Phoenix Finance Corporation v. Iowa-Wisconsin B. Co.

• Decision Date: 20 January 1941
• Docket Number: No. 11734.,11734.
• Citation: 115 F.2d 1,139 ALR 1490
• Parties: PHŒNIX FINANCE CORPORATION v. IOWA-WISCONSIN BRIDGE CO.
• Court: U.S. Court of Appeals — Eighth Circuit

139 ALR 1490, 115 F.2d 1 (1940)

PHŒNIX FINANCE CORPORATION v. IOWA-WISCONSIN BRIDGE CO.

No. 11734.

Circuit Court of Appeals, Eighth Circuit.

October 26, 1940.

Rehearing Denied November 16, 1940.

Writ of Certiorari Granted January 20, 1941.

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James R. Morford, of Wilmington, Del. (Casper Schenk, of Des Moines, Iowa, Marvel & Morford, of Wilmington, Del., and Zimmerman & Norman, of Chicago, Ill., on the brief), for appellant.

F. A. Ontjes, of Mason City, Iowa, and William C. Green, of St. Paul, Minn., for appellee.

Before SANBORN, WOODROUGH, and THOMAS, Circuit Judges.

Writ of Certiorari Granted January 20, 1941. See 61 S.Ct. 550, 85 L.Ed. ___.

THOMAS, Circuit Judge.

This is an appeal from a decree entered upon a supplemental and ancillary bill of complaint granting an injunction and other relief intended to protect and effectuate the fruits of a prior decree and orders of the court below entered in a suit in which foreclosure of a mortgage trust deed was denied.

Before analyzing the questions for decision we summarize the background of undisputed facts giving rise to the present controversy.

The appellee, Iowa-Wisconsin Bridge Company, herein called the Bridge Company, is a Delaware corporation. It owns a bridge across the Mississippi river between the states of Iowa and Wisconsin. In 1932 it gave a trust deed conveying all of its property to trustees to secure a $200,000 bond issue. The trustees named in the deed were the Bechtel Trust Company, now called First Trust and Savings Bank, an Iowa corporation, and A. H. Schubert, a citizen of Wisconsin. In 1933, the trustees filed a bill of foreclosure in the district court against the Bridge Company. A receiver was appointed in that suit. The Bridge Company answered. Fayette D. Kendrick, a stockholder in the Bridge Company, and other stockholders, intervened on behalf of the defendant. Upon Kendrick's motion, the appellant, Phoenix Finance Corporation, a Delaware corporation, was by order of court joined as a party plaintiff and as a defendant to the petition of intervention. Appellant owned $177,600 par value of the bonds and was interested in upholding their validity. By order of court the petition of intervention was taken as an answer to the bill. The case was tried before a master who made findings of fact and conclusions of law. All parties filed exceptions to the master's report. After a hearing, the conclusions of the master were modified by the court. The court made findings of fact and conclusions of law, and a decree was entered thereon denying foreclosure. The appellant herein thereupon filed a motion for a rehearing and in the alternative for a modification of the decree. The motion was overruled. See Bechtel Trust Co., et al. v. Iowa-Wisconsin Bridge Co. (Kendrick, et al., Interveners), D.C., 19 F.Supp. 127.

The trustees and Phoenix Finance Corporation, hereinafter called Phoenix, appealed to this court from the decree and from the order overruling the motion for rehearing and for modification of the decree, and the decree and orders of the court were affirmed. First Trust & Savings Bank, et al. v. Iowa-Wisconsin Bridge Co. (Kendrick, et al., Interveners), 8 Cir., 98 F.2d 416, certiorari denied 305 U.S. 650, 59 S.Ct. 243, 83 L.Ed. 420, rehearing denied 305 U.S. 676, 59 S.Ct. 356, 83 L.Ed. 437.

In the bill of foreclosure the trustees alleged: "That all of said bonds were duly made and executed on behalf of the Bridge Company, * * * and that all of said bonds, together with interest coupons attached thereto evidencing interest thereon as aforesaid, have now been issued for a good and valuable consideration and are now outstanding in the hands of divers persons and corporations who are now the owners and holders thereof for value." They prayed that an account be taken of the amount due on the bonds and for a deficiency judgment.

The answer of the Bridge Company denied the validity of the deed of trust; alleged that there was a good defense to all or part of the bonds; and prayed that the plaintiffs be required to make a complete showing as to the consideration received by the Bridge Company in each and every instance for the delivery of the bonds. The petition of intervention prayed that the bill be dismissed and alleged that the bonds and mortgage were fraudulent, without consideration, invalid and void. Phoenix filed an answer to the petition of intervention denying all allegations of fraud.

