Kansas City Pipe Line Co. v. Fidelity Title & Trust Co.

• Decision Date: 20 August 1914
• Docket Number: 143.,4202,4179,4196,4195
• Citation: 217 F. 187
• Parties: KANSAS CITY PIPE LINE CO. et al. v. FIDELITY TITLE & TRUST CO. et al. (three cases). LANDON et al. v. KANSAS NATURAL GAS CO. et al. SAME v. McPHERSON, District Judge.
• Court: U.S. Court of Appeals — Eighth Circuit

217 F. 187

KANSAS CITY PIPE LINE CO. et al. v. FIDELITY TITLE & TRUST CO. et al. (three cases). LANDON et al. v. KANSAS NATURAL GAS CO. et al. SAME v. McPHERSON, District Judge.

Nos. 4179, 4195, 4196, 4202, 143.

United States Court of Appeals, Eighth Circuit.

August 20, 1914

J. W Dana and W. C. Scarritt, both of Kansas City, Mo. (E. L Scarritt, E. S. North, and A. M. Seddon, all of Kansas City Mo., on the briefs), for appellants Kansas City Pipe Line Co. and Fidelity Trust Co.

John S Dawson, Atty. Gen., of Kansas, Chester I. Long, of Wichita, Kan., and John H. Atwood, of Kansas City, Mo. (O. P. Ergenbright and T. S. Salathiel, both of Independence, Kan., on the brief), for appellants Landon and Litchfield.

Charles Blood Smith, of Topeka, Kan. (Samuel Barnum, of Topeka, Kan., on the brief), for appellees Fidelity Title & Trust Co. and McKinney.

Samuel S. Mehard, Cornelius D. Scully, and Churchill B. Mehard, all of Pittsburgh, Pa., filed a brief by leave of court on behalf of the protective committee of holders of second mortgage bonds of the Kansas Natural Gas Co.

Before HOOK and SMITH, Circuit Judges, and AMIDON, District Judge.

HOOK Circuit Judge.

These are appeals from orders of the District Court of the United States for the District of Kansas made in the adjustment of a conflict of jurisdiction between it and a state court. On January 5, 1912, the state of Kansas brought an action against the Kansas Natural Gas Company and others in the district court of Montgomery county in that state to enforce its anti-trust laws. The company is a Delaware corporation, with business headquarters in Montgomery county. The hearing of the action began September 30, 1912, but before its conclusion and on October 7th McKinney, a creditor holding second mortgage bonds, filed a creditor's bill against the company in the court below and caused receivers of its property to be appointed. October 19th the Fidelity Title & Trust Company, trustee in the first mortgage of the defendant company, was made a party plaintiff. Shortly afterwards the trustee filed an independent bill in foreclosure. For convenience these suits will be referred to as the foreclosure suit. By proceeding under section 56 of the Judicial Code jurisdiction was taken by the court below of the company's property in Missouri and Oklahoma. On February 15, 1913, the state court concluded its consideration of the action before it and rendered judgment against the company, appointing receivers of its property in Kansas, directing them in conjunction with the Attorney General to appear in the court below and urge the prior jurisdiction of the state court and the rights of the state of Kansas, making the Kansas City Pipe Line Company a party defendant and restraining it from litigating elsewhere any matter of its contract with the Kansas Natural Gas Company. February 18, 1913, the Attorney General and the state receivers appeared in the court below and applied for possession. It was held, June 5, 1913, they should prevail. 206 F. 772. On appeal to this court the order was affirmed. 126 C.C.A. 226, 209 F. 300.

The order directed the federal receivers to surrender all the property in Kansas to the state receivers and retained the matter for future directions respecting certain conflicting relations and the moneys on hand from the operation of the business. The mandate of this court was spread on the records of the court below December 30, 1913, and the physical property of the company in Kansas, both owned and leased, was accordingly turned over to the state receivers. There was also paid them the sum of $75,000. The federal receivers retained subject to further directions of the court below approximately $1,000,000, including live credits which were shortly thereafter collected. Payments upon the funded debt and certain other obligations of the Kansas Natural Gas Company having been stopped, this amount in the hands of the federal receivers was materially increased by further receipts of the business. While the above proceedings were in course, other things occurred which have a bearing on the controversies here. On March 11, 1913, the Fidelity Trust Company, the mortgage trustee of the Kansas City Pipe Line Company, was made a defendant in the action in the state court, and the restraining order mentioned was extended to it. On June 21, 1913, the state court appointed a receiver of the Pipe Line Company. December 6, 1913, the insolvency of the Kansas Natural Gas Company, confessed by it in the foreclosure suit in the court below, was made an additional ground for the state receivership.

