Rude v. Buchhalter, 286 U.S. 451 (1932)
Case details
Bluebook Citation
Rude v. Buchhalter, 286 U.S. 451 (1932)
Full caption
RUDE v. BUCHHALTER.
Country
United States
Jurisdiction
Federal
Court
Supreme Court of the United States
Decided
May 23, 1932
Majority
Butler (Justice)
RUDE v. BUCHHALTER.
CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE TENTH CIRCUIT.
No. 736. Argued April 28, 1932.—Decided May 23, 1932.
Upon cross appeals from a decree dismissing a suit over a fund deposited in escrow, Held—
1
The appellate court went beyond the record and the evidence in holding that the plaintiff depositor was guilty of fraud and FOR THE DISTRICT OF MONTANA. No. 627. Argued April 22, 1932.—Decided May 23, 1932. 1. The power conferred by the Montana “ Blue Sky Law ” upon the Investment Commissioner to regulate investment companies and revoke their permits to do business if they fail to comply, is legislative; and the power that the statute grants to the state courts in actions brought within thirty days by any interested person against the Commissioner, “to set aside, modify or confirm” his decisions “ as the evidence and the rules of equity may require,” is likewise legislative. P. 468.
bad faith in bringing and maintaining the suit and that the other depositor should therefore have a lien on the fund for his expenses, including attorneys’ fees, in the litigation. P. 460.
2. Nice distinctions as to which of these two parties was the more lacking in good faith or standards, towards others or towards each other, are not sufficient to warrant putting upon one any part of the expenses incurred by the other in waging the contest. P. 461.
3. By the granting of such a lien, when it was not applied for and when the plaintiff had no reason to apprehend that it would be considered, the plaintiff was denied an opportunity to be heard in respect of the authority of the court to make such an allowance and as to the facts touching the propriety or basis for making it. P. 460.
4. Petition for rehearing and its denial upon a reasoned opinion were not the equivalent of a hearing in advance of decision. Id.
5. The reasonable expenses, including attorneys’ fees, incurred by the depositary in the suit and which are attributable to the discharge of its duty under the escrow agreement, properly may be made a first charge against the fund. P. 461.
6. The depositary is not entitled, as against the plaintiff depositor, to any allowance of expenses or counsel fees incurred to protect its own claim against the fund to secure a debt owing to it by the other depositor. Id.
54 F. (2d) 834, modified and affirmed.
Certi orar i, 285 U. S. 535, to review the reversal of a decree dismissing the bill in a suit by one of two depositors of a fund to obtain judgment against the other and to make it a lien on the fund. Claims of attorneys and of the depositary were also involved.
Mr. Ernest Morris, with whom Mr. Cass E. Herrington was on the brief, for petitioner.
In decreeing, without any hearing or opportunity therefor, that the expenses of the litigation and attorney’s fees of Buchhalter and the bank shall be paid out of petitioner’s share of the funds and bonds in escrow, the Circuit Court o-f Appeals deprived petitioner of his property without due process of law in violation of the Fifth Amendment. Hovey v. Elliott, 167 U. S. 409; Reynolds v. Stockton, 140 U. S. 254; Munday v. Vail, 34 N. J. L. 418.
The decree awarding such fees and expenses is contrary to principle and to all precedent. “ Fee bill ” statute, 28 U. S. C., §§ 571-572.
In contemplation of law the fees prescribed in the fee bill are full indemnity for the litigation and, while a court of equity has discretion to award, withhold or apportion costs, the amount of costs which the court may award is limited by the statute. Henkel v. Chicago, St. P., M. & 0. R. Co., 284 U. S. 444; Arcambel v. Wiseman, 3 Dall. 306; Hauenstein v. Lynham, 100 U. S. 483; The Baltimore, 8 Wall. 377; Motion Picture Co. v. Steiner, 201 Fed. 63; Guardian Trust Co. v. Kansas City Sou. Ry. Co., 28 F. (2d) 233, reversed 281 U. S. 1.
Lack of good faith in bringing the action is not enough. The case must be one where the plaintiff has made, but failed to sustain, gross charges of fraud and misconduct. Kansas City Sou. Ry. Co. v. Guardian Trust Co., 281 U. S. 1.
