United States v. Klein, 303 U.S. 276 (1938)

UNITED STATES v. KLEIN, ESCHEATOR OF

PENNSYLVANIA.

APPEAL FROM THE SUPREME COURT OF PENNSYLVANIA.

No. 439. Argued February 11, 1938.—Decided February 28, 1938.

1. Moneys due by a défendant in a suit in the fédéral district court, to certain bondholders whose whereabouts were unknown, were by direction of the court paid into its registry. Unclaimed for more than five years, the fund was deposited in the U. S. Treasury, as required by R. S. § 996. Under that section the money remains subject to the order of the district court to be paid to the persons entitled to it upon full proof of their right. In the exercise of a jurisdiction conferred by state statute, a state court subsequently decreed escheat of the fund and directed the state escheator to apply to the district court for an order that the money be paid to him. There was no contention on behalf of the United States of actual or possible escheat to the United States, or that it had any interest in the money adverse to the unknown bondholders. Held, that the decree of the state court was not an unconstitutional interférence with the fédéral court nor an invasion of the sovereignty of the United States. Pp. 280, 282. 2. While a fédéral court which has taken possession of property in the exercise of the judicial power conferred by the Constitution and laws of the United States is said to acquire exclusive jurisdiction, the jurisdiction is exclusive only in so far as restriction of the power of other courts is necessary for appropriate control and disposition of the property by the fédéral court. P. 281. 326 Pa. 260; 192 A. 256, affirmed.

Appe al from a decree affirming a decree declaring an escheat of certain moneys, theretofore deposited in the fédéral Treasury pursuant to R. S. § 996, and authorizing the state escheator to prosecute the State’s claim to them. The United States appeared in opposition to the proceedings below, asserting jurisdictional objections.

Assistant Attorney General Whitaker, with whom Solicitor General Reed, Assistant Solicitor General Bell, and Messrs. Paul A. Sweeney, and Henry A. Julicher were on the brief, for the United States.

Mr. A. Jere Creskoff, with whom Mr. Albert H. Ladner, Jr. was on the brief, for appellee.

Mr . Justi ce Stone delivered the opinion of the Court.

The question for decision is whether statutes of the Commonwealth of Pennsylvania, Purdon’s Penn. Statutes, Tit. 27, §§ 41, 45, 282, 334, are unconstitutional because they authorize interférence with a fédéral court and an invasion of the sovereignty of the United States, in so far as they purport to confer jurisdiction on a state tribunal to déclaré the escheat of moneys deposited in the registry of the fédéral court and later covered into the Treasury of the United States.

In a suit brought by secured bondholders in the district court for eastern Pennsylvania to compel payment of the bonds by a défendant on the ground that it had appropriated the security to itself, a decree was entered in favor of the plaintiffs and other bondholders similarly situated, with provision for notice to the latter that they file their daims in the suit. Brown v. Pennsylvania Canal Co., 229 Fed. 444; Pennsylvania Canal Co. v. Brown, 235 Fed. 669; Brown N. Pennsylvania R. Co., 250 Fed. 513. It appearing that certain of the bondholders had not filed their daims and could not be found, the défendant was directed by the court to pay into its registry the money due to such bondholders, which was then placed in a designated despositary of the United States, in the name and to the crédit of the court, pursuant to R. S. § 995, 28 U. S. C. § 851. On June 30, 1926, the fund was deposited in the Treasury of the United States as required by R. S. § 996, 28 U. S. C., § 852, in the case of funds paid into court and unclaimed for more than five years.

The présent suit was brought by appellee in the Court of Common Pleas, No. 5, of Philadelphia County, upon a pétition setting out the facts already detailed and praying a déclaration that the fund had escheated to the Commonwealth. The United States appeared in the suit and moved to dismiss the pétition on the ground that the state court was without jurisdiction to escheat moneys in the custody of the United States or of its courts. The order of the Court of Common Pleas granting the motion was reversed by the Suprême Court of Pennsylvania, which held that the statutes relating to escheat of funds in the custody of fédéral courts, conferred jurisdiction on the court to déclaré the escheat and was subject to no constitutional infirmity since exercise of that jurisdiction involved no interférence with the fédéral court and no attempted control over funds in its custody. 322 Pa. 481; 192 Atl. 256.

