Atkins v. Wabash, St. L. & P. Ry. Co.

• Decision Date: 07 December 1886
• Citation: 29 F. 161
• Court: U.S. District Court — Northern District of Illinois
• Parties: ATKINS and others v. WABASH, ST. L. & P. RY. CO. and others. [1] BEERS v. SAME.

29 F. 161

ATKINS and others v. WABASH, ST. L. & P. RY. CO. and others. ^[1]

BEERS v. SAME.

United States Circuit Court, N.D. Illinois.

December 7, 1886

Henry Crawford, for complainants.

Isham &amp Lincoln, Julian T. Davies, and D. H. Chamberlain, intervening first and second bondholders.

Wager Swayne and T. H. Hubbard, for purchasing committee.

W. H Blodgett, for receivers.

Williams & Thompson, for trustees.

C. M Osborn, for Chicago & W.I.R.R.

GRESHAM J.

The Wabash, St. Louis & Pacific Railroad Company is a consolidated corporation, owning lines of railway in several states on both sides of the Mississippi river. In the latter part of May, 1884, in form, it filed its bill in the circuit court of the United States for the Eastern district of Missouri against the trustees in the general mortgage covering the corporate property, and against certain railway corporations whose lines it was operating under leases. Upon the filing of this bill the court at once assumed jurisdiction of the entire property of the corporation, and without notice, appointed as receivers Solon Humphreys and Thomas E. Tutt, who were, or up to that time had been, stockholders and directors; and ordered them to hold and operate the entire railway systems under that court's orders, and the orders of other courts exercising ancillary jurisdiction. The bill appears to have been first presented to the district judge at St. Louis, who declined to appoint receivers; when counsel applied to the circuit judge, who made the appointment at Topeka, Kansas, on the twenty-eighth of May, and the receivers qualified at St. Louis on the twenty-ninth.

At bill similar to the one filed at St. Louis was filed in this court on the 28th, the same day the appointment was made in Kansas, and the day before the receivers qualified at St. Louis. Upon the filing of the bill here, an order was entered, in form, adopting and approving the orders of the court at St. Louis, and appointing the same receivers, and directing them to take possession of all the property in Illinois. This order, and the so-called ancillary proceeding here, concluded thus: 'And this court further reserves to itself power to make such further orders in the premises as may seem to be necessary.'

After the receivers had been appointed by the court at St. Louis, the trustees in the general mortgage filed a cross-bill to foreclose that mortgage, and later they filed an original bill in one of the state courts at St. Louis to foreclose the same mortgage, which latter suit was removed to the federal court, and consolidated with the Wabash suit. ^[1A] The court at St. Louis, on application, refused to extend the receivership to the cross-bill, or to the consolidated suit. A decree was entered in the consolidated suit foreclosing the general and collateral mortgages, and at the sale the property was bid in by a purchasing committee

With the exception that there was no sale, the same course was pursued at Springfield, in the Southern district of Illinois, as at St. Louis; the proceedings there, however, being ancillary to the proceedings at St. Louis. There was no appearance by any of the trustees at St. Louis until after the receivers had been appointed, and certain orders had been entered authorizing the issue of receivers' certificates.

Atkins and others, in behalf of themselves and other bondholders, filed a bill in this court to foreclose a mortgage executed February 1, 1867, by one of the consolidating corporations, to secure an issue of bonds amounting to $2,601,000, and also to foreclose a mortgage executed May 17, 1879, to secure an issue of bonds amounting to $2,000,000, of which it is alleged $1,600,000 only were ever issued. The mortgage of 1867 covers the main lines in Illinois, Indiana, and Ohio, except the Chicago Division, the line from Decatur, Illinois, to East St. Louis, and the line from Naples to East Hannibal. The mortgage of 1879 was executed a short time before the consolidation of the companies and their lines east and west of the Mississippi river. This mortgage covers the main system, except the Chicago Division, extending from Toledo to Burlington, Keokuk, Quincy, Hannibal, and East St. Louis, and its operation, prior to consolidation into the Wabash system, was remunerative.

Beers, in behalf of himself and other bondholders of the same class, filed a bill to foreclose the mortgage on the Chicago Division, to secure an issue of bonds amounting to $4,500,000. This mortgage covers 257 miles of railway.

