Louisville & N. R. Co. v. Memphis Gaslight Co.

• Decision Date: 21 July 1903
• Docket Number: 1,149.
• Parties: LOUISVILLE & N.R. CO. v. MEMPHIS GASLIGHT CO. et al.
• Court: U.S. Court of Appeals — Sixth Circuit

125 F. 97

LOUISVILLE & N.R. CO. v. MEMPHIS GASLIGHT CO. et al.

No. 1,149.

United States Court of Appeals, Sixth Circuit.

July 21, 1903

John W. Judd, for appellant.

T. K Riddick, for appellees.

Before LURTON, SEVERENS, and RICHARDS, Circuit Judges.

RICHARDS Circuit Judge.

The question involved is whether an unsecured creditor of a gas company is entitled to be paid out of the proceeds of the sale of the plant, in preference to the mortgagees, because it furnished coal and coke used in operating the plant although no receiver was ever asked for or appointed. The bill below was dismissed upon demurrer, and the case comes here by way of appeal from this judgment.

It appears from the bill that the defendant below, the Memphis Gaslight Company, was a quasi public corporation owning and operating a gas plant in Memphis, and charged (so it is alleged) with the duty of making and furnishing gas within that city for public and private purposes. In April, 1873 the company placed a first mortgage upon its plant to secure an issue of $240,000 of bonds, and in July, 1892, a second mortgage to secure an issue of $400,000 of bonds, $240,000 of which were to be reserved until the first mortgage bonds should be paid. During the months of May, November, and December, 1892, and January and February, 1893, the complainant below, the Louisville & Nashville Railroad Company, furnished the gas company coal and coke on an account amounting to $2,808.45, for which a note was given and during the months of March, April, May, June, July, and August, 1893, furnished coal and coke on an account amounting to $3,657.55. On January 27, 1894, the railroad company took a judgment by confession in the state court against the gas company on this note and account for $6,809.90. On March 17, 1894, an execution on this judgment was returned nulla bona, and on April 21, 1894, the railroad company filed its bill in the court below, setting out the above facts, averring, upon information and belief, that more than enough of the current income to pay the complainant's claim had been diverted to the payment of interest and the improvement of the plant within 12 or 18 months preceding, alleging that the trustee under the second mortgage was about to sell the plant and apply the proceeds to the payment of the bonds issued under the two mortgages, and praying that the court declare the preferential character of the complainant's claim, and require the trustee to set aside a sufficient sum from the proceeds of the sale to satisfy its judgment. No receivership existed or was prayed for.

The allegations respecting a diversion of the current income were of the most general nature. The bill averred, upon information and belief, that the gas company had made a considerable amount of money within the past 12 or 18 months, more than enough to pay the complainant's claim, and that much of this money had been used to pay the interest on the bonds and to improve the plant. No details were given.

On May 20, 1899, an amended bill was filed stating that after the filing of the original bill the trustee had sold and conveyed the property of the gas company, and asking such additional relief as might be proper under the changed circumstances.

The appellant relies upon the doctrine announced in Fosdick v. Schall, 99 U.S. 235, 25 L.Ed. 339, in the case of a railroad in the hands of a receiver, and seeks to apply it to a gas plant not in the hands of a receiver, urging that a gas company is a quasi public corporation, charged with the duty of furnishing a public convenience, which should be supplied without interruption, and therefore those who furnish material or labor to keep it in operation should be accorded an equitable lien in preference to mortgagees. In the interest of the public it is insisted the gas plant must be kept 'a going concern,' and therefore those who keep it going should be paid first out of the proceeds of its sale.

In the case of Wood v. Guarantee Trust Company, 128 U.S. 416, 9 Sup.Ct. 131, 32 L.Ed. 472, an attempt was made to apply the doctrine of Fosdick v. Schaee, 99 U.S. 235, 25 L.Ed. 339, to a waterworks company which supplied water to a municipality, and Mr. Justice Lamar, speaking for the court, said (page 421, 128 U.S., page 132, 9 Sup.Ct., 32 L.Ed. 472):

'The doctrine of Fosdick v. Schall has never yet been applied in any case, except that of a railroad. The case lays great emphasis on the consideration that a railroad is a peculiar property, of a public nature, and discharging a great public work. There is a broad distinction between such a case and that of a purely private concern. We do not undertake to decide the question here, but only point it out. There is other ample ground upon which to decide this question.'

This probably still remains true of the Supreme Court, but other federal courts have applied the doctrine to street railway, telephone, and telegraph companies. Manhattan Trust Company v. Sioux City Cable Railway Company (C.C.) 76 F. 658; Central Trust Company v. Clark, 81 F. 269, 26 C.C.A. 397; Keelyn v. Carolina Mutual Telegraph & Telephone Company (C.C.) 90 F. 29; Illinois, etc., Banking Company v. Doud, 105 F. 123, 44 C.C.A. 389, 52 L.R.A. 481; Guaranty Trust Company v. Galveston City Railway Company, 107 F. 311, 46 C.C.A. 305; and other cases.

Obviously, street railroads and telephone and telegraph companies are similar to railroad companies in a sense gas companies are not. A gas company is more like a waterworks company. It is more of a private concern-- a manufacturing enterprise. It supplies a public convenience, but it does not enjoy the same privileges and franchises, nor would its stoppage result in that injury to the public and detriment to the mortgaged security which would flow from the stoppage of a railroad. A gas company is not so dependent upon credit, nor is there usually the same need of a receiver to keep its plant in operation. The present case illustrates this. No receiver was ever prayed for or appointed. The plant was kept in operation by the company until the trustee under the mortgages sold it, and it is now being run by another company.

It is not...