Western Union Telegraph Co. v. United States & Mexican Trust Co.

• Decision Date: 16 March 1915
• Docket Number: 4310.
• Citation: 221 F. 545
• Parties: WESTERN UNION TELEGRAPH CO. v. UNITED STATES & MEXICAN TRUST CO. et al.
• Court: U.S. Court of Appeals — Eighth Circuit

221 F. 545

WESTERN UNION TELEGRAPH CO. v. UNITED STATES & MEXICAN TRUST CO. et al.

No. 4310.

United States Court of Appeals, Eighth Circuit.

March 16, 1915

Syllabus by the Court.

A purchaser, through a foreclosure sale, or otherwise, of the property of an insolvent corporation by a new corporation pursuant to a plan or scheme of the bondholders and stockholders of the insolvent corporation, whereby the stockholders thereof by receipt of stock or bonds of the new company, or otherwise, receive benefits equal to or greater than those received by, or openly offered to and rejected by its general creditors, is fraudulent in law as to the latter and renders the new company and the property it purchases at such sale liable for the claims of such creditors against the old company, at least to the extent of the value of the interest secured by the stockholders of the old company in excess of the value of the interest secured by, or openly offered to and rejected by, the unsecured creditors.

No bill of exceptions and no exception is essential to a review, on an appeal from a final decree or order, of an interlocutory order striking out a part of an intervening petition, or of a complaint in a suit in equity.

At the entry of the final order or decree in equity all the preceding interlocutory orders and decrees relative to the matters in controversy between the parties in interest therein are subject to revision by the court entering the final order or decree, and on an appeal therefrom they are reviewable by the appellate court and may be heard at the same time.

The grant of leave to intervene in a suit or proceeding in equity is generally discretionary.

But one who claims a lien upon or interest in specific property in the exclusive dominion and control of a court in such a suit or proceeding, so that such a lien or interest can be preserved, secured, or enforced only by an intervention in that court, has a right to intervene in the suit or proceeding therein, and an order denying leave so to do, or striking from the intervening petition a statement of a cause of action for the preservation, securing, or enforcing of such a lien or interest, is reviewable and reversible.

An order made after a hearing on a motion to dissolve a restraining order, and continuing it, is in effect an injunction, and is appealable.

A court which has first lawfully acquired dominion over, and the power to dispose of, specific property, may lawfully retain exclusive jurisdiction to adjudicate claims for liens upon or trusts and interests in it, until its decree of disposition of it is carried into effect, and it may by injunction protect the property, its decree, and the title under that decree against suits or proceedings in other courts.

The prosecution or threatened prosecution in other courts, by creditors of a mortgagor, of actions in personam against the purchaser at a foreclosure sale under a decree of the foreclosing court, or against those claiming under such purchaser, upon alleged promises made, or legal liabilities incurred, by such parties to pay the debts of the mortgagor to such creditors, presents no ground for an injunction against such actions by the foreclosing court, because such actions involve no lien upon, or title or interest in, the specific property in the dominion of the foreclosing court and do not interfere with the disposition thereof by its decree.

The requirement of a bond or security to indemnify the parties restrained was not a condition precedent to the validity of a restraining order, or an order continuing it, under section 263 of the Judicial Code (Act March 3, 1911, c. 231, 36 Stat 1162 (Comp. St. 1913, Sec. 1240)).

This is an appeal by the Western Union Telegraph Company from an order of June 27, 1914, striking out parts of its petition of intervention in the suit of the United States & Mexican Trust Company against the Kansas City, Mexico & Orient Railway Company, to foreclose the first mortgage upon the property of the latter company; from an order of June 27, 1914, allowing its claim for $1,280.72, but failing to grant it any other relief; from an order of July 14, 1914, restraining it and all the other creditors of the railway company, on the petition of the trust company, from commencing or prosecuting any actions at law, or suits in equity, or other legal proceedings, against the Kansas City, Mexico & Orient Railroad Company, the purchaser at the foreclosure sale, arising out of or based upon any claims or demands of any of said creditors against the railway company, or its former property, until the further order of the court; and from an order of July 15, 1914, made on the application of the telegraph company to dissolve the restraining order of the preceding day, so modifying it that it should not prejudice the right, if any, of any creditor of the railway company who should enter his appearance in the foreclosure suit and prosecute his claim exclusively in the court below.

