Harris Trust & Savings Bank v. Chicago Rys. Co.

• Decision Date: 16 July 1929
• Docket Number: No. 6839.,6839.
• Citation: 39 F.2d 958
• Court: U.S. District Court — Northern District of Illinois
• Parties: HARRIS TRUST & SAVINGS BANK v. CHICAGO RYS. CO. et al.

39 F.2d 958 (1929)

HARRIS TRUST & SAVINGS BANK v. CHICAGO RYS. CO. et al.

No. 6839.

District Court, N. D. Illinois, E. D.

July 16, 1929.

Henry S. Robbins, of Chicago, Ill., for Orville E. Babcock and others.

Tenney, Harding, Sherman & Rogers, of Chicago, Ill. (Horace Kent Tenney, of Chicago, Ill., of counsel), for Harris Trust & Savings Bank.

Harold Smith, of New York City, and Sidney C. Murray, of Chicago, Ill., for Westinghouse Electric & Manufacturing Co.

Charles S. Babcock, of Chicago, Ill., for Chicago Railways Co.

Weymouth Kirkland and James M. Sheean, both of Chicago, Ill., for receivers of Chicago Railways Co.

David O. Dunbar and Daniel J. Schuyler, both of Chicago, Ill., for trustee under consolidated mortgage.

Edwin H. Cassels and David O. Dunbar, both of Chicago, Ill., for trustee under purchase-money mortgage.

Pam & Hurd, of Chicago, Ill., for trustee under income adjustment mortgage.

Samuel A. Ettelson, Corp. Counsel, of Chicago, Ill., for City of Chicago.

WILKERSON, District Judge.

The questions raised by the various motions which were set for hearing and disposition on June 25th are so interrelated, and the arguments upon said several motions covered so wide a field (comprehending steps taken and orders entered from the very inception of the receivership proceedings), that it seems desirable to file this memorandum stating the conclusions of the court and the reasons therefor.

The motions argued on June 25th and June 26th were as follows:

(1) Motion made by the city of Chicago on December 20, 1928, to strike from the files a petition of Orville E. Babcock et al., filed December 7, 1928, without leave of court.

(2) Motion made January 28, 1929, for leave to file an amendment to the petition of Orville E. Babcock et al., filed on the 7th day of December, 1928, and for the relief prayed in said petition as amended.

(3) Motion made April 1, 1929, for disposition of petition of Harris Trust and Savings Bank, plaintiff, for payment of 10 per cent. on the principal due upon the first mortgage bonds in addition to payments of interest heretofore ordered.

During the course of the oral arguments, the court made disposition of the city's motion to strike the petition filed without leave on December 7, 1928, and also of applicants' motion for leave to file an amendment to said petition so filed on December 7, 1928, by directing the entry of an order in the following form:

"The motion of the City of Chicago to strike from the files the document designated as `petition' filed herein on December 7, 1928, without leave of this Court is denied and leave is granted to the persons designated as `petitioners' therein to be heard for the purposes and under the limitations indicated in the opinion of the Circuit Court of Appeals for the Seventh Circuit in the matter of Petition for Writ of mandamus of Orville E. Babcock, William F. Prindle, Robert J. Dunham, Henry C. Edmonds and Mahlon D. Thatcher, individually and as a protective committee for Owners of Series 1 Certificates of the Chicago Railways Co., filed March 6, 1928. 26 F.(2d) 153. And leave is granted to Orville E. Babcock et al. to file their amendment to petition filed Dec. 7, 1928, and to be heard thereon for the purposes and under the limitations indicated in said opinion of the Circuit Court of Appeals in said mandamus proceeding."

As indicated during the colloquy with counsel which preceded the entry of the foregoing order, the view of the court was and is that the order suggested by the court and thereafter entered during the oral arguments will be fully protective of the rights and interests of all parties, and will also be in harmony with the prior record in these proceedings, which is as follows:

The petition to intervene of Orville E. Babcock et al., which was presented to this court on July 13, 1927, bears notation showing such presentation on said date, and also bears the filing mark of the clerk showing that the same was filed on November 8, 1928. Following the return of said document to counsel for petitioners in accordance with the ruling of this court denying leave to file said petition, application was made to the Circuit Court of Appeals for writ of mandamus; and on March 6, 1928, the Circuit Court of Appeals delivered an opinion and entered an order which directed the District Judge to grant leave to Orville E. Babcock et al. to file their petition for intervention and to permit petitioners to intervene in these proceedings for the purposes and under the limitations indicated in the opinion of the Circuit Court of Appeals.

