Hamlin v. Toledo, St. L. & K.C.R. Co.

• Decision Date: 02 February 1897
• Docket Number: 430.
• Parties: HAMLIN et al. v. TOLEDO, ST. L. & K.C.R. CO. et al.
• Court: U.S. Court of Appeals — Sixth Circuit

78 F. 664

HAMLIN et al. v. TOLEDO, ST. L. & K.C.R. CO. et al.

No. 430.

United States Court of Appeals, Sixth Circuit.

February 2, 1897

The Toledo, St. Louis & Kansas City Railroad Company is an insolvent railroad corporation. In May, 1883, certain unsecured creditors filed a bill in the circuit court of the United States, at Cleveland, Ohio, for the purpose of winding it up and distributing all of its assets justly among its creditors. This first bill was a general insolvent bill, and was professedly filed for the benefit of all creditors secured and unsecured. A number of other general creditors subsequently joined the original complainants, and were admitted as complainants. Under that bill a receiver was appointed by the circuit court, who took possession of the railroad within the state of Ohio, and engaged in the operation of the same, pending the sale which it was the object of the suit to bring about. Like bills, ancillary in character, were filed by the same complainants within other jurisdictions, and the same receiver was appointed within each jurisdiction. Neither the holders of bonds nor their trustees were made parties to that bill. Subsequently however, the Continental Trust Company and John M. Butler claiming to be trustees under a mortgage made by the said company to secure an issue of some $9,000,000 of first mortgage bonds, filed their original bill in the same circuit court for the purpose of foreclosing said mortgage. The creditors who had filed the original insolvent bill, and such others as had made themselves parties thereto, were made defendants. By leave of the court, Samuel R. Callaway, the receiver in possession on the railroad by appointment under the original creditors' bill, was also made a defendant. This bill was filed December 13, 1893. Thereupon the said Callaway was appointed receiver under this second bill, and an order made consolidating the two suits and ordering that they proceed under the style of 'The Continental Trust Company et al. v. The Toledo, St. Louis & Kansas City Railroad Company et al.' 72 F. 92. After answers had been filed by the company and by the general creditors who had been made parties, but before any decree adjudicating any claim or ordering foreclosure, the appellants presented an application to the court to be allowed to become parties defendant, with leave to file an answer and cross bill. This application was granted, and leave given to file the answer and cross bill accompanying the petition, subject, however, to the right of the complainants to move the court to strike them from the files, or to modify same by striking out every averment putting in issue the validity of, or consideration for, the mortgage bonds secured under the said mortgage. This reservation, as shown by an opinion filed with the record by the district judge, was due to the fact that the mortgagee complainants had not fully examined the said answer and cross bill, and desired time to do so. Complainants availed themselves of this leave thus granted, and subsequently gave notice that on the 26th of October, 1895, they would move the court to strike from the files the answer and cross bill theretofore filed, or move the court to modify said answer and cross bill by striking therefrom every averment raising an issue as to the validity of the mortgage bonds, or the consideration upon which they had been issued. The appellants were also notified that these motions would be supported by certain affidavits filed in their support, were taken under advisement until February 21, 1896, when an opinion was placed on the files denying the claim of appellants to be creditors of said railroad company, or that, as preferred stockholders, they had any lien valid as against creditors, or any right or interest in or to the property of said company antagonistic to the corporation or to the class of common stockholders. Instead, however, of directing the pleadings to be taken from the files or amended, an order was entered, as on motion of complainants' solicitors, denying appellants the right to intervene or file an answer or other pleading. This decree was not finally entered until May 14, 1896, and from it an appeal was prayed and allowed. At the June session of the last term of this court, a motion was made to dismiss this appeal, which, without an opinion, was overruled. The case is now before us for decision of the questions raised by the errors assigned by complainants upon the decree.

John H. Doyle and Benjamin Harrison, for appellants.

E. C. Henderson and C. N. Fairbanks, for appellees.

Before TAFT and LURTON, Circuit Judges, and SAGE, District Judge.