The rules of the High Court of Chancery of England are no longer followed in this country. Hopkins, Fed. Eq. Rules, 7th ed., p. 42. The new Federal Equity Rules, adopted in 1912, no longer refer us to the English practice for any purpose. It was never the practice of the High Court of Chancery to allow “ costs as between solicitor and client where the litigation is false, unjust, vexatious, wanton, or oppressive.”
There is no American authority for the allowance of expenses and attorney’s fees, or either, in a case of this character. Distinguishing: Danbury n . Robinson, 14 N. J. Eq. 324; Thome v. Allen, 70 S. W. 410, 71 id. 431; Trustees v. Greenough, 105 U. S. 527.
The mere fact that the court has control over the fund does not authorize the payment therefrom of counsel fees and other expenses. Such payment is authorized only where the expenses incurred have been for the benefit of all interested. 15 C. J. 105; Kimball v. Atlantic p. 454States Ins. Co., 223 Fed. 463; Gund v. Ballard, 80 Neb. 385; Ryckman v. Parkins, 5 Paige’s Ch. (N. Y.) 543.
Where a court of equity grants relief upon conditions, the conditions must not be arbitrary, but must be “ warranted by settled principles of equity jurisprudence.” Lurton, J., in Compton v. Jesup, 68 Fed. 263, 316; Pomeroy, Eq. Jur., 4th ed., § 386; Mantermuch v. Studt, 240 Ill. 464, 469; Lindell v. Lindell, 150 Minn. 295, 299; Alexander v. Shaffer, 38 Neb. 812, 816.
Even where conditions are proper they may not be absolute. The party should have his option to reject the whole decree. 21 C. J. 688, Equity, § 849; 1 Pomeroy, Eq. Jur., 4th ed., § 385; Gage n . Thompson, 161 Ill. 403, 407; Alexander v. Merrick, 121 Ill. 606, 614.
The Circuit Court of Appeals erred in holding that petitioner had not brought his suit in good faith.
Findings of the trial court are presumptively correct and will not be disturbed unless the trial court has either misapprehended the evidence or gone against the clear weight thereqf. Medsker v. Bonebrake, 108 U. S. 66; Tilghman n . Proctor, 125 U. S. 136; American Rotary Valve Co. v. Moorehead, 226 Fed. 202; Fineup v. Kleinman, 5 F. (2d) 137.
Mr. Henry E. Lutz for respondent.
The Court of Appeals did no more than to apply to extraordinary facts the maxim “ He who seeks equity must do equity.”
The fee bill has never been construed to interfere with the free exercise of accepted jurisprudence or practice in equity. Trustees n . Greenough, 105 U. S. 527-528; Guardian Trust Co. v. Kansas City Sou. Ry. Co., 28 F. (2d) 233; In re Schocket, 177 Fed. 583; United States n . Equitable Trust Co., 283 U. S. 738.
Rude himself sought equity in the Court of Appeals on a hypothesis completely departing that sought to be p. 455utilized by him in the trial court. The Court of Appeals did no more, no less, under the special facts, than to exact what it conceived to be equity from him who sought it.
State statutes allowing attorney’s fees are enforced in the federal courts, and no conflict has been found with the fee bill statute. Sioux County v. National Surety Co., 276 U. S. 238; Henkel v. Chicago, St. P., M. & 0. Ry. Co., 284 U. S. 444; Dohany v. Rogers, 281 U. S. 362-370.
It is submitted the federal statute relating to costs and attorney’s fees has no more relationship to the maxim that “ He who seeks equity must do equity,” than it has to cases involving the recovery or preservation of trust funds or to any other instance of long established and generally accepted equity jurisprudence. Cf. Ohio ex rel. Popovici v. Agler, 280 U. S. 379, 384.
Mr . Justice Butler delivered the opinion of the Court.
