Bankers' Trust Co. v. Missouri, K. & T. Ry. Co.

• Decision Date: 22 May 1918
• Docket Number: 4995.
• Citation: 251 F. 789
• Parties: BANKERS' TRUST CO. v. MISSOURI, K. & T. RY. CO. et al.
• Court: U.S. Court of Appeals — Eighth Circuit

251 F. 789

BANKERS' TRUST CO. v. MISSOURI, K. & T. RY. CO. et al.

No. 4995.

United States Court of Appeals, Eighth Circuit.

May 22, 1918

Roberts Walker, of New York City (Bryan & Williams, of St. Louis Mo., and White & Case, of New York City, on the brief), for appellant.

C. S Burg, of St. Louis, Mo. (Joseph M. Bryson, of St. Louis, Mo A. C. Rearick, of New York City, and Boyle & Priest, of St Louis, Mo., on the brief), for appellees Missouri, K. & T. Ry. Co. and Edwards.

Edward C. Eliot, of St. Louis, Mo. (Edward Cornell, Charles E. Hotchkiss, and Davies, Auerbach & Cornell, all of New York City, and Eliot, Chaplin, Blayney & Bedal, of St. Louis, Mo., on the brief), for appellee Central Trust Co. of New York.

Frederick Geller and Edward H. Blanc, both of New York City, and Arthur B. Shepley, of St. Louis, Mo., for appellee Farmers' Loan & Trust Co.

Before SANBORN, CARLAND, and STONE, Circuit Judges.

SANBORN Circuit Judge.

The Missouri, Kansas & Texas Railway Company, a corporation of Kansas, is the owner of an extensive system of railroads stretching southwesterly from St. Louis, lying in Missouri, Kansas, and Oklahoma. There is a blanket mortgage upon the railroads constituting this system, and there are many divisional mortgages, which rest upon respective parts of the system. Under a creditors' bill against the railway company the court below on September 27, 1915, appointed Charles E. Schaff receiver of all its railroads and property, to take and hold possession of them and to apply their income and proceeds to the payment of the expenses of the operation of the railroad and to the payment of the just debts of the company in the order of the equities of their holders. On the same day, upon a like bill filed by another creditor, the receivership of Mr. Schaff was extended by order of the court over the second suit, and it was consolidated with the first. The receiver immediately took possession of all the property and has been operating the system of railroads ever since.

On November 13, 1915, the Central Trust Company of New York, as trustee in the consolidated mortgage of April 1, 1910, the blanket mortgage, filed its petition in the consolidated cause for leave to file its bill to foreclose its mortgage, and the court granted its prayer, ordered that the receivership of Mr. Schaff be extended to all the property covered by that mortgage, and that the suit to foreclose that mortgage, which had been commenced, and the suits then pending for the sale and disposition of the property of the railway company, should be consolidated into and should proceed in one case under the title: 'Central Trust Company of New York v. Missouri, Kansas & Texas Railway Company, Defendant. In Equity. No. 4564. Consolidated Cause. ' This consolidated or blanket mortgage covered all the property of the railway company. Every other mortgage covered only a part of its property. On April 17, 1916, the Farmers' Loan & Trust Company, as trustee in the first and refunding mortgage of September 1, 1904, and on June 27, 1916, the New York Trust Company and Benjamin F. Edwards, as trustees under the general mortgage of January 1, 1906, filed their petitions in the consolidated cause for leave to file their respective bills to foreclose their mortgages, and on June 27, 1916, the court granted their petition, ordered that the receivership of Schaff be extended over the property covered by their mortgages, and that their suits to foreclose be consolidated with the consolidated cause No. 4564.