LURTON Circuit Judge, after stating the facts as above, .

The allowance or denial of the application of a stranger to be admitted as a party defendant to a pending suit in equity rests in the sound discretion of the chancellor. The denial of such an application is not such a final decree as is the subject of appeal, under section 692 of the Revised Statutes. Such an application is a mere motion in the case, made by one not a party, and is not of itself an independent suit in equity, appealable here. Ex parte Cutting, 94 U.S. 14; Toler v. Railway Co., 67 F. 168; Lewis v. Railroad Co., 10 C.C.A. 446, 62 F. 218. It follows, therefore, that if no other order had been made in reference to the application of appellants to become parties than that of May 14, 1896, no appeal would lie, and the motion to dismiss should have been sustained. But that is not the situation. The order of October 19, 1895, when properly construed, made the appellants parties defendant, with the right to answer and file a cross bill. The reservation of a right to require that the answer should present only pertinent and material defenses was an unnecessary precaution, inasmuch as it is always the duty of a chancellor, upon proper exception taken, or at the hearing, to see that nothing shall be suffered to remain in an answer which is not called for by the bill, nor material to the defense. Beach, Mod. Eq. Prac. Sec. 408. Such a reservation did not suspend the application of the petitioners, nor leave their motion to become parties undecided. The reason given for this reservation in an opinion filed by the court August 5, 1895, was that the complainants had not had an opportunity of examining the answer. If the court had continued the motion until the pleadings had been examined, and then denied leave to intervene because the answer made out no substantial defense, the denial would not have been ground for an appeal. But this was not what was done. The motion to be allowed to become parties defendant was not held in suspense or continued, but was decided and granted. From the date of that order they were treated by appellees and by the court as parties, and were from that time affected by any decree made in the cause. The reservation of a right to determine, on motion of complainants, if they saw fit to make such motion, how far the answer and cross bill so filed contained matter pertinent to the character of the suit, did not operate as a suspension of the motion to be admitted as parties, or give the court any right to summarily dismiss them as parties. The notice given by complainants under the reservation referred to involved a recognition that appellants were parties, and was a concession in that regard. The questions to arise on that motion concerned the pertinency of the answer and cross bill, and it was error in the court to involve that question with a trial of issues of fact or law dependent upon ex parte affidavits. The questions arising upon these motions so set down upon formal notice for October 26, 1895, were not decided by the court until February 21, 1896. 72 F. 92. At that time an opinion was filed upon the merits of the claims asserted in the answer and cross bill, holding that appellants were neither secured nor unsecured creditors, and that, as preferred stockholders, they had no interest which was not represented by the corporation.

The decree then entered, when construed in connection with the decree admitting appellants as parties, should be interpreted as one denying appellants any relief, upon the ground that neither their intervening petition nor their answer and cross bill showed any such interest in the subject-matter of the case as entitled them to maintain their cross bill, or present any issues or set up any rights by answer. This is the construction we placed on the decree at the former term and, thus construed, the decree was one upon the merits, and appealable as a final decree. If this view of the rights and interests of these appellants had been taken before they were admitted as parties, and if, as a consequence of such opinion, the court had refused leave to intervene as parties defendant, no appeal would have been permissible. Appellants could have asserted their rights through an original bill, and would not have been concluded by the refusal of the court to allow the assertion of such rights in a cause to which they were not parties. But if, as in this case, the court concludes, upon inspection of an answer or a cross bill filed by one already a party to the cause, that the pleadings are impertinent and show no substantial defense, or no interest which would justify affirmative relief, and for this cause dismisses the pleading and the party from the cause, the action of the court is subject to review. The distinction is material, and is the point upon which we denied the motion to dismiss this appeal. The general rule as to an answer is that nothing should be suffered to remain in it which is neither called for by the bill nor material to the defense. Beach, Mod. Eq. Prac. Sec. 408; Woods v. Morrell, 1 Johns.Ch. 105; Stafford v. Brown, 4...