Backus-Brooks Co. v. Northern Pac. Ry. Co.

• Decision Date: 15 June 1927
• Docket Number: No. 7602.,7602.
• Citation: 21 F.2d 4
• Parties: BACKUS-BROOKS CO. v. NORTHERN PAC. RY. CO. et al.
• Court: U.S. Court of Appeals — Eighth Circuit

21 F.2d 4 (1927)

BACKUS-BROOKS CO. v. NORTHERN PAC. RY. CO. et al.

No. 7602.

Circuit Court of Appeals, Eighth Circuit.

June 15, 1927.

COPYRIGHT MATERIAL OMITTED

Thomas L. Philips, of St. Louis, Mo., and John Junell, of Minneapolis, Minn. (Ralph Whelan, Koon, Whelan & Hempstead, and Lancaster, Simpson, Junell & Dorsey, all of Minneapolis, Minn., on the brief), for appellant.

Charles Bunn and Thomas D. O'Brien, both of St. Paul, Minn., for appellees.

Before LEWIS and VAN VALKENBURGH, Circuit Judges, and PHILLIPS, District Judge.

PHILLIPS, District Judge.

This is a minority stockholder's suit brought in behalf of the Minnesota & International Railway Company (hereinafter called the Minnesota Company), by Backus-Brooks Company, the minority stockholder (hereinafter called complainant), against the Northern Pacific Railway Company (hereinafter called the Northern Pacific), the Minnesota Company, the Minnesota Loan & Trust Company, the Big Fork & International Falls Railway Company (hereinafter called the International Company), C. W. Bunn, F. W. Sweeney, R. W. Clark, R. H. Relf, W. H. Gemmell, Charles Donnelly, Thomas Cooper, Howard Elliott, and J. M. Hannaford. The bill of complaint was filed December 22, 1923.

The Northern Pacific owns and operates a line of railroad extending from Minneapolis and St. Paul to Brainerd, Minn. The Minnesota Company owns and operates a line of railroad from Brainerd to Northome, Minn. This line was completed to Bemidji in 1898, and to Northome in 1903. The Big Fork & Northern Railway Company (hereinafter called the Big Fork Company) owns a line of railroad from Northome to Grand Falls, Minn., which was completed in 1905. The Minnesota Company owns the stock in the Big Fork Company and operates the latter company's line of railway under lease. The International Company owns a line of railroad from Grand Falls to International Falls, which was completed in 1907. The Northern Pacific owns the stock in the International Company. It will be observed that this makes a complete line of railroad from St. Paul to International Falls, and that the Northern Pacific owns the southern terminus and controls through stock ownership the northern terminus thereof.

The matters complained of in the bill may be divided into three classes:

(1) Certain acts and transactions which occurred more than 6 years prior to the filing of the bill, the details of which will be referred to more specifically hereinafter;

(2) The divisions made of earnings on joint line traffic, during the 6-year period immediately prior to the filing of the bill, between the Northern Pacific, the International Company, and the Minnesota Company;

(3) The division of expenses between the Northern Pacific, the International Company and the Minnesota Company upon common operations, and compensation paid each other for services, facilities, use of equipment, repairs of equipment and the like, during the 6-year period immediately prior to the filing of the bill.

The matters falling in class 1, as alleged in the bill and in support of which complainant either adduced or tendered proof, were, in general, these:

That, in the year 1894, the complainant and certain associates acquired all of the capital stock of the Brainerd & Northern Minnesota Railway Company (hereinafter called the Brainerd Company), complainant acquiring 30 per cent., and its associates 70 per cent., of such stock; that in the latter part of the year 1899, or the early part of the year 1900, the Northern Pacific purchased 70 per cent. of the capital stock of the Brainerd Company held by complainant's associates, in violation of an agreement between complainant and its associates not to sell to any person not a stockholder of the Brainerd Company without first offering such stock for sale to the other stockholders; that, to avoid a threatened suit by complainant to set aside such transfer of stock to the Northern Pacific, the Northern Pacific agreed that it would cause the Brainerd Company's line of railway to be extended from its then terminus at Bemidji to the northern boundary line of the state of Minnesota, in accordance with its charter.

That as a part of the consideration for the purchase of the stock of the Brainerd Company the Northern Pacific agreed that the Brainerd Company and its successors would maintain the logging rates then in force to Brainerd from points between Bemidji and Brainerd for a period of 10 years from the date of such purchase; that such rates were unreasonably low and noncompensatory and were maintained until the year 1907.

