Continental Trust Co. v. Toledo, St. L. & K.C.R. Co.

• Decision Date: 18 September 1897
• Docket Number: 1,205.
• Citation: 82 F. 642
• Court: U.S. District Court — Northern District of Ohio
• Parties: CONTINENTAL TRUST CO. et al. v. TOLEDO, ST. L. & K.C.R. CO.

82 F. 642

CONTINENTAL TRUST CO. et al. v. TOLEDO, ST. L. & K.C.R. CO.

No. 1,205.

United States Circuit Court, N.D. Ohio, Western Division.

September 18, 1897

[Copyrighted Material Omitted]

This cause comes before this court upon several motions made by the Rhode Island National Bank, Jules S. Bache, and others creditors of the Toledo, St. Louis & Kansas City Railroad Company, the purport of which can hardly be understood without a short statement of the course of the litigation:

On May 13, 1893, Stout and Purdy, citizens of New York, filed a creditors' bill against the defendant company (hereafter called the 'Kansas City Company '), which was a consolidated corporation, organized under the laws of Illinois, Indiana, and Ohio. The complainants were judgment creditors, and filed their bill on behalf of themselves and all other creditors of the Kansas City Company. Similar bills were filed in Indiana and Illinois, and the same receiver was appointed to take charge of and operate the railroad in the three jurisdictions. The receiver took charge of the road and operated it. Various creditors of the company filed intervening petitions. Among them were the owners of bonds issued by the defendant, and secured by a mortgage upon the road given to the Continental Trust Company, of New York, and John M. Butler, of Indiana, trustees. These bondholders were permitted, on their petition, to become parties as a committee representing themselves and all others of their class. Subsequently, in December, 1893, the trustees under the mortgage filed in this court a bill to.foreclose it against the Kansas City Company, as a citizen of the three states of Illinois, Indiana, and Ohio, and made parties defendant with the company Calloway, the receiver, a citizen of Ohio, and several judgment creditors of the Kansas City Company, citizens of New York and other states. The receiver was made a defendant by leave of court granted in the creditors' suit. The receiver was continued in charge under the foreclosure bill. At the same time an order was made consolidating the action under the creditors' bill and the action of foreclosure, and directing that the consolidated cause take the same title as the foreclosure suit. In the creditors' suit, intervening petitions were filed by creditors claiming liens on part of the equipment prior in right to that of the mortgage bondholders. These petitions were answered by the trustees under the mortgage and the issues thus made were referred to a master to take testimony. Answers were filed to the bill of foreclosure by the judgment creditors made defendants therein, and after replication the issues were referred to a master to take evidence, and the master has not yet reported. Intervening petitions have now been filed by the Signal Oil Works, the Rhode Island Locomotive Works, the Rhode Island National Bank, the Contracting & Building Company of Kentucky, Jules S. Bache, and Ferdinand E. Canda, as creditors of the Kansas City Company, and some of them by motions seek an order compelling the complainant trustees to answer the intervening petitions. The petitions of the Signal Oil Works and of Canda attack the validity of the mortgage bonds, (1) in that they were issued for an inadequate consideration, and in violation of the constitution of Illinois; and (2) on the ground that many of them were issued to directors of the company at less than par, and to others at less than 75 per cent. of par, in violation of the laws of Ohio rendering such bonds void. The other petitions, in addition to the foregoing, also attack the validity of the bonds and mortgage on the ground that they were issued by a pretended corporation purporting to be the result of a consolidation of three corporations, one of Illinois, one of Ohio, and one of Indiana, when there was no law authorizing such a corporation, and on this ground ask for relief of a peculiar character, more fully to be stated. Other motions have been filed by the petitioners as follows (1) A motion to dismiss the foreclosure bill of the Continental Trust Company and John M. Butler, trustees, for want of jurisdiction, on the ground that the necessary diverse citizenship between complainants and defendants is shown on the face of the bill not to exist. (2) A motion to set aside the order granting leave to the complainant trustees to make Calloway, receiver, party defendant to the bill, and the decree pro confesso taken against him, on the ground that he was not a proper party to the action. (3) A motion to set aside the order consolidating the two causes.

