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8 F.(2d) 65

the defendant superintendent under the statute, he must be deemed to be holding the funds as trustee ex maleficio because of his own knowledge and acts which resulted in the bonds, which he should have known were stolen, being sold, and the moneys delivered first to the Niagara Company, then to himself as superintendent.

While these conclusions seem the only ones that can reasonably be drawn from the facts of the case, it should be said that the motive which actuated the representatives of the superintendent was not an unworthy one. No personal gain of any kind could come to the superintendent nor his representatives. Their primary thought, no doubt, was the welfare of the policy holders of the Niagara Company. Hadley used these words, "It puts the company in such financial condition that it can be reinsured now, whatever happens." While the superintendent and his representatives are not to be criticized for making the welfare of the policy holders the primary consideration in the acts which they did, the legal result, so far as the chargeability of these funds in the possession of either the Niagara Company or of the superintendent of insurance with a lien in favor of the bona fide owner of the securities is concerned, is not changed. Fortunately the policy holders will not suffer, for the situation here resolves itself into a question of greater right between the Warren bank and the defendant Metropolitan Insurance Company, which received all the assets except this fund, and assumed the obligations of the Niagara Company.

[9] The final question in the case is, Is the equity of the Metropolitan Company greater than that of the plaintiff The Metropolitan Company claims to be a purchaser in good faith for a valuable consideration, without notice, and that it is entitled to hold these moneys against all the world. The contract between the superintendent and the Metropolitan Company reads in part as follows, the superintendent being the party of the first part:

"I. The party of the first part agrees to deed, assign, set over, and transfer, with good and sufficient conveyances and the appropriate evidences of transfer, to the party of the second part, all of the assets of the Niagara Life Insurance Company, except an amount thereof sufficient to liquidate the business of said company, as more particularly set forth in a schedule hereto annexed, and made a part hereof, known as schedule A, at a value set opposite each such asset, which value shall be controlling for the purposes hereof."

It will be seen that the amount reserved for liquidating the business of the company is not stated, nor is it elsewhere stated in the contract, nor is there any limitation placed on the amount anywhere in the contract.

While it is clear that the Metropolitan Company did not have in mind any claim of the Warren bank or its receiver for an equitable lien on $39,130.08 when the terms of the contract were agreed upon about February 19, 1923, the terms of the contract are sufficiently elastic to include a reservation of sufficient funds to liquidate all the affairs of the company. The amount was not capable of determination at that time. The taking effect of the contract was conditional on the approval of the Supreme Court of New York State.

As has been stated, when the matter came up for approval before the court on the afternoon of February 23, 1923, Assistant United States Attorney Selby Smith informed the court, in the presence of the defendant superintendent and his attorneys, that the receiver of the Warren bank claimed that $39,130.08 of the moneys in possession of the Niagara Company were the proceeds of the sale of bonds stolen from the Warren bank by Marsino and sold through O'Brien, Potter & Co. of Buffalo on February 7th, and Mr. Selby Smith asked the court to delay approval of the contract until he could seek instructions from the Attorney General of the United States about obtaining an injunction restraining the payment of this sum to the Metropolitan Company. The court would adjourn the matter but one day, at which time it was granted. No one representing the Metropolitan Company was in court at that time.

It is to be noted that on such motion the New York Supreme Court had no jurisdiction to pass on the claim of the Warren bank. The Insurance Law provides for the liquidation of an insurance company and the determination by the superintendent of insurance of ordinary claims against such a company. The court doubtless was anxious not to jeopardize the reinsuring of the multitude of policy holders of the Niagara Company, and signed the order with full appreciation that the Warren bank could litigate its claim to a lien on the funds in question in a proper tribunal. Leave to bring this suit was shortly thereafter granted by another judge of that court.

The daily papers in Buffalo on February 22d, 23d, and 24th and the New York Times, New York Sun, and New York Tribune of February 22d, 23d and 24th, carried arti

cles stating that Marsino had looted the Warren bank of over $200,000 worth of securities, and had sold most of them in Buffalo, and that the Niagara Life Insurance Company, which Marsino also controlled, had received some of the proceeds of the sale of the stolen bonds.

On February 24, 1923, the New York Times contained an article on the front page with heavy headlines at the top of one or more columns reading thus:

"Hope to Save $39,000 of Marsino Thefts. "Govt. Seeks to Recover for Benefit of Warren Bank."

The article starts as follows:

"Buffalo, Feby. 23. The U. S. Govt. served notice today that it will try to recover for the depositors of the First National Bank of Warren, Mass., $39,000 which was put into the treasury of the Niagara Life Insurance Company by Joseph B. Marsino just before the crash which wrecked the Niagara Life and two banks under Marsino's control. The government acted when application was made in the Supreme Court for an order permitting the state superintendent of insurance to dissolve the Niagara Life Insurance Company and reinsure the policy holders in the Metropolitan Life Insurance Company.

