Central Vermont Ry. Co. v. Southern New England R. Corp.

• Decision Date: 14 December 1932
• Docket Number: No. 2540.,2540.
• Citation: 1 F. Supp. 1004
• Parties: CENTRAL VERMONT RY. CO. v. SOUTHERN NEW ENGLAND R. CORPORATION.
• Court: U.S. District Court — District of Massachusetts

1 F. Supp. 1004

CENTRAL VERMONT RY. CO. v. SOUTHERN NEW ENGLAND R. CORPORATION.

No. 2540.

District Court, D. Massachusetts.

December 14, 1932.

Walter A. Dane, of Boston, Mass., John W. Redmond, of Newport, Vt., and George W. Wickersham, of New York City, for plaintiff.

Warner, Stackpole, Bradlee & Cabot and Pierpont L. Stackpole, all of Boston, Mass., for receivers.

John S. Murdock, of Providence, R. I., and Ralph E. Tibbetts, of Boston, Mass. (specially for John Marsch, a creditor), for defendant.

Raymond H. Favreau, of Southbridge, Mass., for John T. Brown, Herbert A. Fogg, Leon J. Deloge, Edward L. Williams, Robert A. McLaughlin, and J. P. Cunningham.

W. R. Gravel, of Southbridge, Mass., for Town of Southbridge.

LOWELL, District Judge.

This case rises out of the receivership of the Southern New England Railroad Company. It comes to the court on objections by the Centmont Corporation to a clear and complete report by La Rue Brown, Esquire, who was appointed master to consider the proofs of debt offered by three creditors of the company. It is admitted that debts are due to the Standard Oil Company in the sum of $150 and to John Marsch in the sum of $622,785.51. The only proof objected to is that of the Centmont Corporation, which has succeeded by assignment to the rights of the Central Vermont.

The master reported against the proof offered by the Centmont Corporation. On page 8 of his report he says: "I find that the Southern New England was a wholly owned subsidiary which was intended to be and was an instrumentality for carrying out the purpose of the Central Vermont to acquire and control a connection between its line at Palmer and Providence. * * *"

The Southern New England Railroad Company is a Massachusetts corporation organized for the purpose of building and operating the Massachusetts part of a railroad from Palmer to Providence, which was to connect at Palmer with a subsidiary of the Central Vermont Railway Company. The roadbed, which was built by John Marsch, had been partly completed when its operation ceased and it went into the hands of receivers. At the time of the appointment of the receivers, the entire stock of the Southern New England Railroad was owned by the Central Vermont. All the money which the Southern New England ever had came from the Central Vermont, and all the assets which remain are the result of money furnished by it. A majority of the directors of the Southern New England were at all times directors of the Central Vermont. The president, chairman of the board, treasurer, and chief accounting officer of the Southern New England occupied like positions in the Central Vermont. The officers of the Southern New England received their salaries from the Central Vermont. The books of account of the Southern New England were kept at the office of the Central Vermont by the same accountants as kept its own books. It appears from the master's report that the entire record of the proceedings of the stockholders, directors, and executive committee of the Southern New England shows that no action was ever taken as to the raising or expenditure of funds, salaries, or duties of officers, except as provided in the by-laws, or any other action than the annual routine of electing officers and directors except votes made necessary in connection with petitions for the location of the railroad and other matters involved in acquiring the right of way.

To allow the Centmont Corporation to prove is tantamount to allowing a debtor to prove in bankruptcy in competition with his own creditors, a result which shocks the conscience of a chancellor who is familiar with the law of bankruptcy. The Centmont Corporation insists that this result is inescapable under the laws relating to corporations because the Southern New England Railroad is a corporation distinct from the Central Vermont and was not formed for any fraudulent purpose. It is true that there was no fraud, but it is also true that, except in form, all the acts of the Southern New England Railroad were the acts of the Central Vermont, and that, in many instances, the form of acting through a separate corporation was not followed.

The laws of Massachusetts require that a railroad shall be operated by a domestic corporation. The Southern New England Railroad Corporation was organized by the Central Vermont to build and operate that part of the proposed connection which lay in Massachusetts; another corporation, the Southern New England Railway, took up the work within the limits of Rhode Island. The Southern New England Railroad was not merely the agent of the Central Vermont to build the road in Massachusetts, it was the Central Vermont itself, clothed with the required separate corporate garments. If the laws of Massachusetts had not required the formation of a Massachusetts corporation, the railroad would have been built in exactly the same way by the Central Vermont itself. The Southern New England is merely the Central Vermont under another name.

We need not decide between the conflicting theories as to what a corporation is. Indeed it would be dangerous to dogmatize concerning a subject over which so much ink has been spilled. See Gray, The Nature and Sources of the Law, p. 51; Freund, The Legal Nature of Corporations; Wormser, The Disregard of The Corporate Fiction and Allied Corporate Problems; Anderson, Limitations of Corporate Entity; Machen, Corporate Personality, 24 Harv. L. Rev. 255; Laski, The Personality of Associations, 29 Harv. L. Rev. 404.

Some courts seem to have been plagued by the ghost of a corporation soul; as, for instance, the Virginia court which was unable to decide that a corporation composed entirely of negroes was incapable of holding property in breach of restrictions forbidding its ownership by persons of African descent, or the English courts which, despite Lord Wenbury's dissent in the Court of Appeal, could not make up their minds that an English company composed entirely of German subjects was an enemy in time of war. People's Pleasure Park Co. v. Rohleder, 109 Va. 439, 61 S. E. 794, 63 S. E. 981; Continental Tyre & Rubber Co. v. Daimler Co., 1915 1 K. B. 893; Daimler Co. v. Continental Tyre Co., 1916 2 A. C. 307.

One of the earlier cases in the federal courts is similar to the case at bar. The Baltimore & Ohio Railroad built a telegraph line by means of a subsidiary corporation. When it afterwards sold the line, the court held that the railroad was liable for a debt of the subsidiary corporation. The principal difference between that case and the present one is that there the subsidiary corporation was voluntarily formed, while here the subsidiary corporation was formed at the command of the commonwealth of Massachusetts. Interstate Tel. Co. v. B. & O. Tel. Co. (C. C.) 51 F. 49; Id. (C. C. A.) 54 F. 50; see, also, Colonial Trust Co. v. Montello Brick Works (C. C. A.) 172 F. 310; Southern Pac. Terminal Co. v. Interstate Commerce Comm., 219 U. S. 498, 31 S. Ct. 279, 55 L. Ed. 310; United States v. Delaware, Lack. & West. R. R., 238 U. S. 516, 35 S. Ct. 873, 59 L. Ed. 1438; Chicago, M. & St. P. Ry. v. Minn. Civic Ass'n, 247 U. S. 490, 38 S. Ct. 553, 62 L. Ed. 1229; United States v. Reading Co., 253 U. S. 26, 40 S. Ct. 425, 64 L. Ed. 760; In re Muncie Pulp Co. (C. C. A.) 139 F. 546; In re Watertown Paper Co. (C. C. A.) 169 F. 252, 256; Gay v. Hudson River Electric Power Co. (C. C. A.) 187 F. 12; Clere Clothing Co. v. Union Trust & Savings Bank (C. C. A.) 224 F. 363; The Willem Van Driel, Sr. (C. C....