This suit was brought in the federal court for Colorado by petitioner against respondent, the First National Bank of Denver, and the members of a law firm to obtain judgment against respondent on an oral promise to pay a large sum and to establish and foreclose a lien therefor upon certain bonds and cash held by the bank in escrow. The principal controversy was between petitioner and respondent. The bank claimed a lien on the fund to secure payment of a small sum owing to it by respondent. The lawyers asserted a claim under an attachment to enforce payment of an amount to be fixed as their compensation for services in a proceeding in the state court. After trial at which much evidence was heard the court dismissed the complaint on the merits. Respondent appealed and petitioner took a cross appeal. On respondent’s appeal the Circuit Court of Appeals remanded with p. 456instructions for further proceedings in the district court, and on petitioner’s appeal affirmed. 54 F. (2d) 834.
This writ brings here for review the part of the decree directing the district court to deduct from petitioner’s share of the fund in escrow the expenses, including reasonable attorneys’ fees to be fixed by the district court, to which respondent and the bank have been put in this litigation.
The evidence and findings disclose facts, occurring before those alleged in petitioner’s complaint, that shed light upon the question presented. In June, 1929, at a state court receiver’s sale he and one Bronstine each bought an undivided half of the property of the Colorado Pulp and Paper Company. The purchase price was paid in cash and in bonds of that company. Under an agreement between petitioner and respondent the former furnished $61,000 and the latter $53,922, making the total required to pay for the half interest bought by petitioner. It was transferred to petitioner and later a quarter interest was conveyed by him to respondent. Possession of the property was given to Bronstine who carried on the business for account of all concerned. Petitioner and respondent wanted to sell their interest and, in order to force Bronstine to buy them out, they pursued a course of hostile and threatening criticism of his management. And when a partition suit by Bronstine seemed imminent they, conspiring to embarrass and delay him should he seek relief by that means, falsely made it to appear of record that a quarter interest in the property was subject to a heavy incumbrance. For that purpose they caused to be made and recorded a deed transferring petitioner’s quarter interest to respondent and also a trust deed to the public trustee purporting to secure a note made by respondent to petitioner for $67,500. Respondent soon succeeded in selling the half interest to one Binstock, an associate of Bronstine, for $28,080 in cash and $92,500 in p. 457bonds of the Colorado Paper Products Company. Petitioner, as a condition of clearing the title of record, required that all the cash and bonds should be delivered to the bank to be held in escrow until he and respondent should agree in writing as to the disposition of the same. They promptly divided nearly all of the cash, but came to no agreement for division of the remaining money or the bonds.
Later, petitioner brought this suit claiming that the fictitious note and trust deed were valid and alleging that, when the cash was divided, respondent promised to pay him the full amount of the note and $7,500 out of the profits of the venture and that the bonds should be held in escrow until the balance alleged to be owing, $59,699.61, should be paid. And the complaint alleges that the lawyers had attached the interest of petitioner and respondent and claimed a prior lien on the fund. The prayer is that petitioner have judgment against respondent for the amount claimed; that the same be declared a lien upon the fund, and that the bank sell the bonds and apply the fund to the payment of the judgment. Respondent’s answer alleges that the note and trust deed were fictitious, denies the alleged promise, avers that he and petitioner had approximately equal interest in the property and that the only agreement between them was that the sale of their half interest be joint and entire and the proceeds be equally divided between them, and prays that the complaint be dismissed on the merits. The lawyers’ answer asserts that they have a lien upon the fund, denies that petitioner has any, and prays that he be denied relief. The bank’s answer shows that the cash and bonds were deposited with it to be held in escrow until petitioner and respondent agree in writing as to the disposition of the same, sets forth the division of the cash, alleges that respondent assigned his interest in the fund to the bank as security for the payment of $1,250 p. 458and prays that it be declared to have a first lien on the fund, be instructed as to disposition of the balance and have costs and attorneys’ fees incurred in this suit.