(4) A motion to set aside the order appointing a special master to take and report the evidence, and to suppress the evidence already taken. (5) A motion for a decretal order in the creditors' suit, referring the same to the standing or a special master for proceedings in accordance with chancery practice in general creditors' bills, fixing a time in which all creditors may present their claims to the master, and a time when all parties in interest may file objections to the claims presented, and excluding from the benefit of the suit all creditors not presenting their claims to the master within the time fixed.

Cary & Whitridge and Henry Crawford for the Continental Trust Company.

Coudert Bros., J. D. Springer, and Squire, Sanders & Dempsey, for petitioners.

TAFT, Circuit Judge (after stating the facts as above).

The motion to dismiss the foreclosure bill must be denied. It is conceded that the court had jurisdiction of the creditors' bill filed by Stout and Purdy, and that, at the time when the trustees under the mortgage filed their foreclosure bill, all the property of the railroad covered by the mortgage was in the possession of this court, by its receiver. The trustees could obtain no substantial relief by a foreclosure of the mortgage and a sale of the road in a state court, so long as this court had possession of it. To avoid injustice, this court was obliged, therefore, to exercise a jurisdiction ancillary in its nature, for the benefit of those otherwise injured by its possession of the property, and had power to entertain a foreclosure bill to which the parties complainant and defendant were not of such diverse citizenship as to give the court independent jurisdiction. The circuit court of appeals of this circuit has considered at length this kind of jurisdiction, and the basis upon which it rests, and the authorities sustaining it, in the case of Compton v. Railroad Co., 31 U.S.App. 486, 522, 529, 15 C.C.A. 397, 68 F. 263. The foreclosure bill stated the fact that the railroad, the mortgage on which it was filed to foreclose, was in the hands of this court. That was the jurisdictional fact, and made immaterial the circumstances that one complainant was a citizen of New York and the other of Indiana, and that among the defendants were citizens of Indiana and New York. It cannot be of importance that the bill was apparently filed as an independent bill. If in fact the only way of maintaining jurisdiction of it is as a dependent bill, ancillary to the creditors' action, it is the duty of the court so to treat it, provided it appear, as it does, that it can be maintained as such. But care must be taken not to give too much effect to the dependence of one suit on the other for jurisdictional purposes. Such dependence does not throw both suits into hotchpot, and dispense with the ordinary rules of pleading and practice as to parties proper and necessary to each cause of action. Because the res acquired under the original bill gives ancillary jurisdiction to entertain a dependent bill seeking relief in respect of the res, parties to the original bill are not thereby made parties to the dependent bill. The parties to the original bill have no more right to intervene in the dependent cause than if the court had independent jurisdiction thereof. Hence the rule as to who may appear to a foreclosure bill and file answers in the same here as if the bill had in fact been an independent bill. In other words, the relation between the two suits is principal and ancillary only so far as that, without possession of the res in the former suit, the court would have no jurisdiction of the latter; but, having thus acquired and thus maintaining its jurisdiction in the second suit, the court proceeds in it without further regard to the pleading or course of the principal action. In this view of their relation to each other, there cannot be the slightest objection to consolidating the two suits, if they are otherwise of such a character as to permit it. I shall not stop to discuss the power of the court in this regard. It suffices to say that the duty of the court to consolidate causes, where no one will be injured thereby, is plainly suggested by the federal statute on the subject (Rev. St. Sec. 921), and one of the commonest instances of the exercise of this power is in the consolidation of a creditors' bill and a foreclosure bill against the same insolvent railroad corporation. The motions to dismiss the foreclosure bill and to set aside the order of consolidation are denied.

The motion to set aside the order making the receiver a party to the foreclosure bill, and the decree pro confesso against him, is granted. He is not a proper party to such a proceeding, and the decree against him is idle.

I see no reason for suppressing the evidence taken on any of the issues already framed and sent to a master, nor is there any reason to set aside the orders of reference. The motions for this purpose are denied.

The motion for an order requiring the master in the creditors' suit to advertise the hearing of claims against the railroad company, and fixing the time of their presentation in his office, and the time for objections to the...