Dickinson v. Consolidated Traction Co.

• Decision Date: 13 February 1902
• Citation: 114 F. 232
• Court: U.S. District Court — District of New Jersey
• Parties: DICKINSON et al. v. CONSOLIDATED TRACTION CO. et al.

114 F. 232

DICKINSON et al. v. CONSOLIDATED TRACTION CO. et al.

United States Circuit Court, D. New Jersey.

February 13, 1902

[Copyrighted Material Omitted] [Copyrighted Material Omitted]

Joseph A. Duffy and Charles J. Roe, for complainants.

Coult &amp Howell and Spencer Weart, for defendants.

GRAY Circuit Judge.

The bill in this case was filed December 28, 1899, by the complainants, both citizens and residents of the state of Maryland, as executors of Samuel T. Dickinson, deceased, a citizen of New York, who died October 9, 1896, appointing the complainants his executors by his last will probated in the state of New York. The bill and answer, as summarized in complainants' brief, are as follows:

The defendants are corporations of New Jersey and citizens of the states of New Jersey, New York and Pennsylvania, all of whom have answered. The bill alleges that the complainants are the owners as executors of 100 shares of the capital stock of the Consolidated Traction Company, which came in their hands as assets of the estate of their testator. That the Consolidated Traction Company was incorporated on March 15, 1893, under an act of the legislature of New Jersey, particularly set forth in the said bill of complaint. That on September 25, 1893, the Consolidated Traction Company leased the property and franchises of the Jersey City and Bergen Railroad Company, a special corporation of New Jersey. (Schedule B.) That on January 2, 1894, the Consolidated Traction Company leased the New Jersey Traction Company, a corporation organized under the act concerning corporations. (Schedule C.) That they also became possessed of the capital stock of a ferry line. (Schedule A.) That they thereby became the owners of very valuable franchises, which were continually increasing in value and in financial returns. That on June 12, 1894, the North Jersey Street Railway Company was incorporated under the same act under which the Consolidated Traction Company was incorporated. That prior to the lease hereinafter mentioned, the North jersey Street Railway Company was a small company, having but little property and few franchises. The bill further sets forth the directors of the Consolidated Traction Company and the North Jersey Street Railway Company on March 1, 1898, and also the directors of the Consolidated Traction Company on March 22, 1898, and the directors of the North Jersey Street Railway Company on June 26, 1898, and the directors of both companies on November 1, 1899, all of whom are made defendants. That in the month of March, 1898, the directors of the Consolidated Traction Company, to wit:-- Edward F. C. Young, John D. Crimmins, P. A. B. Widener, A. J. Cassatt, Jeremiah O'Rourke, Thomas F. Ryan, A. O. Garretson, William J. Elkins, Elisha B. Gaddis, Thomas Dolan, Almeric H. Paget, David Young, J. Roosevelt Shanley, C. A. Griscom, and George F. Perkins, controlling the majority of the capital stock of said company, knowing the value of its franchises and property and the increasing income of the same, for the purpose of benefiting themselves personally, and diverting the same from the stockholders at large, combined with Bernard M. Shanley and the directors of the North Jersey Street Railway Company, to wit, James J. Corbiere, Wilber S. Johnson, Dudley Farrand, Halsey Barrett, John J. Kehoe, John E. McArthur, William J. Davis, John W. Omberson, James E. Hulshizer, Jr., and Henry M. Doremus, who were agents of the directors of the Consolidated Traction Company, to transfer by means of lease, the Consolidated Traction Company to the North Jersey Street Railway Company. That in pursuance of such scheme, on May 25, 1898, the Consolidated Traction Company executed a lease of its property and franchises to the North Jersey Street Railway Company for 999 years; which lease is appended to and made part of the bill. That the complainants had no notice of this transaction. That the money by which this scheme was carried out was furnished by the proceeds of the sale of $6,500,000 of bonds secured by a mortgage issued by the North Jersey Street Railway Company, the security for which was principally the property and franchises of the Consolidated Traction Company, and the money necessary to pay the interest and the redemption of such bonds arising from the earnings of the Consolidated Traction Company. That Bernard M. Shanley, through whom the transaction was brought about, was made president of the Consolidated Traction Company, and by the terms of the lease was given $10,000 a year. The bill further alleges that the said lease is invalid, unconstitutional and void, and charges fraud and breach of trust on the part of the directors of the Consolidated Traction Company. That application was made to the defendants to redress the wrong, which was refused. And praying that the lease may be set aside and declared null and void, and the property of the Consolidated Traction Company be restored to its stockholders, and that the North Jersey Street Railway Company account for the profits derived from the operation of the franchises and property of the Consolidated Traction Company.

