Roos v. Texas Co., 23 F.2d 171 (2d Cir. 1927)

Roosevelt & O'Connor, of New York City (Franklin D. Roosevelt, D. Basil O'Connor, and Arnold T. Koch, all of New York City, of counsel), for appellant.

T. J. Lawhon, of Houston, Tex., and Harry T. Klein, of New York City, for appellee.

Before L. HAND and SWAN, Circuit Judges.

L. HAND, Circuit Judge (after stating the facts as above).

The bill is so much made up of charges of evidence and rhetorical narrative *172 that it is nearly impossible to ascertain from it the "ultimate facts." The pleader has wholly disregarded equity rule 25, and proceeded as if he were drafting an ancient bill in equity. However, with this we have nothing to do at present; the only question is whether the Mexican corporation and the plaintiff's attorneys were indispensable parties to the suit. The defendant's argument is that no decree can be entered which will not so involve their interests as to prevent justice being done.

Section 50 of the Judicial Code (Comp. St. § 1032) and rule 39 of the Equity Rules, so far as here relevant, are identical in substance; they give discretion to the court to proceed without parties ordinarily necessary under equity practice, but prescribe that the decree must be without prejudice to those who are absent. In many decisions it has been laid down that the test is one of substance; that is, whether the plaintiff can obtain relief which will later leave open to the absent parties the effective assertion of their rights, Shields v. Barrow, 17 How. 129, 15 L. Ed. 158; Mallow v. Hinde, 12 Wheat. 193, 6 L. Ed. 599; Payne v. Hook, 7 Wall. 425, 19 L. Ed. 260; Gregory v. Stetson, 133 U.S. 579, 10 S. Ct. 422, 33 L. Ed. 792; California v. So. Pac. Co., 157 U.S. 229, 15 S. Ct. 591, 39 L. Ed. 683; Waterman v. Canal-Louisiana Bank, 215 U.S. 33, 30 S. Ct. 10, 54 L. Ed. 80; Camp v. Gress, 250 U.S. 308, 39 S. Ct. 478, 63 L. Ed. 997; Commonwealth Trust Co. v. Smith, 266 U.S. 152, 45 S. Ct. 26, 69 L. Ed. 219. The general statement does little to advance matters, until one knows what is the test by which to ascertain when such rights can be protected and when not, and this we understand to be an entirely practical question, dependent in each case upon the facts.

The decisions are numerous and complicated in the facts; from them it is impossible to extract any general rule. Rescission of a contract, or declaration of its invalidity, as to some of the parties, but not as to others, is not generally permitted. Shields v. Barrow, supra; Board of Trustees of Oberlin College v. Blair (C. C.) 70 F. 414; Vincent Oil Co. v. Gulf Refining Co., 195 F. 434 (C. C. A. 5). Williams v. Crabb, 117 F. 193, 59 L. R. A. 425 (C. C. A. 7), seems hardly consistent with these. In partition suits it is plain that all parties must be present. Barney v. Baltimore, 6 Wall. 280, 18 L. Ed. 825. So, too, when transfers of possession, or injunctions, are at stake. South Penn Oil Company v. Miller, 175 F. 729 (C. C. A. 4). Possibly Associated Oil Co. v. Miller, 269 F. 16 (C. C. A. 5), might have gone the other way, since the rights of the absent parties would not seem to have been prejudiced by any decree. Our decision in Cristin v. Leonard, 209 F. 49, was apparently in an action by two out of three joint obligees, and, as it would have been impossible for the obligees to recover a proportionate part of the damages, the absent obligee was thought indispensable. Not so, however, in the case of joint obligors. Camp v. Gress, 250 U.S. 308, 39 S. Ct. 478, 63 L. Ed. 997.

