Old Colony Trust Co. v. Dubuque Light & Traction Co.

• Court: U.S. District Court — Northern District of Iowa
• Citation: Old Colony Trust Co. v. Dubuque Light & Traction Co., 89 F. 794 (N.D. Iowa 1898)
• Decision Date: 28 October 1898
• Parties: OLD COLONY TRUST CO. V. DUBUQUE LIGHT & TRACTION CO. (DOANE et al., Interveners .

89 F. 794

OLD COLONY TRUST CO. V. DUBUQUE LIGHT & TRACTION CO. (DOANE et al., Interveners .

United States Circuit Court, N.D. Iowa, Eastern Division.

October 28, 1898

Runnells & Burry and Powers, Lacey & Brown, for complainant.

J. C Harper and Henderson, Hurd, Lenehan & Kiesel, for interveners.

Eugene H. Lewis, for General Electric Co.

James S. Cummins, for Oscar H. Olson.

Glenn Brown, for defendant.

SHIRAS District Judge.

This case is now before the court upon the issues arising upon the intervening bill filed by William H. Doane, Lucius H Bigelow, and Edward P. Griswold, who by order of court of February 1, 1896, were allowed to intervene for the protection of their rights in the suit brought by the Old Colony Trust Company, trustee, against the Dubuque Light &amp Traction Company, for the purpose of foreclosing a trust deed executed by the latter company, under date of June 1, 1893 upon certain street-railway properties in the city of Dubuque, Iowa, comprising what are usually called the Iowa Street and the Eighth Street Lines. The first-named line is also called in the evidence the Allen & Sweeney Line, from the name of the firm that originally built the same. The title to this property passed to a corporation created under the name of the Dubuque Electric Railway, Light & Power Company (which, for convenience, will be designated as the 'Power Company'), which executed a trust deed upon its property and franchises to the Bay State Trust Company, under date of March 1, 1890, to secure its mortgage bonds to the amount of $285,000. On May 5, 1892, a bill was filed in this court on behalf of W. K. Richardson and others against the Power Company, the Bay State Trust Company, and others, in which proceedings Horace Poole was appointed receiver of the Iowa Street Line; and on December 7, 1892, the Bay State Trust Company filed its cross bill, as trustee, asking a foreclosure of the trust deed executed to it, on the ground that the Power Company had defaulted in the payment of the interest on its mortgage bonds; and on the 19th of January, 1895, a decree was entered foreclosing the trust deed, and ordering a sale of the property covered thereby. Prior to the appointment of the receiver, in May, 1892, the Power Company had become indebted to the Thomson-Houston Company and the Edison Electric Company for supplies furnished in equipping and maintaining its line; and when these companies were merged into the General Electric Company, in June, 1892, the latter company became thereby a heavy creditor of the Power Company, and being thus interested, it undertook the reorganization of the property, which was rendered necessary by the impending foreclosure of the trust deed to the Bay State Trust Company. The conduct of the work of reorganization was intrusted to B. E. Sunny, who had been from the latter part of the year 1889 the Western manager of the Thomson-Houston Company, and who, when that company was merged into the General Electric Company, became the Western manager of the last-named company. Mr. Sunny testifies that after the receiver was appointed, in May, 1892, and with a view to reorganizing the property:

'We ascertained about the outstanding obligations of the property, and communicated with a number of the creditors, to find out on what basis their claims could be handled. We also made an arrangement with the people representing the holders of first mortgage bonds, by which a reorganization could be carried through, and the property put on a good financial basis; and those efforts at reorganization resulted in an agreement between the bondholders of the Power Company and the Thomson-Houston Electric Company and a trust company in Boston.'

This agreement, which bears date August 31, 1892, recites:

That the Power Company is in the hands of a receiver. 'That the Electric Company proposes to reorganize said railway company, and put its property in first-class repair and condition, including the addition of such machinery and apparatus as may be needed, at a cost of more than $50,000, provided the property is sold by the receiver, and can be purchased at a price that will warrant such an expenditure, and the bondholders will assent to a cancellation of the present first mortgage bonds they hold, and take in lieu thereof bonds of the reorganized company, as hereinafter set out.'

