Smith v. American Industrial Research Corp.
Smith v. American Industrial Research Corp.
Opinion of the Court
In September 1974, the Securities and Exchange Commission (“SEC”) brought a fraud action in the Massachusetts federal district court against J & B Industries, American Industrial Research Corporation, and others (all of whom we shall refer to generically as the “AIRCO defendants”). The case was assigned to Senior Judge Murray, who, at the SEC’s request appointed a receiver, Daniel Bickford, “to protect and preserve the defendants’ property,” presumably for the benefit of defrauded investors. In February 1975, a group of those investors, known as the “Smith plaintiffs,” brought a similar private action, also in the Massachusetts federal district court. Although the private plaintiffs mentioned the SEC action as a related case, their case was assigned, not to Judge Murray, but to Judge Tauro. The SEC won its action before Judge Murray, who entered permanent injunctions against the defendants in 1975 and 1976. The private plaintiffs also won their action before Judge Tauro, primarily by default judgment.
Judge Tauro’s default judgment of November 1980
Bickford and the SEC base their argument in part upon the well-established rule that a receiver cannot be sued elsewhere than in the receivership court without that court’s permission. Barton v. Barbour, 104 U.S. 126, 26 L.Ed. 672 (1881). They add that Judge Murray did not give permission
The Smith plaintiffs respond that as a technical matter, permission to sue the receiver was not necessary because they sued in the same court (the District of Massachusetts), see Jerome v. McCarter, 94 U.S. 734, 737, 24 L.Ed. 136 (1877), albeit they were assigned a different judge. In any event, they claim that they received at least implied permission to-sue the receiver.
Rather than enter the metaphysical argument about whether the District of Massachusetts is one court or several, we resolve this controversy under our power to supervise the adequacy of judicial procedures in lower federal courts. See La Buy v. Howes Leather Co., 352 U.S. 249, 259-60, 77 S.Ct. 309, 315, 1 L.Ed.2d 290 (1957); In re Ellsberg, 446 F.2d 954, 956 (1st Cir. 1971); United States v. Butera, 420 F.2d 564, 567 n.2, 568 n.7 (1st Cir. 1970); Delaney v. United States, 199 F.2d 107 (1st Cir. 1952). See generally Note, The Judge Made Supervisory Power of the Federal Courts, 53 Geo.L.J. 1050 (1965); Note, The Supervisory Power of the Federal Courts, 76 Harv.L.Rev. 1656 (1963). Sound judicial management requires that the equities and priorities among claimants to receivership assets normally be determined in the receivership proceeding — in this case the proceeding before Judge Murray. Barton v. Barbour, 104 U.S. at 136. See generally, 7 Part 2 Moore’s Federal Practice, II 66.07[2] (1980); C. A. Wright & A. R. Miller Federal
For the most part, the Smith plaintiffs’ arguments to the contrary reflect a fear that the distribution will not be handled expeditiously or fairly in the receivership court. The record in this case, indeed, suggests that several years have passed without distribution,
The judgment entered by Judge Tauro will therefore be modified to strike from it paragraph five, which orders the receiver “to pay immediately and with priority, to each plaintiff the aforementioned sum due each plaintiff from the assets being held by him as receiver.” We assume that the receiver will proceed expeditiously to secure adoption in the receivership court of a plan for the distribution of assets, which plan will take appropriate account of any special equitable considerations of the Smith plaintiffs if they exist.
So ordered.
. Previously, default had been entered against the receiver in 1978. It was later removed with the assent of the plaintiffs. It was reentered in March 1980 when the receiver failed to appear at a status conference. Judgment was entered on this default in November 1980.
. Judge Tauro set a status conference in the Smith plaintiffs’ case for March 10, 1980. When neither Bickford nor anyone representing the AIRCO defendants appeared, he entered a default order. On May 13, 1980, the Smith plaintiffs moved for a default judgment. Judge Tauro referred the matter to Magistrate Cohen, who, after hearing from Bickford and others, recommended that the motion for default judgment be granted. On November 25, 1980, Judge Tauro entered a default judgment. And after Judge Tauro denied a motion to vacate the judgment as to the payment order, Bickford appealed. Certain claimants, (the “Cobuzzi plaintiffs”) who had previously intervened in the case, also appealed.
