Carpenter v. Wabash Ry. Co., 11354.

• Decision Date: 12 June 1939
• Docket Number: No. 11354.,11354.
• Parties: CARPENTER v. WABASH RY. CO. et al.
• Court: U.S. Court of Appeals — Eighth Circuit

103 F.2d 996 (1939)

CARPENTER v. WABASH RY. CO. et al.

No. 11354.

Circuit Court of Appeals, Eighth Circuit.

May 13, 1939.

Rehearing Denied June 12, 1939.

Hyman G. Stein, of St. Louis, Mo. (Mark D. Eagleton and Roberts P. Elam, both of St. Louis, Mo., on the brief), for appellant.

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

Homer Hall, of St. Louis, Mo. (Nat S. Brown, of St. Louis, Mo., solicitor for Norman B. Pitcairn and Frank C. Nicodemus, Jr., receivers, on the brief), for appellee Wabash Ry. Co.

Hovey C. Clark, of New York City, and Thomas W. White and G. Carroll Stribling, both of St. Louis, Mo., for appellee Central Hanover Bank & Trust Co.

Before SANBORN, THOMAS, and VAN VALKENBURGH, Circuit Judges.

VAN VALKENBURGH, Circuit Judge.

February 13, 1931, appellant herein, plaintiff below, recovered in the Circuit Court of the City of St. Louis, Missouri, a judgment against the Wabash Railway Company in the sum of $15,000 for injuries sustained in the course of his employment as an employee of said company. On appeal to the Supreme Court of Missouri this judgment was affirmed on condition that a remittitur of $5,000 be entered. 335 Mo. 130, 71 S.W.2d 1071. This was done and the judgment in the sum of $10,000 stands as of February 13, 1931. December 1, 1931, the T. J. Moss Tie Company, a Missouri Corporation, filed in the District Court of the United States for the Eastern District of Missouri its bill of complaint against the Wabash Railway Company, an Indiana Corporation, alleging that complainant was a general unsecured creditor of the Wabash; that the properties of the Railway Company were heavily mortgaged, that it was insolvent and unable to pay its debts, and praying the appointment of receivers. The railway company filed answer admitting the allegations of the bill and consenting to the appointment of receivers. On December 1, 1931, an order was entered appointing receivers and containing the usual injunctive provisions.

March 1, 1937, the Chase National Bank of the City of New York, Trustee under the Refunding and General Mortgage of the Wabash Railway Company dated January 1, 1925, by leave filed its bill for foreclosure of the lien of said mortgage, for the appointment of receivers, and for the impounding of the income from the mortgaged property. Thereupon the same persons theretofore appointed in the Tie Case were named as receivers in the Chase National Bank case, and the two causes were carried as consolidated cause in Equity, No. 12099.

November 1, 1937, the Central Hanover Bank and Trust Company of New York, as trustee under the first mortgage of the Wabash Railway Company, dated May 1, 1889, filed its bill, alleging default in the payment of interest on the bonds secured by its mortgage, praying for the appointment of receivers, the impounding of the rents, issues, and profits, and for other relief. The same persons were appointed as receivers and, November 4, 1937, an impounding order was entered, as prayed, in the consolidated causes. May 4, 1938, the said Central Hanover Bank and Trust Company filed its amended and supplemental bill praying for foreclosure of its lien, and it was thereupon ordered that the orders entered in said cause upon November 1, 1937, and November 4, 1937, be deemed to have been entered upon said amended and supplemental bill of complaint.

March 19, 1932, the district court appointed Forrest C. Donnell as Special Master to whom should be referred, "for his investigation, determination and report" all claims, etc., by which the claimant sought to recover any money or property from the receivers out of the estate in their hands. The Master was directed to proceed with all reasonable dispatch to hear and determine the matters presented and to report his findings to the court. The order of appointment contained this further language: "Before settling his report in any contested case the Special Master shall give to the parties in interest reasonable notice of the time when and the place where he will finally settle such report, and of the fact that they may appear before him and file such exceptions to the same as they may desire".