After hearing the evidence and before making findings under Equity Rule 70^, the district court filed a memorandum showing that petitioner had failed to make out his case. Then respondent submitted requests for findings of fact and, in addition to those negativing petitioner’s cause of action, asked the court to find that petitioner and he entered into a campaign against Bronstine, including the making of the fictitious note and trust deed, to create difficulties and to force Bronstine to buy their interest in the property; that, by making the note the basis of his suit, petitioner attempted to perpetrate a fraud against respondent and to impose upon the court; and that petitioner’s testimony is unworthy of belief. And respondent proposed as conclusions of law that petitioner by reason of the campaign against Bronstine did not come into court with clean hands, and that the bank should be directed to deliver the entire fund to respondent subject to its lien and the claim of the lawyers. The court, refusing to adopt any such condemnatory requests, made findings merely showing the respective amounts invested in the property by petitioner and respondent; that the fictitious note had been canceled; that pursuant to agreement the proceeds of the sale were to be held by the bank in escrow until respondent and petitioner agreed in writing as to the.disposition of the same; that cash had been divided and that the escrow agreement had not been modified. As its conclusion of law the court declared that the complaint should be dismissed on the merits as to all defendants with costs to be taxed against petitioner, and entered its decree accordingly.
On his appeal respondent prayed not for reversal of any part of the decree but that it be made to declare that as against petitioner he was the owner of the fund and p. 459to direct the bank to deliver it to him. The opinion of the court clearly shows that claim to be devoid of merit. Petitioner on his cross appeal merely prayed for the relief sought in his complaint. The decree was affirmed and that ruling is not questioned here. In his brief in that court, petitioner suggested that, if it held his suit was rightly dismissed below, it should direct distribution under the agreement.
First to be considered is the command of the Circuit Court of Appeals that the district court deduct from petitioner’s share the “ court costs and expenses to which Buchhalter” has “been put in this litigation including reasonable attorneys’ fees to be determined by the trial court.”
This is not a taxation of costs as between solicitor and client. Cf. Guardian Trust Co. v. Kansas City Southern Ry. Co., 28 F. (2d) 233; 281 U. S. 1. The only costs allowed to be included in the money judgment against petitioner are those taxable as between party and party; counsel fees or other expenses not so taxable are not to be included. The Circuit Court of Appeals found that, by reason of-petitioner’s wrongful and fraudulent demands and bad faith in bringing and maintaining this suit, he prevented the distribution of the fund according to the escrow agreement and put respondent and the bank to the expense of making their defense against a groundless claim. It concluded that, because of such inequitable conduct, the decree should impose upon petitioner’s share a lien in favor of respondent and the bank for the expenses to which they were so put.
It is significant that the trial court, though specifically requested by respondent so to do, declined to find that petitioner in bringing this suit attempted to perpetrate a fraud against respondent or to impose upon the court or that he came with unclean hands or must have known that the cause of action he alleged was without p. 460foundation in fact. Such refusal strongly suggests that the trial court who saw and heard these antagonists upon the witness stand was of opinion that no such condemnation was warranted by the evidence. Its findings appear to have been diligently restrained to those merely sufficient to show that petitioner failed to sustain the essential allegations of his complaint. Indeed, one of respondent’s requests for findings reflects unwillingness on the part of petitioner to accept other than cash for his share and that there were reasons, other than matters of mere accounting, for the agreement that the cash and bonds should be held in escrow until petitioner and respondent “have agreed in writing concerning the disposition of the proceeds.”
The Circuit Court of Appeals went beyond the issues presented by the record. Its opinion shows that determination of the appeals did not require findings as to the good faith of petitioner. Respondent, claiming the entire fund, necessarily opposed distribution under the agreement. A large part of the work of his attorneys is chargeable to the attempt to enforce his groundless claim to the entire fund. He made no application for a lien upon petitioner’s share on account of expenses or attorneys’ fees. Such allowances are not made as of course. And petitioner had no reason to apprehend that any such matter would be considered on either appeal. He had no opportunity to be heard in respect of the authority of the court to make such an allowance or as to the facts touching the propriety or basis of the same. Petition for rehearing and denial, as here, upon a reasoned opinion may not in such a matter fairly be regarded as the equivalent of a hearing in advance of decision.
The opinion below condemns the conduct of both parties in various details of the transaction out of which this litigation arose. The record discloses that when acting together in the pursuit of gain they were not governed by p. 461451 Syllabus.
proper standards and that where their interests came in conflict they disregarded considerations making for fair play. Nice distinctions as to which disclosed the greater lack of good faith are not sufficient to warrant a court of equity in putting upon one any part of the expenses incurred by the other in waging such a contest. Assuming that the matter was properly before the court for consideration, we are of opinion that the record does not warrant any such allowance in favor of respondent.
