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American Automobile Ins. Co. v. Freundt

April 27, 1939

AMERICAN AUTOMOBILE INS. CO.
v.
FREUNDT ET AL.



Appeal from the District Court of the United States for the Northern District of Illinois, Eastern Division; William H. Holly, Judge.

Author: Treanor

Before SPARKS, TREANOR, and KERNER, Circuit Judges.

TREANOR, Circuit Judge.

This appeal is from an order of the District Court dismissing plaintiff's complaint which sought a declaratory judgment pursuant to the Federal Declaratory Judgment Act of 1934.*fn1

The following facts are disclosed by the allegations of the complaint. The plaintiff, an automobile liability insurance carrier, issued a policy of insurance to defendant, Michal. The policy covered a certain Ford automobile owned by Michal, and carried a "hired automobile endorsement" which provided for coverage under certain circumstances if the insured should become liable for the operation of a car hired by him.During the life of the policy one of the assured's employees, while driving his own car, injured Freundt, the other defendant. Subsequently, Freundt obtained a judgment for damages for his injuries in the Circuit Court of Cook County against Michal and his employee. Freundt and Michal contend that the insurance policy issued by plaintiff gave coverage to Michal for the accident. Also the complaint alleges that the defendants had employed attorneys for the purpose of filing garnishment proceedings against the plaintiff upon the judgment obtained by Freundt, and that they are asserting claims and causes of action against the plaintiff on the policy of insurance. It is alleged in the complaint that the plaintiff contends and maintains that the plaintiff has incurred no liability to either of defendants. The principal prayer of the complaint is that the court declare the rights of the defendants under the policy of insurance issued to Michal.

The District Court sustained the motion to dismiss the complaint, stating its reason as follows: "The Court being further of the opinion that each and all of the defenses alleged to exist appear to be available to the plaintiff in the action now pending in the state court between the defendants, and that the relief sought herein will interfere with an action which is now pending in the state courts, and the Court being of the opinion that this is not a proper case for declaratory relief because of the pendency of the action in the state court between the defendants Freundt and Michal; * * * "

Garnishment procedure pursuant to judgment is authorized by statute in Illinois.*fn2 The garnishment procedure takes the form of a supplemental proceeding in the suit which has resulted in judgment and affords a means of collecting the judgment by summoning a debtor of the judgment debtor, and, thereby, making available assets of the judgment debtor in the possession or control of his debtor. The nature of the garnishment proceeding has been stated by the Supreme Court of Illinois to be as follows: "Garnishment is an ancillary proceeding in the nature of process to obtain satisfaction of a judgment rendered in the principal action or proceeding. * * * It is a statutory proceeding * * * ."*fn3

Also in Freeport Motor Casualty Co. v. Madden*fn4 the court stated: "It is not an independent proceeding, but is ancillary or auxiliary. It depends upon another proceeding in law or equity. It is entirely remedial, and is resorted to either in aid of a pending action or in aid of an execution issued on a judgment already recovered."

The Illinois proceeding is much the same as that involved in the case of First Nat. Bank v. Turnbull & Co.*fn5 That case involved a statutory proceeding under a Virginia statute which provided that in the event execution was levied on property and a third party claimed to be the owner thereof the issue of ownership may be tried in the pending case. In denying an attempt to remove such an issue to a federal court the Supreme Court stated that such proceeding "was merely auxiliary to the original action, a graft upon it, and not an independent and separate litigation."

It is not questioned that the Illinois garnishment proceeding would afford an opportunity to determine the exact question which plaintiff seeks to have determined in an independent litigation under the Federal Declaratory Judgment Act.But plaintiff urges that the allegations of his complaint state a cause of action for declaratory relief under the Federal Declaratory Judgment Act, that the District Court has jurisdiction of the subject matter and parties, and, consequently, is under a mandatory duty to hear and determine the cause. On the other hand the defendants contend that even though the complaint may state a cause of action for relief under the Declaratory Judgment Act, the District Court may in the exercise of a sound judicial discretion refuse to grant the relief. Our inquiry then reduces to two questions: (1) May the District Court, in the exercise of sound discretion, refuse to grant declaratory relief; and (2) if it may, did the District Court in the instant case exercise a sound discretion in dismissing plaintiff's complaint?

The Act provides that the courts of the United States "shall have power upon petition * * * to declare rights and other legal relations * * * "; and there is ample authority for the general proposition that a grant of authority or power to a public officer to act for the benefit of individuals is a mandate to exercise such power or authority. But the general proposition is not a rule of formula, and whether any particular legislative grant of power carries with it a mandate to exercise the power depends upon the legislative intent as revealed by the language of the grant. The problem is similar to that of determining legislative intent in the use of the permissive term "may." Judicial decisions have recognized that in legislative usage "may" is used in both a permissive and mandatory sense.*fn6 In Suburban Light & Power Co. v. Board of Aldermen of the City of Boston,*fn7 "shall" was held to have a permissive meaning, the court stating: "While the word 'may', in statutes, has been construed as 'shall' has not often been construed as 'may,' and as importing only a power or authority."

Ordinarily a court having jurisdiction over parties and subject matter is under a duty to exercise its jurisdiction in a case falling within the purview of the jurisdiction. This necessarily results when there is no court of concurrent jurisdiction. Our judicial system is society's civil substitute for self-help as a method of settling disputes, righting wrongs, and protecting individual rights. It would be inconsistent with, and tend to frustrate the most fundamental objectives in the creation of courts for courts to decline to exercise jurisdiction when such denial would leave to aggrieved parties only the remedy of self-help. The courts, taking cognizance of the needs of society which gave rise to the judicial system, have been inclined, generally, to find a legislative purpose to require the exercise of jurisdiction where jurisdiction is conferred without qualifications or conditions. Early decisions were characterized by zealous regard for the protection of jurisdiction and some decisions went so far as to invalidate arbitration agreements because the courts considered such agreements to be a means of ousting them of their rightful jurisdiction. But recent expressions by the Supreme Court of the United States have indicated a more liberal attitude and have made clear that a grant of power to a court does not impose upon that court an absolute duty to exercise the power in all cases which fall within its purview. In Kansas City Southern Railway Company v. United States*fn8 the Supreme Court expresses its view as follows: "But the existence of jurisdiction does not mean that it must be exercised and that grounds may not be shown for staying the hand of the Court." And in Canada Malting Co., Ltd. v. Paterson Steamships Ltd.*fn9 it was stated: "Obviously, the proposition that a court having jurisdiction must exercise it, is not universally true. * * * "

In Rogers v. Guaranty Trust Company of New York*fn10 the court held that "While the District Court had jurisdiction to adjudge the rights of the parties, it does not follow that it was bound to exert that power. * * * It was free in the exercise of a sound discretion to decline to pass upon the merits of the controversy and to relegate plaintiff to an appropriate forum. * * * But it safely may be said that jurisdiction will be declined whenever considerations of convenience, efficiency, and justice point to the courts of the state of the domicile as appropriate tribunals for the determination of the particular case."

But the recent decisions do not authorize a court to refuse arbitrarily to exercise jurisdiction when its jurisdiction is invoked by appropriate proceeding. A federal court must exercise its jurisdiction in the absence of a showing of facts which consttitute a recognized legal ground for a ...


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