That in 1901, the Northern Pacific caused the Minnesota Company to be organized for the purpose of building a line of railroad from the then terminus of the Brainerd Company's line at Bemidji to International Falls; that as a result of protest and objection on the part of complainant the stock of the Brainerd Company was exchanged share for share for the stock of the Minnesota Company.

That, in the year 1903, after the Minnesota Company's line had been constructed as far as Northome, Minn., complainant consented to the placing of a mortgage on the Minnesota Company's line, and the issuance of 5 per cent. bonds secured thereby, on the understanding between complainant and the Northern Pacific that the money derived from the sale of such bonds should be applied for the purpose of retiring the then floating indebtedness of the Minnesota Company, and of providing funds for the completion of its line from Northome to Rainy River; that such mortgage was executed July 1, 1903; that such bonds were purchased by the Northern Pacific at a discount of 10 per cent. of their face value; that the proceeds thereof were applied in payment of the floating indebtedness of the Minnesota Company, and the remainder, amounting to $386,854.28, was paid into the treasury of the Minnesota Company; that such last-mentioned sum was not expended in the further extension of the Minnesota Company's line, but in the purchase of securities in which the Northern Pacific was directly or indirectly interested, and on which the Minnesota Company received a lower rate of interest than it was obliged to pay on such bonds.

That, in the year 1905, the Northern Pacific caused the Big Fork Company to be incorporated for the purpose of constructing a line of railroad from Northome to International Falls, Minn.; that thereafter, upon protest and threat of litigation by complainant, the Northern Pacific consented that all the capital stock of the Big Fork Company should be subscribed for and acquired by the Minnesota Company; that the Minnesota Company, out of accumulated net earnings in its treasury, paid such stock subscription in full, and further advanced to the Big Fork Company all the additional moneys with which it constructed a line of railway from Northome to the north bank of the Big Fork river.

That the Northern Pacific at all times subsequent to 1905, refused to permit either the Minnesota Company or its subsidiary, the Big Fork Company, to construct any railroad north of the north bank of the Big Fork river; that in 1906 complainant notified the Northern Pacific in writing that, unless the latter would permit the extension and completion of the lines of the Minnesota Company and Big Fork Company in accordance with the provisions of their charters, complainant would proceed to construct a line of railroad forming an extension of the lines of the Minnesota Company and the Big Fork Company from the north bank of the Big Fork river to International Falls; that in the winter of 1906 and 1907, complainant organized the International Company to construct and operate such railroad, let contracts for the construction of such railroad, and commenced the actual construction thereof; that thereupon the Northern Pacific notified complainant that the Northern Pacific had determined to build a line of railroad to constitute an extension of the lines of the Minnesota Company, the Big Fork Company, and the Northern Pacific from the Big Fork river to International Falls, which would be operated as the only line of railroad interchanging business and traffic with the lines of the Minnesota Company, the Big Fork Company, and the Northern Pacific; that thereupon the complainant, acting under compulsion of circumstances, executed a contract dated December 27, 1906, transferring to the Northern Pacific the International Company and its construction contracts and completed work; that the Northern Pacific then completed the line of the International Company from the Big Fork river to International Falls.

That the Minnesota Company connects with the Minneapolis, St. Paul & Sault Ste. Marie Railway Company at Bemidji, with the Great Northern Railway Company at Bemidji and Walker, Minn., and with the Northern Pacific at Brainerd; that the Northern Pacific has refused to permit the Minnesota Company to engage generally in joint through traffic with lines of railroad other than the Northern Pacific, and has required it to haul all through freight to Brainerd; that the Minnesota Company could have secured at least as large earnings out of joint through traffic interchanged with its connections at Bemidji and Walker as it received through interchange of such traffic with the Northern Pacific at Brainerd, and derived the benefit of the shorter haul, and that by reason of the Minnesota Company being compelled to interchange joint through traffic exclusively with the Northern Pacific at Brainerd the Minnesota Company was put to additional operating expenses in 1908 of $87,000, 1910 of $108,000, 1912 of $108,000, 1914 of $69,000, and 1916 of $53,800.

That in the year 1913, the Minnesota Company had a line of railroad extending to its own terminals in the northern part of the city of Brainerd, Minn., and a bridge across the Mississippi river at that point; that reconstruction of such bridge became necessary; that the Northern Pacific, instead of permitting such...