295 U.S.

30
55 S.Ct. 584
79 L.Ed. 1282

GORDON, Secretary of Banking, et al.

v.
WASHINGTON et al. SAME v. O'BRIEN et al.
Nos. 549 and 550.
Argued March 7, 1935.
Decided April 1, 1935.

Messrs. Joseph K. Willing and William A. Schnader, both of Philadelphia,

Pa., for petitioners.
Mr. David Bortin, of Philadelphia, Pa., for respondents.
Mr. Justice STONE delivered the opinion of the Court.

In these cases certiorari was granted, 293 U.S. 553, 55 S.Ct. 347, 79 L.Ed. -,
to review a decree of the Court of Appeals for the Third Circuit, 73 F. (2d) 577,
which affirmed a decree of the District Court overruling motions to dismiss the
bills of complaint and to vacate the appointments of receivers. The questions
involved are of public importance. See Pennsylvania v. Williams, 294 U.S. 176,
55 S.Ct. 380, 79 L.Ed. 841; Gordon v. Ominsky, 294 U.S. 186, 55 S.Ct. 391, 79
L.Ed. 848; No. 431, Penn General Casualty Co. v. Pennsylvania, 294 U.S. 189,
55 S.Ct. 386, 79 L.Ed. 850, decided February 4, 1935.

On February 14, 1933, petitioner, the secretary of banking of the

commonwealth of Pennsylvania, took possession of the business and property
of the Chester County Trust Company, a Pennsylvania banking corporation. By
section 21 of the Banking Act of 1923, P.L. 809, as amended by Act May 5,
1927, P.L. 762, 7 (7 PS Pa. 21), he is authorized to take possession of and to
liquidate the business and property of banking corporations of the
commonwealth which are in 'an unsafe or unsound condition.' Pursuant to
section 22 (7 PS PA. 22), he filed a 'certificate of possession' in his office, and
on the following day filed a certified copy of the certificate with the
prothonotary of the court of common pleas of Chester county. When this is

done, he has, by section 29, as amended by Act May 5, 1927, P.L. 762, 11 (7
PS Pa. 29), the status of a receiver appointed by any court of equity of the
commonwealth.
3

Included in the business and property taken over by the secretary were two trust
funds, or 'mortgage pools,' consisting of mortgages held by the trust company
as fiduciary, against which it had issued participation certificates entitling the
holder to an undivided share in the principal and interest of mortgages
aggregating in excess of $2,900,000 in one pool and of $1,700,000 in the other.
The Department of Banking Code of May 15, 1933, P.L. 565 (71 PS Pa. 733
1 to 7331203), which became effective July 3, 1933, provides in section
701 (71 PS Pa. 733701) that the secretary, when in possession of the
business and property of a banking corporation, shall have the status of a
general receiver and be responsible to the court in which his certificate of
possession is filed, in this case the court of common pleas of Chester county,
and that he shall exercise all the rights, powers, and duties of the corporation
and succeed to its title and right to possession of all property and securities.
Article 9 of the Code, 901906 (71 PS Pa. 733901 to 733906),
provides for the disposition of the trust funds and mortgage pools of a trust
company taken over by the secretary. After he has filed a notice of his intention
to proceed with its liquidation, any certificate holder of a mortgage pool is
authorized to apply to the court for the appointment of a substituted fiduciary of
the pool. The secretary is required, 'as soon as it may be convenient,' to file in
court an account of the securities in any mortgage pool conducted by the trust
company, and he is directed to apply for the appointment of a substituted
fiduciary of the mortgage pool if, within thirty days after the filing of the
account, no certificate holder has made such an application. The Code thus
provides for the secretary's possession and administration of the mortgage pools
of a closed bank until such time as a substituted fiduciary is appointed.

The bills of complaint in the present suits, naming the secretary as defendant,
were respectively filed in the District Court on August 25 and August 28, 1933,
approximately a month and three weeks after the mortgage pool provisions of
the Banking Code had become effective. There is no material difference
between the two bills of complaint. The plaintiff in No. 549, respondent here, a
citizen of Connecticut, is alleged to be the owner of a participation certificate in
the larger of the two pools, and the plaintiff in No. 550, respondent here, a
citizen of New Jersey, is alleged to be the owner of a participation certificate in
the smaller. Each bill, after stating the facts already detailed with respect to the
secretary's possession of the property of the trust company, including the
mortgage pools, alleged that the plaintiff had received no interest or income on
his participation certificate after the secretary had taken possession; that the

