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See Idaho Sess. Laws 1915, p. 216.

We find no reason for modifying the decree in pursuance of the exception.

The next error assigned is in respect to the provisions of the decree "intended to operate upon property and rights and to regulate the internal affairs of appellant in a foreign state." This subject has been fully treated of in case No. 2885, and what is said there has pertinent application here.

(9,10] The question pertaining to interstate waters is also disposed of in case No. 2885. This has direct bearing on the controversy presented by the amendment to the answer, that there is a defect of parties. The purpose of the suit is to quiet title to plaintiffs' water rights in Idaho. The court is without jurisdiction to settle water rights in Nevada. No complaint is made that parties other than the defendants are attempting to interfere with plaintiffs' acquired water rights in Idaho, and there can be no cause for injunction against others than the defendants until attempted interference is shown. If there are any others who have rights superior to plaintiffs' not parties to the suit, of course their rights cannot be precluded by the decree herein. They may yet assert such rights, but they are not necessary parties to this suit, not having attempted to assert them to the impairment of plaintiffs' contention.

[11] Another assignment is that the cause should be dismissed as to the Utah Construction Company. It appears that such company is the owner of a large proportion of the stock of the Land & Stock Company, and is in a position to control its action, and might attempt to do so. For this reason, it is at least a proper party to the suit.

Decree affirmed.

MCPHERSON et al. v. UNITED STATES et al.
(Circuit Court of Appeals, Sixth Circuit. August 1, 1917.)

No. 2867.

1. APPEAL AND ERROR 4-PROPER MODE OF REVIEW.

An order entered in a suit in equity brought by a receiver, vacating a previous order made on settlement of a compromise decree allowing fees

to counsel for the receiver, held properly reviewable by appeal. 2. RECEIVERS 96—APPOINTMENT OF COUNSEL-RECEIVER FOR COLLECTION OF

ASSETS.

The general rule that a receiver should not employ counsel of either party is limited to cases of adverse interest, and has no application to a case in which a receiver is appointed, in accordance with the prayer of the

bill, to recover property fraudulently conveyed by the defendant. 3. RECEIVERS 96—UNITED STATES ATTORNEY-APPOINTMENT AS COUNSEL

FOB RECEIVER.

The United States brought a suit in equity against a corporation, alleging that it had defrauded the government of internal revenue taxes, that it was insolvent, that its assets had been converted by stockholders, and praying for a receiver to recover such assets, and such receiver was

appointed. Held, that there was no impropriety in the appointment by For other cases see came topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

the court of the district attorney and assistant district attorney, who had brought the suit as counsel for the receiver, to bring suits against the

stockholders. 4. DISTRICT AND PROSECUTING ATTORNEYS Cw6(1)—UNITED STATES ATTORNEY

-RIGHT TO ACCEPT PRIVATE COMPENSATION—"CIVIL ACTIONS IN WHICH THE UNITED STATES ARE CONCERNED."

in a suit by the United States against a corporation, charged with having defrauded the government of internal revenue taxes, a receiver was appointed to recover money alleged to have been fraudulently converted by stockholders, and the district attorney and his assistant were appointed as his counsel. A suit was brought by the receiver against the stockholders, which was compromised and settled, the costs to be paid by defendants. On entry of the decree the court allowed a counsel fee to the receiver's attorneys, which was paid by the defendants. Criminal prosecutions for the fraud were also pending against certain of the defendants. Held, that the receiver's suit was ancillary to the main suit, and within Rev. St. § 771 (Comp. St. 1916, $ 1296), which makes it the duty of the district attorney to prosecute "all civil actions in which the United States are concerned," and that it would have been the official duty of the district attorney to conduct the suit, if requested by the Attorney General; that the fact that the appointment was made by the court without such request was immaterial, as it was known to the Attorney General, and the district attorney and his assistant were treated by him and the court throughout as representing the government, as they in fact did; and that it was contrary to public policy to permit them to receive private compensation, although paid by defendants for the performance of an official duty, at least without the consent of the Attorney General, and especially in view of the pending criminal prosecutions.

In Error to, and Appeal from, the District Court of the United States for the Southern District of Ohio; John E. Sater, Judge.

Ancillary suit by Edward L. Taylor, Jr., as receiver, against Dennis Kelly and others. Sherman T. McPherson and Harley E. Burns appeal from an order entered on motion of the Attorney General of the United States. Affirmed.

