Investment Registry v. Chicago & M.E.R. Co.

• Decision Date: 06 June 1913
• Docket Number: 1993.
• Citation: 212 F. 594
• Parties: INVESTMENT REGISTRY, Limited, v. CHICAGO & M.E.R. CO. et al. REYNOLDS et al. v. MOSES.
• Court: U.S. Court of Appeals — Seventh Circuit

212 F. 594

INVESTMENT REGISTRY, Limited, v. CHICAGO & M.E.R. CO. et al.

REYNOLDS et al. v. MOSES.

No. 1993.

United States Court of Appeals, Seventh Circuit.

June 6, 1913

[Copyrighted Material Omitted]

This is an appeal by the Reorganization Committee, which was the sole bidder and became the purchaser at the foreclosure sale of the property of the Chicago & Milwaukee Electric Railroad Company of Illinois, from a decree refusing to confirm the sale and ordering a resale.

Two corporations of the same name had been organized, one under the laws of Illinois, the other, of Wisconsin; their roads constituted a continuous line from Chicago to Milwaukee; and under a lease of the Wisconsin road, the Illinois corporation operated the entire line.

A finding of facts was made by the trial court, as follows:

'The court doth find that said objector, Matilda W. Moses, is now and has since November, 1905, been the owner and holder of 12 bonds of the Chicago & Milwaukee Electric Railroad Company (Illinois corporation), dated July 1, 1902, and maturing July 1, 1922, being part of the issue of $4,000,000 of an authorized issue of $5,000,000 of bonds of said company secured by a deed of trust to said Merchants' Loan & Trust Company, trustee, and described in the decree herein, together with interest coupons attached to said bonds and maturing on and after July 1908; that said bonds of said objector had never been filed by her with any bondholders' protective committee or any reorganization committee of the properties of either of said railroads, but are still in the possession of said objector.

'The court further finds that, after default in the payment of interest due July 1, 1908, upon the bonds of the Chicago & Milwaukee Railroad Company (Wisconsin corporation) on the issue of $10,000,000, certain of the bondholders, owning certain of said bonds, entered into a so-called Bondholders' Protective Agreement, bearing date the 10th day of October, 1908, with John V. Clark and C. B. Shedd, of Chicago, Miller Lash, George A. Somerville, and Robert Cassels of Toronto, Canada, wherein and whereby said persons last named were constituted a committee in the interest of the bondholders of said Wisconsin corporation who might deposit their bonds with certain depositories therein designated, under and pursuant to the terms of said agreement; that subsequent to the organization of said committee, certain of the bondholders of said Wisconsin corporation, deposited with the depositories therein named the bonds owned by them respectively; that the personnel of said committee continued the same until the death of John V. Clark in May, 1911, whereupon, pursuant to the terms of the agreement providing for the filling of vacancies in the membership of said committee resulting from the death of any of the members thereof, Ernest A. Hamill, of Chicago, was made a member of said committee in his place; and that continuously since said time said committee was and is now composed of said Hamill, said Lash, said Shedd, said Somerville, and said Cassels; that, from and after the creation of said committee, said committee was and continued to be represented by Jacob Newman and the firm of Newman, Northrup, Levinson & Becker, of Chicago, and Miller Lash, of Toronto, as their attorneys and counsel.

'The court further finds: That some time in the year 1908, and after the appointment of the receiver herein, a syndicate was organized, named and known as the Chicago & Milwaukee Assisting Syndicate (hereinafter for brevity called the 'Assisting Syndicate'); said syndicate being composed of various banks, bankers, and institutions in the Dominion of Canada, which banks, bankers, and institutions had, in the course of business and before the appointment of the receiver herein, acquired, held, and owned, in the years 1909 and 1910, and previously thereto, a large number of bonds of the Chicago & Milwaukee Electric Railroad Company (the Wisconsin corporation), forming a part of said $10,000,000 issue of bonds, and aggregating between $3,000,000 and $4,000,000 face value, and also a small quantity of the bonds of the Chicago & Milwaukee Electric Railroad Company (the Illinois corporation), forming a part of said $5,000,000 issue of bonds. That some time in the year 1908 a syndicate was likewise organized, named and known as the Chicago & Milwaukee Underwriting Syndicate (hereinafter for brevity called the 'Underwriting Syndicate'); said Underwriting Syndicate being likewise composed of various banks, bankers, and financial institutions in the Dominion of Canada, some of which were the same as composed said Assisting Syndicate, said Underwriting Syndicate having been organized for the purpose of formulating and putting into operation a plan of reorganization of the properties of said Illinois corporation. That some time in the year 1909 said Underwriting Syndicate procured the control, by contract with certain holders residing in Holland and known as the Dutch bondholders, of bonds of said Illinois corporation aggregating 1647 in number of said 1922 issue of bonds, for the purposes of said plan of reorganization of said Underwriting Syndicate, but without such Underwriting Syndicate thereby acquiring any proprietary interest therein or ownership thereof. That said Assisting Syndicate and said Underwriting Syndicate, from and after the time of their organization respectively, were represented by and acted through H. S. Osler, as the counsel of each of said syndicates, said Osler being the same Osler who became a member of the Reorganization Committee hereinafter mentioned.

