U.S. Supreme Court COMMONWEALTH OF PENNSYLVANIA v. WILLIAMS, 294 U.S. 176 (1935)

[Page 294 U.S. 176, 182]

the present objection be regarded as valid and as one which, in some circumstances, the court should take sua sponte at any stage of the proceedings, despite the waiver by the parties, compare Harkin v. Brundage, supra, 276 U.S. 52, 48 S.Ct. 268; Lewis v. Cocks, 23 Wall. 466, 470, the District Court was not without jurisdiction as a federal court, for these are questions which it is competent to decide. It was therefore invested with authority to hear and make disposition of the cause, which is not open to collateral attack, see Bryan v. Kennett, 113 U.S. 179, 198, 5 S.Ct. 407; Johnson v. Manhattan R. Co., 289 U.S. 479, 496, 50 S.Ct. 721, or subject to diminution or control by state statutes, see United States v. Howland, 4 Wheat. 108, 115; Neves v. Scott, 13 How. 268, 272; Mississippi Mills v. Cohn, , 204-206, 14 S.Ct. 75; Mason v. United States, 260 U.S. 545, 557, 43 S.Ct. 200. Error in the exercise of that jurisdiction can be remedied only by appeal. See Smith v. McKay, supra, 161 U.S. 358, 359, 16 S.Ct. 490.

2. The question remains whether, in the special circumstances of the case, the District Court rightly retained its jurisdiction. The relief prayed in the bill of complaint is equitable in its nature, and the prayer was addressed to the sound discretion which is the controlling guide of judicial action in every phase of a suit in equity. The relief sought, an injunction and the appointment of receivers, was aimed at the prevention of irreparable injury, from the waste of the assets of the insolvent corporation which would ensue from a race of creditors to secure payment of their claims by forced sale of the corporate property. By local statutes elaborate provision is made for accomplishing the same end, through the action of a state officer, in substantially the same manner and without substantially different results from those to be attained in receivership proceedings in the federal courts. [Footnote 1]

[Page 294 U.S. 176, 186]

involved in adopting that course would not result in the sacrifice of any vital interest of the insolvent corporation, its creditors or its stockholders. On the showing that their interests would be adequately protected by liquidation under the direction of the secretary of banking, the District Judge should have denied the application for the appointment of receivers, or, if he had already appointed them, should have discharged the receivers, and directed the surrender of the property in their possession to the secretary in order that the liquidation might proceed under the state statutes.

That course should be pursued now. For that purpose the decree will be reversed and the cause remanded. The District Court will direct that all assets and property in the possession of the receivers be, with all convenient speed, surrendered to the secretary of banking, the receivers retaining only sufficient of the assets of the defendant association to pay their reasonable fees and any obligations lawfully incurred by them. Jurisdiction will be retained by the district court only for that purpose and for the purpose of promptly discharging the receivers and settling their accounts, after which the suit will be dismissed. See Harkin v. Brundage, supra, 276 U.S. 57, 58, 48 S.Ct. 268.

Reversed. Footnotes

Footnote 1 The Pennsylvania Banking Act of 1923, P.L. 809, as amended by the Acts of 1927, P.L. 762, 1931, P.L. 193, 563, 1932 (Ex. Sess.) P.L. 7 (7 PS Pa. 1 et seq.), provides for the regulation and supervision of financial institutions, including building and loan associations. Section 21, as amended (7 PS Pa. 21) authorizes the secretary to take possession of the business and property of a building and loan association if its condition is 'unsafe or unsound,' or if the association has violated the law or an order of the secretary; he can take possession only after notice and hearing and after securing the approval of the Attorney General. Section 22 (7 PS Pa. 22) requires the secretary to file a certificate in his office and in that of the prothonotary of the court having jurisdiction ( by section 19 (7 PS Pa. 19) the court of common pleas of Dauphin county or of the county in which the corporation is located), stating that he has taken possession of the business and property of the association. The association may, under section 23, as amended (7 PS Pa. 23), obtain court review of the action, by application within ten days for a show cause rule.