These bills were filed upon the theory that all the railway property in this state was taken into the custody of this court under the order entered here on May 28, 1884. It is claimed that they are dependent upon and ancillary to the suit of the Wabash Company, and are not, therefore, subject to the test applied to independent original bills. It is urged that they should be treated as petitions pro interesse suo, filed in the case in this court. The trustees in the three mortgages which the bond creditors are seeking to foreclose here, the purchasing committee, and the Wabash Company, entered their full appearance to the two new suits. The mortgages of 1867 and 1879, and the Chicago Division mortgage, and 10 others which were executed from time to time by corporations which have become extinct by consolidation, secure outstanding bonds amounting to over $27,000,000, upon which nearly two and a half years' interest is due. The interest in arrear on the first of August last, according to the auditor's report, was about $4,400,000. The bonds secured by the Chicago Division mortgage draw 5 per cent. interest, and the bonds secured by the other 12 draw 7 per cent. It is not denied that the 13 mortgages are valid, subsisting obligations; that the interest is in arrears for more than two years; and that the mortgaged property is an inadequate security. The income arising from the operation of the lines east of the Mississippi river was pledged by the mortgages. The main line east of the Mississippi river, not including the Chicago Division, made, in 1885, over and above operating expenses, $873,925.85, which left, after making a fair deduction for taxes, over $600,000. This money was used in paying losses on non-remunerative lines in the system. On this subject the purchasing committee, in their circular of June 1, 1886, say:

'It is fair to state that many lines of road have been worked which have not paid their expenses, and the amount required above the amount of earnings has been taken from the earnings of these two divisions.'

In the two suits which have been brought here, the court is asked to remove Humphreys and Tutt on the ground that they are not fit persons to act as receivers, and appoint some capable, trustworthy person in this case. The decision of this motion renders it necessary to refer somewhat further to the proceedings commenced by the Wabash Company at St. Louis and elsewhere; to the relation of the receivers to that and other corporations; and to the parties interested in, and affected by, the litigation, and by the action of the receivers.

The Wabash Company, in 1883, 13 months before the receivers were appointed, leased its lines east and west of the Mississippi river to the Iron Mountain & Southern Railway Company. It appears that at this time the latter company was owned and operated by the Missouri Pacific Company. The annual report of that company for 1883, which is in evidence, shows that it was operating the Wabash property as its own. In December, 1883, the Wabash Company executed a mortgage upon its lines to the Iron Mountain Company to indemnify it for advances made under the lease. In this mortgage it is stated that the Iron Mountain Company is in possession of the mortgaged property, and that it shall remain in possession while the lease continues in force. It sufficiently appears from this and other facts that at the date of the lease the Missouri Pacific took charge of the Wabash system, including its accounting department. It was claimed that the Missouri Pacific was not able to operate the Wabash lines at a profit, and on May 19, 1884, under a clause in the lease, notice was given to the Wabash Company that the lessee had sustained a loss, in the operation of the leased lines, of $4,000,000.

The Wabash Company had at this time outstanding paper, representing floating indebtedness, amounting to $3,000,000 or more, some of which would soon mature. This, however, was no part of the indebtedness last referred to. Humphreys, Gould, Dillon, and Sage were liable as indorsers on all this paper. A meeting of the executive committee of the Wabash Company was accordingly called, and held at New York on May 21, only two days after the notice above referred to had been served upon the last-named company by the Iron Mountain Company. Gould, Humphreys, Dillon, Sage, and Hopkins were present at this meeting, and, with the exception, perhaps, of Humphreys, all were stockholders and directors in the Missouri Pacific or the Iron Mountain Company; and all, including Humphreys, were interested as stockholders and directors in the two last-named corporations, or as indorsers on the outstanding notes. At this meeting, on motion of Humphreys, it was resolved that steps be at once taken to secure the appointment of a receiver; and no delay occurred in the preparation of the bill, which was filed a few days thereafter in the court at St. Louis.

On May 30th, the Wabash Company filed its petition, representing that its promissory notes, amounting to about $2,300,000 were outstanding, some of which would soon mature; that these notes were indorsed by 'sundry individuals of high credit and financial standing. ' 'For the sake of entire frankness,' the name of ...