid sale of real properties located in Texas had been made by a statutory liquidator for an Illinois bank pursuant to a decree of an Illinois state court. Before reaching the merits, a question of the requisite diversity of citizenship to confer federal jurisdiction must first be decided. That question is whether a Receiver appointed by a Texas state court to administer such properties and assets of the Bank as remained at the time of dissolution was the exclusive representative of the former stockholders of the Bank to the extent that the joinder with the Receiver of three such stockholders, residents of Illinois, would not defeat federal jurisdiction.

The action was commenced by the appellants in the District Court of Pecos County, Texas, and was removed to the State District Court on the ground of diversity of citizenship.1 The district court denied the plaintiffs' motion to remand. The plaintiffs were G. C. Nunn, Receiver, a resident of the State of Texas, acting under appointment of the State District Court in a different case; Horace Smith, a Texas resident; and three Illinois residents, Fred Nemerovski, Harry Ballis and Myrtle Ballis. The defendants were four Illinois residents and two New York residents. Thus, on the face of the pleadings residents of Illinois appeared as plaintiffs and as defendants, and there was not that complete diversity of citizenship requisite to federal jurisdiction.2

The action concerned nonparticipating royalty interests on the oil, gas and other minerals in and under described lands in Pecos County, Texas, and was in trespass to try title, to quiet title, for cancellation and removal of clouds on title, and for declaratory judgment. The nonparticipating royalty interests in suit had been owned by the West Side Trust & Savings Bank, an Illinois corporation, through whom all parties claim. The plaintiffs claim as successors in interest of the Bank on its dissolution.3 The defendants claim that all of the assets of the Bank were disposed of before dissolution, and that through such disposition the defendants acquired title to the royalty interests.

Attached as an exhibit to the petition for removal was a copy of the order appointing Nunn as Receiver and of another order entered shortly after such appointment. The Receiver had been appointed at the instance of the individual parties plaintiff. That part of the order of appointment defining the Receiver's powers and duties provides that G. C. Nunn

A week after appointing the Receiver, the Texas District Court approved a contract between the Receiver and Horace Smith, one of the plaintiffs, and certain attorneys, containing the following provisions:

The pertinent Texas statutes relating to the appointment power and authority of the Receiver are Articles 2293, subd. 3, 2297 and 2310, Vernon's Ann.Rev.Civ. Stat. of Texas:

The position of the defendants, sustained by the district court, is that the Receiver has capacity to sue for title and in so doing to represent shareholders, depositors and creditors of the Bank, and that it is the citizenship of the Receiver, and not that of those he represents, which determines jurisdiction.

The plaintiffs, on the other hand, insist that the appointment of the receiver did not divest the shareholders of title to the property, nor vest it in the Receiver, and that the shareholders have the right to sue for title to the property subject to the Receiver's right of possession.

It has been established from an early date that the joinder of formal or unnecessary parties cannot prevent the removal of an action to a federal court.4 As the cases just cited show, the right of removal depends upon the case disclosed by the pleadings when the petition for removal is filed, subject to the right of the defendant in its petition to show that parties joined by the plaintiff are not necessary parties.5 It is also well established "* * * that representatives may stand upon their own citizenship in the federal courts irrespectively of the citizenship of the persons whom they represent, — such as executors, administrators, guardians, trustees, receivers, etc." City of New Orleans v. Gaines' Administrator, 1891, 138 U.S. 595, 606, 11 S.Ct. 428, 431, 34 L.Ed. 1102. See also Mexican Central Ry. Co. v. Eckman, 1903, 187 U.S. 429, 433, 434, 23 S.Ct. 211, 47 L.Ed. 245; Fallat v. Gouran, 3 Cir., 1955, 220 F.2d 325, 326, 327.

The question in this case depends upon the extent of the capacity of the Receiver, under the laws of Texas, to represent the stockholders, including the three Illinois residents who were joined with the Receiver as plaintiffs. The basis and theory upon which they were joined is thus alleged in the complaint:

The plaintiffs rely strongly upon Abbey v. International & G. N. R. Co.'s Receivers, 1893, 5 Tex.Civ.App. 261, 23 S. W. 934,6 wherein it was held that,

That holding was clearly based upon the extent of the authority of the particular receiver under the law and the decree of the court providing for his appointment. Such law and decree do not, however, appear in the brief report of the opinion. Nor does the case hold what this quotation out of context might imply. It holds that the owner is not bound by a judgment against a receiver where the suit was brought without leave of the receivership court having possession of the property in question unless the judgment is then pleaded in that court. The part quoted states that the receivership court may then divest the owner's title. The case does not imply either that the receivership court cannot make a binding adjudication of the owner's title, or that it may not empower the receiver alone to obtain such a binding adjudication from another court. Other Texas receivers have been held to be actually vested with legal title to the properties in their possession. Smith v. Texas & N. O. R. Co., 1908, 101 Tex. 405, 108 S.W. 819, 821; Hovel v. Kaufman, Tex.Com.App. 1926, 280 S.W. 185, 187. As was said in Herf & Frerichs Chemical Co. v. Brewster, 1909, 54 Tex.Civ.App. 217, 117 S.W. 880, 882:

See also, Cocke v. Wright, Tex.Civ.App. 1927, 299 S.W. 446, affirmed Tex.Com. App., 39 S.W.2d 590; Cox-Rushing Greer Co. v. Richardson, Tex.Civ.App.1925, 277 S.W. 718; Oatman v. Boone, Tex.Civ. App.1922, 244 S.W. 398. The principle to be deduced from the cases is that the capacity and authority of a receiver over the title to the properties in his possession depend upon the statutes, laws and decrees which apply to the particular receivership.