The main controversy in the case is whether or not the telegraph company is entitled, either at law or in equity, to a hearing and decision in any court regarding the validity of the claims which it pleaded in that portion of its intervening petition which was stricken out by the court below. Those claims were pleaded at length and in great detail. One of them was that the stock of the railway company had never been paid for, that the holders of the stock owed the railway company the par value of it, that the larger part of it was held by the holders of the bonds secured by the first mortgage, that the indebtedness of these bondholders for their stock should be ascertained and deducted from the amounts owing upon their bonds, and that the liability of the other stockholders should be enforced before the mortgaged property should be taken from the general creditors by a foreclosure of the first mortgage and a sale thereunder. Another was that the stockholders and bondholders planned and intended that the sale under the foreclosure decree about to be entered should be made to a new corporation organized by them, which should have a common stock of $50,000,000 and a debt of $12,000,000 secured by prior lien bonds, a debt of $31,000,000 secured by adjustment bonds upon the property to be purchased at the foreclosure sale, and that all of these bonds and all of this stock should be issued to the stockholders and bondholders of the old company for $12,000,000, to be paid by them for the property, without paying or distributing anything to the general creditors of the company. Another was that the construction companies, which were originally parties plaintiff in the foreclosure suit, and which claimed an indebtedness of the railway company to them of about $1,500,000, were in fact indebted to that company. The telegraph company alleged in its petition that the relations of the railway company, the construction companies, and the trust company were at all times exceedingly intimate, that the same individual was the president of each of them, that the directors of the companies were interlocking in their nature, and that at all times the affairs and business of these companies were under the direct control of the same man, and all these companies were managed as if they were in fact and effect one company.

The averments of the telegraph company as to all its claims, which have been briefly described, were stricken from its petition by the court below, leaving nothing in it but allegations that the railway company was indebted to the telegraph company for necessary telegraphic service rendered prior to September 1, 1911, in the sum of $1,297.20, and for telegraphic service rendered after September 1, 1911, and prior to March 7, 1912, when the foreclosure bill was filed, in the sum of $1,057.42, and that the earnings of the railway company both before and after the appointment of the receivers had been diverted from the payment of current debts to the payment of the bonded debt of the railway company and to the payment for betterments of the railroad. After this petition had been reduced to these terms, the trust company answered that the railway company owed the telegraph company $1,280.72, and no more, and denied diversion of any income and the preferential nature of the claim; and the court on June 27, 1914, in the absence of any evidence, adjudged that the telegraph company recover $1,280.72 of the railway company, that the judgment constitute a general demand against that company inferior and subordinate to the lien of the mortgage, and that the telegraph company have no other relief.

The decree of foreclosure was entered on February 2, 1914, on the day of the filing by leave of the court of the petition of the telegraph company. It adjudged $24,538,000 to be due on the bonds secured by the first mortgage, and the sale to pay it of the right, title, estate, interest, and equity of redemption of the railway company and of all parties to the suit, and of all persons claiming under them in and to the property of the railway company, and adjudged that the purchaser at the sale should hold the property free from all claims, liens, and charges of the railway company, except as in the decree expressly reserved. The reservations in the decree were that upon the acceptance of the bid for the property covered by the mortgage the purchaser should pay in cash to the special master, within ten days after the entry of an order directing such payment, the costs of the cause, the amounts due the trust company, the receivers, and their counsel, some other amounts, and 'the sums which may be allowed by the court in this cause, if any, to any other party to this cause, or its, his, or their solicitors'; that if the purchaser, his successor...