Lawrence Maxwell and Edward P. Moulinier, both of Cincinnati, Ohio, for plaintiffs in error and appellants.

Stuart R. Bolin, U. S. Atty., of Columbus, Ohio, for defendants in error and appellees.

Before WARRINGTON, KNAPPEN, and DENISON, Circuit Judges.

KNAPPEN, Circuit Judge. On April 10, 1915, the United States filed its amended bill in equity in the court below, alleging that the Capital City Dairy Company, of Columbus, Ohio, had defrauded the government out of large sums of money in connection with the manufacture and sale of artificially colored oleomargarine, through the payment of a tax of only one-quarter of a cent per pound applicable to the uncolored product, instead of 10 cents per pound to which artificially colored oleomargarine was subject; further alleging due estimate, as. sessment, and levy against the Dairy Company of a tax of more than $2,000,000 on account of those frauds, and the lien of the United States thereunder on all the Dairy Company's property, the sale under the levy of all that company's tangible property (leaving more than

For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

$1,800,000 still unpaid), the conversion by stockholders of the company's assets through the receipt of dividends not paid out of profits, the company's abandonment of its business, its insolvency, and its lack of assets except the sums misappropriated by stockholders; and praying for the appointment of a receiver, with authority to collect from stockholders the sums so misappropriated, and to apply the same toward the payment of the remaining lien of the United States. (The original bill had been filed February 5, 1915.)

The appellants McPherson and Burns, who were then respectively United States Attorney and Assistant United States Attorney for the Southern district of Ohio, signed the bill as solicitors for plaintiff. Nine days later Edward L. Taylor, Jr., was duly appointed receiver of the Dairy Company's assets, with authority to recover all property interests of the Dairy Company, and Messrs. McPherson and Burns were, on the court's own motion, designated as counsel for the receiver, "on account of the knowledge possessed by [them] of the matters affecting the defendant, its officers and stockholders." Two days later the receiver, under special leave granted, filed through appellants, as his solicitors and counsel, his bill against several stockholders of the Dairy Company, including Dennis Kelly, as well as representatives of the estates of two deceased stockholders and the wife of Dennis Kelly, to recover (and apply to the debt of the United States) corporate moneys fraudulently misappropriated and concealed.

In September, previous to the filing of the original bill for receivership, several of the defendants had been indicted in the District Court below on account of the frauds involved in the receivership suit. The indictments were still pending, and appellants were actively connected with the prosecutions, under direction of a special assistant to the Attorney General, and expected to take part in the trials which were soon to occur.

On April 28, 1915, seven days after the receiver's bill against the stockholders was filed, an offer of $400,000, made by the defendants other than the Pirrung estate, in settlement of the civil liability of all defendants except that estate, was accepted by the Attorney General, the defendants in that connection to pay the costs. This offer and this settlement were made and discussed at a conference in the office of the Commissioner of Internal Revenue, at which were present the Commissioner, his solicitor, the collector of internal revenue for the Southern district of Ohio, the receiver of the Dairy Company, Mr. Herron of the Attorney General's staff, the appellant McPherson, United States Attorney and solicitor for the receiver, and two counsel for the compromising defendants, as well as another official representing the government. Nine days after this conference and compromise, the various defendants involved filed a formal answer to the receiver's bill, and on the same day the receiver reported to the court and recommended the acceptance of the offer of “$400,000, and costs herein to this date, taxable against the last above named defendants, said costs to include such compensation for the receiver herein and fees for his attorneys as this court may order and direct to be paid.” The receiver's recommendation was approved by the court, and on the following day

(May 8th) the court fixed the receiver's compensation at $20,000, and that of the appellants, as attorneys for the receiver, at $20,000 in the aggregate. These two items of compensation were immediately paid by the defendants, in connection with the payment of the first installment of the compromise payment.

On June 1st the Attorney General moved to vacate the allowance to both the receiver and his counsel, whereupon each of the three persons concerned placed in the hands of the court the amount of the fee awarded and paid him, and expressed in writing his willingness that the court reconsider its allowance of fees and make such order as the facts might warrant.

