Delno v. Market St. Ry. Co.

Decision Date15 January 1942
Docket NumberNo. 9838.,9838.
Citation124 F.2d 965
PartiesDELNO v. MARKET ST. RY. CO. et al.
CourtU.S. Court of Appeals — Ninth Circuit

Morgan J. Doyle, J. Joseph Sullivan, and Charles P. Scully, all of San Francisco, Cal., for appellant.

William M. Abbott, Stephen R. Duhring, and Chickering & Gregory, all of San Francisco, Cal., for appellee Market St. Ry. Co.

Samuel S. Stevens and Heller, Ehrman, White & McAuliffe, all of San Francisco, Cal., for appellee Wells Fargo Bank & Union Trust Co.

Before GARRECHT, HANEY, and HEALY, Circuit Judges.

HANEY, Circuit Judge.

Appellant seeks reversal of an order dismissing his action which was brought under the Declaratory Judgments Act, Act of June 14, 1934, Ch. 512, 48 Stat. 955, 28 U.S.C.A. ß 400.

The complaint alleged the facts hereafter related. On April 1, 1924, appellee Market Street Railway Company, hereafter called the company, made an Indenture of First Mortgage conveying certain of its real and personal property in California to appellee Wells Fargo Bank & Union Trust Co., hereafter called the trustee, as security for $13,000,000 of its 7% bonds due April 1, 1940. The mortgage further provided: "The Company shall not extend nor consent to the extension of the time of payment of said bonds or of any interest coupons and if such extension be made, whether with or without the consent of the Company, such bond or interest coupon or claim or interest represented thereby shall be subject to prior payment in full of the principal of the bonds and coupons whose payment shall not have been so extended."

Appellant is the owner of five $1,000 bonds.

About April 1, 1940, the owners and holders of certain of the bonds agreed to extend the maturity date of the bonds to April 1, 1945 and to a reduction in the interest rate on the bonds, but appellant did not so agree. On April 1, 1940, the company delivered to the trustee a "Supplemental Indenture" for the benefit of those who entered into the agreement above stated. Subsequent to April 1, 1940, the trustee paid interest on the bonds the owners of which had agreed to the extension, but did not pay interest on appellant's bonds.

In addition to these facts, appellant alleged that his bonds were still secured by a first mortgage on the property described in the mortgage of April 1, 1924, and that the lien of the extended bonds was junior and subservient to his lien; that it was the duty of the appellees to refrain from paying principal and interest on the extended bonds until his bonds are paid in full; and that appellees made contentions which are contrary to each of those mentioned.

Appellant prayed for a decree declaring that (1) his bonds were secured by the first mortgage; (2) there is now due and unpaid on the bonds the principal sum of $5,000 with 7% interest from April 1, 1940; (3) lien of appellant's bonds is superior to that of the extended bonds; (4) it is the duty of appellees to refrain from paying the principal and interest on the extended bonds until appellant's bonds are paid in full; and (5) the trustee violated its duties and obligations under the first mortgage by becoming a trustee under the Supplemental Indenture. Appellant also prayed for other and further relief appropriate in the premises; and for costs.

Appellees moved to dismiss the complaint on the following grounds: (1) the complaint failed to state a claim upon which relief could be granted; (2) the court had no jurisdiction over the subject matter of the action; (3) the court in the exercise of its discretion should decline to take jurisdiction over the subject matter; and (4) that appellant was precluded from maintaining the action by the provisions of ß 726 of the Cal.Code of Civil Procedure.

Supporting the motion was an affidavit of an officer of the company stating that prior to August 29, 1939, the company had retired $8,263,000 of bonds, and that it was apparent that it would not be able to pay the remainder of the bonds on the maturity date; that the company proposed that the maturity date of the bonds be extended and the interest rate reduced; that on the date mentioned, the company filed a petition with the California Railroad Commission praying that the latter approve the plan mentioned; that on October 17, 1939, the Railroad Commission issued its decision and order, a copy of which is attached to the affidavit; that the holders of more than 90% of the outstanding bonds accepted the plan; and that if the plan had not been adopted, it would have been necessary for the company to file a petition for reorganization under the Bankruptcy Act.

The Railroad Commission approved the plan, saying: "The order herein will approve the proposed refinancing plan. Such an order, of course, does not compel any holder of bonds to deposit them under the plan. It is for them to determine whether they can realize more by exercising their legal rights in a public foreclosure proceeding or bankruptcy proceeding than by accepting the plan now offered them. In our opinion the plan is fair to the bondholders. It imposes no expense on them. While it does provide for a reduction in the rate of interest paid, it should be remembered that from the time of issue of the bonds, in 1924, to the present, the holder of this company's bonds have enjoyed regular annual interest returns at the rate of 7 per cent per annum, and have seen the company reduce the total amount of bonds outstanding from $13,000,000 to $4,709,000. The same deed of trust that secured the bonds at present will remain intact, except for amendments to provide for changes in date of maturity, rate of interest and sinking fund, and will continue to secure the payment of the outstanding bonds as modified."

The court below stated in its opinion that there was no dispute as to the facts which were fully disclosed by the complaint and the decision of the Railroad Commission, and that since the case was presented and argued upon the showing thus made, the presentation thereof was tantamount to submission on an agreed statement of facts. The trial court held:

"I am of the opinion that no useful purpose would be served by a trial of the controversy in the District Court; that a trial here would not settle the entire controversy, and that for this Court to accept jurisdiction in a controversy involving a matter passed upon by the Railroad Commission, of which it had exclusive jurisdiction, would be improper.

"Under the circumstances I feel justified in declining the proffered jurisdiction. The motion to dismiss will therefore be granted."

This appeal was taken from the order of dismissal thereafter entered.

Appellee contends, as the court below held, that the granting of relief under the act in question is discretionary with the trial court. The act itself states that in "cases of actual controversy * * * the courts of the United States shall have power * * * to declare rights and other legal relations of any interested party * * * whether or not further relief is or could be prayed * * *". Federal Rules of Civil Procedure, Rule 57, 28 U.S.C.A. following section 723c, contains no statement indicating that the trial court's action is or is not discretionary. The note to such rule, however, clearly indicates by its tenor that the trial court's action is discretionary, and also contains the statement: "In other respects the Uniform Declaratory Judgment Act affords a guide to the scope and function of the federal act". Section 6 of the Uniform Declaratory Judgments Act provides: "ß 6. Discretionary. ‚Äî The court may refuse to render or enter a declaratory judgment or decree where such...

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