'The court further finds: That prior to the year 1908 there was organized under the laws of the state of Wisconsin and existing a corporation known as the Milwaukee Electric Railway & Light Company; also, a corporation known as the Milwaukee Light, Heat & Traction Company. That the said Milwaukee Electric Railway & Light Company was then, and thereafter continued to be the owner and operator of lines of electric railroad in, and in the vicinity of, Milwaukee. That the Milwaukee Light, Heat & Traction Company then and thereafter owned and operated, and continued to own and operate interurban lines of electric railroad between the city of Milwaukee and various points outside of said city, including an electric line from the city of Milwaukee to the city of Kenosha, in the state of Wisconsin. That the stocks of said two corporations last named were, at said time, and thereafter continued to be at the times hereinafter mentioned, largely owned and controlled by a holding company known as the North American Company of New Jersey. That John I. Beggs and Charles F. Pfister were at said time, and thereafter continued to be, the sole resident directors in Wisconsin of said North American Company, and that said Beggs, Pfister, Fred Vogel, Jr., and George P. Miller, the attorney of said traction company, were the only resident directors in the state of Wisconsin of said traction company. That at and for some time prior to January 1, 1910, the parties in interest and control of the said North American Company, said traction company, and said railway and light company had planned an extension of said interurban line between Milwaukee and Kenosha so as to ultimately have a continuous line of electric railroad from Milwaukee to the city of Chicago to be used in competition with the interurban lines of the Chicago & Milwaukee Electric Railroad Company (Wisconsin and Illinois corporations). That after the appointment of receivers herein and about January, 1909, the said persons interested in and controlling said line from Milwaukee to Kenosha, acting for and on behalf of said traction company, conceived the plan and scheme of acquiring for said traction company a controlling interest in the Chicago & Milwaukee Electric Railroad Company (the Illinois corporation), through the purchase of a majority or more of the outstanding bonds of said railroad, and of a majority or more of the outstanding bonds of an underlying issue of bonds of $1,080,000 (said underlying issue being a prior lien upon all the properties of said railroad other than said West Line of said railroad and the line from Lake Bluff to Rockefeller, to said $5,000,000 issue of bonds), with a view and for the purpose and object of ultimately bidding in and acquiring by purchase at said foreclosure sale, to be held in this proceeding, the properties, rights and franchises of said Chicago & Milwaukee Electric Railroad Company (the Illinois corporation) and of using said bonds for said purpose, and of connecting up the lines of railroad of the latter corporation with the lines of railroad of said traction company running between Kenosha and Milwaukee, so as to give the latter company a continuous right of way and line between Milwaukee and Chicago. That pursuant to said plan and scheme, and with the object aforesaid, the said traction company, through its officers and agents, secretly and without disclosing their identity or their object and purpose, proceeded to and did buy from various holders thereof in the open market bonds of said Chicago & Milwaukee Electric Railroad Company (Illinois corporation), being a part of said Illinois issue of bonds, and had, in the latter part of 1910, acquired by purchase, and then owned, bonds of said issue aggregating at par approximately $300,000, and bonds of said underlying issue aggregating approximately $520,000 par value, and that said purchases were made by said traction company with its own funds.

'The court further finds that in the month of December, 1910, certain of the officials in control of said North American Company and said traction company found fault with the said purchases of said bonds, and

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