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

• Decision Date: 31 May 1906
• Docket Number: 2,329.
• Citation: 146 F. 337
• Parties: GUARDIAN TRUST CO. v. KANSAS CITY SOUTHERN RY. CO.
• Court: U.S. Court of Appeals — Eighth Circuit

146 F. 337

GUARDIAN TRUST CO. v. KANSAS CITY SOUTHERN RY. CO.

No. 2,329.

United States Court of Appeals, Eighth Circuit.

May 31, 1906

(Syllabus by the Court.)

A federal court sitting in equity may by means of a dependent suit and by the use of injunctions or writs of assistance enforce its decrees and protect titles made thereunder against the re-litigation in state or other courts of issues it has determined and against the litigation of questions of which it has lawfully acquired and retained exclusive jurisdiction.

The pendency in a state or other court of an action in personam which involves no issue of which the federal court has acquired exclusive jurisdiction, no claim to, or lien upon specific property in the possession or under the dominion of a federal court of equity, presents no ground to sustain a dependent bill to stay the action.

The subject of a suit to foreclose a mortgage is the specific property mortgaged. Its object is the subjection of all liens thereon to that of the mortgage and the application of the specific property to the payment of the mortgage debt.

The personal liabilities of the parties and of the purchaser at the sale in such a suit are immaterial save as they condition the accomplishment of this object.

An action against the purchaser at a foreclosure sale upon its alleged liability to pay a debt of the mortgagor founded on the execution of a plan of reorganization under which the purchaser was organized and pursuant to which it bought the property, is not an invasion of the exclusive jurisdiction of the court which rendered the decree, usually reserved, to determine the priority and superiority of other liens to the lien of the mortgage, nor an impeachment of the decree or of the title thereunder, in a case in which the question of the purchaser's liability for such a debt has not been litigated in the foreclosure suit.

Harry S. Mecartney (Jules C. Rosenberger, on the brief), for appellant.

S. W Moore, for appellee.

Before SANBORN, HOOK, and ADAMS, Circuit Judges.

SANBORN Circuit Judge.

This is an appeal from an order which prohibited the defendant below the Guardian Trust Company, from prosecuting two actions at law which it had instituted in the Circuit Court of Jackson County in the state of Missouri against the complainant, the Kansas City Southern Railway Company, to recover a personal judgment against the latter for about $500,000, which the Trust Company claimed that the Kansas City Suburban Belt Railroad Company originally owed it and the Southern Company had assumed and agreed to pay. These alleged facts are disclosed by the record: In 1899 the Kansas City, Pittsburgh & Gulf Railroad Company owned or controlled a line of railroad from Port Arthur in the State of Texas to Belt Junction in Jackson County in the State of Missouri, and the Belt Company owned a line of railroad from that point into Kansas City, so that the two companies controlled a continuous line of railroad from Port Arthur into Kansas City. The railroads of both companies were incumbered by mortgages under which receivers were appointed and foreclosure sales were made by direction of the court below. After a foreclosure suit had been commenced against the Gulf Company and in March, 1900, the Southern Company was incorporated to purchase the properties of the Gulf Company and the Belt Company, pursuant to a plan of reorganization, under which the stockholders of the Gulf Company received a share of stock in the Southern Company for $10 and one share of stock of the Gulf Company and the stockholders of the Belt Company received a share of stock of the Southern Company for each share of stock of the Belt Company, while the unsecured creditors of the latter company received nothing. Under this plan the committee of reorganization was authorized to agree to pay and to pay such unsecured debts of the Belt Company as it selected. At the foreclosure sale of the property of the Gulf Company in March, 1900, the committee caused that property to be purchased and conveyed to the Southern Company, which assumed the obligations of the committee. In September, 1900, four suits to foreclose mortgages upon the property of the Belt Company were commenced. Receivers were appointed, the suits were consolidated, a decree of foreclosure was rendered on November 6, 1900, a sale of the mortgaged property was made there under on January 31, 1901, and was confirmed on January 2, 1902, to the Southern Company. By means of the sale of bonds of the latter company secured upon the property derived from the Gulf Company and from the Belt Company and by the sale of the stock of the Southern Company the committee of reorganization raised and expended a large amount of money and after paying all their expenses turned over to the Southern Company an amount of money far in excess of the aggregate of the unsecured debts of the Belt Company. Each of the decrees of foreclosure contained the usual provisions that the purchaser should pay the costs of foreclosure, the receivers' liabilities and such claims as should be adjudged 'prior in lien or superior in equity to the mortgage foreclosed herein upon the property sold.' that the preferential character of such claims might be litigated in that suit before the master and the court in a manner therein prescribed, and that for the purpose of enforcing the provisions of the decree the court retained jurisdiction.

The trust company under its former name, State Trust Company, commenced a suit in the circuit court of Jackson county to obtain a decree that certain indebtedness of the Gulf Company to it was prior in lien and superior in equity to that of the mortgage foreclosed in the court below and that court properly enjoined its prosecution because the consideration and adjudication of that question was expressly retained within its exclusive jurisdiction. State Trust Co. v. Kansas City, Pittsburgh & Gulf R. Co. (C.C.) 110 F. 10, 16. The trust company was not originally a party to the foreclosure suits against the Belt Company, but upon a motion of the complainant and upon an amendment of its bill to the effect that it was important to have established by judicial decree the fact that the trust company was removed as a trustee under the mortgages sought to be foreclosed, it was made a party. Thereupon it answered and in its answer it set forth the indebtedness of the Belt Company to it, and the reorganization plan whereby the stockholders of the Belt Company became the stockholders of the Southern Company while the unsecured creditors were to receive nothing and the latter company was to become a purchaser of the mortgaged property, and alleged that the effect of this proceeding would be to deprive the unsecured creditors of the Belt Company of its property for the benefit of its stockholders by means of this collusive arrangement between the mortgagor and the mortgagee in violation of the rule announced in Railroad Co. v. Howard, 7 Wall. 392, 394, 409, 415, 19 L.Ed. 117, and Louisville Trust Co. v. Louisville, etc., R. Co., 174 U.S. 674, 683, 19 Sup.Ct. 827, 43 L.Ed. 1130. The court below sustained exceptions to the portions of the answer which set forth these facts and this claim and thereupon the trust company presented an amended and supplemental answer in the consolidated cause which set forth in more detail these alleged facts, reiterated this claim and prayed adequate relief in that suit and it asked leave to file the answer. The court refused this request on condition that the complainant should, as it then did, make and file a written stipulation in the suit, which is embodied in the decree of foreclosure, in these words:

'This decree is entered on the express condition to which the complainant has assented, that it shall be without prejudice to, and shall not bar the right of the Guardian Trust Company, or its receiver, to plead and insist in any litigation now pending or hereafter brought, that the Kansas City Southern Railway Company by virtue of the manner in which it was organized, or for any other reason, is legally or equitably liable for and bound to pay the unsecured debts of the Kansas City Suburban Belt Railroad Company, either in full or to pay them to the extent of the value of any property heretofore acquired by it from the Kansas City Suburban Belt Railroad Company, or that may be hereafter acquired by it from said company by virtue of these foreclosure proceedings, and without prejudice to the right of said Guardian Trust Company or its receiver, to plead and insist, in any pending litigation, or litigation hereafter brought,

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