secretary had filed no account of the mortgage pools; and avers, on information
and belief, 'that interest on many of the mortgages comprising said pool has not
been paid * * * and that little effort is made to secure the collection of the
interest. * * *' It is also alleged that: 'There is danger of sales by the respective
authorities by reason of the non-payment of taxes on said properties and that
little effort is being made to compel the payment of taxes. * * *' The bills
contain no charge of improper conduct, neglect, or mismanagement, or any
allegation that the failure of the mortgagors to pay interest and taxes was due to
want of diligence on the part of the secretary. They pray the appointment of a
receiver to take charge of, conserve, and administer all the assets comprising
the mortgage pools, but they do not ask the appointment of a new trustee or the
removal of the secretary, or pray any directions or instructions to him, or any
other relief except the usual injunction in aid of the receivership.
5

On the day the bill of complaint in the second suit was filed, attorneys for the
plaintiffs filed motions for the appointment of receivers. Two days later, on
August 30, 1933, upon telephone notice to the petitioners of an hour and a half,
the District Judge heard the motions and appointed receivers. The secretary
failed to surrender the mortgage pools to the receivers, and the District Court
issued, on September 2, 1933, a rule to show cause why the secretary should
not be adjudged in contempt. On September 4th, the court of common pleas of
Chester county, upon application by a mortgage pool certificate holder, issued
an injunction restraining the secretary from relinquishing possession of the
mortgage pool assets until further order of the court. On September 5th, the
petitioner filed answers to the petitions to punish for contempt, and made
motions, on affidavits and petitions, to dismiss the bills and to vacate the
appointment of the receivers. Both motions assailed the bills as not stating facts
to show that damage would be suffered by any party in interest if receivers
were not appointed. The motions to dismiss also challenged the 'authority' of
the District Court to appoint receivers. In the petitions to vacate the orders
appointing receivers, it was alleged that since the closing of the trust company
the secretary had continued to operate the mortgage pools and was ready to file
with the court of common pleas his account of assets comprising the pools, that
his management of them was in accordance with the Pennsylvania statutes, and
that he had conducted the mortgage pools 'with the utmost regard for the
interests of the participants.' No action appears to have been taken upon the
motion to adjudge the petitioners in contempt, but in denying, upon the
pleadings and motion papers, the motions to dismiss and to vacate the orders
appointing receivers, the District Court ruled that it had jurisdiction of the
cause as a federal court, and found that nothing had been done by the Banking
Department 'to provide the means for an active, intelligent, responsible
administration of its pools.'

The Court of Appeals ruled that the District Court had jurisdiction, since the
secretary, in taking possession of the mortgage pools, had acted by authority of
the statute and not under any order or decree of the state court. The assets, it
was said, were not in the actual or constructive possession of the state court,
and consequently there was no occasion to apply the rule of comity under
which a federal court will relinquish its jurisdiction in favor of a state court
which has first acquired possession of the property which is the subject of suit.
See Penn Casualty Co. v. Pennsylvania, supra. Upon the basis of the finding of
the District Court that the Banking Department had failed to provide suitable
means for the administration of the pools, it concluded that no abuse of
discretion in the appointment of receivers had been shown.

From what this Court has recently said in Pennsylvania v. Williams, supra, it is
evident that the District Court correctly determined that it had jurisdiction of
the cause. The requisite diversity of citizenship and the jurisdictional amount in
controversy are shown by the record and are unchallenged. The relief prayed
was that which a court of equity is competent to give. The bills of complaint
were therefore sufficient to invoke the power and authority conferred on the
District Court, by the Constitution and statutes of the United States, to entertain
the suit and render an appropriate decree.

Since the court had power to act, it is necessary to consider the various
objections urged to the decree only in so far as they are addressed to the
propriety of its action as a court of equity. These objections were not foreclosed
by the determination that the court had jurisdiction. By the Judiciary Act of
1789, c. 20, 11, 1 Stat. 73, 78; U.S.C., tit. 28, 41(1), 28 USCA 41(1), the
lower federal courts were given original jurisdiction 'of all suits * * * in equity,'
where the other jurisdictional requisites are satisfied. From the beginning, the
phrase 'suits in equity' has been understood to refer to suits in which relief is
sought according to the principles applied by the English Court of Chancery
before 1789, as they have been developed in the federal courts.1 Robinson v.
Campbell, 3 Wheat. 212, 221-223, 4 L.Ed. 372; United States v. Howland, 4
Wheat. 108, 115, 4 L.Ed. 526; Waterman v. Canal-Louisiana Bank & Trust
Co., 215 U.S. 33, 43, 30 S.Ct. 10, 54 L.Ed. 80. When the petitioners challenged
the sufficiency of the bills of complaint and the appropriateness of the
appointment of receivers, it was not enough for the District Court to decide that
as a federal court it had power to act. It should also have determined whether,
in accordance with the accepted principles of equity, any state of facts was
presented to it which called for the exercise of its extraordinary powers as a
court of equity. See Pennsylvania v. Williams, supra.

