Mackintosh v. Flint & P.M.R. Co.

• Decision Date: 22 March 1888
• Citation: 34 F. 582
• Parties: MACKINTOSH et al. v. FLINT & P.M.R. CO. et al. PARKER et al. v. SAME.
• Court: U.S. District Court — Eastern District of Michigan

34 F. 582

MACKINTOSH et al. v. FLINT & P.M.R. CO. et al.

PARKER et al. v. SAME.

United States Circuit Court, E.D. Michigan.

March 22, 1888

J Lewis Stackpole, Alfred Russell, and Henry S. Dewey, for complainants.

William L. Webber and Henry M. Campbell, for respondents.

JACKSON J.

The above-entitled causes were heard together. The first is filed by complainants on behalf of themselves and other holders of provisional certificates, as hereinafter explained, to compel the Flint & Pere Marquette Railroad Company and its directory to recognize them in full as stockholders in said company and to issue to them regular certificates of stock therein, such as will give them the rights of actual stockholders in said corporation, entitle them to vote and exercise a voice in the management of its affairs, from which they claim to be at present unjustly and improperly excluded. The second bill is filed by substantially the same parties, asserting the same right, and seeking to enjoin and restrain the Flint & Pere Marquette Railroad Company, in which they claim the right to be admitted as actual stockholders, from purchasing or leasing the Port Huron & Northwestern Railway Company, on the grounds that such leasing or purchase would be injurious to their interests, and unwarranted by law. The questions presented by this second bill, or, rather raised by the motion for preliminary injunction thereunder, depend to a greater or less extent upon the conclusion which the court may reach as to whether complainants, and those standing with them in the same position with them, are entitled to be treated and regarded as present stockholders in the Flint & Pere Marquette Railroad Company. It will, therefore, be most proper first to consider the matter involved in the first of the above suits, and to determine the relations which complainants bear to, and the rights which they may justly assert in, the Flint & Pere Marquette Railroad Company.

The material facts of this case, as disclosed by the bill answer, exhibits, and proofs, are these: The Flint & Pere Marquette Railway Company, a corporation existing under the general railroad laws of Michigan, in 1872, executed to W. W. Crapo, Andrew G. Pierce, and Publius V. Rogers, as trustees, its consolidated trust deed or mortgage upon its franchises and property of every description, (except certain land grants derived from the United States through the state of Michigan, which had been previously conveyed in special parcels, and by separate trusts to secure certain bonds of the company,) for the purpose of securing the payment of an issue of bonds, as provided for therein, to the amount of $6,657,000, to be known and designated as 'Consolidated Bonds' of said railway company. Between four and five millions of these consolidated bonds were actually issued, on which the company made default in the payment of the interest thereon; and in June, 1879, said trustees filed their bill in the United States circuit court for the Eastern district of Michigan, at Detroit, for the foreclosure of said consolidated trust deed and mortgage by a sale of the property and franchises covered thereby. Shortly before the commencement of this suit, Jesse Hoyt, as president, and H. C. Potter, as secretary, of said railway company, issued a circular to the stockholders and others interested, notifying them that foreclosure proceedings were about to be instituted, explaining the situation of the company affairs and informing them 'that a plan for purchase and reorganization will be prepared by a committee of the consolidated bondholders at an early day. ' Such committee, composed of H. A. V. Post, as chairman, Francis Hathaway, A. G. Brower, H. H. Fish, and Loum Snow, Jr., was appointed by the bondholders about the time of, or soon after, the institution of the foreclosure proceedings. This committee issued the reorganization scheme made Exhibit A to the bill of complainants, which, so far as need be noticed, was as follows: '(3) The new company to issue reorganized first mortgage six per cent. bonds, having thirty years to run, and redeemable, at the pleasure of the new company, at par and accrued interest. This mortgage to be used only to fund the past due and maturing interest on the prior bonds, and for such permanent construction and improvement as may be deemed desirable by that board of directors of the new company. (4) Preferred seven per cent. stock shall be issued, sufficient in amount to represent the par value of the outstanding consolidated bonds and the past due coupons to May 1, 1879, inclusive. This preferred stock shall always be entitled to one vote for each and every share. Payment of dividends of seven per cent., or any part thereof, on this preferred stock, will be contingent on the net earnings of the company, and without accumulation. (5) Common stock shall be issued, sufficient in amount to represent the outstanding common stock of the old Flint & Pere Marquette R.R. Co., and this stock shall not be entitled to vote until the new company shall have earned and paid, for five successive years, seven per cent. annual dividends on the preferred stock. (6) The preferred and common stock of the new company will be issued to the purchasing committee, who will deliver, or cause to be delivered, to the representatives, for the time being, of the holders of the eight per cent. consolidated bonds, and of the holders of the common stock of the old company, who may join in this scheme of reorganization, the amount pro rata to which they are entitled, as near as may be, and the purchasing committee will dispose of fractions for the benefit of the parties entitled thereto, in such manner as they may deem most expedient and equitable. (7) The benefit of these proceedings shall accrue only to those who shall deposit their securities and common stock with this committee within the time limited by them; it being understood that they may extend the same from time to time, as seems to them proper for the interests of all concerned. (8) The purchasing committee will issue certificates and stock that they may be entitled to.' '(12) The general principles in this scheme, and the order of priority, and the respective amounts of these organization securities and stocks, being substantially maintained, the purchasing committee may change this scheme to meet any exigencies that may arise.'