Following the denial of petition for rehearing by the Circuit Court of Appeals, there were filed in this proceeding certified copies of the opinion and orders of the Circuit Court of Appeals, and thereupon the solicitors for the trustees under the first, the consolidated, and purchase-money mortgages served notice upon the solicitor for Babcock et al., and upon the solicitors for all other parties to the proceedings, that on a designated date they would "present for entry an order in accordance with the decision of the Court of Appeals." A copy of the proposed order was served with such notice; and on June 19, 1928, this court entered an order whereby Babcock et al. were "granted leave to file in this consolidated cause their petition for intervention which was heretofore presented for filing and which the Clerk was directed to return to counsel for said applicants, in an opinion of this Court filed herein on November 3, 1927, 23 F.(2d) 192, and said petitioners are hereby permitted to intervene herein for the purposes and under the limitations indicated in the opinion of the Circuit Court of Appeals, in accordance with the judgment of that Court."

Between June 19 and November 8, 1928, Babcock et al. did not avail themselves of the leave thus given them; but manifestly they were within their rights in filing on November 8, 1928, the petition which they were given leave to file by the order entered June 19, 1928. In view of the statement of counsel for Babcock et al., "My contention is that this paper (referring to paper filed December 7, 1928) is a paper that we are entitled to file under the decision of the Circuit Court of Appeals," it seems equally manifest that the filing of the second petition and the amendment thereto should be (as is stated in the order entered during the oral argument) for the purposes and under the limitations indicated by the "decision of the Circuit Court of Appeals" upon which counsel bases his contention.

Upon the entry of the above-quoted order during the course of the oral argument, and under the leave granted by such order, the amendment to the petition of December 7, 1928, was filed, and thereupon the court proceeded to hear counsel for interveners upon the merits of the relief prayed for in the said petition as amended, upon the statement of counsel for interveners that all the matters as to which he asked relief at this time are matters of record in these proceedings. The relief sought was stated by counsel for interveners, following his summarization of the contents of the petition as amended, to be as follows:

"Mr. Robbins: If the Court please, as you will have observed, there are three grounds of relief sought in this amended petition; first, that the receivers be required to cease paying the 55 per cent to the city; second, that the now $11,000,000 or more in the reserve and depreciation fund, so-called, be applied to the first mortgage to the end that the estate may be saved the difference between the small interest that the banks pay and the —

"The Court: — and the five per cent.

"Mr. Robbins: Yes. And it is proposed that that be done as any live corporation would do it, by seeking in the market the bonds that can be bought cheapest. I assume that this court in the management of its receivers has the same powers in that respect as a corporation would have if it were run as a corporation.

"The third ground of relief concerns the putting of a valuation on the property for the purposes of reorganization.

"Underlying all three of those questions is the one question whether the ordinance has expired. If it has expired, then, certainly, this court has no power to give away the property in the hands of the receivers as it is doing if there is no power in the court to pay that 55 per cent."

Taking up these three grounds in the order stated:

First. That the receivers be required to cease paying the 55 per cent to the city:

The argument of interveners is that, with the expiration of the grant made by the ordinance of February 11, 1907, and reaffirmed with modifications by the ordinance of November 13, 1913, all rights, duties, and obligations between the grantor city and the grantee railway absolutely ceased and determined on February 1, 1927. With this contention the court does not agree, for the reason that the city ordinances above referred to and the act of the Illinois Legislature on May 18, 1903 (commonly known as the Mueller Law, Illinois Statutes Cahill's Rev. St. 1927, c. 131a, pars. 8-13), in pursuance of which these ordinances were adopted, seem to the court to manifest a clear intention not only to provide terms and conditions covering the city's consent to the use of city streets during the grant, but also to provide assurance, legally obligatory on the city, for the protection of the investment "at and after" as well as "during" the term expiring February 1, 1927. To accept the argument on behalf of interveners the court would be obliged to hold that with the arrival of February 1, 1927, the city was at once absolved from the obligation contained in section 23 of the 1907 ordinance that "in case such reserved right of purchase be not exercised by the said City or its licensee and the City shall grant a right to another company to operate a street railway in the streets and parts of streets constituting the said street railway system of...