The sole relief prayed by the bills was the appointment of receivers and the

command of the court that property, shown to be in the lawful possession of the
petitioner acting as a temporary trustee or fiduciary, be surrendered to them. A
receivership is only a means to reach some legitimate end sought through the
exercise of the power of a court of equity. It is not an end in itself. Where a
final decree involving the disposition of property is appropriately asked, the
court in its discretion may appoint a receiver to preserve and protect the
property pending its final disposition. For that purpose, the court may appoint a
receiver of mortgaged property to protect and conserve it pending foreclosure.
Wallace v. Loomis, 97 U.S. 146, 162, 24 L.Ed. 895; Union Trust Co. v. Illinois
Midland Ry. Co., 117 U.S. 434, 455, 6 S.Ct. 809, 29 L.Ed. 963; Hitz v. Jenks,
123 U.S. 297, 306, 8 S.Ct. 143, 31 L.Ed. 156; Freedman's Saving & Trust Co.
v. Shepherd, 127 U.S. 494, 500504, 8 S.Ct. 1250, 32 L.Ed. 163; Shepherd v.
Pepper, 133 U.S. 626, 652, 10 S.Ct. 438, 33 L.Ed. 706, of trust property
pending the appointment of a new trustee, Underground Electric Rys. Co. v.
Owsley, 176 F. 26 (C.C.A.2d); Ball v. Tompkins, 41 F. 486, 489 (C.C.); cf.
Haines v. Carpenter, Fed. Cas. No. 5,905, 1 Woods, 262, affirmed 91 U.S. 254,
23 L.Ed. 345, or of property which a judgment creditor seeks to have applied to
the satisfaction of his judgment, Covington Draw Bridge Co. v. Shepherd, 21
How. 112, 125, 16 L.Ed. 38; Ogilvie v. Knox Insurance Co., 22 How. 380, 392,
16 L.Ed. 349; Ingle v. Jones, 9 Wall. 486, 498, 19 L.Ed. 621.
10

But there is no occasion for a court of equity to appoint a receiver of property of

which it is asked to make no further disposition. The English Chancery Court
from the beginning declined to exercise its jurisdiction for that purpose.
Anonymous, 1 Atkyns 489, 578; Ex parte Whitfield, 2 Atkyns 315; Goodman v.
Whitcomb, 1 Jacob & Walker 589, 592; Robinson v. Hadley, 11 Beavan 614;
Roberts v. Eberhardt, Kay 148, 160, 161.2 It is true that the receivership of an
insolvent corporation, upon the application of a simple contract creditor with
the consent of the corporation, has been recognized by the federal courts as an
appropriate form of relief when the end sought is the liquidation of the assets
and their equitable distribution among the creditors. Brown, etc., Co. v. Lake
Superior Iron Co., 134 U.S. 530, 10 S.Ct. 604, 33 L.Ed. 1021; In re
Metropolitan Railway Receivership, 208 U.S. 90, 109, 110, 28 S.Ct. 219, 52
L.Ed. 403; Pusey & Jones Co. v. Hanssen, 261 U.S. 491, 500, 501, 43 S.Ct.
454, 67 L.Ed. 763; United States v. Butterworth-Judson Corp., 269 U.S. 504,
513, 514, 46 S.Ct. 179, 70 L.Ed. 380; compare Harkin v. Brundage, 276 U.S.
36, 52, 48 S.Ct. 268, 72 L.Ed. 457; Michigan v. Michigan Trust Co., 286 U.S.
334, 345, 52 S.Ct. 512, 76 L.Ed. 1136; Shapiro v. Wilgus, 287 U.S. 348, 356,
53 S.Ct. 142, 77 L.Ed. 355, 85 A.L.R. 128; National Surety Co. v. Coriell, 289
U.S. 426, 436, 53 S.Ct. 678, 77 L.Ed. 1300, 88 A.L.R. 1231; First National
Bank v. Fiershem, 290 U.S. 504, 525, 54 S.Ct. 298, 78 L.Ed. 465, 90 A.L.R.
391. Whether this exercise of jurisdiction, to liquidate or conserve the assets of

