Mannington v. Hocking Valley Ry. Co.

• Decision Date: 13 June 1910
• Citation: 183 F. 133
• Parties: MANNINGTON et al. v. HOCKING VALLEY RY. CO. et al.
• Court: U.S. District Court — Southern District of Ohio

183 F. 133

MANNINGTON et al. v. HOCKING VALLEY RY. CO. et al.

United States Circuit Court, S.D. Ohio, Eastern Division.

June 13, 1910

August 3, 1910.

(No 1,527. [Copyrighted Material Omitted]

After the removal of a cause, the federal court has authority to hear and act on a motion pending in the state court at the time of removal to modify or vacate a restraining order or preliminary injunction previously granted.

This case is here on removal. The defendant, an Ohio corporation was organized in 1899 to take over the Columbus, Hocking Valley & Toledo Railway Company, then under foreclosure, and all of its property of whatever kind. To reduce the fixed charges, the plan of reorganization provided for a reduction of the indebtedness to be cared for and for the issue of preferred stock as compensation for such reduction. It also provided that: 'The preferred stock will be entitled, out of any and all surplus net profits, to noncumulative dividends, whenever declared by the board of directors, at the rate of, but not exceeding four per cent. per annum, for the fiscal year beginning on the first day of January, 1899, and for each and every fiscal year thereafter, payable in preference and priority to any payment of any dividends on the common stock for such fiscal year; in addition thereto, in the event of the dissolution of the corporation, the holders of the preferred stock shall be entitled to receive the par value of the preferred shares out of the surplus funds of the corporation before anything shall be paid therefrom to the holders of the common stock.'

The defendant was authorized, under section 3309b, Rev. St. Ohio, chapter on Railroad Corporations (section 8805, Gen. Code), to issue preferred as well as common stock and to provide in its articles of incorporation 'terms and conditions of such preferred stock in addition to and not inconsistent with the provisions of section 3309' (section 8817, Gen. Code). Section 3309 provides that: 'If preferred stock be issued, the company may guarantee to the holders thereof semiannual or quarterly dividends to an amount not exceeding six per cent. per annum, payable at its office, or at such other place as the directors may designate; the stock may be sold at such time and place, either within or without the state, as may be deemed advisable, and the proceeds thereof applied to the purpose for which it is issued; the unpreferred stock of the company shall be entitled to dividends only out of the surplus of the profits, after setting apart a sum sufficient to pay the dividends upon the preferred stock, and the company which issues such preferred stock shall reserve the privilege of redeeming and canceling the same at par, at any time after three years from the date of its issue; and the preferred stock herein provided for may be convertible into bonds of the company at the option of the parties.'

The defendant inserted in its articles of incorporation and in every certificate issued, both common and preferred, the following language: 'All the preferred stock is and will be subject to the right of the company to redeem the same at par at any time after three years from the date of its issue. ' 260,000 shares of the par value of $100 per share were issued, of which 110,000 shares were common and 150,000 shares were preferred. The voting power was given to both kinds of stock. The preferred stock was also given the right to receive out of the net surplus profits a 4 per cent. noncumulative dividend whenever declared by the directors, payable in preference and priority to the payment of any dividends on the common stock. In case of the dissolution of the corporation, the preferred shareholders were to receive the par value of their stock out of the surplus funds of the corporation before payment should be made to the holders of common stock. The defendant's board of directors on April 1, 1910, resolved to retire the preferred stock on April 30th, at par value, plus accrued interest at 4 per cent. from December 31, 1909, and deposited $15,200,000 with J. P. Morgan & Co. of New York City, for that purpose. At the same time a resolution was adopted, calling a meeting of the stockholders for the purpose of increasing the common stock to the extent of $15,000,000. Formal notice of such retirement and intended new issue was duly given in New York papers. The proposed changes were also conspicuously noticed in a leading Columbus newspaper. This stock, if issued, is first to be offered to the common shareholders (the number of which is not shown) according to their holdings. A pronounced majority of the preferred stock certificates have been deposited with Morgan & Co. for retirement, and stock to the amount of more than $5,000,000 had been redeemed prior to the granting of the hereinafter mentioned restraining order prohibiting such retirement. The residue of the fund, amounting to about $10,000,000, awaits the court's action. Section 3264, Rev. St., of the general incorporation act (section 8700, Gen. Code), provides: 'The board of directors of any such corporation may, with the written consent of the persons in whose names a majority of the shares of the capital stock thereof stands on the books of the company, reduce the amount of its capital stock and the nominal value of all shares thereof, and issue certificates therefor, but the rights of creditors shall not be affected or impaired thereby; and a certificate of such action shall be filed with the secretary of state.'

