McKinney v. Landon

• Decision Date: 04 November 1913
• Docket Number: 4,009.,4,008
• Parties: McKINNEY et al. v. LANDON et al. FIDELITY TITLE & TRUST CO. v. SAME.
• Court: U.S. Court of Appeals — Eighth Circuit

209 F. 300

McKINNEY et al. v. LANDON et al.

FIDELITY TITLE & TRUST CO. v. SAME.

Nos. 4,008, 4,009.

United States Court of Appeals, Eighth Circuit.

November 4, 1913

These are appeals from a decree of the District Court of the United States for the District of Kansas directing receivers appointed by it to surrender certain property to receivers appointed by the district court of Montgomery county, Kan.

On January 5, 1912, the state of Kansas by its Attorney General brought an action in the district court of Montgomery county Kan., against the Kansas Natural Gas Company, the Independence Gas Company, and the Consolidated Gas, Oil &amp Manufacturing Company. The Kansas Natural Gas Company is a Delaware corporation which had obtained a license or privilege to do business in Kansas where most of its property is located. The other two defendants were organized under the laws of the state of Kansas. The action was in quo warranto and under the anti-trust laws of the state. It was charged that the three defendants had entered into a series of unlawful contracts, agreements, trusts, and combinations to control, restrict, restrain, and monopolize the production distribution, and sale of natural gas and to increase the cost thereof to consumers; also, that they were guilty of a 'perversion, misuse, and abuse of the corporate powers and privileges granted to them' by the state; that the Independence Company had been reorganized into the Consolidated Company, and all of the property and franchises of the latter had been unlawfully taken over and absorbed by the Kansas Natural Gas Company with the further result that the two Kansas corporations were disabled from performing their duties as public service agencies. There was a prayer for an exhaustive decree embracing the ouster of the three defendants from the exercise of their corporate powers and privileges within the state, the appointment of receivers to take charge of their property and business, as well as other relief necessary fully to correct the wrongs and abuses complained of.

On September 30 and October 1, 1912, this cause was tried in the district court of Montgomery county and was taken under advisement.

On October 7, 1912, the appellant McKinney as the holder of second mortgage bonds of the Kansas Natural Gas Company filed, for himself and such other creditors as might join him, in the District Court of the United States for the District of Kansas, a creditors' bill against that company alleging its insolvency and praying the appointment of receivers and the marshaling and distribution of its assets.

On October 9, 1912, the United States District Court appointed receivers; the defendant Kansas Natural Gas Company having appeared, confessed the bill, and joined in the prayer. This receivership embraced property in Kansas, Missouri, and Oklahoma. In due course the receivers took possession.

On October 19, 1912, the appellant Fidelity Title & Trust Company, as trustee for the first mortgage bondholders of the Kansas Natural Gas Company, was on its intervening petition made a party plaintiff in the McKinney suit as of October 7th; and, the defendant confessing the averments of the petition, the receivership was extended nunc pro tunc.

On February 3, 1913, the Kansas Natural Gas Company having defaulted in interest on its first mortgage bonds, the Fidelity Title & Trust Company as trustee filed in the District Court of the United States for the District of Kansas an independent bill in foreclosure against the Kansas Natural Gas Company. The Delaware Trust Company as trustee in the second mortgage was also made defendant. The prior receivership in the McKinney suit was extended over the foreclosure suit.