The bank is not entitled as against petitioner to any allowance on account of expenses or counsel fees incurred to protect its claim against the fund to secure the debt owing by respondent to it. But under settled principles applied in equity courts its reasonable expenses including a fair amount to pay the fees of its attorneys incurred in this suit and which are attributable to the discharge of its duty under the escrow agreement properly may be made a first charge against the fund as a whole. United States v. Equitable Trust Co., 283 U. S. 738, 744. The decree will be modified in accordance with this opinion, and the costs in this Court will be taxed against respondent.
Modified, and as modified affirmed.
PORTER, AUDITOR, v. INVESTORS SYNDICATE.
APPEAL FROM THE DISTRICT COURT OF THE UNITED STATES
2. The capacity of the state court under this statute is none thè less administrative because the proceeding is by suit in equity instead of an appeal from the Commissioner. P. 468.
3. In providing that “pending any such action” for review in the state court, the findings and decision of the Commissioner shall remain in full force and effect, the statute does not mean that the state court may not stay the enforcement of his decision by interlocutory order. Pp. 469-470.
4. The word “pending,” in this connection, is to be interpreted as meaning “until,” or while the time is running for bringing the action. Id.
5. In construing a statute, unconstitutionality must be avoided, if possible. P. 470.
6. One who would attack a decision and order of the Commissioner, upon the ground that the statute is unconstitutional, must exhaust the administrative remedy provided in the state courts before seeking an injunction from a federal court. Pp. 468, 471.
52 F. (2d) 189, reversed.
Appe al from a decree enjoining the appellant, as Investment Commissioner, from revoking the appellee’s permit to do business as an “ investment company ” for failure to obey a rule regulating the substance and form of its certificates.
Mr. T. H. MacDonald, Assistant Attorney General of Montana, with whom Messrs. L. A. Foot, Attorney General, and James W. Freeman were on the brief, for appellant.
Where a statute provides for an appeal to the courts on the reasonableness of the action of an executive officer, and does not expressly provide for notice and hearing before such officer before he takes action (such as the revocation of a permit), such notice, if necessary to due process, is an implied requirement.
“ Due process ” does not require that the legislature set up a definite standard of equity to apply to all cases. If the conditions were within the power of the legislature p. 463461 Argument for Appellee.
to impose, they may in this case be ascertained by the Commissioner.
Imposition on credulity and ignorance, as well as fraud by active misrepresentation, may be prevented under the police power.
The plan of business of the plaintiff, in requiring the forfeiture shown on the certificate, is inequitable. Its bill does not state a cause of action in equity.
Mr. M. S. Gunn for appellee.
The right to a judicial review of an order made by an administrative board or officer, the effect of which is to deprive a party of property, is essential to due process of law. Chicago, M. & St. P. R. Co. v. Minnesota, 134 U. S. 418; Wadley S. R. Co. v. Georgia, 235 U. S. 651; Oklahoma Operating Co .n . Love, 252 U. S. 331.
The due process clause is a protection against a temporary deprivation of property or of a right protected thereby, the same as against a permanent deprivation. Prendergast v. N. Y. Tel. Co., 262 U. S. 43; Love v. Atchison, T. de S. F. Ry. Co., 185 Fed. 321.
If the corporation’s permit were revoked, its agents would, in view of the severe penalty provided in § 4049, refuse to sell its certificates. The business would be destroyed, at least pending a judicial review. If the revocation order were ultimately to be set aside, the corporation would have no recourse for the damage sustained through the suspension of its business, or for the injury to its reputation and future business.
It is not within the legislative power to regulate or prohibit the sale of securities, or the making of investment contracts, in order to protect the public against making investments which may not, in the judgment of the Investment Commissioner, promise or furnish a fair p. 464return. The prevention of fraud is the purpose of Blue Sky Laws, and the only purpose which will justify such legislation.
