Pusey & Jones Co. v. Hanssen
Headline: Federal courts cannot appoint receivers for insolvent Delaware corporations at the request of unsecured creditors, limiting the ability of such creditors to get emergency control over company assets.
Holding: The Court held that the Delaware statute allowing the state chancellor to appoint receivers does not give federal equity courts power to appoint receivers for unsecured simple contract creditors.
- Prevents unsecured creditors from getting federal receiverships under state statute
- Encourages creditors to use judgments, bankruptcy, or state courts instead
- Limits federal courts’ equitable power to follow state-created remedies
Summary
Background
Hanssen, a Norwegian subject who said he held promissory notes and claimed to be a stockholder, sued The Pusey & Jones Company, a Delaware corporation, in federal court. He relied on a Delaware law that lets the state chancellor appoint receivers when a corporation is insolvent and asked the federal court sitting in equity to name receivers to take charge of the company’s assets. The federal district court appointed receivers ex parte, the company objected and denied insolvency, and the lower federal courts ultimately confirmed the receivership before the case reached this Court.
Reasoning
The central question was whether a state statute that allows the state chancellor to appoint receivers gives federal equity courts the same power when an unsecured simple contract creditor asks for a receiver. The Court explained that an unsecured creditor has no substantive property right in a debtor’s assets and that a state law that merely creates a new remedy cannot enlarge the equitable jurisdiction of a federal court. The Bankruptcy Act and liens give different, substantive rights, but the Delaware statute simply empowered the state chancellor and did not create a substantive right enforceable in federal equity. The Court also noted that a later intervention by a creditor claiming a mortgage lien did not cure the original jurisdictional defect. The Supreme Court reversed the lower courts’ rulings.
Real world impact
Unsecured creditors cannot use a state receivership statute to force federal equity courts to appoint receivers; they must rely on other routes like obtaining judgments, pursuing state-court remedies, or using bankruptcy. The Court left unresolved whether Hanssen actually was a stockholder and did not decide whether a stockholder’s claim would change the outcome.
Dissents or concurrances
Two Justices, McKenna and Sutherland, dissented from the Court’s decision.
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