American Surety Co. v. Wabash Ry. Co.

• Decision Date: 11 December 1939
• Docket Number: No. 11211.,11211.
• Parties: AMERICAN SURETY CO. OF NEW YORK v. WABASH RY. CO. et al.
• Court: U.S. Court of Appeals — Eighth Circuit

107 F.2d 685 (1939)

AMERICAN SURETY CO. OF NEW YORK v. WABASH RY. CO. et al.

No. 11211.

Circuit Court of Appeals, Eighth Circuit.

November 21, 1939.

Rehearing Denied December 11, 1939.

John P. Hampton, of Chicago, Ill. (George H. Williams, of St. Louis, Mo., Louis L. Dent, of Chicago, Ill., Bryan, Williams, Cave & McPheeters, of St. Louis, Mo., and Dent, Weichelt & Hampton, of Chicago, Ill., on the brief), for appellant.

R. B. Elster, of St. Louis, Mo. (N. S. Brown and Homer Hall, both of St. Louis, Mo., on the brief), for appellees Norman B. Pitcairn and Frank C. Nicodemus, Jr., as receivers of Wabash Ry. Co.

Arthur B. Shepley, Jr., of St. Louis, Mo. (Allen C. Orrick, of St. Louis, Mo., on the brief), for appellee Chase Nat. Bank.

Before STONE, GARDNER, and THOMAS, Circuit Judges.

STONE, Circuit Judge.

On December 1, 1931, receivers were appointed for the Wabash Railway Company, an appellee here. At that time the Railway had outstanding its Refunding and General Mortgage in which the trustee was the Chase National Bank of the City of New York, another appellee here.

Prior to the above date, Thomas P. Conroy had obtained a judgment for $40,000 against the Railway in a personal injury action in a State court in Illinois; the Railway had taken an appeal; and had given a supersedeas bond for $45,000 with the American Surety Company of New York, appellant here, as surety thereon. After appointment of the receivers they further prosecuted the appeal. The judgment was subsequently affirmed with a remittitur (which was accepted by Conroy) to $30,000. Thereafter petitions were filed, in the United States District Court for the Northern District of Illinois, by the receivers and by the Surety Company seeking an injunction against enforcement of the judgment. This relief having been denied, Conroy brought suit upon the appeal bond against the Surety Company to enforce the judgment.

In this state of that litigation, the Surety Company filed an intervening petition in the receivership proceeding praying allowance of the amount ($34,647.77) of the Conroy judgment, its liability ($500) on its bond in the injunction action and a reasonable attorney fee for prosecuting the injunction suit, all as a preferred claim and praying immediate payment thereof by the receivers. Thereafter (Nov. 5, 1934) the suit upon the supersedeas bond passed into judgment against the Surety Company for $34,870.37; the judgment was paid by the Surety Company; an assignment thereof made by Conroy to the Surety Company; and all of these happenings incorporated in a third amended petition in intervention filed by the Surety Company herein. The prayer of this amended petition was confined to recovery of the amount paid to Conroy with interest from date of such payment. Thereafter (March 1, 1937) the Chase Bank (appellee) filed a bill to foreclose the Refunding and General Mortgage and the receivership was extended thereto, consolidated therewith and income sequestered for bondholders under the mortgage.

After issue joined on this amended petition and a hearing, the court entered an order allowing the amount of the Conroy judgment with interest thereon ($34,870.37) as a general claim and denying all preference. From that order, the Surety Company brings this appeal.

The single broad issue here is whether preference in payment should have been ordered, as an administrative or operating expense, as to the amount allowed by the court as a general claim. In support of its contention that such preference should have been allowed, appellant relies upon several grounds which are stated in its brief as follows:

"(a) Whether the receivers, by election, by their pleadings, by their agreement with Appellant under Court authorization, have not made the claim an administrative one even though it were not one beforehand.

"(b) Whether the mortgage bondholders after default having stood by and consented to the operation of the railroad, to produce income, to be entrusted to the receivers under a creditor's bill as their agents for more than five years, and the use of Appellant's bond by them in the administration of their trust, are not now estopped to say that Appellant's claim is not a legitimate administrative expense.

"(c) Whether Appellant's claim having arisen out of and in course of operations by the receivers to produce revenue and to conserve the transportation plant is not, as a matter of law, a proper operating expense of the receivership."¹

These three grounds may be concisely stated as being: (a) that certain things were done by the receivers which caused this admitted liability to become an administrative (or operating) expense; (b) that the bondholders (here represented by appellee Chase National Bank) are estopped to deny that this liability is an administrative expense; (c) that the liability is, as matter of law, an operating expense.

At the time the order, here appealed, was entered it accorded with the law as declared theretofore in this Court. United States Fidelity & Guaranty Co. v. United States & Mexican Trust Co., 234 F. 238, L.R.A.1916F, 1067, approved and followed in Pitcairn v. Fisher, 8 Cir., 78 F.2d 649, and McCray v. Central Trust Co. of Illinois, 8 Cir., 28 F.2d 393, 395.

Since submission of this appeal, the Act of August 11, 1939 (Pub. 386, Chap. 689, 76th Cong. 1st Session), amending subsection n of Section 77 of the Bankruptcy Act, as amended, 11 U.S.C.A. § 205 sub. n has come into effect.² This Act has been brought to our attention and briefs have been submitted as to the effect thereof upon this appeal.

Appellant contends that it is entitled to the relief accorded by the above amended subsection either because it is a surety upon a supersedeas bond in a personal injury suit or because it is the assignee of the personal injury judgment. We express no opinion upon the rights of appellant based upon its position as a surety on the supersedeas bond. We think the contention is sound as based upon its status as assignee of the judgment. This being our view, it is necessary to examine only such contentions of appellees as bear upon the rights of appellant as such assignee.

Appellees contend that the amended subsection is limited to and is for the benefit of injured employees if living and their personal representatives upon death, and does not extend to the successors and assigns of such employees.

This judgment is assignable. It is true that neither a bare claim for personal injuries or an action therefor is assignable in Illinois, where this right accrued and this judgment was secured (North Chicago St. Ry. Co. v. Ackley, 171 Ill. 100, 49 N.E. 222, 44 L.R.A. 177) and had this assignment been before judgment it would have passed no enforceable right. However, the assignable...