a corporation through the agency of a receivership, is to be supported as an

extension of that exercised over decedents' estates, see Glenn on Liquidation,
154161, or of remedies afforded to judgment creditors where legal
remedies are inadequate, see Manhattan Rubber Mfg. Co. v. Lucey Mfg. Co., 5
F.(2d) 39, 42 (C.C.A.2d),3 it has never been extended to other classes of cases.
Whenever the attempt thus to extend it, by using the receivership as an end
instead of a means, has been brought to the attention of this Court, it has
pointed out that a federal court of equity will not appoint a receiver where the
appointment is not ancillary to some form of final relief which is appropriate
for equity to give. Pusey & Jones Co. v. Hanssen, supra, page 497 of 261 U.S.,
43 S.Ct. 454; Booth v. Clark, 17 How. 322, 331, 15 L.Ed. 164; see Lion
Bonding & Surety Co. v. Karatz, 262 U.S. 77, 43 S.Ct. 480, 67 L.Ed. 871;
Hollins v. Brierfield Coal & Iron Co., 150 U.S. 371, 14 S.Ct. 127, 37 L.Ed.
1113.
11

Respondents' bills of complaint not only failed to seek any remedy other than
the appointment of receivers, but they failed to disclose any basis for equitable
relief by the appointment of receivers or otherwise. Respondents are not shown
to be creditors, much less judgment creditors. As beneficiaries of the fiduciary
relationship of the trust company, and later of the secretary, to the mortgage
pools, they failed to allege misconduct or neglect on which any equitable relief
could be predicated. They did not show that there was any danger to the assets
of the mortgage pools, or to their management, which would be avoided or
removed by the appointment of receivers. Petitioner did not waive these defects
of the bills, or consent to the appointment of receivers.

12

We have recently had occasion to point out that a federal court, even in the
exercise of an equity jurisdiction not otherwise inappropriate, should not
appoint a receiver to displace the possession of a state officer lawfully
administering property for the benefit of interested parties, except where it
appears that the procedure afforded by state law is inadequate or that it will not
be diligently and honestly followed. Gordon v. Ominsky, supra; Pennsylvania
v. Williams, supra. Even when the bill of complaint states a cause of action in
equity, the summary remedy by receivership, with the attendant burdensome
expense, should be resorted to only on a plain showing of some threatened loss
or injury to the property, which the receivership would avoid. Here no such
showing was made. It is true the District Court found that nothing had been
done by the Banking Department to provide the means for an active, intelligent,
and responsible administration of the mortgage pools. The Court of Appeals, on
the basis of this finding, thought there had been no abuse of discretion. But that
finding is without support in the record.

13

The court below erred in not directing dismissal of the bills of complaint as
failing to state a cause of action in equity. The appointment of receivers, in the
circumstances, was an abuse of discretion which should have been promptly set
aside on the applications of the petitioner. The decrees below will be reversed,
and the cause remanded, with directions to the District Court to dismiss the
bills and discharge the receivers.

14

Reversed.

The Act of May 8, 1972, c. 36, 2, 1 Stat. 275, 276; U.S.C., tit. 28, 723, 28
USCA 723, further provided: 'That * * * the forms and modes of proceeding
in suits * * * shall be * * * in those of equity * * * according to the principles,
rules and usages which belong to courts of equity * * * as contradistinguished
from courts of common law. * * *' See Robinson v. Campbell, 3 Wheat. 212,
221, 222, 4 L.Ed. 372.

The jurisdiction of the English Court of Chancery to appoint a receiver for the
estates of infants, even though no other relief be asked, is a statutory
development since 1789. 4 and 5 Wm. IV, c. 78, 7. The appointment of a
receiver for the estate of a lunatic is a nonjudicial duty performed for the
Crown pursuant to statute. 17 Edw. II, c. 9, 10; see Sheldon v. Fortesque, 3
Peere Williams 104, n. 108. Further provisions for appointment of receivers by
interlocutory decree, whenever 'just or convenient,' were included in the
Judicature Act, 1873, 36 & 37 Victoria, c. 66, 25(8).

See, also, the authorities collected and discussed in Kroeger, The Jurisdiction of
Courts of Equity to Administer Insolvents' Estates, 9 St. Louis Law Rev., 87,
179.