The defendants in their answer deny that this was the scheme actually adopted by the committee, and insist that the bondholders in fact agreed upon another and different plan which did not contain any recognition, or make any provision for the common stockholders of the railway company. While there is some conflict in that testimony on this point, the decided weight of the evidence establishes to the satisfaction of the court that the reorganization scheme, as set out above in Exhibit A, was the one which the committee adopted, recognized, and acted upon. It was under this scheme that the consolidated bonds and stock certificates of the Flint & Pere Marquette Company were delivered by the holders thereof to the depositaries designated by the committee, and authorized to receive and receipt for the same. While the committee were engaged in getting the stock and consolidated bonds deposited under this reorganization scheme, and pending the foreclosure proceedings in the circuit court, the Flint & Pere Marquette Railway Company, the only defendant therein, by a conveyance, bearing date August 23, 1879, surrendered to W. W. Crapo and Oliver Prescott, trustees under the several land-grant mortgages, its equity of redemption, and all its right, title, and interest in the surplus lands and land funds then held or thereafter received by said trustees, after satisfying and discharging prior trusts, as an additional security for the payment of said consolidated bonds. This conveyance contained a general declaration of trust, and provided that, after satisfying the prior land-grant mortgages, the balance of said lands and the surplus of funds thence arising and held by said trustees, Crapo and Prescott, should be accounted for, and be by them transferred to the trustees of said consolidated mortgage or trust deed, so that such surplus funds and lands would inure to the benefit of said consolidated bonds, and become a part of the security for their payment. This conveyance and declaration of trust by the Flint & Pere Marquette Railway Company, made with the consent of the stockholders of said company, as the court must assume or presume, brought within the operation of the consolidated mortgage, then being enforced, the surplus lands and land funds held by Prescott and Crapo as trustees, after discharging prior liens, and gave the consolidated bondholders the benefit of an additional security worth several millions of dollars. Whether the general scheme or reorganization adopted by the committee formed the consideration or inducement for this large and valuable addition to the security of the consolidated bonds does not distinctly appear, but it is a fair and reasonable inference that the stockholders of the railway company then in default, and then being proceeded against, would not have consented to place their surplus land and land funds under the operation of the consolidated mortgage, at that time, without some well-founded expectation of being admitted into the new company that might be organized upon the ruins of the old. After the execution of this trust conveyance of August 23, 1879, a supplemental bill was filed immediately in said foreclosure proceeding by the trustees under both the consolidated and the land-grant mortgages, for the purpose of bringing this additional security under the decree of sale. Such proceedings were thereafter...