The principal grounds of the Attorney General's motion (so far as counsel fees are concerned) were that appellants' service 'in question was an official service in an action to enforce a civil liability to the United States, for which compensation other than the official salary is forbidden; that the settlement involved the compromise of an alleged violation of the internal revenue laws, for which United States attorneys are forbidden to receive compensation; that appellants' relations to the pending criminal cases made such payment of counsel fees improper; that the order for payment was made without previous notice to the United States; and that the compensation allowed appellants was grossly excessive. The Attorney General also asked the annulment of the original designation of appellants as counsel for the receiver, for the reason that the action in which the receiver was appointed was begun by appellants as attorneys for the United States as plaintiffs, and that accordingly their appointment as attorneys for the receiver was improper.

[1] Hearing was at once had upon the Attorney General's motion, and resulted in an opinion by the District Judge that appellants were, in the prosecution of the receiver's suit, acting in their official capacity as United States Attorney and Assistant United States Attorney respectively, and so were not entitled to receive compensation other than their official salaries; also that the Attorney General had not consented to the payment of such compensation. The United States thereupon disclaiming right to the $20,000 paid appellants, and Daniel Kelly then applying for the same, the amount was returned to him, on his giving bond to pay appellants so much of the $20,000 as might thereafter be allowed to one or both of them. The question of the receiver's compensation was reserved by the court. Its order denying compensation to Messrs. McPherson and Burns is before us for review, both on appeal and writ of error. We think appeal the proper remedy, and the writ of error will be dismissed.

A further statement of facts will assist in an understanding of the controversy: On April 20, 1915, the day before the receiver's bill was actually filed, the Commissioner of Internal Revenue and the Attorney General were advised by appellant McPherson of the appointment of himself and appellant Burns as attorneys for the receiver; it appears that at the compromise conference in the Commissioner's office, when appellant McPherson stated that he would leave his fees to the court, Mr. Herron said that he (McPherson) "could not get anything for what

he had done prior to his appointment as attorney for the receiver”; that Mr. McPherson replied, “Of course not,” and that Mr. Herron then said, “Oh, well then, why talk about that?" and in his affidavit he states:

"Undoubtedly I gave the impression to the attorneys for the defendants that. in the settlement the matter of attorney's fees were not an item to be seriously considered, and undoubtedly Mr. Taylor, in his statement as to the court's fixing his fee, left the same impression on the minds of those present."

Mr. Herron, appellant McPherson, and Receiver Taylor, after the compromise was arrived at, went to the office of Assistant Attorney General Wallace, to whom the proposition was presented. Mr. Wallace then went to Attorney General Gregory, and received his approval of the compromise, which was reported back by Mr. Wallace to Messrs. Herron, McPherson, and Taylor. Mr. McPherson says expressly (and Mr. Taylor by apparently permissible implication) that Assistant Attorney General Wallace was informed of the agreement respecting fees of receiver's counsel. Mr. Wallace expressly denies this, and Mr. Herron says he has no recollection of anything being said at either conference with Mr. Wallace about receiver's fees or attorney's fees, and is "confident they were not mentioned.” Without questioning the good faith of Messrs. Taylor and McPherson, we cannot doubt that Mr. Wallace did not understand that feature of the situation, and had no idea that appellants were to receive any compensation for their services, except as included in their official salaries, and that had he so understood, he would not have assented to it; and it is clear that Attorney General Gregory was not advised of that feature. From what was said, however, at the conference first mentioned, and from the subsequent announcement of the compromise offer, we are convinced that appellants and the receiver, as well as defendants' counsel, understood (though, as it turned out, mistakenly) that the Department of Justice had consented that the costs to be paid should include the receiver's compensation as well as that of his counsel for services rendered after, but not before, the receiver was appointed, to be fixed by the court; and Mr. Herron's statement confirms the naturalness of such understanding. Acting on this understanding, the attorneys for defendants, together with the receiver and appellants, agreed between themselves that none of them should make any suggestion to the court as to the amount of either receiver's or attorney's fees; and in the order which was drafted by the participation of all the counsel concerned blanks for the items of compensation were left to be

1 Mr. Herron's affidavit states that it was understood that “the receiver was to be allowed by the court what his services justified, and that Mr. McPherson should receive the ordinary pay of an attorney for what he had done since his appointment as attorney for the receiver, but I did not think the matter was worth mentioning, and I am sure that no one spoke of it. I had given no thought to the impropriety of Mr. McPherson getting any compensation at all, feeling that he had done a great deal of valuable and unique work for the government, was a great factor in making the settlement, and therefore might well have an extra allowance made to him. I understood, however, that that allowance must be based on what he had done since he was appointed attorney for the receiver."

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