City of Holland v. Holland City Gas Co.

• Decision Date: 13 February 1919
• Docket Number: 3211.
• Citation: 257 F. 679
• Parties: CITY OF HOLLAND et al. v. HOLLAND CITY GAS CO. et al.
• Court: U.S. Court of Appeals — Sixth Circuit

257 F. 679

CITY OF HOLLAND et al. v. HOLLAND CITY GAS CO. et al.

No. 3211.

United States Court of Appeals, Sixth Circuit.

February 13, 1919

Charles H. McBride, of Holland, Mich., and Charles E. Ward, of Grand Rapids, Mich., for appellants.

Gerrit J. Diekema, of Holland, Mich., for appellees.

Appeal from dismissal of intervening petition to vacate and set aside order adjudging Holland City Gas Company a bankrupt and the bankruptcy proceeding itself. The city of Holland, a municipal corporation of Michigan, through ordinance approved March 10, 1903, granted permission to Bascom Parker and his assigns for a period of 30 years to lay and maintain gas pipes, mains, conduits and service pipes in the city streets and highways to supply manufactured gas for illuminating and fuel purposes both to the city and its inhabitants, at prices and subject to conditions therein provided. In September following, the rights thus granted were transferred to the Holland Gas Company, a Michigan corporation, and, in August 1905, to the Holland City Gas Company, another Michigan corporation; and the gas works and plant were thereafter, at least until commencement of the bankruptcy proceeding in question, maintained and operated and gas was supplied and sold in the name of appellee, the Holland City Gas Company.

However on June 17, 1912, a corporation was organized under the name of American Public Utilities Company and pursuant to the laws of the state of Delaware, for purposes of production distribution, and sale of artificial gas and electricity, and also the purchase of shares of stock in any corporation of 'the state of Delaware, or of any other state, territory, or country. ' Later in that month this Delaware company purchased from the holders thereof a majority of the corporate shares in the Holland City Gas Company, and has purchased since then nearly all the rest of such shares, the total capital stock being $200,000 par value, divided into shares of $100 each, and prior to November, 1912, acquired from the various owners $160,500 par value of the gas company's outstanding first mortgage bonds, and since that time has purchased further bonds of the gas company, until the total holding is upwards of $298,000 par value, principally upon advances made by the Delaware company, some of them being on account of acquisition of what are known as the Zeeland properties for supplying gas in territory adjacent to the city of Holland. Through the shares of stock so obtained the Delaware company has ever since chosen and kept in place the directors, 5 in all, composing the board provided for the Holland City Gas Company, and these directors have from time to time selected from their number the officers of the company, viz. president, vice president, secretary, and treasurer.

In February, 1918, when the intervening petition was filed herein, the directors of the Holland City Gas Company were stockholders and directors of the Delaware company, though the latter company appears to have had 14 directors; the office of president of each company was held by the same person, and this is true of the positions of secretary and treasurer. The president of the two companies holds 1,932 shares of stock in the gas company in trust for the Delaware company, and the remaining directors of the gas company each hold one share of stock in that company.

The Delaware company owns and votes a large interest, doubtless a controlling interest, in the stock of various other corporations, viz. Albion Gas & Light Company, at Albion, Mich.; Elkhart Gas & Fuel Company, at Elkhart, Merchants' Heat & Light Company, at Indianapolis, Valparaiso Lighting Company, at Valparaiso, all of Indiana; Wisconsin-Minnesota Light & Power Company, at La Crosse and other localities in Wisconsin and Minnesota; Jackson Light & Traction Company, at Jackson, Miss.; Utah Gas & Coke Company, at Salt Lake City; and Boise Gaslight & Coke Company at Boise, Idaho. The total assets of the Delaware company are valued at upwards of $12,845,000, admittedly comprising a 'large percentage of the stock and of the bonds of the corporations' just mentioned.

A firm, Kelsey, Brewer & Co., composed of directors common to both the Holland City Gas Company and the Delaware company and claimed to be experienced in the operation and management of public utilities companies, is retained to give to all the companies above named the benefits of its experience.

