Farmers' Loan & Trust Co. v. Northern Pac. R. Co.

• Decision Date: 30 September 1893
• Citation: 58 F. 257
• Parties: FARMERS' LOAN & TRUST CO. et al. v. NORTHERN PAC. R. CO., (WISCONSIN CENT. CO. et al., Interveners.)
• Court: U.S. District Court — Eastern District of Wisconsin

58 F. 257

FARMERS' LOAN & TRUST CO. et al. v. NORTHERN PAC. R. CO., (WISCONSIN CENT. CO. et al., Interveners.)

United States Circuit Court, E.D. Wisconsin.

September 30, 1893

Geo. P Miller, for complainants.

L. D Brandeis and Howard Morris, for interveners.

John C Spooner, for the receivers of the Northern Pac. R. Co.

JENKINS Circuit Judge, (orally.)

On the 26th of September an order or decree was entered directing the receivers of the Northern Pacific Railroad Company to surrender the possession of the leased lines to the lessors the Wisconsin Central Company and the Wisconsin Central Railroad Company, based upon the original petition of the lessors of the 18th of August, and their supplemental petition of the 11th of September.

The Wisconsin Central Company and the Wisconsin Central Railroad Company, the lessors, now move the court for a further order or direction upon the footing of the order of September 26th, requiring the receivers to account to and pay to the lessors rental for the leased lines during the time of their occupancy by the receivers, upon the basis of the stipulated rental in the contract.

This application is opposed by the receivers upon two grounds: First, that compensation for use is to be measured either by the net earnings during the period of use or by the value of the use to be ascertained, and not by the stipulated rental of the contract; and, second, that whereas the Northern Pacific Railroad Company has an unadjusted and disputed claim for betterments and otherwise in excess of all previously accrued rentals due from that company to the lessors, which claim is now, under order of the court, before a master for adjustment, any order of payment should be withheld until such adjustment, and the ascertained amount over and above the amount of rentals accrued before the receivership should be allowed to be set off against the amount to be allowed for the use of the leased lines during the possession by the receivers.

That we may readily ascertain the principles of law which apply to and must govern the ruling upon these questions, it is important to accurately understand the relative positions of the parties interested, and the facts upon which the contention rests.

The bill was filed by the Farmers' Loan & Trust Company as trustee for the holders of the bonds issued under various mortgages specified in the bill upon the main and branch lines of the Northern Pacific Road west of St. Paul and Ashland, and also as trustee under the collateral trust indenture of May 1, 1893, by which the floating indebtedness was to be funded upon certain personal securities lodged in trust with the trustee; and by the firm of William C. Sheldon & Co. and P. B. Winston, as stockholders and creditors of the Northern Pacific Railroad Company. The bill was filed in behalf of all other stockholders and creditors of the company who might choose to become parties thereto.

The bill declared that the Northern Pacific Railroad Company constructed and maintained its various lines of railroad, with branches and feeders, from the city of Ashland, Wis., to Tacoma, in the state of Washington, and to Portland, in the state of Oregon. It also asserts the lease from the Wisconsin Central Company and the Wisconsin Central Railroad Company under which the Northern Pacific Company operated the Central lines and the Chicago terminals of the Chicago & Northern Pacific Railroad Company, whereby, says the bill----

'The defendant, the Northern Pacific Railroad Company, has acquired important terminal facilities for freight and passenger traffic in the city of Chicago, and the ownership and control of important belt lines of railroad, furnishing connections with every trunk line entering the city of Chicago, and with the largest and most important industries located in and about that city.'

The bill also informed the court that----

'All of said lines of railroad, telegraph lines, and property have been, and are now being, operated by the defendant as a unit, forming one vast railway system, known as the Northern Pacific System, the maintenance of every part of which is essential to the proper operation of the remainder.'

