This proceeding, commenced in 1923 in the federal court for southern New York, is what is called a friendly receivership. The federal jurisdiction was invoked solely on the ground of diversity of citizenship. The plaintiff, Hatch, a citizen of New York, is the holder of a dishonored check of the sole defendant, the Morosco Holding Company, Inc., a Delaware corporation, apparently with its principal place of business in New York. The bill alleges that the company has a variety of assets, largely intangible, and many liabilities, and that, although financially embarrassed, it is solvent. The prayers are that the court administer its entire property, appoint for this purpose a receiver, and enjoin all persons from interfering with his possession. An answer presented with the bill admitted its allegations and joined in its prayers. Riehle was appointed receiver. Thereafter orders were entered restraining the prosecution of suits against the company and directing creditors to file with the receiver their claims against the company. So far as appears, no order of distribution has been made.
Among the company's creditors, but not mentioned in the bill, was Margolies. Two months before the institution of this suit in the federal court, he had commenced in the Supreme Court of New York an action against the company to recover $124,381 for breach of a contract. That action, in which the company had filed an answer and counterclaim, was pending when the receiver was appointed. It was stayed by the order of the federal court. Margolies did not, so far as appears, challenge the jurisdiction of the federal court. Compare Harkin v. Brundage, 276 U.S. 36, 51-52, 48 S.C.t. 268, 72 L. Ed. 457; Lion Bonding & Surety Co. v. Karatz, 262 U.S. 77, 85, 43 S.C.t. 480, 67 L. Ed. 871; Pusey & Jones Co. v. Hanssen, 261 U.S. 491, 500, 43 S.C.t. 454, 67 L. Ed. 763. He applied to it for a modification of the order so that he might prosecute his action in the state court, and he sought to have the receiver directed to contest or liquidate the claim there. The denial by the District Court of that motion, and the contention by the receiver that the judgment later recovered in the state court is not to be accepted in the receivership proceedings as conclusive proof of the existence and amount of Margolies' claim, have been the subject of four decisions by the Circuit Court of Appeals for the Second Circuit. The last of them only is here for review, but what happened earlier must be stated. The record of the proceedings is fragmentary, but supplemented by the opinions of the Circuit Court of Appeals shows the following.
On the first appeal, Hatch v. Morosco Holding Co. (C. C. A.) 5 F.(2d) 1015, the unanimous court reversed, with costs as 'a plain violation of section 265 of the Judicial Code' (28 USCA § 379), the refusal of the District Court to permit Margolies to prosecute his claim in the state court. In doing so, the appellate court said: 'A direction will, however, be included in our mandate, and in the order to be entered thereupon, that should any judgment be entered in said action in the state court, such judgment shall not be taken to be a liquidation of any claim filed or capable of being filed under the judgment (sic) creditors' bill herein, or as in any way affecting the right of the receiver to contest the claim so reduced to judgment de novo. Nothing, however, in our mandate shall be taken to prevent the court below permitting liquidation of Margolies' claim by suit in the state court, should it prefer so to do.'
Upon the coming down of the mandate, Margolies moved in the District Court that the receiver be directed to liquidate the claim in the action pending in the state court. The motion was denied. Thereupon formal notice of trial of that action was served upon both the receiver and the attorney of record of the company. Neither appeared at the trial. Judgment by default was taken against the company, and, upon an inquest as to the amount of damages, judgment was entered in the sum of $55,283.88, which included interest and costs. Thereupon Margolies moved in the Circuit Court of Appeals that its mandate on the first appeal be recalled and corrected, so that the receiver should not be permitted to try de novo in the District Court the issue on his claim. This motion was denied by the Circuit Court of Appeals, apparently without an opinion.