The answer filed by the defendants admits the leasing and the organization of the companies, and states the constituent formation of the Consolidated Traction Company. It denies that the directors had any interest in the North Jersey Street Railway Company, directly or indirectly. And says that the stock of the North Jersey Street Railway Company was lawfully issued for a valid consideration paid to the company, and denies the right of complainants to question the same. That the Consolidated Traction Company employed its entire stock of $15,000,000 and had issued its entire bonds of $15,000,000. That on March 28, 1898, it was further indebted to a list of persons in amounts there given, amounting to $1,007,128.78. That it was in receipt of a large income from traffic, but that additional expenses necessary for extension and general development of the system had exhausted its funds, and the legal limit of its capacity to borrow money had been reached, and some immediate relief had to be had. That the Newark & South Orange Railway Company was a competitor with the Consolidated Traction Company in the railway business in the county of Essex, which company was operated independently and not controlled by the Consolidated Traction Company or individuals composing its board of directors. That the North Jersey Street Railway Company was another competitor, and on March 28, 1898, had an authorized capital of $5,000,000, of which only $325,400 was subscribed. That in the month of April, 1898, its capital was increased to $15,000,000, with authority to issue $15,000,000 of bonds; setting forth its directors. That prior to March 28, 1898, a proposition was made by the North Jersey Street Railway Company, through its president, to lease the franchises and leaseholds of the Consolidated Traction Company for 999 years, naming the directors of the Consolidated Traction Company. That the proposition was submitted by and made under a resolution of the board of directors of the Consolidated Traction Company, on March 28, 1898, to the stockholders; that notice was sent to Samuel T. Dickinson, the complainants' testator, at 239 Washington street, Jersey City, where in his lifetime and at the time of becoming owner of the 100 shares of said company's stock he had an office, and also the date of the meeting advertised in a Jersey City newspaper. That at the stockholders' meeting, 108,333 of shares in interest voted in favor of making the lease, and 26,132 shares in interest voted against the same. That the minority stockholders were led by John D. Crimmins, one of the directors of said corporation, who afterwards assented to said lease. That by virtue thereof the North Jersey Street Railway Company took possession on June 1, 1898, of the property and franchises of the Consolidated Traction Company, and have been operating the same since.

The answer denies fraud or conspiracy, or that any of the directors of the Consolidated Traction Company were interested in a single share of the stock of the North Jersey Street Railway Company, or that the board of directors were the largest stockholders of the Consolidated Traction Company. And says that early in 1898 the board of directors of the North Jersey Street Railway Company, by their agents with the avowed purpose of placing the control of all of said railway systems under one head, began negotiations to purchase the capital stock of the Newark & South Orange Railway Company, and that such proceedings were had in relation thereto that eventually, as part of said plan, the North Jersey Street Railway Company became the owner of all the capital stock of the Newark & South Orange Railway Company, for which it paid the sum of $1,500,000; that it took up the bond issue of $1,525,000 of that road and paid off the floating debt, amounting to $235,000, and paying upwards of $3,250,000 in cash therefor from the money that was realized from the sale of the bonds and stock of the North Jersey Street Railway Company; and that the transaction was completed so that the North Jersey Street Railway Company took possession of the property and franchises of the Newark & South Orange Railway Company on May 25, 1898, six days prior to the time when the North Jersey Street Railway Company took possession of the property and franchises of the Consolidated Traction Company. And charges that the complainants had knowledge of the intention of the North Jersey Street Railway Company to purchase the stock of the Newark & South Orange Railway Company, and that they knew when the same had been purchased, and that the purchase was part of the general plan conceived by the North...