To the same effect was an article on the front page of the New York Tribune of the same day.

The articles appeared in these New York papers some hours before the court at Buffalo on February 24th approved the reinsurance contract, and almost a whole working day before the contract was signed by the Metropolitan Company in New York City in the late afternoon, after receipt of word that the court had approved the contract.

It is difficult to believe that the attention of the Metropolitan Company, whose office, with its large staff, is in New York City, was not drawn to these articles. Moreover, a telegram was sent from Boston, Mass., about 3 p. m. on the same 24th day of February by the plaintiff receiver to the Metropolitan Company at its New York office, and a like telegram to the superintendent at Albany, making claim to this $39,130.08, and a letter was mailed at Buffalo by United States Attorney Selby Smith on the forenoon of the 24th to the Metropolitan Company, which was received on February 26th, notifying the company that the receiver of the Warren bank claimed as his property the said sum. The Metropolitan Company contents itself with presenting a witness to tell

that no record of the telegram can be found in the files of the company. This is not weighty evidence. No denial is made of the receipt of the letter on February 26th.

Beside the extreme probability that the Metropolitan Company knew before signing the contract at 5 to 6 o'clock in the afternoon of February 24th of the claim of the Warren bank, as contained in the leading New York morning papers, there can be no doubt that the company knew of the claim on the 26th, two days before the time fixed for taking over the assets. It could have withdrawn and refused to perform within the two days, on the ground that the superintendent concealed the fact that claim was made to a portion of the assets by the Warren bank. It elected not to do so, but to carry out its contract and take its chances in court of holding the contested sum. Perhaps it believed the question would be determined by the defendant superintendent in liquidation proceedings under the Insurance Law. Having knowledge of the claim of the Warren bank, it did not take the $39,130.08 when it took the rest of the assets of the Niagara Company, but left this sum with the defendant superintendent until the right of the plaintiff was determined.

Knowing, while there was yet time to withdraw from the contract, if not before signing, of the claim of the plaintiff, the defendant Metropolitan Company is not an innocent purchaser in good faith without notice. It stands stripped of its claim of greater equity. It took the fund, or the contract right to the fund, with notice, and now has only the legal standing to require plaintiff to prove his claim. This the plaintiff has done, and the Metropolitan Company, like the defendant superintendent of insurance, must be defeated.

The contention of the defendant Metropolitan Company that it is protected by the order of the court authorizing the contract is untenable. That doctrine has no application to the facts of this case.

[10] The plaintiff claims interest on the deposits from the defendant Superintendent of Insurance. The jurisdiction of this court in this action is limited strictly to the res, and does not run to the person of the superintendent beyond his custody of the res. The superintendent as an individual defendant was stricken out by consent. The plaintiff is entitled to all such interest upon this fund as has accrued and actually been received by the superintendent or which he is entitled to receive. This interest is presumably less than 6 per cent. To allow the plain

8 F.(2d) 79

tiff the 6 per cent. against the defendant is to project the judgment of the court beyond the res, and to treat the suit as if it were in personam as well as in rem. It would not be just to require the superintendent to pay out of his own pocket a sum represented by the difference between the interest received and the interest at 6 per cent., and this is especially so since the present defendant superintendent, who must obey the decree of the court, is not the same person who, as superintendent, did, or required to be done, the things which resulted in the sale of the bonds and the taking of the proceeds thereof by the Niagara Company. Neither the former nor the present superintendent had or has any personal interest of any kind in this fund.

There is no proof in this case as to what interest has accrued from this fund. Unless the parties agree thereon, proof may be offered, and the plaintiff may have decree, impressing the lien upon the fund, together with such interest as has accrued thereon running to the defendant superintendent, directing the payment of the fund and interest to the plaintiff receiver, restraining the superintendent from paying it to the Metropolitan Company, and restraining the Metropolitan Company from accepting the fund from the superintendent, with costs against the defendants.

BASHINSKY COTTON CO., Inc., v. UNITED
STATES.

(District Court, S. D. New York. January 4, 1923.)

Admiralty 26-Suits in Admiralty Act allows suit in personam.

Suits in Admiralty Act, in view of sections 3, 6 (Comp. St. Ann. Supp. 1923, §§ 12514b, 12514e), notwithstanding history in Congress, held not limited to actions in rem, but to contemplate action in personam against the gov

ernment.

In Admiralty. Libel by the Bashinsky Cotton Company, Inc., against the United States. Exceptions to libel overruled.

Duncan & Mount, of New York City, for libelant.

William Hayward, U. S. Atty., of New York City.