On the other hand, it is well settled that a part of the beneficiaries of a trust may sue alone, though the fiduciary may later be subjected to another suit. Payne v. Hook, 7 Wall. 425, 19 L. Ed. 260; Waterman v. Canal-Louisiana Bank, 215 U.S. 33, 30 S. Ct. 10, 54 L. Ed. 80; Rogers v. Penobscot Mining Co., 154 F. 606 (C. C. A. 8); Thomas v. Anderson, 223 F. 41 (C. C. A. 8). This was the rationale of Williams v. Crabb, in spite of its involving a declaration of the invalidity of a will and deed. In the case at bar we think that this last rule would be applicable, were it not for the provision charging the whole half with a one-fourth interest therein reserved to the attorneys. Otherwise, the case appears to us indistinguishable from the usual one where the beneficiaries hold in separate rights. Brooks was to pay the attorneys directly, and each party had a separate right of action, if both were not within the reach of process. The inconvenience to the trustee from a duplication of suits is not considered a sufficient counterweight to the hardship of denying any relief to a beneficiary who cannot bring in all. Williams v. Crabb, supra.

However, we cannot ignore the charge of the attorneys' one-fourth interest upon the joint share of themselves and the plaintiff. This was, of course, meant to have some effect, and we can interpret it in no other way than as giving them a lien upon, and therefore a priority in, any payments made upon that half. We do not forget the plaintiff's argument that the two interests were to be paid by Brooks directly and pari passu. That, of course, was true, and was indeed practically necessary, since the attorneys' interest was not measured by a fixed sum, but by an aliquot part. Priority could not mean that they should be paid all their share before the plaintiff got any. Nevertheless the charge did mean something, and that something some kind of security. What could the security be? It means that, in the event of a default by Brooks in paying to them their share of any income actually due, the attorneys should *173 have a lien upon the whole amount due. Brooks might and should pay both interests in their proportions as the money was earned, but, if he failed, the attorneys had first call upon what could be recovered.

If this be correct, then it is plainly a violation of the contract to allow the plaintiff to recover three-fourths of the moneys due, leaving the attorneys to recover their one-fourth by a separate suit. By hypothesis this money is already due, and the defendant, vice Brooks, has failed to pay it. It should pay both, no doubt; but, there being a default, as between the two the attorneys are preferred. Thus only can their lien be preserved. We have no right to take judicial notice that, if the plaintiff recovers, the defendant must inevitably be responsible for the balance. It leaves the attorneys in a very different position from that stipulated to allow the plaintiff to make off with his share, leaving them to sue the defendant for theirs, and, if they are unsuccessful, to pursue the plaintiff personally. They had a lien on the joint interest and this must be preserved.

It would at first blush seem true that the decree might provide for this by impounding a third of the plaintiff's recovery in the registry of the court for the attorneys' benefit, but there are difficulties also in that. The plaintiff might succeed in recovering less than the full amount actually due upon the joint interest. He might even claim less than the attorneys would be content to accept. Certainly in his accounting his proof might fail to establish all that they might prove. To reserve only a third of his recovery would not therefore protect the attorneys. On the contrary, their lien extends to one-third, not of what he recovers, but of what is the true unpaid income which he should recover. Only in a suit to which they are parties, and by the decree in which they are estopped, can that be established so as to conclude them. Hence it is impossible to ascertain how much of the plaintiff's recovery must be impounded, and the whole would have to be retained, which is in substance a denial of any relief at all.

Therefore the case appears to us to be one where the rights of the beneficiaries are so entangled with one another that it is practically impossible in the decree to protect those who are absent. They are indispensable to any dealing with the case at all. There is no apparent injustice in the result. All the necessary defendants, except the Mexican company, are citizens of Texas, and the plaintiff himself is "temporarily residing" there. Why the suit should be brought here it is difficult to see. At any rate, it may not be so brought, unless justice to the absent parties can be done, and we cannot see how this may be assured.

It is therefore unnecessary to consider whether the Mexican company is also an indispensable party.

Decree affirmed.

MANTON, Circuit Judge, took no part in the decision of this case.

Before L. HAND and SWAN, Circuit Judges, and CAMPBELL, District Judge.

PER CURIAM.

A rehearing was ordered in this case, because only two judges had taken part in the original decision. After a second argument, the merits of the case have been reconsidered at large, but without change in result. The question turns upon the meaning of the contract, particularly of the fourth article. We can see nothing to add to our original discussion. It is, of course, possible that the second sentence of that article was thrown in out of abundant caution and without intent to affect the parties' rights. That, however, is not to be assumed while it can have a reasonable intendment.

We say nothing as to the validity of a bill which should allege that Lane, Wolters, and Storey had ceased to have any interest in the contract or its performance.

Decree affirmed.