The pertinent statutes and decrees governing the present receivership have already been set forth in extenso. From a mere reading of them it clearly appears that Nunn was a general receiver, vested not only with possession but with control of the title and authority to sue, representing, by order of the appointing court, the entire interest claimed by the shareholders and all rights of action in respect to it. We conclude that the three Illinois stockholders were mere formal or unnecessary parties, and that their joinder does not prevent the removal of the action nor defeat federal jurisdiction.

II.

The date of the order appointing Nunn as Receiver was March 3, 1959. The Bank had been dissolved many years theretofore, by judgment of an Illinois court on February 1, 1935, which was repeated in the final judgment of November 30, 1948. The Bank had been organized as a corporation under the banking laws of Illinois in 1905. The mineral royalty interests in controversy were owned by the Bank under reservations made in six deeds executed between the years 1927 and 1933. The Bank itself did not convey the interests in controversy prior to its dissolution. The defendants deraign title through conveyances made by a statutory liquidator for the Bank pursuant to a decree of an Illinois state court. As has been stated, the plaintiffs claim that title remained in the Bank at its dissolution, and then passed by operation of Texas law to its stockholders.

The Auditor of Public Accounts of the State of Illinois caused an examination to be made of the affairs of the Bank as of the close of business on March 28, 1933. The examination disclosed this Bank's condition to be like that of so many other banks during that period. Its capital had become impaired and the impairment could not be made good. On account of that condition, the Auditor took possession of its assets on December 19, 1933, and retained control until January 12, 1934, at which time the Auditor found and determined that the Bank "cannot be reorganized and that the same should be liquidated through receivership." The Auditor appointed a receiver and authorized and directed the receiver "to take possession of, and for the purpose of such receivership the title to the books, records and assets of every description of said bank and to collect all debts, dues or claims belonging to it and to conserve the same for the benefit of the creditors of said bank." The Auditor was acting in conformity with the Illinois banking laws. Section 11, Chapter 16½, Smith & Hurd Illinois Statutes provides for the appointment by the Auditor of a receiver under such circumstances, and provides that:

Three days after he had appointed a receiver pursuant to said statute, the Auditor filed a bill of complaint in the Superior Court of Cook County, Illinois, seeking the instructions and orders of that Court as to the liquidation and dissolution of the Bank. On February 1, 1935, the Court entered an order directing the Receiver to file an inventory of properties of the Bank coming into his possession or to his knowledge, and authorizing the Receiver to file proper petitions to sell real estate or personal property belonging to the Bank, and to complete all acts necessary to its liquidation. In the order the Court found that the Receiver had already taken possession of the title to all of the assets of the Bank of every description, pursuant to the Auditor's order of appointment and under the direction of the Auditor. The Court's order of February 1, 1935 also undertook to terminate the corporate existence of the Bank.7

Several successor Receivers were appointed by the Auditor, the last of whom was John W. F. Smith, appointed October 1, 1945. On December 30, 1946, John W. F. Smith as Receiver filed a petition for permission to sell all the remaining assets of the Bank. The petition states that there may have been a number of property interests of which the Receiver had no knowledge and that he asks permission to sell all such unknown contingent interests. The petition was granted in every particular by the court, and February 4, 1947 was set as the date of sale. The sale was held and the contingent unknown interests were sold to the United Mercantile Agencies, Louisville, Kentucky. On February 21, 1947, the sale was approved by the court. A search of the records of the receivership by both parties does not reveal that the specific mineral rights here in question were ever sold as a known interest, or excepted from the final sale, leading, by a process of elimination, to the conclusion that these rights were among the unknown contingent interests alluded to by the Receiver in his petition for permission to sell. The order of approval empowered and directed the Receiver "to indorse, transfer, assign, quit claim, set over and deliver" the assets tendered for sale at the auction. In accordance with the order, Smith as Receiver made an assignment of interest to the United Mercantile Agencies on March 17, 1947, intended to cover the unknown contingent interests.8

On November 30, 1948, the court entered an order reciting that the Receiver had made lawful, proper, and appropriate disposition of all assets whatsoever belonging to the Bank, and that the affairs of the Bank had been fully liquidated under the direction and supervision of the Auditor, and that the Auditor had discharged the Receiver as evidenced by a Certificate of Discharge, of which a copy was attached to the court's order. The court took "judicial cognizance of the discharge" of the Receiver by the Auditor, terminated the jurisdiction of the court with reference to the receivership and again ordered that the Bank be dissolved.9

On August 25, 1949, United Mercantile Agencies undertook to transfer the unknown contingency interests to one R. L. Feltinton, defendant and appellee in this suit.10

