Guardian Trust Co. v. Kansas City Southern Ry. Co., 7784.

CourtUnited States Courts of Appeals. United States Court of Appeals (8th Circuit)
Citation28 F.2d 233
Docket NumberNo. 7784.,7784.
Decision Date18 October 1928

Justin D. Bowersock, of Kansas City, Mo. (Harry S. Mecartney, of Chicago, Ill., on the brief), for appellant.

S. W. Moore, of New York City, and A. F. Smith, of Kansas City, Mo. (F. H. Moore and Cyrus Crane, both of Kansas City, Mo., on the brief), for appellee.

Before WALTER H. SANBORN and BOOTH, Circuit Judges, and MUNGER, District Judge.

BOOTH, Circuit Judge.

This is an appeal from a decree which granted to appellant (defendant below) relief as to principal matters involved, but failed to allow as costs a certain class of items to which appellant claimed to be entitled, but which the court held it had no authority to allow. The assignments of error all relate to the failure of the court to allow these costs as claimed by the appellant. For brevity, the Guardian Trust Company will be called Trust Company, and the Kansas City Southern Railway Company the Southern Company.

The litigation out of which these costs arose was commenced against appellant in September, 1900, and has continued to the present time. The history and details of the litigation may be gathered from the opinions reported in (C. C. A.) 146 F. 337; (C. C. A.) 171 F. 43; (C. C. A.) 201 F. 811; (C. C. A.) 210 F. 696; 240 U. S. 166, 36 S. Ct. 334, 60 L. Ed. 579. See, also, Guardian Trust Co. v. Shedd, 240 F. 689; Mecartney v. Guardian Trust Co. (C. C. A.) 280 F. 64. The character of the litigation will be presently stated.

This court, by its decree of December 2, 1913 (210 F. 696), reversed the decree of the trial court on the merits of the case, and directed that court to render a decree for the Trust Company in accord with the views expressed in the opinion of this court. In the opinion it was stated that application had been made to this court by certain stockholders of the Trust Company to direct the court below to find the amount of attorney's fees, expert accountant's fees, and stenographer's fees incurred by the Trust Company in the litigation, and to render a decree therefor in favor of the Trust Company. In reference to that application this court said:

"A deliberate consideration of this petition and of the exhaustive arguments of counsel have, however, persuaded that inasmuch as the questions suggested came for the first time into this suit at the rehearing in this court, as no evidence has been taken relative to them, and as the evidence upon the issues tried in this case was not brought to this court, it would be unwise and might be unjust to adjudicate the questions presented by the petition of these stockholders. Moreover, as this court cannot rightly determine the questions relating to the costs to be taxed at this time, as there are established rules of practice concerning them, and as directions to the court below to open and try new issues might, and probably would, prolong this litigation through several years more, our conclusion is that our just course is to leave the taxation of costs to the court below under the principles, rules, and practice in equity." 210 F. 696, 723.

The decree of December 2, 1913, was affirmed by the Supreme Court (240 U. S. 166, 36 S. Ct. 334, 60 L. Ed. 579), and the mandate of that court carried the case back direct to the trial court.

Thereafter a motion was made in the trial court that a final decree be entered, and that costs and expenses of the litigation be allowed and adjudged in favor of the Trust Company. The Trust Company prayed that costs be taxed in its favor "as between solicitor and client." The appellee, Southern Company, insisted that the costs be limited to such as were taxable "between party and party." After considering the matter the court filed a memorandum, in which it was held:

"The right to tax costs as between solicitor and client depends upon one, or both, of two theories recognized in the law:

"First. Where gross charges of fraud and misconduct have been made and not sustained, and where the main ground of the suit is shown to be false, unjust, vexatious, wanton or oppressive. In other words, where charges amounting to scandal and a misuse of the courts are made and not sustained, but found to be baseless and unwarrantable.

"Second. Where a fiduciary relation exists between the parties, such as trustee and cestui que trust, or pledgor and pledgee, or principal and agent, and where the fiduciary is put to expense in the defense of an unfounded suit brought against him by such cestui que trust, or pledgor or principal, especially where charges of gross fraud and misconduct have been made against a fiduciary and have been found baseless and unwarrantable."