If the Blue Sky Law is construed to authorize the Commissioner to prescribe the terms and provisions of contracts which investment companies may make, it is a clear delegation of legislative power and violative of the constitution of Montana.
Mr . Justi ce Roberts delivered the opinion of the Court.
This is an appeal from the decree of a specially constituted district court enjoining the enforcement of an order of the State Auditor, who is ex officio Investment Commissioner of Montana. Appellee is a Minnesota corporation engaged in the business of selling investment certificates for which the purchaser pays in instalments and which entitle him at a date therein named to receive their face value. The assumption is that the instalments of principal paid in will be augmented by interest thereon compounded at five and one-half per cent, so that the company will be able to. pay the sum named in the certificate before the holder’s payments reach that total.
Appellee was licensed in 1930 to do business in Montana pursuant to c. 264, Revised Code of 1921, popularly known as the Blue Sky Law, which defines investment companies (§ 4026), forbids their engaging in business without a permit from the state investment commissioner (§ 4032), requires them to apply for such permit and to submit certain information with the application (§ 4033), directs the commissioner to examine the data furnished and to issue or refuse a permit depending upon his determination that the applicant is solvent and its proposed plan of business fair, just and equitable (§ 4036), and to supervise and from time to time examine the affairs and business of all permittees (§ 4043). p. 465Section 4045, which authorizes the revocation of permits, and § 4038 (as amended by c. 194, Session Laws 1931), which gives an action against the commissioner by a party aggrieved by any finding or decision of that officer, are those which affect the present litigation. They are quoted in the margin.*
Operating under permit appellee has built up a large business in Montana in the sale of its certificates. One form of these provides that in case of default in current payments during the first eighteen months, the purchaser shall forfeit all sums theretofore paid; for default after eighteen months, where payment of $148 on a thousand dollar certificate has been made, the holder is entitled to withdraw $42; after four years and payment of $370, the refund is $254; and after five years he is entitled to re-
*4045. Revocation of Permits and Appointment of Receiver. Whenever it shall appear to the investment commissioner that the assets of any investment company doing business in this state are impaired to the extent that such assets do not equal its liabilities, or that it is conducting its business in an unsafe, inequitable, or unauthorized manner, or is jeopardizing the interests of its stockholders or the investors in stocks, bonds, or other securities by it offered for sale, or whenever any investment company shall refuse to file any papers, statements, or documents required under this act, or shall refuse to permit an examination by said investment commissioner, or his deputies or agents, as provided in this act, without giving satisfactory reasons therefor, said investment commissioner shall at once cancel its permit, and if he shall deem advisable, shall communicate such facts to the attorney-general, who shall thereupon at once make an investigation, and if the facts as presented to him by the investment commissioner are substantiated, he shall thereupon apply to a court of competent jurisdiction for the appointment of a receiver to take charge of and conclude the business and affairs of such investment company, and if such fact or facts be made to appear, it shall be sufficient evidence to authorize the appointment of a receiver and the making of such orders and decrees in such cases as equity may require.
Section 4038. Any interested person, who has appeared, co-partnership, association or corporation being dissatisfied with any finding,
144844°—32------ 30
payment, without interest, of the whole amount theretofore paid.
On May 7, 1931, the appellant notified the appellee and others similarly engaged to attend a hearing relative to the proposed adoption of a rule applicable to their-business. Appellee appeared by an officer and counsel and stated objections. As a result of the hearing a rule was promulgated June 22, 1931, effective July 22, 1931, forbidding the issuance of certificates extending the privilege of withdrawal before maturity unless they should permit withdrawal at any time after the first year of their
findings or decision of the Commissioner made in accordance with the provisions of this Act, may within thirty days from the making thereof, commence an action in any court of competent jurisdiction against said Commissioner as defendant, to vacate and set aside said finding, findings or decision, on the ground that the said findings or decision are unjust or unreasonable. The rules of pleading and procedure in such action shall be the same as are provided by law for the trial of equitable actions in the district courts of this state and on the hearing the judge of said court may set aside, modify or confirm said findings or decision as the evidence and the rules or equity may require. Appeals may be taken from the decision of the district court to the Supreme Court by either party in the same manner as is provided by law in other civil actions. Pending any such action, the said findings or decision of said Commissioner shall be prima facie evidence that they are just and reasonable and that the facts found are true, and pending any such action the said findings or decision of the Commissioner shall remain in full force and effect. If no action be brought to set aside said findings or decision within thirty days, the same shall become final and binding.