In 1952, Phillips Petroleum, a lessee of some of the rights here involved, traced the title so as to obtain a ratification of its lease. To this end, several additional instruments were made by the parties to the "unknown contingency interests" sales. The first new instrument was an assignment of interest by Smith as Receiver to the United Mercantile Agencies, which specifically conveyed the "oil, gas and other mineral rights reserved by L. H. Heymann, Trustee, in lands acquired by him under deed from Erling C. Martinson recorded in Book 47, page 474, Pecos County, Texas Deed Records * * *." This instrument was back-dated to September 16, 1948, prior to the discharge of Smith as Receiver. A second instrument of assignment, which had been signed over by United Mercantile Agencies in blank in 1949 to R. L. Feltinton for the purpose of inserting the description of any "unknown contingency interests" which he uncovered, was also completed with the above description of mineral rights. These instruments, along with copies of the Illinois Receiver's sale proceedings, but excluding the March 17, 1947 assignment of interest from Smith as Receiver to United Mercantile Agencies (see footnote 8, supra), were filed for record in Pecos County, Texas.

In 1958 the appellant Horace Smith made an investigation of the present ownership of the interests here in question. He then bought up 21% of whatever interests the stockholders of the dissolved Bank might still have as a result of the liquidation and dissolution proceedings. In January 1959, he filed suit in Pecos County, Texas, seeking a determination of his interests and the appointment of a receiver for any remaining assets in Texas land of the now dissolved West Side Trust and Savings Bank. On March 3, 1959, G. C. Nunn was appointed Receiver.

At this point, the March 17, 1947 assignment of interest from Smith as Receiver to United Mercantile Agencies was filed for record in Pecos County. In April of 1959 the present suit was begun in the District Court of Pecos County, Texas, and removed by the defendants to the United States District Court for the Western District of Texas.

We have carefully considered each of the criticisms of the title claimed by the defendants through the sale made by the Illinois Receiver. We agree that the mineral royalty interests are "real property" under Texas decisions.11 We further agree that if the Illinois Receiver derived all of his title and authority from the Illinois court, the plaintiffs might prevail, for, under Texas public policy as defined by its legislature, no court, other than a Texas court, has power to appoint a receiver of property situated in Texas.12 The Illinois Receiver did not, however, rely simply upon the Illinois court for his title and authority.

The Bank was incorporated under the laws of Illinois. Subsequent to the enactment of Section 11 of the Illinois Banking Act, to which reference has been made, providing for the appointment of a receiver by the Auditor when the capital of the Bank has become impaired and the Auditor has determined that the Bank cannot be reorganized, this Bank's charter was amended to increase its capital stock. The Bank's charter was a contract between the Bank, its shareholders, and the State of Illinois; and the Illinois statutes became a part of that contract. Those statutes provided for the appointment by the Auditor of the receiver as statutory liquidator, and on his appointment, the receiver succeeded to the Bank's title to its assets of every description.13 The Texas decisions recognize the distinction between statutory liquidation and equity receivership.14 That Texas has no policy against transfer of title by the law of the state of incorporation to the liquidator of an insolvent or dissolved corporation is shown by Texas statutes making like provisions for Texas corporations.15 It is not necessary to decide whether Article IV, Section 1 of the Constitution of the United States and Section 1738 of Title 28 United States Code, require that Texas courts give full faith and credit to the Illinois statute under which title was vested by the Auditor in the Illinois Receiver, for under a very recent decision of the Supreme Court of Texas it would seem clear that, since no established public policy of the State of Texas has been violated, the Texas courts would recognize the title of the Illinois Receiver upon the principles of comity. McElreath v. McElreath, Tex.1961, 345 S.W.2d 722, 725.16

The description contained in the March 17, 1947, general assignment of interest by the Illinois Receiver to United Mercantile Agencies (see footnote 8, supra) was extremely general. The deposition of John W. F. Smith, the former Illinois Receiver, showed the description covered all of the assets of the Bank not known to the liquidating Receiver, and that he did not know of the royalty interests sued for. In Texas the description in a deed is not void for uncertainty unless, on its face, the description cannot be made certain by extrinsic evidence. 19 Tex.Jur.2d, Sec. 124, pp. 424, 425. Likewise, the description in the general assignment executed by United Mercantile Agencies, Inc., to R. L. Feltinton, defendant and appellee in this suit (see footnote 10, supra), could be made certain by extrinsic evidence. We do not find it necessary to pass upon the validity of the deed made by Smith as Receiver to the United Mercantile Agencies in 1952 and backdated to September 16, 1948. Nor is it necessary for us to rule upon Feltinton's authority to fill in a more specific description in the blank assignment delivered to him by United Mercantile Agencies.17

We conclude that all assets of the Bank were disposed of by the Illinois liquidating Receiver, and that the defendants-appellees deraign title through such disposition to the mineral royalty interests in suit. There being no substantial dispute as to the evidentiary facts, the question was properly decided by the district court on motions for summary judgment by denying the plaintiffs' motion and granting the defendants' motion. The judgment is

Affirmed.