On February 13, 1913, the state court decided the cause pending before it, in favor of the state of Kansas. Its decree recites that the Independence Gas Company had forfeited its right to exist as a corporation and should be dissolved; the Consolidated Gas, Oil & Manufacturing Company had unlawfully perverted and abused its corporate privileges and had been a willing and active participant with the Kansas Natural Gas Company in a combination in restraint of trade and commerce in natural gas within the state of Kansas; the former had disabled itself from performing its corporate functions under its charter and discharging its duty to the public, and had subjected itself illegally to the dominion and control of the Kansas Natural Gas Company; the Kansas Natural Gas Company unlawfully had possession of the property and franchises of the Consolidated Gas, Oil & Manufacturing Company and was a trust and monopoly and had secured the monopoly of the production, distribution, and sale of natural gas in the state of Kansas and illegally acquired the power, which it was exercising, to dictate prices to the producer and consumer of that commodity, that the Consolidated Gas, Oil & Manufacturing Company should resume possession and control of its properties illegally held by the Kansas Natural Gas Company, and that receivers thereof should be appointed and further participation in the illegal combination restrained; the Kansas Natural Gas Company should be ousted of its Kansas privileges and enjoined from interfering with the corporate property and powers of the Consolidated Gas, Oil & Manufacturing Company, and that receivers of the property in Kansas of the Kansas Natural Gas Company should be appointed so that the court might take charge of and manage it until the perversions and abuses of privileges were corrected; that a receivership of both was especially necessary to bring about a separation of their corporate properties and a re-establishment of them in their lawful positions. The decree of the court was in great detail and separate receivers were appointed for each company. The appointment for the Kansas Natural Gas Company was confined to the property of that company which was in Kansas, and the receivers were directed, in conjunction with the Attorney General of the state of Kansas, to appear in the District Court of the United States and urge the prior jurisdiction of the state court 'over the subject-matter and the parties and the rights of the state of Kansas' and to petition a discharge of the receivers appointed at the instance of the bondholders and for the delivery of the property in Kansas to the receivers of the state court.

In accordance with the direction of the state court, its receivers of the Kansas Natural Gas Company and the Attorney General of the state appeared in the United States District Court and petitioned accordingly, with the result above mentioned.

Charles Blood Smith, of Topeka, Kan., and John F. Philips, of Kansas City, Mo. (Samuel Barnum, of Topeka, Kan., on the brief), for appellants.

John S. Dawson, Atty. Gen. of Kansas, Chester I. Long, of Wichita, Kan., and John H. Atwood, of Leavenworth, Kan. (T. S. Salathiel and O. P. Ergenbright, both of Independence, Kan., John Marshall, of Topeka, Kan., and Thomas Morrison, of Chanute, Kan., on the brief), for appellees.

Before HOOK and CARLAND, Circuit Judges, and VAN VALKENBURGH, District judge.

HOOK Circuit Judge (after stating the facts as above).

The state of Kansas by its Attorney General began an action under the anti-trust laws of the state and in quo warranto against the Kansas Natural Gas Company and others in the district court of Montgomery county, Kan. It was charged in the body of the petition that the appointment of a receiver of that company was necessary for the correction of the wrongs complained of. The appointment of a receiver was also asked in the prayer for relief. The action was tried, and while held under advisement by the state court suits against the Kansas Natural Gas Company were commenced by and in the interest of its bondholders and other creditors in the federal court for the district of Kansas. The federal court appointed receivers who took possession. Thereafter the action in the state court was decided in favor of the state of Kansas, other receivers were appointed by that court and in conjunction with the Attorney General were directed to apply to the federal court for the surrender to them of the property located in Kansas. They did so and were successful. McKinney v. Kansas Natural Gas Co. (D.C.) 206 F. 772. The complainants in the federal court then prosecuted these appeals. The ultimate question for decision is: Which set of receivers has the superior right to possession?

It should be said at the outset that we cannot review the evidence before the state court. We can only consider the jurisdiction of that court, the nature of the action brought by the state of Kansas, the relief sought and granted, and the chronological relation of the proceedings there to those in the federal court. The claim of counsel for appellants that the evidence before the state court did not warrant its findings cannot be considered; the remedy is by state procedure, not here. Indeed, counsel say their motion for a new trial is still pending in the state court. For the purposes of this case we must therefore take it as true that the Kansas Natural Gas Company, a Delaware corporation which had obtained a license to do business in Kansas, combined with one or more Kansas corporations to restrict, restrain and monopolize trade and commerce within the state contrary to its antitrust laws, that it unlawfully acquired control and was holding and using the property and franchises of local corporations for the wrongful purposes; and that all of them were perverting and abusing the corporate powers and privileges granted them respectively by the state. The petition filed by the Attorney General so charged, and the state court so found from the evidence. Within the above...