Johnson v. Manhattan Ry. Co.

• Citation: 61 F.2d 934
• Decision Date: 07 December 1932
• Docket Number: No. 203.,203.
• Parties: JOHNSON et al. v. MANHATTAN RY. CO. et al.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

61 F.2d 934 (1932)

JOHNSON et al. v. MANHATTAN RY. CO. et al.

No. 203.

Circuit Court of Appeals, Second Circuit.

December 7, 1932.

Breed, Abbott & Morgan, of New York City (Charles H. Tuttle, Paris S. Russell, and W. K. Petigrue, all of New York City, of counsel), for American Brake Shoe & Foundry Co.

Hornblower, Miller, Miller & Boston, of New York City (Nathan L. Miller, W. W. Miller, Carl M. Owen, and Harold J. Gallagher, all of New York City, of counsel), for Dowling and others, receivers.

Charles Franklin, of New York City (Herbert Goldmark and Leonard H. Goldenson, both of New York City, of counsel), for Benjamin F. Johnson.

Boehm & Zeiger, of New York City (Louis Boehm, Samuel Zeiger, David Rasch, and Harry M. Edelstein, all of New York City, on the brief), for Lillian Boehm.

James L. Quackenbush, of New York City, for Interborough Rapid-Transit Co.

Dills, Muecke & Schelker, of New York City (Duane R. Dills and Walter G. Schelker, Jr., both of New York City, of counsel), for Manhattan Ry. Co.

Hughes, Schurman & Dwight, of New York City (Charles E. Hughes, Jr., and Allen S. Hubbard, both of New York City, of counsel), for William Roberts, receiver for Manhattan Ry. Co.

Davis, Polk, Wardwell, Gardiner & Reed, of New York City (John W. Davis and Edwin S. S. Sunderland, both of New York City, of counsel), for Committee Acting for Interborough 7 Per Cent. Secured Notes, etc.

Root, Clark & Buckner, of New York City (Elihu Root, Jr., Lloyd Paul Stryker, and Cloyd Laporte, all of New York City, of counsel), for Committee for Protection of Holders of Ten-Year 6 Per Cent. Gold Notes.

Davies, Auerbach & Cornell, of New York City (Edward Cornell and H. C. McCollom, both of New York City, of counsel), for Central Hanover Bank & Trust Co.

Before L. HAND, SWAN, and CHASE, Circuit Judges.

L. HAND, Circuit Judge.

The appeals in question are from three decrees in the suit at bar; the first giving leave to the plaintiff, Johnson, to sue receivers of the Manhattan Railway Company and the Interborough Railway Company appointed in another suit entitled American Brake Shoe Company v. Interborough Rapid Transit Company; the second, declaring void all decrees entered in that suit up to the time when the decree appealed from was entered, October 18th, 1932; the third, consolidating the two suits, 1 F. Supp. 809.

On August 25, 1932, the attorney for the Interborough Rapid Transit Company verified an affidavit in a suit, not yet begun, entitled American Brake Shoe Company v. Interborough Rapid Transit Company, alleging that in his judgment it would be undesirable to have a trust company appointed receiver in the cause and giving his reasons. Whether this was acted upon by the Senior Circuit Judge for the Second Circuit does not appear in the record; but it was filed the next day in the District Court. On the twenty-fifth the Senior Circuit Judge signed an order declaring that the public interest required the designation of a Circuit Judge to hold a District Court within the circuit, and designating himself to hold such a court beginning on that day, particularly to hear all questions arising in the American Brake Shoe Company suit. There was already an order of the same judge, dating from 1930, which designated him generally to hold terms of the District Court for the Southern District of New York without limitation of time. On the twenty-fifth the same judge signed another order, declaring that as a judge designated to hold the District Court, he did not assent to the existing distribution by the District Judges of the business of that court, and that, as Senior Circuit Judge, he directed that for thirty days applications for the appointment of receivers might be made to him. This was because of a rule of the District Court then existing, quoted in the margin.¹ These two orders were filed on August twenty-sixth, and on the same day the bill of the American Brake Shoe Company against the Interborough Rapid Transit Company. This in substance alleged that the plaintiff was a simple creditor of the defendant for supplies, and that it sued on behalf of itself and all others who might join. Further, that the defendant was operating a system of subways in the city of New York, under contracts with the city, and a system of elevated street railways, as lessee of the Manhattan Street Railway Company. It was in large default as to its taxes; it had issued three series of funded obligations, two of them secured; it was liable upon an issue of Manhattan Railway bonds, and for certain rentals to the Manhattan shareholders; it was in controversy with the city as asset items of their mutual accounts; it had a floating indebtedness of two and a half millions. While its assets "at a fair valuation exceed the amount of its liabilities," it was unable to meet its debts then due, together with those soon to fall due, and was exposed to a default upon a mortgage upon all its assets. If left to dismemberment by execution upon the claims of its creditors, it could not continue to perform its public duties, and there would result "wasteful strife and controversy," which could be prevented only in case the assets were sequestered by a court of equity for "equitable distribution among those entitled thereto." To this end it prayed that the court appoint receivers and enjoin all suits against it. The defendant appeared on the same day and consented to such a decree, and the Circuit Judge appointed receivers. The jurisdiction of the District Court over this cause of action depended upon the diversity of citizenship of the parties.