All persons were required to file their claims before the Special Master on or before July 1, 1932, and to make proof of the amounts, and the lien and priority, if any, thereof. Accordingly, in June, 1932, appellant made a provisional filing of his claim, embodying a judgment for $15,000, then on appeal. This judgment was reduced to $10,000 by the Supreme Court of Missouri June 2, 1934. The hearing before the Special Master was held August 26, 1935. The receivers had filed answer admitting the rendition of the judgment, and denying any preference or priority. Mr. R. P. Elam, counsel for the claimant, then offered a certified copy of the judgment as finally modified, together with a statement of costs. Other counsel present were Theodore Bruere on behalf of claimant, Mr. F. D. Fauser appearing for the Wabash Company and the Receivers, and Mr. E. J. Barker for the Reconstruction Finance Corporation. After the presentation of the certified copy of the judgment had been received the Special Master asked: "Anything further to be offered in this matter?"

"Mr. Elam: Yes, I would like to have leave to submit at a future date the cost bill of the Circuit Court as soon as it has been prepared.

"The Special Master: Any objection to either of these offers, Mr. Fauser?

"Mr. Fauser: No, we agree further that the claim be allowed as set out in the judgment.

"The Special Master: It is the sum of $10,000 with interest thereon at the rate of six per cent per annum from the 13th day of February, 1931, to the date of the beginning of the receivership, is that correct?

"Mr. Fauser: Yes.

"The Special Master: That is to December 1, 1931?

"Mr. Fauser: Yes.

"Mr. Elam: And costs.

"The Special Master: I understand from you the cost bill will be submitted?

"Mr. Elam: I will submit it.

"The Special Master: Is there anything to be said be you, Mr. Barker, in that regard?

"Mr. Barker: No, sir, it is perfectly agreeable to us.

"The Special Master: Nothing on behalf of the Reconstruction Finance Corporation?

"Mr. Barker: No, our only interest is to see they are properly filed and judgment properly entered.

"(Thereupon the reporter marks said certified copy of judgment as `Exhibit A,' and said Exhibit is attached to this record).

"The Special Master: On this 6th day of January, 1936, there being present Robert P. Elam, attorney for claimant, the Special Master determined that, pursuant to bill of costs, being attached and marked `Exhibit B', hitherto presented to the Special Master by counsel for claimant in the above matter, the court costs hereinbefore referred to are hereby determined to be the sum of $104.15, wherefore, the Special Master determines that he shall report to the court,

"(a) That said claim to the extent of $10,000.00 principal, plus $104.15, court costs, plus interest on said principal amount of $10,000.00, at the rate of 6% per annum from February 13, 1931, to December 1, 1931, is correct and valid, and should be allowed in the aggregate of the said principal sum, court costs and interest, as a general unsecured claim, and that judgment should be entered thereon in the above entitled cause in favor of said claimant Peter J. Carpenter, and against defendant, Wabash Railway Company, in said aggregate amount;

"(b) That said claim is not entitled to any lien or to any priority over other general unsecured claims".

January 26, 1938, appellant filed in the district court his application for leave to file his petition for order terminating the receivership of the Wabash Railway Company, and dissolving the temporary restraining order and injunction. The petition presented therewith is very prolix and too long to be incorporated in full herein. The grounds for the relief asked are in substance the following:

That Kuhn, Loeb & Company, an investment banking organization of New York, is, and for many years has been, the banker for the Pennsylvania Railroad Company. That it also had and exercised control of the Wabash Railway Company and its financial policies and investments in 1926. That the Pennsylvania Railroad Company participated and connived with Kuhn, Loeb & Company in a course of conduct whereby the Wabash Railway Company purchased and acquired Lehigh Valley Railroad Company stock. In this manner the Pennsylvania Railroad Company acquired working control of the Wabash Railway Company and the Lehigh Valley Railroad Company, and Kuhn, Loeb & Company collected and received, fees, commissions and profits in excess of $1,000,000, and sold to the Wabash Railway Company, at great profit to itself, stocks owned by Kuhn, Loeb & Company. That this was accomplished by a conspiracy between this investment banking company and officers and directors of the Wabash Railway Company, thus alleged to be controlled by Kuhn, Loeb & Company, and the Pennsylvania Railroad Company. The loss accruing to the Wabash Company from these transactions is alleged to exceed $20,000,000. The present receivers are alleged to be former executives of the Pennsylvania Railroad, or one of its subsidiaries; and, for that reason, and for the further reason that they are said to have taken no action relative to the losses sustained by the Wabash Railway Company as aforesaid, they are charged to be improper persons to act as such receivers. It is further alleged that, since the receivers were appointed, there have been practically no proceedings of a constructive nature looking to a final disposition of the consolidated causes and the termination of the receivership. It is asserted that the claim of appellant is one entitled to priority over the liens of the mortgages and is entitled to present payment. The relief prayed is:

"(1) That the said Norman B....