On June 27, 1916, the appellant, Bankers' Trust Company, the trustee in the second mortgage dated June 1, 1890, filed its petition in the consolidated cause for leave to be made a party defendant therein, and the court ordered that it should henceforth be a defendant in that cause, with the opportunity to plead and be heard on all matters, and that it should be given notice of all proceedings therein. On November 17, 1916, the appellant filed a petition in the consolidated cause for leave to file a bill to foreclose its second mortgage, and the court granted it leave to do so. The appellant filed in the court below its complaint to foreclose this second mortgage, and thereafter, on December 11, 1916, it filed its petition for the appointment of a receiver of the property subject to the lien of that mortgage, that, if Mr. Schaff or any other receiver should be appointed, he should be directed to keep separate accounts of his receipts from or on account of, and of his expenses paid and disbursements made from or on account of, the property covered by the lien of this second mortgage, and that he should apply such receipts for the benefit of the appellant and the holders of the bonds secured by that mortgage. On the same day the railway company and the complainants in the creditors' bills, upon which Mr. Schaff had originally been appointed receiver of all the railways and property of the railway company, made a motion that the suit of the appellant to foreclose the second mortgage be consolidated with the consolidated cause No. 4564, and that the receivership of Mr. Schaff therein be extended to all the railroads and property described in the second mortgage.

After notice to all parties in interest and a full hearing upon this petition and motion, the court below on June 14, 1917, made the order of which the appellant Bankers' Trust Company now complains. That order consists of five paragraphs. By the first the foreclosure suits of the New York Trust Company and Benjamin F. Edwards, trustees in the general mortgage of January 1, 1916, and of the appellant trustee in the second mortgage of June 1, 1890, are consolidated with the consolidated cause No. 4564. By the second the receivership of Mr. Schaff in the consolidated cause No. 4564 is extended to all the property covered by the general mortgage and the second mortgage, and to the receipts from or on account of that property, the powers conferred upon Mr. Schaff in the original and subsequent orders of appointment in the consolidated and constituent causes, including those affecting the property and income covered by or embraced in the second mortgage and the general mortgage, were continued in full force and effect and made as binding upon the parties as though they were then entered; 'but,' so reads the order, 'the relative rights of all the parties to the properties covered by the various mortgages and the income therefrom are hereby reserved for future determination. The acceptance of the benefit of the consolidation, or of the extension of the receivership, by this order, shall be deemed a consent to all administrative orders heretofore made in the consolidated or constituent causes. ' By the third the bond of the receiver was made to cover additional duties and responsibilities imposed by the order. The fourth and fifth paragraphs read in this way:

'4. The receiver is hereby directed to keep separate accounts of the earnings, tolls, revenues, rents, income, and profits of the railroads, properties, premises and franchises described in and covered by the lien of each of the various mortgages involved in this consolidated cause including the second mortgage, and of the expenses of maintaining and operating the same. A more detailed direction in this matter of separate accounts is reserved for further consideration.'

'5. Except as granted herein, the above-mentioned petition of the Bankers' Trust Company is denied. Said trust company excepts to such denial and to this order.'

The first error assigned by the appellant is that the court below refused to appoint in its foreclosure suit a separate receiver of the property covered by its mortgage and of the earnings, income, and profits thereof, and instead of doing so ordered the receivership in the consolidated cause extended to the property covered by the mortgage in which the appellant was the trustee and to the receipts therefrom. But all the property of the railway company was in the possession of Mr. Schaff, the receiver in the consolidated cause under appointment under the creditors' bill and the blanket mortgage, and the second mortgage in which the appellant was trustee covered only a part of the railroads and property of the railway company, a part which could not be wisely or conveniently segregated and operated apart from the other portions of its system. The extension of a receivership of an entire system of railroads and its receipts, based upon liens which have attached thereto, over a part of that system and the receipts of that part which are covered by a prior or other mortgage, deprives those secured by the lien of the latter mortgage of no rights or equities which they would have had if a separate receiver of the property covered by their mortgage had been appointed. The legal rights of all parties, the equities of all parties, the priorities of all liens, remain the same in either case. There was, therefore, no violation of any legal right, or of any substantial equity, by the extension of the receivership of Mr. Schaff over the entire property to the part of that property covered by the appellant's mortgage, and the impounding of the earnings, income, and profits thereof for the benefit of the bondholders secured by that mortgage, by means of that extension, rather than by the appointment of a separate receiver therefor. It was discretionary with the court below which course it should pursue, and in view of the facts that the entire railway system was in the possession of the receiver for the benefit of the holders of all liens thereon, that there were many liens, some upon the entire system, many upon parts thereof respectively, that separate receivers for separate liens would multiply the labor and expenses of the...