The appeals now before us were taken from subsequent orders of the court below by the state receivers and by the pipe line company and its mortgage trustee, who had appeared as interveners. On January 23, 1914, the state receivers moved the court below to order its receivers to pay over to them all moneys then or thereafter in possession in virtue of the federal receivership. The Kansas Natural Gas Company, from the operation of whose property, owned and leased, the moneys came, asked that the motion be granted. The state receiver of the pipe line company also desired the moneys paid over subject to any liens and claims of that company or of himself as its receiver. As will be presently explained, the pipe line company owned extensive properties which by lease and contract had become embraced in the system operated by the Kansas Natural Gas Company. On January 24, 1914, the court below ordered its receivers to deliver to the state receivers the property of the Kansas Natural Gas Company. in Missouri and Oklahoma to be returned by the latter at the end of their custody and operation of the property in Kansas, also, excepting a reservation not important here, to pay over to the state receivers all moneys then or thereafter in hand subject to all liens and claims with right to assert them in the state court. The state court thereupon directed its receivers to accept and receipt for the property and moneys upon the terms of the order of the court below. The pipe line company and its mortgage trustee appealed. Cause No. 4179.

On February 6, 1914, the court below modified the order of January 24th by limiting the amount of money to be paid over to $600,000. On March 12th the remaining federal receiver, the others having resigned, was ordered by the court below to continue collecting for all gas theretofore or thereafter sold to purchasers or consumers in St. Joseph, Kansas City, Joplin, and elsewhere in Missouri. From these sources a large part of the income from the entire business was derived. The Attorney General of the state and the state receivers renewed their earlier application for the moneys and complained of the orders of February 6th and March 12th as violative of the mandate of this court, and also because the federal receiver was allowed to collect for gas which he neither produced, bought, nor paid for, but all of which was acquired, transported, and delivered by the state receivers. The application was denied March 23, 1914, except that the federal receiver was directed to pay the state receivers an additional $100,000; the order reciting:

'Which said money is paid for the express purpose, and for none other, to enable the state receivers of the district court of Montgomery county, Kan., to operate the entire property and to furnish a gas supply to patrons and consumers at St. Joseph, Mo., Kansas City, Mo., Joplin, Mo., and other places in the state of Missouri and subject to the right of the state court receivers to make further applications for money for said purposes.'

The state receivers appealed from the order except as to the payment of the money. Cause No. 4195. The pipe line company and its mortgage trustee appealed from that part of the order directing the payment of the money. Cause No. 4196. Afterwards the pipe line company and its mortgage trustee prosecuted a further appeal from the orders of January 24th and March 23d (Cause No. 4202), and the state receivers applied for a writ of mandamus to require the judge of the court below to observe the mandate of this court (Cause No. 143, original).

A brief description of the property and business of the Kansas Natural Gas Company and the relation of the pipe line company thereto and its place in this litigation will assist the understanding of the controversies before us. The Kansas Natural Gas Company was engaged in the production, purchase, transportation by pipe lines, and marketing of natural gas. It supplied gas for lighting, heating, and manufacturing purposes in about 40 cities and towns in Kansas and Missouri. Its system of pipe lines, including those leased from other companies, extends from the Hogshooter gas field in Oklahoma, through eastern Kansas and across the Missouri river above Leavenworth, to St. Joseph, Mo., a distance of about 250 miles, with various branches therefrom, to Joplin, in southwestern Missouri, and the cities and towns in that neighborhood, to Kansas City, Mo., and Kansas City, Kan., and to Lawrence, Topeka, Leavenworth, and Atchison, Kan. Some of the gas is still obtained from wells in Kansas, but most of it from wells in Oklahoma. Much the larger part of the pipe line system is in Kansas; the lines into Missouri, particularly at Kansas City, being short in comparison. All the gas for the Missouri cities and towns goes through trunk pipe lines in Kansas. Gas for the larger cities in both Kansas and Missouri is generally sold to local companies formerly in the artificial gas business and is distributed by them to consumers.

Because of the nature of the natural gas business, the necessity of shifting the pipe lines and compressor plants to reach new sources of supply as gas wells...