Provided, however, that the original application with reference to which an appeal is herein provided for shall not be heard by the Investment Commissioner until notice of hearing on the same has been published in some newspaper published at the capital city daily, in at least seven issues of such paper, and provided further, that upon such hearing on the original application, any person, co-partnership, association or corporation interested in or opposed to said application may appear.
existence, on ninety days’ notice in writing, and thereupon entitle the holder to receive the total amount of all instalments paid in, less a penalty not exceeding three and one-half per cent of the matured or face value of the certificate, plus interest compounded annually, at the rate at which the certificate was guaranteed to mature or represented to pay at maturity; and that the certificate and the application should have printed thereon the amount to be paid in, the withdrawal or surrender value, and the loan value, as of the end of each year after the date of issuance.
The commissioner claimed authority to promulgate this order under that portion of § 4045 which empowers him to revoke the permit of an investment company when it shall appear to him to be “ conducting its business in an unsafe, inequitable or unauthorized manner.” He asserted his intention to revoke appellee’s permit if it failed to obey the rule; whereupon the latter brought action in the District Court to enjoin the appellant from revoking or purporting or attempting to revoke its permit for failure to comply with the order. After the taking of evidence upon a motion for a temporary restraining order the case was by stipulation submitted as upon final hearing. The court granted an injunction, holding that the challenged statute was violative of the due process clause of the Fourteenth Amendment, as lacking any provision for notice or hearing before the revocation of a license, and also because no rule or standard is fixed for the determination of adequate cause for revocation; and further the act constituted a delegation of legislative power contrary to the mandate of Section 1, Article V, of the Constitution of Montana. The appellant assigns these rulings as error, and in addition contends that there was no jurisdiction in a federal equity court to entertain the cause. If this position is sound we need not consider the other alleged errors.
We are of opinion that the appellee failed to exhaust its administrative remedy before applying to the District Court for injunctive relief. The granting and revocation of permits is an exercise by the appellant of delegated legislative power. Section 4038 of the Code (supra) confers on any interested person dissatisfied with a finding or decision by the commissioner, the right within thirty days to bring an action against him in a state district court to vacate his order and set it aside as unjust or unreasonable, and directs that on the hearing the judge “may set aside, modify or confirm said . . . decision as the evidence and the rules or (sic) equity may require.” The section confers the right to appeal to the State Supreme Court from the judgment of the trial court. Clearly the function of the state district court under the statutory mandate is not solely judicial, that is, to set aside a decision of the commissioner if arbitrary or unreasonable and hence violative of constitutional rights. The duty is laid on the court to examine the evidence presented and either to set aside or to modify or to affirm the commissioner’s order, as the proofs may require. The legislative process remains incomplete until the action of that court shall have become final. Prentis v. Atlantic Coast Line, 211 U. 8. 210, 229-230; Pacific Live Stock Co. v. Lewis, 241 U. S. 440, 444, 450-451. And the capacity in which the court acts is none the less administrative because the proceeding is designated as a suit in equity instead of by appeal. Keller v. Potomac Electric Power Co., 261 U. S. 428, 438-442. When the appellee was notified on June 22, 1931, that the rule adopted by the appellant would become effective July 22nd of the same year, an action could have been filed in the state court and a hearing had upon all questions of fact and law touching the propriety and legality of the order.
But we are told that the commissioner asserted his intention to enforce the order, and that the statute forbids the state court to afford interlocutory relief. Thus, says the appellee, though trial might result in a decision vacating the commissioner’s order, in the interval irreparable harm would have been done by the revocation of the company’s permit, and its officers and agents rendered liable to criminal prosecution. Such a state of the law, it is insisted, amounts to a denial of due process to which one confronted with the possible loss of property is not bound to submit but may at once, if there be the requisite diversity of citizenship and amount in controversy, apply to a federal court for relief. Conceding the correctness of the premises, the conclusion is sound. Pacific Telephone Co. n . Kuykendall, 265 U. S. 196. The appellant, however, denies the asserted statutory prohibition, and says that the plaintiff in an action attacking a decision by the commissioner may upon a proper showing obtain a stay of its operation.