The court further held that costs "as between solicitor and client" might properly be taxed in the instant suit under the second theory. Thereupon a special master was appointed "* * * to ascertain, take, and state an itemized account of all cost and expenses paid or incurred by the Guardian Trust Company or its various receivers for and on account of court costs and other expenses incurred by said Trust Company and its receivers in and about its resistance of and defense against this litigation, and in defending against the various original and dependent bills and petitions filed herein against the Guardian Trust Company or its receiver, by or at the instance of Kansas City Southern Railway Company, Cambria Steel Company, Kansas City Suburban Belt Railroad Company, or its receivers, or its subsidiary companies, or their receivers, parties to this cause, and in defending, maintaining, protecting, and preserving therein the right, equity, title, and lien of the Guardian Trust Company of its receivers as pledgee of the property described in paragraph V of the former decree of June, 1910, or in the property of any corporation whose stock was so held in such pledge, and the right to dispose of and realize upon said pledged property in accordance with the terms of the pledges under which said property was pledged, including, among other expenses, those for attorney's fees, counsel or solicitors' fees, stenographers' fees, expert accountants' fees, printing fees, traveling expenses, and other expenses incurred in the premises."

On September 15, 1924, the special master filed his report, wherein he set out at length the items of expense incurred by the Trust Company in the litigation, and specified those which he allowed and those which he disallowed. Fourteen exceptions to this report were filed by the Trust Company; 39 were filed by the Southern Company. On March 23, 1926, the trial court filed a memorandum, in which it was stated that upon fuller investigation the court was forced to revise its former views, and that it now held that no costs were allowable to the Trust Company "as between solicitor and client." Final decree was accordingly entered May 15, 1926, in which costs were allowed to the Trust Company only as "between party and party." The present appeal followed.

The Character of the Litigation.

In any inquiry whether costs "as between solicitor and client" should be allowed a litigant in an equity suit, the character of the litigation is one of the main determining factors. It becomes necessary, therefore, in the instant suit to examine into the character of the litigation.

The bill filed by the Cambria Steel Company (hereafter called the Cambria Company) September 6, 1900, against the Kansas City Suburban Belt Railroad Company (hereafter called the Belt Company) and various other corporations, including the Guardian Trust Company, purported to be a creditor's bill against the Belt Company. In addition to the usual allegations, however, the bill alleged that the Trust Company had caused the incorporation of the constituent companies which afterward became the Belt Company, and absolutely dominated and controlled their affairs; that it had caused several other corporations to be formed for the purpose of building railroads, caused them to issue bonds to pay for the same, and completely dominated their affairs; that the Trust Company had caused the stocks and bonds of these various companies to be delivered to it, had sold the same, and had applied the excess of the proceeds over the cost of the railroads in the payment to itself of commissions and for services; that the Trust Company had assumed the position of trustee and agent in managing and disposing of these stocks and bonds, and had failed and refused to make an accounting therefor; that the Trust Company by reason of these transactions was owing the Belt Company a large amount of money.

The bill alleged further that the Trust Company had caused the legal title to properties necessary to be used by the railroad companies, including the Belt Company, to be placed in certain "dummy" companies with the fraudulent intent and purpose of preventing the properties being reached by the creditors of the railroad companies; that the Trust Company caused the Belt Company to enter into a pretended contract for the building of a certain link of railroad, which resulted in a loss of several hundred thousand dollars; that the contract for the construction in reality belonged to the Trust Company, and the resulting loss was its loss; that the Trust Company had charged up the loss to the Belt Company and was claiming the same as a liability in its favor against the Belt Company; that this action by the Trust Company was fraudulent in fact and in law; that the Trust Company had caused the Belt Company to transfer to it bonds, stocks, and other property as collateral for various pretended claims which it fraudulently asserted to exist in its favor against the Belt Company; that the Trust Company fraudulently caused pretended notes to be given to it by the Belt Company as representing debts owing to it by the Belt Company; that the Trust Company had fraudulently appropriated to...

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