The defendant's line extends from Toledo, Ohio, through the coal fields of South Central Ohio to the Ohio river. The road of the Toledo & Ohio Central Railway Company, a competing and parallel line, extending from Toledo to the same coal fields, connects at Corning with the Kanawha & Michigan Railway Company, with which it forms a continuous line extending into the coal fields of West Virginia and terminating at Gauley Bridge in that state. The Zanesville & Western Railway Company also enters the Ohio coal fields. The defendant as contemplated by the reorganization plan, acquired control through stockholdings not only of various coal companies and large areas of coal lands, but also of the Kanawha & Michigan Railway Company, and the Toledo & Ohio Central Railway Company. The last-named company in turn owned the stock of the Zanesville & Western Railway Company. The defendant thus dominated three other coal roads.

In 1903 the Trunk Line Syndicate was formed, consisting of the Chesapeake & Ohio Railway Company, a Virginia corporation the Baltimore & Ohio Railroad Company, the Lake Shore & Michigan Southern Railroad Company (a controlled line of the New York Central & Hudson River Railway Company), the Pittsburg, Cincinnati, Chicago & St. Louis Railway Company (a controlled line of the Pennsylvania Company), and the Erie Railroad Company. The Chesapeake & Ohio Railway Company became the owner of 11,540 shares of the common stock of the defendant company. The other members of the syndicate owned in the aggregate 57,702 shares of such stock. The syndicate company thus owned a majority of the defendant's common stock. Through an advisory committee they interfered in the management of the defendant's affairs. They did not, however, own any part of the defendant's preferred stock, which was held and owned by about 1,200 different persons. The roads comprising the Trunk Line Syndicate reach the coal fields of Southeastern Ohio, West Virginia, and the Pittsburg district. All of the hereinbefore named roads were interested and engaged in the transportation of coal from the coal fields reached by them respectively to the Upper Lakes and the Northwest. The defendant, in a quo warranto proceeding having been ousted from its stockholdings in coal companies and the railways controlled by it (12 Ohio Cir.Ct.R. (N.S.) 49, 145), proceeded to dispose of such holdings, and subsequent to such last annual election of directors the Chesapeake Company acquired the 57,702 shares of the defendant's common stock owned by the other members of the Trunk Line Syndicate. Certain of the directors of the defendant company resigned, whereupon as authorized by the rules and regulations of the company and by section 3248, Rev. St. (section 8662, Gen. Code), the remaining directors filled the vacancies so created for the unexpired term by appointment. The appointees were persons connected with the Chesapeake Company, who, it is asserted by the plaintiffs and denied by the defendant, were mere dummies, hostile to the interests of the Hocking Company, and will subject it to the domination of the Chesapeake Company. The Lake Shore & Michigan Southern Railway Company in the meantime acquired all of the stock of the Toledo & Ohio Central Railway Company and of the Zanesville & Western Railway Company, and a portion of that of the Kanawha & Michigan Railway Company, which connects with the Toledo & Ohio Central Railway Company at Corning, Ohio, and also touches the defendant company's line at different points in Ohio. Another portion of the stock of the Kanawha & Michigan Railway Company was purchased by the Chesapeake Company, and a third portion is owned by parties other than the Lake Shore & Michigan Southern Railway Company and the Chesapeake Company. These two last-named companies have made, or are about to make, an arrangement whereby they will each have representation on the directory of the Kanawha & Michigan Railway Company's road and each have the use of its tracks for transporting coal from West Virginia to the Northwest; the loaded trains proceeding northward from its northern connections over the defendant's road, and the empty trains returning southward over the Toledo & Ohio Central Railway Company's road to its connection with the Kanawha &...