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Argument for Plaintiffs in Error.
Pleasant Township v. Ætna Life Insurance Co., 138 U. S.
The Great Southern Hotel Case involved a purely private contract. The same rule as to impairment by judicial decision has recently been established by this court in similar cases coming here by writ of error to the state court. Muhlker v. New York & Harlem R. R. Co., 197 U. S. 594; Sauer v. City of New York, 206 U. S. 536.
The Muhlker Case involved merely the reversal of the rule of the common law by the state court and not the interpretation of any statute. The present case is stronger in favor of the plaintiff in error than the Muhlker Case, because the plaintiff in error is not seeking a reversal of the rule established in New York, but rather its enforcement; and the present case involves the actual setting aside of the New York contract by the courts of another State. See opinion of Mr. Justice Holmes in Old Dominion Company v. Lewisohn, 210 Massachusetts, 206. The Massachusetts decrees also constitute an impairment of the contract, in that they deny the power or capacity of the defendant in error under the laws of New Jersey to bind itself with respect thereto, and thereby they misinterpret the statutes of New Jersey relating to corporations. General Statutes of New Jersey, 1895, Vol. 1, pages 907 et seq.; dissenting opinion of Mr. Chief Justice Knowlton in the present case below; Bickley v. Schlag, 46 N. J. Eq. 533, 535; Donald v. American Smelting Company, 62 N. J. Eq. 729, 733.
The Massachusetts decrees involve denial to the plaintiff in error of due process of law.
The due process clause operates not only as a limita
225 U. S.
Argument for Plaintiffs in Error.
tion upon state legislatures, but also to restrain the state courts from denying the substance of due process, even though after hearing and after compliance with all the jurisdictional forms. Virginia v. Rives, 100 U. S. 313; Ex parte Virginia, 100 U. S. 339; Scott v. McNeal, 154 U. S. 34; Chicago, Burlington & Quincy R. R. v. Chicago, 166 U. S. 226; Reynolds v. Chicago Traction Co., 207 U: S. 20.
Due process is denied by judicial decision (as distinguished from mere error) whenever fundamental principles are disregarded or vested rights acquired under settled rules of local law are divested by reversal of such settled rules, or by a decision in violation thereof. Muhlker v. New York & Harlem R. R. Co., supra; In re Kemmler, 136 U. S. 436, 448; Davidson v. New Orleans, 96 U. S. 97; Hurtado v. California, 110 U. S. 516; Brown v. Levee Commissioners, 50 Mississippi, 468; Wulzen v. San Francisco, 101 California, 15; In re Ah Lee, 5 Fed. Rep. 899; Duke of Norfolk's Case, 3 Ch. Cas. 1, 33.
The Massachusetts decrees involve retroactive judicial legislation, impairing rights of the plaintiff in error which were vested under the settled rules of law in New York. (The laws of New York and New Jersey have been examined in the preceding section.) This court will decide for itself as to the New York law. Huntington v. Attrill, 146 U. S. 657, 683, 684; Scott v. McNeal, 154 U. S. 34, 35; Laing v. Rigney, 160 U. S. 531; Great Western Telegraph Co. v. Purdy, 162 U. S. 329; Eastern Building Ass'n v. Williamson, 189 U. S. 122, 127; Finney v. Guy, 189 U. S. 335, 340; Harding v. Harding, 198 U. S. 317, 331, 335; Tilt v. Kelsey, 207 U. S. 43, 57, 58.
Retrospective laws cannot be enacted to deprive parties of property rights previously vested. Medford v. Learned, 16 Massachusetts, 215; Addams v. Marx, 50 N. J. Law, 253; Towle v. Eastern Railroad, 18 N. H. 547.
The decision of the Massachusetts court falls within
Opinion of the Court.
the same prohibition. Old Dominion Company v. Lewisohn, 210 U. S. 206.
The Massachusetts decrees create a fictitious obligation to the defendant in error as to the transaction in question nunc pro tunc by virtue of subsequent acts, although at the time of the transaction it fully consented thereto and although the subsequent acts involved no breach of duty toward it.
The Massachusetts decrees also involve a denial of due process in holding the plaintiff in error liable in solido.