These opposing views require a construction of the act. Section 4038 as amended provides, so far as applicable:
“ The rules of pleading and procedure in such action shall be the same as are provided by law for the trial of equitable actions in the district courts of this state. . . . [and] pending any such action the said findings or decision of said Commissioner shall remain in full force and effect. If no action be brought to set aside said findings or decision within thirty days, the same shall become final and binding.”
We are cited to no case, nor have we found any, in which the state courts have interpreted or applied the section. The first clause would obviously permit the issuance of an interlocutory injunction upon a proper showing, especially in view of the provisions of the Code p. 470of Civil Procedure.* But it is said that the succeeding clause precludes such a remedy. The argument is that the words “ pending any such action ” mean that during the continuance of the action and until its final decision the commissioner’s order must remain in full force and effect. We think, however, that in this phrase the word “ pending ” has the significance of “ until,” or while the time is running for bringing such an action. This is one of the recognized meanings of the word, and that it is so used we think is made clear from the sentence immediately following, to the effect that if no action shall be brought to set aside the finding or decision within thirty days it shall become final and binding. When considered together we are of opinion that the two phrases mean that unless and until a person affected brings his action he may not disregard the order. We are persuaded to this view for the reason that it supports the constitutionality of the act, and we are bound if fairly possible to construe the law so as to avoid the conclusion of unconstitutionality. Bratton v. Chandler, 260 U. S. 110. The construction thus adopted is consistent with the validity of the act, whereas that pressed upon us by the appellee would clearly render it unconstitutional.
Where as ancillary to the review and correction of administrative action, the state statute provides that the p. 471complaining party may have a stay until final decision, there is no deprivation of due process, although the statute in words attributes final and binding character to the initial decision of a board or commissioner. Pacific Live Stock Co. v. Lewis, 241 U. S. 440, 454. But where either the plain provisions of the statute (Pacific Tel. Co. v. Kuykendall, 265 U. S. 196, 203, 204) or the decisions of the state courts interpreting the act (Oklahoma Nat. Gas Co. v. Russell, 261 U. S. 290) preclude a supersedeas or stay until the legislative process is completed by the final action of the reviewing court, due process is not afforded, and in cases where the other requisites of federal jurisdiction exist recourse to a federal court of equity is justified.
*
§ 9243. Injunction Order—When Granted. An injunction order may be granted in the following cases: 1. When it shall appear by the complaint that the plaintiff is entitled to the relief demanded, and such relief or, any part thereof, consists in restraining the commission or continuance of the act complained of, either for a limited period or perpetually; 2. When it shall appear by the complaint or affidavit that the commission or continuance of some act during the litigation would produce a great or irreparable injury to the plaintiff; . . . See also §§ 9244, 9245, 9246, 9247, 9250, 9251 and 9252, dealing with security to be entered on interlocutory injunction, motions to dissolve the same before trial, etc.
The present case is not one in which the review of the commissioner’s action is judicial in character. If it were, the authorities cited by appellee which hold that one competent to invoke the jurisdiction of the federal courts is not bound to pursue a judicial review in the state courts would apply. See Bacon v. Rutland R. Co., 232 U. S. 134; Prendergast v. New York Tel. Co., 262 U. S. 43; Railroad Commission v. Duluth St. Ry. Co., 273 U. S. 625. As we have seen, under the Montana statute the administrative proceeding is not complete until the court shall have acted in revision and correction of the commissioner’s decision. It would be strange indeed if the commissioner’s action thus subject to alteration were nevertheless to be made as effective to harm the parties in interest as if no further administrative procedure existed. We can not so read the act in the absence of clear and unambiguous phraseology requiring that course, or of a decision of the state court so construing it.
The decree is reversed and the cause remanded for further proceedings in conformity with this opinion.
Reversed.