On April 14, 1981, Bickford, citing Rule 60(b), asked Judge Tauro for relief from the judgment. He noted that in the intervening few months, Judge Murray had begun to take steps to bring about a distribution of the assets and that Judge Murray had said he had not authorized any action before Judge Tauro against the receiver. Judge Tauro denied the receiver’s motion. The receiver also appeals from this denial.
All these appeals have been consolidated.
. They state that they were willing to have their case consolidated with the proceeding in Judge Murray’s court as early as October 1975, that the receiver and Judge Murray were aware that the receiver was a named defendant in their case and did not object, and that they actively sought to intervene in Judge Murray’s proceedings in May 1980, but that Judge Murray denied their motion to intervene. In doing so, Judge Murray wrote, Denial of intervention in the main action here will not militate against the moving parties seeking judgment of their claims in Civil Action No 75-732-T [in Judge Tauro’s court], in which they are plaintiffs. Neither will denial of intervention prevent them from pursuing any claim they may have against the assets in the hands of the receiver.
. Both the receiver and the SEC claim that Judge Murray’s actions, and the language quoted in note 3, supra, at most show that Judge Murray had no objection to Judge Tauro adjudicating whether the Smith plaintiffs had a lawful claim against the AIRCO defendants, that the receiver must recognize as such. We agree that Judge Murray nowhere indicates that he wishes or desires Judge Tauro to determine the appropriate distribution himself.
. Magistrate Cohen, in deciding whether to recommend removal of the default judgment as to the receiver, appears to have considered whether the judgment hurt Bickford, rather than considering whether it might injure other potential claimants not in the Smith action. Bickford pointed out the problem of these others:
MR. BICKFORD: . . . Now, what do you want me to do, Judge? . . . I’m in an awkward position because there are widows and orphans here. I don’t think Paul Smith’s wife ought to be put ahead of some poor, dumb widows and orphans out in the hinterlands.
THE COURT: Why do you really care?
MR. BICKFORD: It seems unjust, basically unjust.
THE COURT: You know, maybe you want to wear the robe, but that’s not your decision. Your decision is to marshal the assets and to disburse them according to court orders. And how are you prejudiced if Judge Tauro orders disbursement?
Neither the Magistrate, nor Judge Tauro, appears to have considered with care whether priority payment to the Smith plaintiffs would unfairly injure these others.
. Bickford stated that he simply did not receive notice of the conference. When he was shown records indicating that notice had been given, he conceded that his office might have been at fault. He noted that on other occasions he had shown up for hearings pursuant to a notice only to find that they had been moved or canceled. There is no indication of any culpable behavior on his part.
. The SEC first brought its case in Judge Murray’s court in 1974. There appear to have been few contested proceedings. Bickford was first made a temporary receiver in 1974, and then, in 1976, he was made a permanent receiver. No report on distribution was made to Judge Murray until April 21, 1981.
. A substantial amount of the roughly $40,000 in fees and administrative expenses that have been, or are likely to be paid out of the receivership assets, seem to represent charges related to the Smith plaintiffs. Moreover, the receiver has asked that “an additional amount of $18,-970.71 be reserved to cover this appeal” and some other expense.
. At no point prior to the entry of the default order was either Judge Tauro or Judge Murray clearly made aware of the likelihood of the conflict that has led to this appeal.
. In the hearing before us the following dialogues occurred:
JUDGE BREYER: I take it that what you are actually complaining about is that Judge Tau-ro entered an order saying the Smith plaintiffs should be paid first ... The receiver ... [is saying]: “It is my job to order in Judge Murray’s court who gets paid when. Really [the Smith plaintiffs] ... should just get a judgment in Judge Tauro’s court, come
over to Judge Murray’s court and they will be treated as they should be treated.” COUNSEL FOR THE RECEIVER: Precisely.
CHIEF JUDGE COFFIN: You have any objection to letting stand [Judge Tauro’s] judgment that a claim exists in x amount? COUNSEL FOR THE RECEIVER: No, Your Honor, I think that’s all he should have done.
Reference
- Full Case Name
- Frances SMITH v. AMERICAN INDUSTRIAL RESEARCH CORPORATION, Antonio Cobbuzi, Appellants Frances SMITH v. AMERICAN INDUSTRIAL RESEARCH CORPORATION, Daniel B. Bickford, Receiver, Appellant Frances SMITH v. AMERICAN INDUSTRIAL RESEARCH CORPORATION, (AIRCO), Daniel B. Bickford, Receiver
- Cited By
- 5 cases
- Status
- Published