The final decree contained the following pertinent statement: "That the mortgage and bonds in suit were fraudulently issued. That all bonds are without valid consideration, with the exception of the bonds aggregating $15,000 hereinafter specified."

In 1938 and 1939 Phoenix instituted five separate suits against the Bridge Company in the state courts of the state of Delaware based upon various of the items claimed to have constituted consideration for the bonds held to be invalid in the foreclosure case.

On September 18, 1939, the Bridge Company filed its supplemental and ancillary bill against Phoenix in the foreclosure proceeding reciting the history of the litigation and the commencement of the suits in the state courts of Delaware; alleging that all the matters involved in the cases in Delaware were adjudicated in the foreclosure suit and that Phoenix was threatening to institute and prosecute further actions against the Bridge Company upon similar alleged causes of action; and praying (1) for an injunction restraining Phoenix (a) from further prosecuting the suits already begun, and (b) from bringing further actions, and (2) for a decree commanding Phoenix to dismiss the suits already begun and to satisfy of record a certain $50,000 mortgage involved in the foreclosure suit and to surrender the notes purporting to be secured thereby.

The answer of Phoenix denies that the matters involved in the Delaware actions were adjudicated in the foreclosure suit, alleges that the Bridge Company is indebted to it in the sum of $98,349.46, that it is entitled to an accounting, that the findings and decree in the foreclosure suit are contrary to the facts and are the result of the tactics of the interveners and their counsel in the foreclosure suit in presenting a voluminous and confusing record and in making representations or inadvertent misrepresentations to the court, and that the validity of the bonds and the consideration received by the Bridge Company for them were not litigated but were reserved for determination at a second stage of the proceedings.

Parts of the answer were upon motion of appellee stricken, and the introduction of testimony contradicting the findings and decree in the foreclosure proceeding was denied. The findings and decree were for the Bridge Company, and Phoenix appeals.

All the contentions on this appeal can be disposed of by determining (1) whether Phoenix was such a party to the foreclosure proceeding as that it is bound by the findings and decree entered therein; (2) whether the validity of the bonds and the consideration received for them were adjudicated in the foreclosure case, that is whether the decree in the foreclosure case affirmed by this court is res judicata of the controversies involved in the supplemental and ancillary proceedings; (3) whether the injunction is a violation of section 265 of the Judicial Code, 28 U.S. C.A. § 379, and of the Fifth Amendment to the Constitution; and (4) whether the burden was upon appellee to show that the decree in the foreclosure was a "right" one and not obtained by fraud.

1. Phoenix contends that the decree in the foreclosure case, affirmed by this court, does not constitute an adjudication against it for the reasons (1) that it was only a formal party to that suit and (2) that it was not represented in that proceeding by the trustees.

On the issue here presented it is unnecessary to consider the technical capacity of Phoenix as a party in the foreclosure suit. The only question is whether its relation to that suit was such that it is bound and concluded by the decree. We think it is. Even though its name had not appeared on the record at all as a party to the case it was not, in a legal sense, a stranger to the cause. Phoenix as the owner of about ninety per cent. of the bonds, acting within its express rights under the trust deed, requested the trustees to institute the foreclosure suit. The suit was begun and prosecuted by attorneys selected and paid by it. When the validity of the bonds was attacked by the answer and the petition of intervention it participated in the trial and in the proceedings. It filed an answer to the petition of intervention. It filed exceptions to the master's report and a petition for rehearing and modification of the decree; and it appealed to this court. The validity of the bonds held by it was challenged on the grounds of fraud and want of consideration and it had a direct interest in defending them. Its counsel did defend them with exceptional ability.

On this point the case is within the principle "that one who prosecutes or defends a suit in the name of another, to establish and protect his own right, or who assists in the prosecution or defense of an action in aid of some interest of his own, and who does this openly, to the knowledge of the opposing party, is as much bound by the judgment and as fully entitled to avail himself of it, as an estoppel against an adversary party, as he would be if he had been a party to the record." Souffront v. Compagnie Des Sucreries, 217 U.S. 475, 487, 30 S.Ct. 608, 612, 54 L.Ed. 846; Anderson v. Watt, 138 U.S. 694, 704, 705, 11 S.Ct. 449, 34 L.Ed. 1078; Robbins v. Chicago City, 4 Wall. 657, 71 U.S. 657, 672, 18 L.Ed. 427; Love-joy v. Murray, 3 Wall. 1, 70 U.S. 1, 19, 18 L.Ed. 129; Hoskins v. Hotel Randolph Co., 203 Iowa 1152, 211 N.W. 423, 427, 65 A.L. R. 1125. And when a party takes an active part in litigation in a federal court and its rights...