Grant v. A. B. Leach & Co.

Background

Grant, an Ohio citizen, was appointed by an Ohio Common Pleas Court as receiver for Struthers Furnace Company. Leach & Co., a New York corporation, had received many of the company’s mortgage bonds in exchange for preferred stock and cash. A mortgage trustee and a preferred stockholder asked the state court for a receiver to preserve assets. The state court empowered Grant to take all company property and to do what was necessary to protect creditors and stockholders, and it later authorized him to sue Leach in federal district court to recover the bonds or their value. The federal District Court ruled for Grant, but the Circuit Court of Appeals reversed and dismissed the case, holding the state court could not authorize the suit.

Reasoning

The central question was whether the state court validly authorized its receiver to bring this suit in a federal district court within the same state. The Court found the state court had power under Ohio law to appoint a receiver of all the company’s property and to let the receiver bring actions “respecting the property.” Because the receiver was appointed over all assets and the suit concerned a company claim, the authorization was within the court’s discretion and could not be attacked collaterally. The general rule that a state chancery receiver cannot sue in a foreign jurisdiction did not apply because the federal court lay in the same State.

Real world impact

The ruling lets state-appointed receivers bring related lawsuits in federal district courts located in the same state when the state court so authorizes. It requires courts reviewing such suits to reach the actual merits rather than dismissing them on collateral authority grounds. Creditors, stockholders, and buyers of corporate assets should expect federal courts to decide these disputes on the facts.