MACK, Circuit Judge. The exceptions raise the question whether or not, under the Suits in Admiralty Act (Comp. St. Ann. Supp. 1923, §§ 12514-12514), a suit in personam can be maintained against the government. Section 3 of that act (U. S. Comp. St. Ann. Supp. 1923, § 12514b) provides:

"If the libelant so elects in his libel the suit may proceed in accordance with the principles of libels in rem wherever it shall appear that had the vessel or cargo been privately owned and possessed a libel in rem might have been maintained. The election so to proceed shall not preclude the libelant in any proper case from seeking relief in personam in the same suit."

Section 6 (Comp. St. Ann. Supp. 1923, § 12514e) further provides:

"That the United States or such corporation shall be entitled to the benefits of all exemptions and of all limitations of liability accorded by law to the owners, charterers, operators, or agents of vessels."

It is difficult, in view of the wording of these sections, fairly to construe the act as limited to actions in rem. The sections above quoted would be almost meaningless, if actions in personam were not contemplated. True, in the report of the House Committee of the Judiciary, on the Suits in Admiralty Act, it was stated that "the object of this bill is not to add to the liability of the government, but to prevent the seizure and detention of our ships so as to eliminate this unnecessary loss."

While the main purpose of Congress may have been to alter the method of procedure with respect of a previously recognized liability, it would be sheer fiction to assume that Congress was influenced by the fact that, technically, the previously recognized liability was in rem only. The act, fairly and organically construed, in my judgment, embraces actions in personam as well as in

rem.

The action is for breach of contract, not for a tort, in failing properly to stow the cargo. Exceptions overruled.

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1. Admiralty 26-Suit purely in personam against United States not authorized by Suits in Admiralty Act.

Suits in Admiralty Act, § 3 (Comp. St. Ann. Supp. 1923, § 12514b), does not authorize suits purely in personam against the United States, but merely allows relief in personam in connection with suit in lieu of libel in rem.

2. United States 125-Remedy for imposi tion on government of contract liability, not sounding in tort, provided by Tucker Act.

The Tucker Act provides a remedy for im

position on the government of contract liability

not sounding in tort.

In Admiralty. Libel by W. R. Grace & Co. against the United States, as the owner of the steamship Cape Fear. Exceptions

to libel sustained.

Kirlin, Woolsey, Campbell, Hickox & Keating, of New York City (Cletus Keating, of New York City, of counsel), for libelant.

William Hayward, of New York City,

(Burlingham, Veeder, Masten & Bearey, James A. Hatch, Ray Rood Allen, and William J. Dean, all of New York City, of counsel), for the United States.

KNOX, District Judge. This libel, filed May 25, 1922, is against the United States in personam. Libelant is a corporation of Connecticut, having its principal place of business within this district, and it alleges as follows:

That the government is, and at all times mentioned in the libel was, the owner of the steamship Cape Fear, employed as a merchant vessel, which is now, or during the pendency of this action will be, within this district. On April 9, 1920, the Nitrate Agencies, Limited, shipped on board the Cape Fear, then lying at Iquique, 37,411 bags of nitrate of soda, in good order and condition, to be carried to Martinique, and there to be delivered in like order to libelant, in consideration of a freight charge agreed upon and paid, and pursuant to the terms of a valid bill of lading. Thereafter the ship arrived at Martinique and made a short delivery of the cargo, whereby libelant was damaged in the sum of $11,000. Recovery of this sum is sought, and libelant elects to have the suit proceed in accordance with the principles applicable to libels in rem, pursuant to the Act of Congress of March 9,

1920 (41 Stat. 525 [Comp. St. Ann. Supp. 1923, §§ 12514-125141]), the Suits in Admiralty Act.

[1] Respondent's exceptions are directed to the alleged lack of jurisdiction of this court, in that the Cape Fear sank and became a total loss in Narragansett Bay upon October 29, 1920, and therefore was not in any port of the United States, or her possessions, and was not employed at the time of suit as a merchant vessel. In view of the decision of the Supreme Court upon January 2, 1923, in Blamberg v. United States, 260 U. S. 452, 43 S. Ct. 179, 67 L. Ed. 346, and the ruling of Judge Learned Hand in Mack Engineering & Supply Co. v. United States (D. C.) 291 F. 713, upon October 9, 1922, to the effect that a suit in personam against the United States, as a substitute for a libel in rem, will not lie when the government vessel, whose fault is alleged, is not in a port of the United States, or of one of her possessions, libelant consents that all allegations sounding in rem may be stricken from the

pleading.

