Investment Registry, Ltd. v. Chicago & M. Elec. R. Co.

• Decision Date: 09 April 1918
• Docket Number: 2521.
• Citation: 251 F. 510
• Parties: INVESTMENT REGISTRY, Limited, v. CHICAGO & M. ELECTRIC R. CO. et al. WESTERN TRUST & SAVINGS BANK et al. v. SAME. FILER & STOWELL CO. v. WESTERN TRUST & SAVINGS BANK et al.
• Court: U.S. Court of Appeals — Seventh Circuit

251 F. 510

INVESTMENT REGISTRY, Limited, v. CHICAGO & M. ELECTRIC R. CO. et al. WESTERN TRUST & SAVINGS BANK et al. v. SAME. FILER & STOWELL CO. v. WESTERN TRUST & SAVINGS BANK et al.

No. 2521.

United States Court of Appeals, Seventh Circuit.

April 9, 1918

George P. Miller and J. Gilbert Hardgrove, both of Milwaukee, Wis for appellant.

Lessing Rosenthal, of Chicago, Ill., for appellees.

The appeal is from an order of the District Court restraining appellant from further prosecution of an action it had commenced in the Wisconsin state court against certain receivers theretofore appointed in the District Court in an action there pending, and vacating an order of the District Court authorizing the state court suit. The District Court suit was a general creditors' bill against the Chicago &amp Milwaukee Electric Railroad Company, filed January 28, 1908 by the Sovereign Bank of Canada, asking for the administration of the assets of that company for the benefit of creditors, the determination of liens, and appointment of receivers, and accordingly on that day receivers were duly appointed, who took possession of all the property of the railroad. The suit in the state court was brought by leave granted appellant by the District Court March 27, 1908, to bring an action in the state court against the receivers, to establish an alleged vendor's lien on certain described real estate theretofore sold by appellant to the railroad company, and which had passed to the receivers by virtue of their appointment. In the petition for leave to sue in the state court it was represented that the petitioner (appellant) had sold the real estate to the railroad company for the sum of $160,000, which amount was unpaid, and that it was entitled to an equitable vendor's lien therefor upon the property it so sold.

The suit in the state court was promptly begun, but shortly thereafter the receivers moved in the District Court for vacation of the leave which had been granted to begin the suit. The motion to vacate was denied, and thereupon the receivers filed their answer in the state court proceeding, wherein it was alleged that the railroad company had fully paid appellant the consideration for the property. Appellant then filed in the state court suit an amended complaint wherein it set up for the first time that in purported payment of the consideration the railroad company had given it $160,000 of its bonds of an issue of $10,000,000 theretofore given by the railroad company and secured by a mortgage upon its property, and it was further alleged that the bonds so received by it were accepted as the result of fraudulent misrepresentations on the part of the railroad company, and it was further alleged that such entire bond issue, including the bonds so turned over to appellant, was void because in transgression of the statute of Wisconsin which made it essential to the validity of corporate bonds that they represent in actual money or property passing to the corporation on account of this issue, not less than 75 per cent. of their par value, and in such amended petition lien was asked not only upon the property conveyed, but upon the entire railroad property then in the possession of the District Court. The receivers and the trustee under the $10,000,000 mortgage filed answers to the amended petition.

In 1908, after the filing of the amended petition in the state court, the Investment Registry, Limited, a Canadian corporation, a holder of others of these bonds, filed its bill in the District Court alleging default in the payment of interest on the bonds, asking foreclosure of the mortgage and praying that the receivership then pending be extended to include the matters which its bill involved. Shortly afterwards there was an order of the District Court consolidating these causes there pending, and in April, 1909, the trustees under the mortgage filed in the District Court their cross-bill in said consolidated action for foreclosure of the mortgage. In December, 1908, appellant began taking depositions in the state court suit, and this continued at intervals till February, 1910, when the receivers presented a petition to the District Court in the alternative, asking for the vacation of the order of March 27, 1908, giving leave to sue in the state court, or enjoining appellant from offering evidence in the state court suit on the question of the validity of the bond issue. It seems this petition was not passed upon, but that later, in April, 1911, the trustees under the mortgage presented their petition to vacate the order giving leave to sue the receiver in the state court, and to enjoin appellant from further prosecuting any suit to establish its lien, elsewhere than in the District Court. This petition was heard in 1913, and was granted March 19, 1917. In the meantime the consolidated...