And thereupon the bondholders agreed to unite with the trustee in obtaining a decree of sale upon the foreclosure of the trust deed to the Bay State Trust Company, and to place their bonds in the hands of the Old Colony Trust Company for exchange for the new bonds to be issued; the Electric Company agreeing to bid at the foreclosure sale an amount sufficient to cover the bonds, the prior liens, and the costs and expenses, and, if it became the purchaser at the sale, to immediately organize a new company to take the property, which new company was to authorize an issue of bonds to the amount of $400,000, to be secured by a mortgage on the property, present or after acquired, of the company, of which issue $100,000 were to remain in the hands of the trustee, to be certified and used only for improvements or betterments, or in the purchase of other railway property, and the remaining $300,000 were to be certified and used-- First, in retiring the old issue of bonds, dollar for dollar; and, second, the balance left after payment of the old bonds was to be delivered to the Electric Company in payment of claims held by it against the Power Company, in payment of the repairs, improvements, and extensions necessary to put the purchased property in good working order and condition, and in payment of such other creditors of the Power Company as the Electric Company might name. In pursuance of this plan of reorganization, as already stated, the Bay State Trust Company filed its bill praying for a foreclosure of the trust deed held by it; and on the 19th day of January, 1893, a decree of foreclosure was entered in this court, under which the property was sold at master's sale on March 1, 1893, the sale being approved by the court on April 12, 1893; and the receiver, under an order of court entered April 29th, delivered up possession of the property to the Old Colony Trust Company on May 1, 1893. In order to complete the plan of reorganization which had been entered into by the bondholders, the General Electric Company, and the Old Colony Trust Company, it was further necessary to organize a new corporation at Dubuque to undertake the management of the property, and to execute the new bonds and trust deed which were to be delivered to the Old Colony Trust Company. To that end, James S. Cummins, the attorney at Chicago of the General Electric Company, and B. E. Sunny, came to Dubuque on May 3, 1893. Mr. Cummins testified that he brought with him, already prepared, the articles of incorporation of the Dubuque Light & Traction Company, the trust deed, the by-laws, and the resolutions, necessary to perfect the transfer of the property; that he filed the articles of incorporation in the office of the recorder of Dubuque county; that he was then notified by Mr. Sunny that a deal had been made by him with Messrs. Doane, Bouton, Griswold, and Bigelow with regard to the Eighth Street Line; and that he took no further steps towards completing the organization of the Traction Company until after the return of the parties to Chicago on the night of May 3d. From the evidence it appears that Messrs. Doane, Griswold, and Bigelow had come to Dubuque to look after their interests in the Eighth Street Railway, which extended along Eighth, Hill, Third, and other streets, and formed the only line running up the bluffs which extend along the western portion of the city of Dubuque, and was managed by a corporation known as the Eighth Street & West Dubuque Street-Railway Company. This property had been in the hands of a receiver, but at the time named, to wit, May 3, 1893, was practically owned by the interveners herein, Messrs. Doane, Griswold, and Bigelow, who, as already stated, had come to Dubuque for the purpose of re-equipping the road, and endeavoring to put it on a paying basis. Finding these gentlemen at Dubuque, Mr. Sunny approached them with a proposition to combine the two lines of railway, and after a conference of some hours' duration an agreement was reached to the effect that the interveners were to sell to the Dubuque Light & Traction Company the Eighth Street Line, and take in payment bonds to the amount of $35,000 and stock to the amount of $70,000 in the Traction Company; and thereupon the parties went to Chicago on the night of May 3d, and on May 4th a written agreement was entered into between Oscar H. Olson and Messrs. Doane, Bigelow, Griswold, and Bouton, whereby the latter-named parties agreed to sell to Olson the entire issued stock of the Eighth Street Railway, and to receive in payment $70,000 of full-paid common stock, and also 35 of the first mortgage bonds of the Dubuque Light & Traction Company, of $1,000 each, bearing date June 1, 1893, and secured by first mortgage upon all of the property then held by the Old Colony Trust Company under its purchase of the property of the Power Company, and upon after-acquired property, which would include the property of the Eighth Street Line (except the power-house realty), to be thereafter transferred to the Traction Company; the total issue of first mortgage bonds to be $400,000, of which all excess of $300,000 were to be issued in accordance with the provisions of the deed of trust for after-acquired property or permanent betterments. Under the same date a further agreement in writing was entered into between the General Electric Company and Messrs. Doane, Bigelow, Griswold, and Bouton, wherein it...