Du Pont v. Northern Pac. R. Co.

• Decision Date: 21 November 1883
• Citation: 18 F. 467
• Parties: DU PONT v. NORTHERN PAC. R. CO. and others.
• Court: U.S. District Court — Southern District of New York

18 F. 467

DU PONT v. NORTHERN PAC. R. CO. and others.

United States Circuit Court, S.D. New York.

November 21, 1883

John E Parsons and E. Ellery Anderson, for complainant.

George Gray, Joseph H. Choate, and Artemas H. Holmes, for defendants.

WALLACE J.

This suit was commenced in a state court, and an order obtained restraining the defendants from the acts sought to be enjoined until the hearing of an order to show cause why a preliminary injunction should not be granted. The action having been removed to this court, the motion to vacate the restraining order has been heard as a motion, in substance by the plaintiff for a preliminary injunction.

The plaintiff is a stockholder of the corporation defendant having become such on or about the day when he commenced this action. The suit is brought against the corporation and its directors, individually, to obtain a decree adjudging that the corporation has no lawful right or power to create the $20,000,000 of second-mortgage bonds which its directors propose to issue, and to enjoin the defendants from creating the same. The plaintiff also prays in his bill that the defendants be restrained from applying the proceeds of such mortgage, if they are permitted to create the same, to the payment of any indebtedness, or for any purpose other than the construction and completion of the railroad of the corporation. He also prays for a decree against the individual defendants for the value of the stock of the corporation alleged to have been misapplied by them, and of a scrip dividend on the preferred stock of the corporation alleged to have been wrongfully declared by them, and for an accounting and payment of moneys alleged to have been wrongfully appropriated by them for the construction of branch and terminal lines of railroad, and for other purposes not permitted by law.

The bill sets forth with particularity concerning the several alleged misappropriations of corporate funds and property by the directors which are assailed, but, for reasons which will be hereafter stated, it is not deemed necessary, for the purposes of the present decision, to consider them in detail.

Some general facts relative to the history, organization, and present position of the corporation should be stated in order to understand the questions involved in the present controversy. The present corporation is a company reorganized after the foreclosure of a mortgage created and issued by the original Northern Pacific Railroad Company. The original corporation was created by an act of congress passed July 2 1864. The act authorized a continuous railroad between Lake Superior and a point on Puget sound, with a branch through the valley of the Columbia river to Portland, Oregon. The tenth section of the act provided that no mortgage or construction bonds should ever be issued by the company on said road, or mortgage or lien made in any way, except by the consent of the congress of the United States. The act granted to the company, its successors and assigns, for the purpose of aiding in the construction of the railroad, alternate sections of public lands to the amount of 20 sections per mile on each side of said railroad line through the territories of the United States, and 10 alternate sections of land per mile on each side of said railroad line through any state. By a joint resolution of both houses of congress of March 1, 1869, the consent of congress was given to the company to issue its bonds, and secure the same by mortgage upon its railroad and telegraph line, for the purpose of raising funds with which to construct its railroad and telegraph line. This consent was not sufficiently broad, as it did not extend to the franchises of the company, or to the lands other than those necessary for the operation of its road and telegraph line, but by joint resolution of May 31, 1870, it was declared 'that the Northern Pacific Railroad Company be, and hereby is, authorized to issue its bonds to aid in the construction and equipment of its road, and to secure the same by mortgage on its property and rights of property of all descriptions, real, personal, and mixed, including its franchises as a corporation. ' Thereafter the company mortgaged all its property and franchises for $30,000,000. In 1875 this mortgage was foreclosed, and all the property and franchises were sold under a decree...