The rule of promoters' liability has always rested upon the principle that the promoter is a fiduciary. His obligation is purely equitable and does not rest upon the theory that he commits a tort. Any profit received by him is charged with a constructive trust. The Massachusetts decision holds the plaintiff in error liable for what he did not receive. The case is not one involving defalcation or loss to a trust estate, and so is not within those cases which hold one trustee liable for defaults of his co-trustee. No such rule existed when the contract in question was made, and it is now attempted to be imposed retroactively by a judicial decision of the Massachusetts court.
Mr. Edward F. McClennen and Mr. Louis D. Brandeis for defendants in error.
MR. JUSTICE LURTON delivered the opinion of the court.
The question upon which these cases have been brought to this court is whether the Massachusetts court gave to a New York judgment pleaded as a bar to a Massachusetts suit that full faith and credit required by the first section of Art. IV of the Constitution of the United States, and § 905, Revised Statutes, enacted in pursuance thereof.
The Old Dominion Copper and Smelting Company, hereafter designated the Copper Company, a corporation
of New Jersey, filed two bills in an equity court of Massachusetts against the plaintiff in error, Albert S. Bigelow, to recover secret profits realized by him, and an associate, one Lewisohn, as organizers or promoters of the Copper Company, in selling the mining properties of another corporation, called the Baltimore Company, and certain neighboring properties, designated in the transcript, "outside properties.'
The two sales were for distinct considerations. The bills alleged that when these sales were made the Copper Company was under the absolute control of the two promoters, Bigelow and Lewisohn, and that they divided the profits between them. The fundamental facts in each case were the same. The two cases were heard together in the state courts, and are now heard as if one case, though upon separate writs and distinct records.
Demurrers were interposed and overruled. The allegations of the bills are fully shown in 188 Massachusetts, 315, where one of the cases was considered on demurrer. Answers were then filed and a great mass of evidence taken. Upon a full hearing the allegations of the respective bills were held to be sustained by the proofs and final decrees were rendered for the plaintiff in sums aggregating $2,178,673.33. The decrees were affirmed in the Supreme Judicial Court.
The Federal question, upon which the judgment of this court is sought, arose in this wise: Bigelow, the plaintiff in error here, was a citizen of Massachusetts, and was, therefore, sued in the courts of that State. Lewisohn, who was Bigelow's associate promoter, was a citizen of New York. He was, therefore, sued separately in the Circuit Court of the United States for the Southern District of New York. The bills filed there were identical in every essential with those filed in Massachusetts. In the two sets of bills it was alleged that Bigelow and Lewisohn were joint promoters of the Copper Company, and
as such made the sales to it while under their entire control, and that they had realized fraudulent profits. Demurrers were interposed in the New York cases, which were sustained, and the bills dismissed. These judgments were affirmed in the Circuit Court of Appeals for the Second Circuit. The judgment in one of these cases (Old Dominion Copper Co. v. Lewisohn), that relating to the sale of the "outside properties," was brought to this court by certiorari and affirmed, the opinion being by Mr. Justice Holmes, 210 U. S. 206, where the facts of the case are stated.
The final decree in one of the New York cases was pleaded in a supplemental answer in the pending Massachusetts cases as a bar to the suits against Bigelow. The Massachusetts court adjudged that Bigelow was neither a party or a privy to the New York suits, and was, therefore, not protected by the judgment therein.
To conclude Bigelow by the New York judgment, it must appear that he was either a party or a privy. That he was not a party to the record is conceded. He had no legal right to defend or control the proceedings, nor to appeal from the decree. He was, therefore, a stranger, and was not concluded by that judgment as a party thereto. That he was indirectly interested in the result because the question there litigated was one which might affect his own liability as a judicial precedent in a subsequent suit against him upon the same cause of action is true, but the effect of a judgment against Lewisohn as a precedent is not that of res judicata, and the Massachusetts court was under no obligation to follow the decision as a mere judicial precedent. Nor would assistance in the defense of the suit, because of interest in the decision as a judicial precedent which might influence the decision in his own case, create an estoppel as to Bigelow. Stryker v. Goodnow, 123 U. S. 527. Also Rumford Chem. Works v. Hygienic Chem. Co., 215 U. S. 156.