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PIERCE ET AL. v. UNITED STATES

March 7, 1921

PIERCE ET AL
v.
UNITED STATES



APPEAL FROM THE CIRCUIT COURT OF APPEALS FOR THE EIGHTH CIRCUIT

White, McKenna, Holmes, Day, Van Devanter, Pitney, McReynolds, Brandeis, Clarke

Author: Brandeis

[ 255 U.S. Page 400]

 MR. JUSTICE BRANDEIS delivered the opinion of the court.

In 1907 the Waters Pierce Oil Company, a Missouri corporation, was indicted in the District Court of the United States for the Western District of Louisiana under the Elkins Act (February 19, 1903, c. 708, § 2, 32 Stat. 847), for receiving rebates. In 1913 the Company sold and transferred all its property to the Pierce Oil Corporation; all the proceeds were paid to Henry S. Priest and Clay Arthur Pierce as trustees; and they distributed the same among the stockholders. Of these Henry Clay Pierce and the Pierce Investment Company, received millions in cash and stock and Clay Arthur Pierce a small amount. In 1914 the case under the Elkins Act was tried. The Company was convicted and sentenced to pay a fine of $14,000, and in the following year the judgment was affirmed by the Circuit Court of Appeals. 222 Fed. Rep. 69. An execution issued thereon to the marshal for that district and was returned nulla bona. Thereafter this bill in equity was brought by the United States in the Federal District Court for the Eastern District of Missouri against the Waters Pierce Oil Company, the trustees, and these three stockholders to obtain satisfaction of the judgment out of the money remaining in the hands of the trustees and that received by these stockholders. The District Court entered a decree dismissing the bill as against the Waters Pierce Company and the trustees, but granted, as against the stockholders

[ 255 U.S. Page 401]

     named, the relief prayed by the Government. The decree was affirmed by the Circuit Court of Appeals for the Eighth Circuit, one judge dissenting. The case is brought here by these defendants, under § 241 of the Judicial Code. Reversal is sought on several grounds.

First. The ground for reversal most strongly urged is that the judgment imposing a fine on the Waters Pierce Company is not a debt on which a creditor's bill will lie. The argument is that a judgment for a definite sum of money does not necessarily endow the holder with all the rights of a creditor; that a court will look behind a judgment and will grant or deny relief according to the nature of the original cause of action, as it did in Wisconsin v. Pelican Insurance Co., 127 U.S. 265; Louisiana v. New Orleans, 109 U.S. 285; and Wetmore v. Markoe, 196 U.S. 68; and that, since liability for a penalty is criminal in its nature and not strictly a debt, a creditor's bill cannot be brought upon a judgment for a penalty. It is true that to the liability for penalties imposed by the United States certain incidents of a criminal proceeding attach; see Boyd v. United States, 116 U.S. 616; United States v. Stevenson, 215 U.S. 190, 199. But the liability is often enforced by civil proceedings and specifically by the action of debt. Lees v. United States, 150 U.S. 476. See Adams v. Woods, 2 Cranch, 336, 340. And then certain incidents of civil proceedings attach. Hepner v. United States, 213 U.S. 103.

By § 1041 of the Revised Statutes it is provided (in addition to the power existing by general usage to commit a defendant to jail until his fine has been paid, see Ex parte Barclay, 153 Fed. Rep. 669) that judgments for penalties "may be enforced by execution against the property of the defendant in like manner as judgments in civil cases are enforced." The statute applies to all judgments for penalties, whether recovered by civil or criminal proceedings. A judgment creditor's bill is in

[ 255 U.S. Page 402]

     essence an equitable execution comparable to proceedings supplementary to execution. See Ex parte Boyd, 105 U.S. 647. The law which sends a corporation into the world with the capacity to act imposes upon its assets liability for its acts. The corporation cannot disable itself from responding by distributing its property among its stockholders and leaving remediless those having valid claims. In such a case the claims after being reduced to judgments may be satisfied out of the assets in the hands of the stockholders.*fn1 These is no good reason why the rule should be limited to judgments arising out of civil proceedings. To the contention that the statute has not made this process available for the Government in enforcing a penalty, it may be answered as was done by the King's Bench a hundred years ago, in King v. Woolf, 2 Barn. & Ald. 609, 611, when it was insisted that a fine due to the Crown was not a judgment debt for which execution could be levied: ". . . mischievous consequences would ensue to the crown and the regular administration of justice, from a delinquent withdrawing all his property from the effect of a judgment; and . . . the preventing that will not be a mischievous consequence to any one but himself. Here there is a judgment that the defendant do pay to the king a fine of a certain sum. By that judgment the debt becomes a debt to the king, of record; and it is payable to the king instanter. . . . if we were to say that the crown shall not be at liberty to issue an immediate execution for its own debt, we should place the crown in a worse situation than any subject."

Second. It is contended that the right to bring a creditor's bill did not exist, because the judgment against

[ 255 U.S. Page 403]

     the Company was not entered in the trial court until a year after the Company had divested itself of the property sought to be reached in this suit; and the Government did not become a creditor, at all events until after its claim for penalties had ripened into a judgment. But when a corporation divests itself of all its assets by distributing them among the stockholders, those having unsatisfied claims against it may follow the assets, although the claims were contested and unliquidated at the time when the assets were distributed. It is true that the bill to reach and apply the assets distributed among the stockholders cannot, as a matter of equity jurisdiction and procedure, be filed until the claim has been reduced to judgment and the execution thereon has been returned unsatisfied, Hollins v. Brierfield Coal & Iron Co., 150 U.S. 371; but, as a matter of substantive law, the right to follow the distributed assets (see Railroad Co. v. Howard, 7 Wall. 392, 409; Northern Pacific Ry. Co. v. Boyd, 228 U.S. 482; Kansas City Southern Ry. Co. v. Guardian Trust Co., 240 U.S. 166) applies not only to those who are creditors in the commercial sense, but to all who hold unsatisfied claims. A corporation cannot by divesting itself of all property leave remediless the holder of a contingent claim, or the obligee of an executory contract, Baltimore & Ohio Telegraph Co. v. Interstate Telegraph Co., 54 Fed. Rep. 50, or the holder of a claim in tort, Hastings v. Drew, 76 N.Y. 9; Jahn v. Champagne Lumber Co., 157 Fed. Rep. 407; and there is no good reason why the United ...


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