On November 7, 1917, the Holland City Gas Company sent a communication to the mayor and council of the city, stating in substance that the operation of the gas properties at the prevailing prices could be continued only at an actual loss of money; that this was a fact under normal business and price conditions; that unless relief were provided at once it would be impossible under the present abnormal conditions to continue the operation of the plant; that from the 10th inst. the charge for gas in the city would be at the rate of $1.25 per thousand cubic feet, with a discount of 10 cents per thousand upon payment by the 15th of the month following that in which the gas would be consumed; that this price would 'continue throughout the period affected by the duration of the war'; and that, should this increase fail to produce the necessary revenue to meet actual expenses, the company would be 'compelled to close the plant and stop the supply of gas.' This was 25 cents per thousand cubic feet in excess of the price then prevailing.

On December 1, 1917, the present appellants commenced suit against the gas company, and the Delaware company in the Ottawa circuit court, in chancery, setting up the facts touching the gas grant in question and its ultimate transfer to the Holland City Gas Company, alleging that this was the only source of gas supply for the inhabitants of the city; that there were upwards of 1,790 consumers dependent on gas for fuel, for cooking purposes, heat, and light; that in June, 1913, the gas company, its franchises and property, became the property of the Delaware company, which had ever since dominated the affairs and conducted the business of the gas company; that the price of gas was fixed by ordinance; that the Delaware company, through the gas company, sent the communication above pointed out to the mayor and council of the city; that such threatened increase in price was contrary to equity and good conscience, and would cause irreparable injury; and praying an order restraining defendants from exacting the threatened increase in price and also a mandatory injunction directing them to manufacture and supply gas to the city and its inhabitants in compliance with the provisions and rates of the ordinance. On December 3, 1917, an order was entered enjoining defendants from collecting a rate in excess of that fixed by the ordinance, and from closing the gas plant and stopping the supply of gas, until the further order of the court.

During the oral argument in the instant case we understood counsel to concur in the statement that the suit in the state court was commenced and the order of injunction granted without notice to the defendants in the case. It is to be inferred from one of the answers that nothing further was done in the case prior to the bankruptcy. The defendants filed separate answers, though it is not shown at what time. However, in the answer of the gas company, it is alleged that 'since the time of the filing of the bill of complaint' it had 'entered into voluntary bankruptcy' and had 'been adjudged a bankrupt.' The petition in bankruptcy was filed and the adjudication made February 1, 1918. It is stated in the opinion below that it was upon the voluntary petition of the Holland City Gas Company that the company was adjudged a bankrupt, and the parties stipulate that the petition as well as the adjudication was in the usual form. Appellants' intervention in the proceeding occurred later in the month, February 22d.

It is in effect alleged in the intervening petition, and admitted in the answer herein, that, through either the receiver or the trustee in bankruptcy, gas is being supplied to meet the requirements of the inhabitants of the city of Holland. The answer alleges without denial that this is being done under a license from the city and at the rate of $1.25 per thousand cubic feet, which 'was estimated to be the actual cost of production of the same without profit to the said trustee. ' Moreover, we understood at the oral argument that this was also sanctioned by an order of the court below, entered after hearing from both sides, and that the price was subject to the old discount of 10 cents per thousand cubic feet.

It is difficult to ascertain some of the relevant facts because of the omission to include in the record in addition to proofs of claims a further transcript of the bankruptcy proceedings (particularly a copy of the gas company's petition), and the dates of filing answers in the state court. The case was presented here upon the intervening petition, the joint answer of the bankrupt and trustee, certain exhibits, and a stipulation.

Before WARRINGTON and KNAPPEN, Circuit Judges, and KILLITS, District judge.

WARRINGTON Circuit Judge (after stating the facts as above).

Counsel urge the claims of appellants in the following order: (1) The Delaware company is bound to perform the gas contract; (2) the court below was without jurisdiction, since under the Bankruptcy Act the gas company has no right to become a bankrupt; (3) a public service corporation cannot under the amendment of 1910 become a voluntary bankrupt; (4) the gas company has no real existence apart from the Delaware company; (5) the case is a fraud upon the courts and the public.

The second and third claims involve questions of law which...