Auburn Sav. Bank v. Portland R. Co.

• Decision Date: 28 February 1949
• Citation: 65 A.2d 17
• Parties: AUBURN SAV. BANK et al. v. PORTLAND R. CO. et al.
• Court: Maine Supreme Court

65 A.2d 17

AUBURN SAV. BANK et al.

v.PORTLAND R. CO. et al.

Supreme Judicial Court of Maine.

Feb. 28, 1949.

COPYRIGHT MATERIAL OMITTED.

Appeal from Supreme Judicial Court, Cumberland County, in Equity.

Suit in equity by the Auburn Savings Bank and others, on behalf of themselves and other stockholders of the Portland Railroad Company similarly situated, against the Portland Railroad Company, the Central Maine Power Company, and others, to have certain acts declared void, to have things put back in statu quo, and to compel specific performance of a lease of the property and franchises of the Portland Railroad Company, wherein Theron A. Woodsum and another were allowed to intervene as plaintiffs. From a decree requiring the named defendants to deposit with clerk of courts $119.25 for each share of stock held by plaintiffs and interveners and dismissing the bill as to the other defendants, the plaintiffs and interveners appeal.

Case remanded for entry of a decree dismissing the bill.

Franklin R. Chesley, of Portland, for appellants.

Nathaniel W. Wilson and Everett H. Maxcy, both of Augusta, and Hutchinson, Pierce, Atwood & Scribner, of Portland, for appellees Central Maine Power Co. and Cumberland County Power & Light Co.

Leon V. Walker, of Portland, for appellee Portland R. Co.

Before THAXTER, TOMPKINS, and FELLOWS, JJ., and MURRAY, Active Retired Justice.

THAXTER, Justice.

This is a bill in equity brought by the Auburn Savings Bank of Auburn, the Eastport Savings Bank of Eastport, and the Skowhegan Savings Bank of Skowhegan, all located in the State of Maine and being organized as banking corporations under the laws of the State of Maine, against the Portland Railroad Company, hereinafter referred to as Railroad Co., a public utility corporation organized under the laws of this state, which for many years prior to the abandonment of its trackage had operated a street railroad system in Portland and its environs, against the Central Maine Power Company, hereinafter referred to as Central Maine, a public utility corporation organized under Maine law, which operates an electric light and power system within the state, and against the Portland Coach Company, hereinafter referred to as Coach Co., also a corporation organized and existing under the laws of this state, which operates a bus transportations system in Portland and certain outlying communities. By amendment of the bill, the Cumberland County Power & Light Company, hereinafter referred to as Cumberland, another public utility corporation organized under Maine law, which has been merged with Central Maine, and the Public Utilities Commission of the State of Maine, were joined as parties defendant. Also Theron A. Woodsum and Maurice A. Bowers, both of Portland, stockholders in Railroad Co., were subsequent to the filing of the bill, allowed to intervene as plaintiffs.