Thereafter various committees for the protection of different groups of creditors were allowed to become parties, and on September sixth, the Manhattan Railway Company, on its own petition alleging its similar financial embarrassment, also intervened, and a separate receiver was appointed for it at its request. The decree of August twenty-sixth was ex parte, except for the defendant's consent, and contained a rule nisi, returnable on September twenty-second, that "the parties" show cause why the receivership should not be continued pendente lite, "and upon the hearing any other creditor, the defendant or other party in interest may be heard." So far as appears no one objected upon the return day, and the receivership was made permanent by decree entered September twenty-eighth. A large number of other interlocutory decrees were passed by the Circuit Judge before the entry of the decree in the suit at bar of October eighteenth, which vacated them all; but their contents are not important here.

Meanwhile on September twenty-first Benjamin F. Johnson, a citizen of Kentucky and a minority shareholder of the Manhattan Railway Company, filed the bill at bar in the District Court against that company and its receiver, the Interborough Rapid Transit Company and its receivers, the city of New York, and the American Brake Shoe Company. This was on behalf of himself and all other shareholders who might join, and was preceded by an order on Johnson's petition, giving him leave to sue the receivers appointed in the American Brake Shoe Company suit, granted by the District Judge then holding the motion part of that court, under the division of business agreed upon by all the regular District Judges of the Southern District of New York. Johnson's bill alleged that the American Brake Shoe Company's suit was beyond the jurisdiction of the Circuit Judge, and that all the decrees passed by him were void. This because the District Judges had provided for the division of business between them, and had promulgated two rules to that intent, of which one has been already quoted, and the other is to be found in the margin.² These it asserted forbade the action of the Circuit Judge, he not having been designated by the Senior District Judge under Rule 1-a, and not holding the motion term when he appointed the receivers, as required by Rule 11-a. On the merits, the bill set up a cause of suit by the Manhattan Company against the Interborough Rapid Transit Company upon certain claims, and a right to an accounting. It prayed the appointment of receivers and general relief.

On the same day, September twenty-first, Lillian Boehm was given leave by the District Judge holding the motion part, to intervene in Johnson's suit, which she did; she was a citizen of New York, and a shareholder of the Manhattan Railway Company; she was also a creditor of the Interborough Rapid Transit Company. On October third, she filed a supplemental bill, based upon the same general grounds as the American Brake Shoe Company's bill, except that she added that the proceedings in that suit were void, and asked as a preliminary to the appointment of receivers that those appointed by the Circuit Judge be vacated. Johnson also filed a petition supplemental to his original bill, not important to the controversy. A number of other interested parties intervened, but their presence does not affect the issues.

On the bills and two supporting petitions Johnson and Boehm procured rules nisi from the District Judge holding the motion term, returnable on October fourth, that the orders of the Circuit Judge of August twenty-fifth, designating himself to hold a District Court, and giving him power to appoint receivers, should be vacated; also, his decree appointing receivers on August twenty-sixth, and his decree of September twenty-eighth, making them permanent, pendente lite. The petitions also prayed the appointment of other receivers and general relief. After a hearing upon the return day at which the parties to the American Brake Shoe Company bill appeared, the District Judge holding the motion term, by decree dated October eighteenth vacated all the decrees of the Circuit Judge in the American Brake Shoe Company suit. 1 F. Supp. 809. He refused to vacate the order of designation, and the order giving the Circuit Judge power to appoint receivers; and he also refused to...