McHenry v. New York, P. & O. R. Co.

• Decision Date: 13 August 1885
• Citation: 25 F. 65
• Parties: McHENRY and others v. NEW YORK, P. & O.R. CO. and others.
• Court: U.S. District Court — Western District of Pennsylvania

25 F. 65

McHENRY and others v. NEW YORK, P. & O.R. CO. and others.

United States Circuit Court, W.D. Pennsylvania.

August 13, 1885

J Brawley, W. R. Bole, and C. Heydrick, for motion.

W. W MacFarland, R. P. Ranney, Adams & Russell, and John J Henderson, contra.

Before Coram McKENNAN and ACHESON, JJ.

ACHESON J.

For the proper understanding of the reasons urged in support of the motion to remand this cause, and the grounds for our conclusions, a brief preliminary statement of facts is necessary. The Atlantic & Great Western Railroad Company, a corporation organized under the laws of the states of New York, Pennsylvania, and Ohio, having made default in the payment of interest on its mortgage bonds, foreclosure suits were commenced in the year 1874, and a receiver of the property of the company was appointed. According to the allegations of the bill of complaint in this case, the total bonded debt of that company at that time amounted to nearly $57,000,000; an enormous sum as compared with the property and means of the company, which was destitute of net earnings. At this juncture, the bondholders and other creditors and the shareholders of the company entered into an agreement, embodied in a plan entitled 'revised Official Scheme of Arrangement,' for the organization of a new company, in which the nominal par value and the priorities of existing securities and shares should be preserved; such new organization to be effected by a sale under the said foreclosure suits of the railroad of the said corporation, with its rolling stock, franchises, etc., and the purchase thereof through reorganization trustees named in the said scheme. The basis of the scheme was that the administration of the company should be brought under the direct supervision of the bondholders, who should have 'full control over the expenditure and policy of the company. ' To this end it was provided that the shares of the reconstructed company should be deposited in trust, and the right to vote thereon be exercised by five trustees elected annually, at a meeting called for the purpose, three to be chosen by a majority in value of the first mortgage bondholders, one by a majority in value of the second mortgage bondholders, and one by a majority in value of the leased line's bondholders; this voting trust to continue until the third mortgage bondholders should receive 7 per centum interest in cash during three years, certificates in exchange for and representing the deposited shares, and entitled to dividends when declared, to be issued by the trustees.

In pursuance of this agreement, and for the carrying out of the scheme, the reorganization trustees procured decrees to be entered in the foreclosure suits, and a sale thereunder to be made of the said railroad, etc., and caused a new corporation, called 'The New York, Pennsylvania & Ohio Railroad Company, ' to be created and organized under the laws of the states of Pennsylvania and Ohio, which new company, early in the year 1880, became invested with the said railroad, and the franchises, etc., which had formerly belonged to the Atlantic & Great Western Railroad Company.

The present suit grows out of and has relation to the said reorganization trust; and, so far as the bill concerns matters capable of judicial redress, the substantial ground of complaint therein set forth is that the reorganization trustees have acted and are acting, (as is claimed,) in respect to the issue and disposition of the new mortgage bonds, contrary to and in violation of the terms of the 'Revised Official Scheme of Arrangement,' and the substantial relief sought is against the trustees.

The plaintiffs, who are four in number, are all aliens, except John Bellangee COX, who is a citizen of Pennsylvania. The alien plaintiffs are severally holders of certificates given by the reorganization trustees, in exchange for bonds of the Atlantic & Great Western Railroad Company, which entitle them to receive from the trustees a like number of bonds, of the like classes, of the defendant company; and one of the alien plaintiffs, viz., James McHenry, is also the holder of certificates to a very large amount given by the trustees, representing shares of the stock of the old company deposited with the trustees. The plaintiff COX is the holder of a scrip certificate (by its terms available to bearer) issued by said trustees, representing and given in exchange for 100 shares of the common capital stock of the Atlantic & Great Western Railroad Company, of the nominal par value of $50 a share, deposited with the trustees.

The defendants are the New York, Pennsylvania & Ohio Railroad Company; Jarvis M. Adams and others, the directors of said company, who are all citizens of New York or Ohio, except George Boyce, who is a citizen of Pennsylvania; and Charles E. Lewis, George Balfour, and J. Lockington Bates, reorganization and voting trustees under said scheme, and H. C. Raikes, a voting trustee, all of whom are aliens.

1. We are asked to remand this suit to the court of common pleas, because, before the filing of the petition for its removal therefrom, the bill had been taken pro confesso as against the New York, Pennsylvania & Ohio Railroad Company and George Boyce, for want of an appearance. Such a pro confesso office order, the record shows, was entered by the prothonotary, by the plaintiffs' direction, on July 11, 1885, in default of a normal appearance by paper filed, notwithstanding the railroad company by its counsel had previously, on June 23d, made a motion in the cause, which was granted and entered of record, adjourning the hearing upon a motion for a preliminary injunction until the sixteenth of July. The order of July 11, 1885, however, was against two of the defendants only, and as to them it is not an absolute order, and much less is it a final decree. Equity rules 29 and 30.

There has been no trial of this cause, (Insurance Co. v Dunn, 19 Wall. 214; Hess v. Reynolds, 113 U.S. 73; S.C. 5 S.Ct. 377,) nor anything having the semblance of a trial. All the orders in the ...