The United States then filed an answer and upon a trial of the issues the Court of Common Pleas gave its decree declaring that the fund had escheated to the Commonwealth and that appellee had authority to claim it, and directing him to apply to the district court for an order that the moneys be paid to him as Escheator. The State Suprême Court affirmed so much of the decree as declared the escheat and authorized appellee to prosecute the claim of the Commonwealth to the moneys. 326 Pa. 260; 192 Atl. 256. From its decree of affirmance the case cornes here on appeal under § 237 of the Judicial Code.

The Government does not, in pleading or argument, set up any right, title or interest in the présent fund adverse to the unknown bondholders. It does not contend that the fund has been or can be escheated to the United States. It agréés with the contention of appellee, which we accept as correctly interpreting the applicable fédéral statutes, that the fund remains subject to the order of the district court to be paid to the persons lawfully entitled to it upon proof of their ownership. But it insists here, as in the state courts, that the decree declaring the escheat is an unconstitutional interférence with a court of the United States, an invasion of its sovereignty, and is an attempt, void under the Fourteenth Amendment, to exercise jurisdiction over the absent bondholders and

While a fédéral court which has taken possession of property in the exercise of the judicial power conferred upon it by the Constitution and laws of the United States is said to acquire exclusive jurisdiction, the jurisdiction is exclusive only in so far as restriction of the power of other courts is necessary for the fédéral court’s appropriate control and disposition of the property. Penn General Casualty Co. v. Pennsylvania ex rel. Schnader, 294 U. S. 189; see Leadville Coal Co. v. McCreery, 141 U. S. 475, 477. Other courts having jurisdiction to adjudicate rights in the property do not, because the property is possessed by a fédéral court, lose power to render any judgment not in conflict with that court’s authority to décidé questions within its jurisdiction and to make effective such decisions by its control of the property. Penn General Casualty Co. v. Pennsylvania ex rel. Schnader, supra; see Heidritter v. Elizabeth Oil-Cloth Co., 112 U. S. 294, 304; cf. Buck v. Colbath, 3 Wall. 334, 342; Riehle v. Margolies, 279 U. S. 218. Similarly a fédéral court may make a like adjudication with respect to property in the possession of a state court. Yonley v. Lavender, 21 Wall. 276; Byers v. McAuley, 149 U. S. 608, 620; Security Trust Co. v. Black River National Bank, 187 U. S. 211, 227; Waterman v. Canal-Louisiana Bank & T. Co., 215 U. S. 33, 43-46; Commonwealth Trust Co. v. Bradjord, 297 U. S. 613, 619; General Baking Co. v. Harr, 300 U. S. 433.

The présent decree for escheat of the fund is not founded on possession and does not disturb or purport to affect the Treasury’s possession of the fund or the district court’s authority over it. Nor could it do so. Penn General Casualty Co. v. Pennsylvania, supra; United States v. Bank of New York & T. Co., 296 U. S. 463, 478. At most the decree of the state court purports to be an adjudication upon the title of the unknown claimants in the fund by a proceeding in the nature of an inquest of office as in the case of escheated lands, compare Security Savings Bank n . California, 263 U. S. 282, 287, with Hamilton v. Brown, 161 U. S. 256, 263, and to confirm the authority of appellee to make claim to the moneys. It is subordinate to every right asserted and decreed in the fédéral suit and effective only so far as it establishes rights derived from them. Neither the nature of the suit in the district court nor the fédéral statutes preclude transfer of or change in the interest of the unknown claimants, either by judicial proceedings in the state court or otherwise, pending final disposition of the fund by the fédéral court. Section 996 of the Revised Statutes contemplâtes that changes in ownership of the fund may occur, since it provides that after the right to the fund has been finally adjudicated and it has been covered into the Treasury it shall be paid over to any person entitled, upon full proof of his right to receive it.

Mr . Justic e Cardozo and Mr . Justic e Reed took no part in the considération or decision of this case.