The bill which was filed February 5, 1945, alleges that the plaintiffs are stockholders in Railroad Co. and that they bring the bill on behalf of themselves and other stockholders similarly situated. The intercorporate relations of the defendants are described in detail, and particular attention is called to a lease dated February 1, 1912, by Railroad Co. to Cumberland of all of its street railroad, parks and other property, together with all the rights, privileges, and franchises owned or held under lease, except such franchises as are ‘necessary to preserve the corporate existence of the Railroad Company and its interest in the reversion of the demised estates and properties and its corporate seal and books of minutes.’ The lease was for the term of ninety-nine years, or until February 1, 2011. It is not necessary at this point in referring to the general allegations of the bill to discuss this lease or the consideration given by the lessee except to say that the rental to be paid and the method of payment were designed to assure to the stockholders of Railroad Co. dividends on their stock of $5 per annum during the term of the lease. The bill alleges that under an agreement dated November 18, 1942, Cumberland did, as of December 3, 1942, merge with Central Maine, which became the assignee of the railroad lease and agreed to assume the liabilities of its predecessors with respect thereto. The bill charges that this merger was a violation of the terms of the lease, participated in by interlocking directors and officers of the corporations concerned and that it culminated in a plan for dissolution of Railroad Co. which was to be submitted to its stockholders for approval at a stockholders' meeting to be held December 28, 1944. This plan, which we shall discuss in detail later, had been filed by Central Maine with the Securities and Exchange Commission purportedly under the provisions of the Public Utility Holding Company Act of 1935, 15 U.S.C.A. § 79 et seq. The bill goes on to allege concealment from the stockholders of Railroad Co. of facts with respect to the plan for dissolution, a failure of Central Maine to perform the covenants of the lease, a wasting and abandoning of the assets of Railroad Co., the unlawful substitution of a bus system for the street railroad, and a subsequent unlawful sale of such bus system. Interspersed with these specific allegations are assertions that these changes and unlawful acts were accomplished through the medium of interlocking directors and through a failure of the parties concerned to fulfill their fiduciary duties. The bill alleges that the reorganization plan submitted to the Securities and Exchange Commission was in fact conceived in fraud and for the purpose of terminating the obligations of the lessee or its assignee under the lease, all of this being done in collusion with those parties who were to benefit from the fraud; that the hearing on said plan before the Securities and Exchange Commission was solely on evidence prepared by the interested parties which was offered in pursuance of a scheme to create a self-serving necessity for its approval. The bill asserts that at the special stockholders' meeting of Railroad Co. called to consider the plan proxies were solicited on false information and that a sufficient number of them were invalid so as to render void the proceedings taken at the meeting, and furthermore that a majority of the total stock voted at the meeting was held by Central Maine whose action in voting it rendered the meeting itself invalid and all action taken to approve the plan void.

The relief sought under this bill is drastic in the extreme. In short, the bill sets forth certain alleged fraudulent and ultra vires acts engineered by the lessee and its assignee by reason of their control of the property of Railroad Co. under the lease, which acts it is claimed have destroyed certain rights of the stockholders of Railroad Co. under that lease, namely their right to have the street railroad system maintained in good repair and operated as a street railroad during the term of the lease, and at the expiration of the lease in 2011 A. D., or at its earlier termination, to have the demised property surrendered to Railroad Co. ‘as a going concern, in condition not inferior to that existing at the date of the lease,’ together with all extensions, etc. In other words, the minority stockholders who bring this bill are insisting on the exact letter of their contract. In spite of changes in transportation methods in the thirty-five years since this lease was written, in spite of the abandonment of railroad trackage in our streets and the substitution of busses for street cars, the plaintiffs treat every variation from the exact terms of the contract as a breach of its terms, every sale of antiquated property as evidence of fraud. They ask this court to put things back in statu quo, declare null and void all the acts complained of, in other words they seek to compel specific performance of the lease as written. To this end we are asked to issue mandatory injunctions and restraining orders and to appoint a receiver or receivers to take over the property involved. Prior to the bringing of this bill this matter had been submitted to the Securities and Exchange Commission which had already taken action under an overriding federal law inconsistent with the relief sought by this bill. It is therefore apparent that this court is being invited to take action which may well be in disregard of that delicate balance between state and federal power on which our system of government rests.

Answers were filed by all parties defendant admitting in part undisputed allegations of the bill; but each defendant in so far as it was concerned denied every charge of fraud. After the filing of replications, the bill came to a hearing before the Chief Justice who was fully conscious of the limits of his power set by the Public Utility Holding Company Act and endeavored as best he could to see that there was no conflict between federal and state authority. Had he had before him, as we have now, the recent case of Schwabacher v. United States, 334 U. S. 182, 68 S.Ct. 958, 92 L.Ed. 1305, much of the exhausting drudgery of a long hearing might have been avoided. As it is, we have to consider here a record of 2242 pages, and briefs of well over 1000 pages.

The issue before us as we see it is a narrow one, and might perhaps be disposed of in a more or less summary manner. And yet it may be conducive to a proper understanding of it if we give some of the background of this controversy.

As stated in the bill, Railroad Co. in February, 1912, leased its property to Cumberland for ninety-nine years. Cumberland agreed to pay as rental a sum sufficient to pay the interest on certain bonds of Railroad Co. and dividends at the rate of 5% on its capital stock, also $500 per annum to be used for the expense of maintaining the organization of Railroad Co. It is not necessary to consider whether there was any obligation enforcible against the lessee to pay the...