It also declares to the court its ownership of the stock of the Chicago & Northern Pacific Railroad Company to the extent of $15,100,000, being the majority amount thereof; and that to preserve valuable railway connections and terminal facilities at Chicago, acquired under the lease, and the ownership of the stock, it was essential that the interest on the bonds issued by the Chicago & Northern Pacific road, amounting to $26,180,000, should be promptly paid, the terms of the lease complied with, and that no default in either of said obligations be permitted to occur. It also appeared that the Northern Pacific Company was the owner of at least some three million of the Chicago & Northern Pacific bonds, and of the entire issue, six million, of the Chicago & Calumet Terminal Railway Company's bonds.

The bill further gave the court to understand that----

'The said railroads and property, as now held and controlled by the defendant as aforesaid, form an important trunk line, which constitute one of the most important ingredients of its value, and that its severance would result in a ruinous sacrifice to every interest in the property; and that unless this court, in view of the impending and inevitable defaults as aforesaid, will deal with the property as a single trust fund, and take it into judicial custody for the protection of every interest therein, individual creditors will assert their remedies in different courts in said several counties; that a race of diligence will result, and judgments and priorities will be attempted; that levies and attachments will be laid upon engines and cars of the defendant, which will greatly interfere with and ultimately prevent the defendant from the proper discharge of its duties as a public carrier; that the United States mails will be stopped; that the defendant will be unable to fulfill its charter duties to the government of the United States and to connecting railroads; that commerce between the several states will be interfered with; that communication between many cities, towns, and places which are wholly dependent upon said railroads will be interrupted; that serious and irreparable injury to their trade and commerce and their general prosperity will result; that divers of the lessors of the railroads now operated by the defendant as aforesaid will enforce the re-entry covenants of their leases; that the continued default of the mortgage debts will, by the terms of the various mortgages, produce the immediate maturity of all the bonds secured by the said mortgages; that a vast and unnecessary multiplicity of suits will result, and a most important and valuable property will be dismembered by the clashing decrees of many courts at the suits of separate creditors; that said property may be shielded and preserved as a valuable single trust property by adequate judicial protection, and the sums due and to become due to the defendant's bondholders and creditors secured and ultimately paid in full. But your orators aver that unless such a course is pursued, to wit, the taking of the property into judicial custody, said property will be dismantled, dissipated, and dismembered, and vast sums of money will be lost to the various creditors and stockholders of said company, and the public interests seriously affected. And your orators aver that the unity of the property and its integrity as a whole, as now held and operated, constitute one of the most important elements of its value, and that to permit its severance will result in ruinous sacrifice of every interest in said property.'

It was further charged that 'part of the said Northern Pacific Railroad is located in the district embraced within the jurisdiction of this court.' That, of course, refers to the eastern district of Wisconsin, and could only comprehend the Wisconsin Central lines so leased, no other part of this road lying within this district.

The prayer of the bill asks the court, among other things, to fully administer the trust fund in which the complainants are interested, consisting, says the bill----

'Of the entire railroad system, lands, and assets of the Northern Pacific Railroad, to marshal its assets, ascertain and determine the priority of liens upon each and every part of all the said system of railway. That for the purpose of enforcing the liens and equities of the holders of the demand loans and of the floating debt of the defendant, the preferred stockholders, and of the various bond and lien holders, as well as to preserve the unity of said system as it has been for years maintained and operated, and prevent the disruption thereof by separate executions, attachments, and sequestrations, the occurrence of which will be unavoidable in view of the inevitable defaults in interest which will soon occur, your orator prays that this court will forthwith appoint one or more receivers of the entire system of railroads held and operated by the defendant, and of all the equipments, material, machinery, supplies, moneys, accounts, choses in action, shares of stock, bonds, and assets of every description, and wheresoever situated, belonging to the defendant, and of all said lands and land grants, leasehold contractual rights and property belonging to the defendant, with authority to manage and operate the same; and the officers, managers, superintendents, agents, and employes of the defendant be required forthwith to deliver up the possession of all and singular each and every part of the said property over which the receivers shall be appointed, wherever situated.'

Upon the prayer of the...