It is insisted, however, that under the act

libelant is entitled here and now to proceed against the United States upon its personal liability, as contained in the bill of lading signed by the master of the Cape Fear. The argument is that section 3 of the act (Comp. St. Ann. Supp. 1923, § 12514b), containing the words that "election so to proceed shall not preclude the libelant in any proper case from seeking relief in personam in the same suit," means that this suit is authorized, irrespective of whether an action in rem would lie against a government vessel, if it were privately owned. By way of support to such contention, I am referred to decisions made in this court in the cases of Galban Lobo & Co., S. A. v. United States, 285 F. 665, June 26, 1922, and Bashinsky Cotton Co., Inc., V. United States, 8 F. (2d) 79, January 4, 1923, and to the ruling had in the Eastern District of Virginia in Eastern Transportation Co. and Duke v. United States, 283 F. 1015.

In the first of such decisions, Judge Augustus N. Hand said, by way of dictum, that he thought the above-quoted words of the act indicate that an action in personam would lie against the United States arising out of its operation of merchant vessels. Judge Mack, who decided the Bashinsky Cotton Co. Case, said that, "while the main purpose of Congress may have been to alter the method of procedure with respect to a previously recognized liability, it would be sheer fiction

8 F.(2d) 81

to assume that Congress was influenced by the fact that, technically, the previously recognized liability was in rem only. The act, fairly and organically construed, in my judgment, embraces actions in personam as well as in rem."

And in the Eastern Transportation Case, supra, Judge Groner, while not definitely passing upon the question of whether the Suits in Admiralty Act merely substituted an action in personam for one in rem, when the vessel had become a total loss, declined to dismiss the libel upon motion.

Faced with the decisions last referred to, it is with diffidence that I record my judgment that the exceptions to the instant libel, treating it as one sounding only in personam, should be sustained. But, as I read the portion of section 3 of the act relating to actions in personam, it permits such relief to be sought only as and when the same might be asked against a private respondent as a part of or in conjunction with a suit in rem of which the court has jurisdiction. As respondent expresses the thought, the quoted words of the statute merely declare that the same principles of law and practice shall apply in authorized suits against the United States as apply in suits against private own

ers.

In this behalf it is suggested that the admiralty sometimes applies a different rule according as suit is brought in rem or in personam; for example, in a collision case. where compulsory pilotage is a defense to a suit in personam, but not to a suit in rem. such would seem to be the proper construction from what transpired upon the hearings had upon the bill (hearings before House Judiciary Committee in H. R. 7124, p. 16), and from the changes made in the bill as originally proposed. It was first proposed

that the District Court would be vested with

jurisdiction of a suit in admiralty against
the United States "for any cause of action of
which said courts ordinarily have cognizance
in their admiralty and maritime jurisdictions
in connection with the possession,
operation or ownership by the United States
of any merchant vessel
where, if the United States were suable as
a private party a suit in personam could be
maintained, or where, if the vessel were pri-
vately owned and possessed a libel in rem
could be maintained
at the time

of the commencement of suit." Hearings be-
fore the Committee on the Judiciary H. R.
66th Congress, 1st Session, on H. R. 7124,
August 26, 1919, pp. 11, 12.
8 F. (2d)-6

Manifestly the language here used is much more comprehensive than that relating to suits in personam, as contained in the stat ute as passed. The change in phraseology means something, and in my opinion it is that a suit such as the present may not be maintained under the act.

[2] Furthermore, it would appear that, so far as concerns the imposition of a contract liability upon the government, and which does not sound in tort, the Tucker Act (24 Stat. 505) had already provided a remedy (The Isonomia [C. C. A.] 285 F. 516), and further legislation upon the subject was unnecessary.

From the foregoing, I conclude that, the Cape Fear having been lost, the court has no jurisdiction of this suit, and the exceptions will be sustained.

ATLANTIC FRUIT COMPANY v. UNITED
STATES.

THE COOSA.

(District Court, S. D. New York. August 15, 1923.)

1. Admiralty 32-Vessel must be in district for proceeding in rem against United States.

Court has no jurisdiction over the United States by a proceeding in rem, or one in personam as a substitute therefor under Suits in

Admiralty Act, § 2 (Comp. St. Ann. Supp. 1923, § 1251a), the vessel not being in the district.

2. Admiralty ~66 Amendment of libel
against the United States, to make it one in
personam, not allowed.

libelants have elected to proceed in accordance
Libel against United States, stating that
with the principles of libels in rem, and the
appearance of the government being special, li-
change the action to one in personam.
belant cannot be allowed an amendment to

3. Admiralty 65-Filing of special pleas to
jurisdiction and in bar, and framing issues
thereunder, proper practice.

Filing of special pleas to jurisdiction and in bar, and framing issues arising thereunder, held proper practice.

In Admiralty. Libel by the Atlantic Fruit Company against the United States, owner of the Coosa. On motion by both parties. Libelant's motion to amend denied; respondent's motion to allow filing of exceptions and special pleas, etc., granted.

Hunt, Hill & Betts, of New York City, for libelant.

William Hayward, U. S. Atty., and Kirlin, Woolsey, Campbell, Hickox & Keating,

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