Pennsylvania Co. for Ins on Lives and Granting Annuities v. Philadelphia Co.

• Decision Date: 25 May 1920
• Docket Number: 2551,2552.
• Citation: 266 F. 1
• Parties: PENNSYLVANIA CO. FOR INS. ON LIVES AND GRANTING ANNUITIES, v. PHILADELPHIA CO. et al. GATES et al. v. SAME.
• Court: U.S. Court of Appeals — Third Circuit

266 F. 1

PENNSYLVANIA CO. FOR INS. ON LIVES AND GRANTING ANNUITIES, v. PHILADELPHIA CO. et al.

GATES et al. v. SAME.

Nos. 2551, 2552.

United States Court of Appeals, Third Circuit.

May 25, 1920

Rehearing Denied August 14, 1920.

Buffington Circuit Judge, dissenting.

Thomas Patterson, of Pittsburgh, Pa., George Wharton Pepper, of Philadelphia, Pa., and Watson & Freeman, of Pittsburgh, Pa for appellants.

George B. Gordon and Edwin W. Smith, both of Pittsburgh, Pa., for appellees.

Before BUFFINGTON, WOOLLEY, and HAIGHT, Circuit Judges.

WOOLLEY Circuit Judge.

The matter which these appeals bring here for review grew out of the highly complicated relations of the many corporations comprising the street railway system of Pittsburgh, and concerns but one of many rulings which the District Court has been called upon to make in the difficult operation of that system by receivers. We have recently had occasion to state with care the structure of the system and the relation its parts bear one to another. Allen v. Philadelphia Co (C.C.A.) 265 F. 817. We shall, therefore, do no more in this opinion than give in outline so much of its organization as will bring to view the question before us and disclose the reasons for our decision.

Pittsburgh Railways Company controlled through stock ownership, leases and operating contracts, sundry street railway corporations, which in turn controlled through similar means other railway corporations, and they in turn still others, numbering in all about sixty, through whose lines, on being connected, it operated six hundred miles of street railways in the City of Pittsburgh and in forty other municipalities in the Pittsburgh district. The leases or operating contracts, extending from the most distant subsidiaries to and through the intermediary ones and centering ultimately in the Pittsburgh Railways Company, usually provided-- as a part of the rentals-- for the payment of money sufficient to meet interest obligations on the bonds of the underlying companies. Such rentals were the only source of income of the subsidiaries and to them alone they looked for money with which to take up their interest coupons. Their bond issues were many, differing greatly in amount, character, priorities and relative rank. To insure the flotation or to strengthen the security of about half of these bonds, Philadelphia Company, a corporation engaged in operating public utilities of different kinds, owning all the stock of Pittsburgh Railways Company, became guarantor for the payment of their interest and principal, leaving the other half without the security of its guaranty.

Among the bonds thus guaranteed were, for instance, issues of three companies subsidiary to Pittsburgh Railways Company, namely; Allegheny, Bellevue & Perrysville Railways Company, Morningside Electric Street Railways Company and Mt. Washington Street Railway Company. The Pennsylvania Company for Insurance on Lives and Granting Annuities, one of the appellants here, is trustee under mortgages made to secure these issues. Of bond issues of underlying companies not so guaranteed, Thomas S. Gates and his associates, the other appellants, comprising a bondholders' committee, hold bonds of forty or more of the underlying companies in an amount of many million dollars.

In 1918, being unable to meet its current obligations, receivers were appointed for the Pittsburgh Railways Company on a general creditors' bill. Manifestly, it was to the interest of everyone-- the public, Philadelphia Company, Pittsburgh Railways Company, the underlying companies and holders of their bonds as well-- that the many lines of railways brought together and welded into one great system under the name of Pittsburgh Railways Company should not be broken up. With this constantly in view, the court has guided the operation of the properties by the receivers under adverse war conditions and has disposed of the inadequate revenues coming into their hands in a manner to prevent foreclosure and consequent disintegration. It directed payment of rentals to certain subsidiaries whose primary or senior liens held such advantageous positions as to invite foreclosure, thereby forestalling foreclosure and disruption; leaving secondary, subordinate, or junior liens of these and other corporations unsatisfied, in the belief, doubtless, that their disadvantageous positions were in themselves security against foreclosure. The court, however, went still further in its plan to distribute income in a manner to prevent foreclosure, and availed itself of the guarantees of the Philadelphia Company as an asset of the situation. When the decreasing income would admit of nothing else, it authorized distribution only to those underlying primary and senior liens which did not have the Philadelphia Company's guaranty, leaving the holders of guaranteed bonds to look for payment of interest to their surety, although some of these bonds were of equal rank with the others.

To meet its obligations of guaranty, the Philadelphia Company, when confronted by impending default of underlying companies in the payment of interest on their bonds, advanced, not to Pittsburgh Railways Company, but to the underlying companies themselves, various sums of money amounting in all to $1,217,602. With the sums so advanced from time to time, the underlying companies paid the interest coupons of their bond obligations.

In the course of its administration, the revenues of the receivership increased, due largely to an increase of fare. Thereupon Philadelphia Company petitioned the court to direct the receivers to reimburse it for all moneys it had thus advanced. The petition was resisted by the receivers, by the City of Pittsburgh-- because of the railway companies' franchise obligations-- by a trustee of mortgages issued to secure bonds which were guaranteed, and by a bondholders' committee holding bonds in the main not guaranteed, the latter two being the appellants in this proceeding. The court, pursuing its policy of protecting senior liens as a means of holding together the railway system for the good of all, denied the petition of Philadelphia Company in so far as it asked for reimbursement of moneys paid by it on its liability as guarantor of subordinate or junior liens, but granted its petition in so far as it asked for reimbursement for moneys paid by it as guarantor of first and primary liens, up to the first of October, 1919, amounting in the aggregate to $495,145, and entered an order accordingly. From this order, these appeals have been taken.

The appellants are met on the threshold by a motion of the appellees to dismiss the appeals on two grounds: First, that the order appealed from is not final; and, second, that the Pennsylvania Company for Insurance on Lives and Granting Annuities, Trustee, is a mortgagee out of possession with nothing due, and that the bondholders' committee could in no event receive the money, and, that, as both are without interest in the fund, both are without right to maintain these appeals.

In denying this motion, it is sufficient to say, very briefly, that the order appealed from directs the payment of the fund to one determined to be entitled to it. It is both a disposition of the fund and a determination of the rights of everyone claiming it. On performance, the money would pass beyond the control of the court forever. As nothing remains to be done, except to pay over the money, it is a final determination of the particular matter, and is, therefore, a final decree and appealable, although the receivership, having to do with innumerable unrelated matters, shall still continue. Ruggles v. Patton, 143 F. 312, 74 C.C.A. 450; Trustees v. Greenough, 105 U.S. 527, 26 L.Ed. 1157.

The appellants' right of appeal depends upon their interest in the fund, and upon their interest in the fund depended their right to intervene and be heard in the court below. They did intervene and they were heard. The appellants' claimed interest in the fund was there in collision with the appellees' claimed right to the fund and was considered and disposed of by the court, as shown by its opinion and order. Therefore, we regard the appellants' interest as a matter more properly to be considered on review of the whole controversy brought here on appeal than on motion to...