Allen v. Philadelphia Co.

• Decision Date: 23 March 1920
• Docket Number: 2473.
• Citation: 265 F. 817
• Parties: ALLEN v. PHILADELPHIA CO. et al.
• Court: U.S. Court of Appeals — Third Circuit

265 F. 817

ALLEN v. PHILADELPHIA CO. et al.

No. 2473.

United States Court of Appeals, Third Circuit.

March 23, 1920

George Wharton Pepper, of Philadelphia, Pa., and Thomas Patterson and Robert Woods Sutton, both of Pittsburgh, Pa. for appellant.

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

Before BUFFINGTON and WOOLLEY, Circuit Judges, and RELLSTAB District judge.

BUFFINGTON Circuit Judge.

In the court below Benjamin C. Allen, a citizen of Colorado, filed a bill in equity on behalf of himself and other bondholders against the Philadelphia Company, Pittsburgh Railways Company, and United Traction Company, all corporations of Pennsylvania. The relief sought thereby was: (I) Discovery (II) that Philadelphia Company be decreed liable for accrued and to accrue interest on the bonds of said issue; (III) that such bonds be decreed to be an obligation of Philadelphia Company and a lien on the property of all the defendants; and (IV) that Philadelphia Company be enjoined from dismembering its street railway service.

To this bill the defendants duly answered. As there was virtually no dispute of the basic facts on which the bill must stand, and the plaintiff was desirous, before entering upon the labor and expense of taking the vast amount of testimony incident to the case, which testimony might in the end have been needlessly taken, the plaintiff accordingly after the answers were filed, in order to have these basic questions determined in limine and in pursuance of equity rule 29 (198 F. xxvi 115 C.C.A. xxvi) which provided, 'Every such point of law going to the whole or a material part of cause or causes of action stated in the bill may be called up and disposed of before final hearing, at the discretion of the court,' moved the court 'to hear separately the points of law raised in the answers and dispose of the same before the trial of the principal case. ' In pursuance of this motion, the court below heard the cause, and in pursuance of an opinion reported in 265 F. 807, entered a decree dismissing the bill. From such decree this appeal is taken.

Without quoting the exact language of the lengthy and somewhat complicated facts set forth in the bill and answer, we shall try to state in logical order the matters and things which throw light on the basic facts from which must be drawn the warrant for the entry of the decrees prayed for in the bill:

In 1897, the traction situation in the territory in and surrounding Pittsburgh and Allegheny City may, in a general way, be stated as follows: The Second Avenue Traction, through its own lines and those of its subsidiary companies, operated the lines extending from the center of Pittsburgh up the Monongahela Valley; the North Side Traction Company, through its own lines and those of its subsidiary companies, in like manner operated to and through Allegheny City, up the Allegheny Valley; and the Pittsburgh, Allegheny & Manchester Traction Company in like manner operated to and through Allegheny City and down the Ohio Valley. Such being the situation, certain individuals formed a plan to acquire control of and thereafter consolidate those three systems, and to operate them as one. This plan of unitary acquisition, control, and operation was carried out by these men causing the United Traction Company to be incorporated by the state of Pennsylvania. In order to carry out this plan of acquisition, control, and unitary operation by the United Traction Company, that company issued, and the plaintiff, Allen, and other investors, purchased, $10,000,000 bonds of that company, which it secured by a mortgage to the Maryland Trust Company, trustee, dated July 9, 1897, upon the plants, stocks, leaseholds, and assets generally of the three above-named companies, viz. Second Avenue Traction, North Side Traction Company, and the Pittsburgh, Allegheny & Manchester Passenger Railway Company, and of their several subsidiary companies. The money raised on this mortgage was used for the purchase of such properties, the payment of underlying securities, and '$725,000 of said bonds be reserved for betterments, improvements, and extra service. ' In addition to the application of the proceeds of the bonds to such purchases and to the betterment of them the men who planned this consolidation caused the United Company to issue $3,000,000 preferred and $17,000,000 common stock. The $3,000,000 preferred stock the company sold, and used the proceeds, jointly with proceeds of the bonds, in acquiring the properties of the three Traction Companies as above stated.

It will thus be seen that the plan of unitary acquisition, control, and operation, to enable which to be carried out the plaintiff loaned his money to the United Traction Company, was duly carried out, and resulted in the unitary operation of these traction companies by the United Traction, which was formed for such unitary operation, or, as stated in the bill:

'The properties above enumerated together constituted a complete railway system for the transportation of passengers in and through large sections of the cities of Pittsburgh and Allegheny and vicinity.'

But the operations of the United Traction Company, or of those who planned it, did not stop with these operations in 1897, for in 1916 the company, or the syndicate who had organized it and held $17,000,000 of its common stock took another step in the way of further absorption, extension into other public utilities, and broader unitary street car operation. Whether this was part of the original plan, or a later conceived one, the bill does not aver.

At that time the Philadelphia Company, the principal defendant in this case, was a large public service corporation, operating in the Pittsburgh district, either by itself or through its subsidiary companies, but in unitary control and operation, supplying to the public (a) natural gas by the Chartiers Natural Gas Company; (b) artificial gas by the Consolidated Gas Company; (c) electric light, heat, and power by the Allegheny County Light Company.

No consolidation, merger, or contract of merger or unitary operation was made with the Philadelphia Company; but the syndicate, who held the $17,000,000 common stock of the United Traction Company, bought from the individual stockholders of the Philadelphia Company the entire capital stock of that company. Having thus acquired control of the company, these new stockholders elected some of their members officers of the Philadelphia Company. Thereafter the Philadelphia Company took over the entire $17,000,000 capital stock of the United Traction Company from the syndicate, paying therefor by the issue of its own stock, and in the same way it also took over and paid for the capital stock of its three subsidiary companies, the Consolidated Gas Company, the Allegheny County Light Company, and the Chartiers Valley Gas Company. The stock of the United Traction Company, which in this way passed to the Philadelphia Company, it held until 1912, when, as hereafter stated, it passed into the hands of the Pittsburgh Railways Company. Whether the original United Syndicate who received the stock of the Philadelphia Company, continued to hold their stock, or thereafter to act in concert, the bill does not state, and that they acted at all in common, or did they act as alleged, is denied in the answer.

Thereafter the Philadelphia Company used the United Traction Company as its subsidiary, and as such subsidiary the United Company continued to operate the unitary street car system as before. Later the Philadelphia Company acquired other street railways, so that by January 1, 1902, it owned or controlled practically all the railways and traction companies operating in Pittsburgh and vicinity. At that date the Pittsburgh Railways Company, one of the defendants, was a subsidiary of the Philadelphia, and it then...