Kansas City Southern Ry Co v. Guardian Trust Co

• Decision Date: 24 February 1930
• Docket Number: No. 22,22
• Citation: 281 U.S. 1,50 S.Ct. 194,74 L.Ed. 659
• Parties: KANSAS CITY SOUTHERN RY. CO. v. GUARDIAN TRUST CO. et al
• Court: U.S. Supreme Court

281 U.S. 1

50 S.Ct. 194

74 L.Ed. 659

KANSAS CITY SOUTHERN RY. CO.

v GUARDIAN TRUST CO. et al.

No. 22.

Argued Oct. 24, 25, 1929.

Decided Feb. 24, 1930.

Messrs. Samuel W. Moore, of New York City, and F. H. Moore, Cyrus Crane, and A. F. Smith, all of Kansas City, Mo., for petitioner.

Mr. Justin D. Bowersock, of Kansas City, Mo., for respondents.

[Argument of Counsel from pages 2-3 intentionally omitted] Mr. Justice BUTLER delivered the opinion of the Court.

The question is whether the Guardian Trust Company, in addition to amounts taxable as costs between party and party, is entitled to recover anything on account of counsel fees or other expenses as costs between solicitor and client.

In a judgment creditor's suit brought in the United States Circuit Court for the Western District of Missouri by the Cambria Steel Company against the Kansas City Suburban Belt Railroad Company, receivers were appointed for the latter. It had given its notes for large amounts to the Trust Company and pledged stocks and bonds as collateral security. The Kansas City Southern Railway Company had acquired on mortgage forecloures the properties of the Belt Company, and of the Kansas City, Pittsburg & Gulf Railroad Company.

The Trust Company claimed that the Southern Company, having succeeded to the properties of the Belt Company and of the Gulf Company on terms that preferred shareholders to creditors, became liable for their debts.¹ It brought three suits in a Missouri court to compel the Southern Company to pay the debts owing to it by them. Thereupon the Southern Company brought two suits against the Trust Company in the United States court to enjoin prosecution of the state court cases. One related to the actions on the debts of the Belt Company ((C. C. A.) 146 F. 337), and the other to all the actions. (C. C. A.) 171 F. 43, 28 L. R. A. (N. S.) 620. Injunctions granted by the lower court were dissolved by the Circuit Court of Appeals.

In the creditor's suit, the Belt Company and its receivers filed an ancillary bill against the Trust Company to have the claims of the latter against the former declared invalid, to recover the collateral security, and to have an accounting. The Southern Company intervened, claiming under the foreclosure, and sought to recover the collateral security and other property from the Trust Company. The decree of the Circuit Court, except as to matters not important here, denied relief against the Trust Company, established its claims against the Belt Company and, notwithstanding the Trust Company's contention that the issue was not before the court, adjudged that the Southern Company was not liable therefor, and ordered that one-third of the costs be borne by the Trust Company and two-thirds by the Southern and Belt Companies.

The matters adjudged in favor of the Trust Company were not taken to the Circuit Court of Appeals for review. The Trust Company appealed. It insisted that the lower court erred in holding that the Southern Company was not indebted to it. Preferring to pursue that company in the actions pending in the state court, it had not prayed judgment in this suit against the Southern Company. It also maintained that the lower court erred in holding it liable for any part of the costs.

After the case had been argued and submitted, but before opinion was announced, owners of a small minority of the shares of the Trust Company were permitted to file a suggestion that the Trust Company should have judgment against the Southern Company for the debt of the Belt Company. The court reversed the decree below, decided the Southern Company became liable for that debt, postponed for further argument the question whether under the pleadings the Trust Company might have judgment therefor, and held it was entitled to recover its entire costs. Central Improvement Co. v. Cambria Steel Co., 201 F. 811, 829.

Later the same stockholders by leave of the Circuit Court of Appeals filed, and at the final submission of the case were heard in support of, the following suggestions:

That the court embody in its order for reversal a special finding that the creditor's bill, ancillary bill, and intervening petition were instigated, and prosecuted by and for the Southern Company without good faith, and that the entire litigation was trivial, wanton, and oppressive. That it direct the lower court to reserve jurisdiction to ascertain the amount of solicitors' fees and other expenses necessarily incurred by the Trust Company in making its defenses, to find the amount of such expenses, tax them as costs in the case and enter a further decree against the Southern Company therefor. Or in the alternative that the final decree below be without prejudice to the right of the Trust Company to sue the Southern Company for such expenses. That such additional decree also include the expenses and damages incurred by and resulting to the Trust Company from the second injunction suit (171 F. 43, 28 L. R. A. (N. S.) 620) and that it be without prejudice to the rights of the Trust Company to move for such damages and expenses in the first injunction suit. 146 F. 337.

In its second opinion the Circuit Court of Appeals dealt with these suggestions. Central Improvement Co. v. Cambria Steel Co., 210 F. 696. It said at page 723:

'A deliberate consideration of this petition and of the exhaustive arguments of counsel have, however, persuaded that inasmuch as the questions suggested came for the first time into this suit at the rehearing in this court, as no evidence has been taken relative to them, and as the evidence upon the issues tried in this case was not brought to this court, it would be unwise and might be unjust to adjudicate the questions presented by the petition of these stockholders. Moreover, as this court cannot rightly determine the questions relating to the costs to be taxed at this time, as there are established rules of practice concerning them, and as directions to the court below to open and try new issues might, and probably would, prolong this litigation through several years more, our conclusion is that our just course is to leave the taxation of costs to the court below under the principles, rules, and practice in equity.' And, 'as a conclusion of the whole matter,' it gave directions for the entry of a specific decree with 'costs.'

And the court adjudged that the decree of the lower court be reversed and remanded the case 'with directions to render a decree for the Trust Company in accordance with the views expressed in the opinion of this Court.' The Southern Company appealed, but did not raise any question concerning costs. And there was no cross-appeal. February 21, 1916, this court affirmed the decree of the Circuit Court of Appeals. 240 U. S. 166, 36 S. Ct. 334, 60 L. Ed. 579. The mandate set out the decree below, ordered that it be affirmed, and remanded the case to the District Court.

April 15, 1916, pending exact determination of the amount conceded to be payable under the decree, the Southern Company paid $821,623.28 to the Trust Company. Later, the payment being found in excess of the amount required, the difference was adjusted. April 18, 1916, the mandate was filed in the District Court. October 4, 1922, the Trust Company applied to have final decree entered, and claimed not only such costs as are taxable as between party and party but also counsel fees and other expenses as costs between solicitor and client. The court construed the opinion of the Circuit Court of Appeals to find that in carrying on this litigation there was lack of good faith and a purpose on...