Pearsall v. Great Northern Ry. Co.
| Decision Date | 14 September 1895 |
| Citation | 73 F. 933 |
| Parties | PEARSALL v. GREAT NORTHERN RY. CO. [1] |
| Court | U.S. District Court — District of Minnesota |
This case came before the court upon a motion for a preliminary injunction, upon a bill and answer that disclose the following facts:
In 1856 the legislature of the territory of Minnesota passed 'An act to incorporate the Minneapolis & St. Cloud Railroad Company' (Laws Minn. 1856, c. 160). By that act, the territory granted to that corporation the right to be a corporation, the right to acquire by purchase, gift, grant devise, or otherwise, to hold and to convey, all such estate and property, real and personal, as should be necessary or convenient to carry into effect the object and purpose of the corporation (section 1); the right to construct and operate certain railroads (sections 2 and 6); the right to be part owner or lessee of any railroad in the territory (section 6) the right to exercise the power of eminent domain (section 7); and the right to connect with and to use any railroad running in the same general direction as any of its proposed railroads (section 12). The last section of the act is ' In 1865 the legislature of the state of Minnesota passed an act to amend the act of 1856, supra (Sp. Laws Minn. 1865, c. 4). By that act, the state granted to the Minneapolis & St. Cloud Railroad Company the right to connect with or adopt as its own any other railroad running in the same general direction with either of its main or branch lines (section 3); the right to consolidate the whole or any portion of its capital stock with the capital of any other railroad corporation having the same general direction or location (section 8); the right to consolidate any portion of its road and property with the franchises of any other railroad company, or any portion thereof (section 9); and the right to consolidate the whole or any portion of its lines of railroad, and the property pertaining thereto, with the rights, powers, franchises, grants, and effects of any other railroad (section 12).
It is alleged by the bill, and admitted by the answer, that the Minneapolis & St. Cloud Railroad Company was duly incorporated under and complied with the act of 1856 and its amendments, and that it duly accepted the provisions of the act of 1865 immediately after its passage. Subsequent to the year 1879, it constructed and put in operation a railroad from St. Cloud to Hinckley, in the state of Minnesota. After this railroad was constructed, it changed its name, by permission of the legislature of Minnesota, to the Great Northern Railway Company, and it is the defendant in this suit. It now owns some, leases some, and operates and controls all, of the lines of railroad of the Great Northern Railway System. This system comprises lines of railroad which extend from St. Paul and Duluth, in the state of Minnesota, and from Superior, in the state of Wisconsin, across the states of Minnesota, North Dakota, Montana, Idaho, and to the towns of Everett and Seattle, in the state of Washington, with many branch and connecting lines; but none of these lines reach Tacoma, in the state of Washington, or Portland, in the state of Oregon, or Winnipeg, in Canada.
The Northern Pacific Railroad Company is a corporation organized under acts of congress, and it owns some, and, through its receivers, controls and operates all, of the lines of railroad of the Northern Pacific Railway System. This system comprises lines of railway extending from St. Paul, in Minnesota, and from Ashland, in Wisconsin, across the states of Minnesota, North Dakota, Montana, and Idaho, to Tacoma, in the state of Washington, and Portland, in the state of Oregon, with many branch and connecting lines, one of which extends to Winnipeg, in Canada. The aggregate mileage of each of these systems of railroad is about 4,500 miles, and some of the lines of each of these systems are parallel to and some of them compete with, lines of the other system. The Northern Pacific Railroad Company is insolvent, and its roads and property are in the hands of receivers, who were appointed by the courts at the instance of the holders of bonds which are secured by the second, third, and consolidated mortgages upon its property. The trustee for these bondholders has commenced suits to foreclose these mortgages, and the receivers are in possession under appointments in these foreclosure suits. The holders of a majority of the several classes of bonds secured by these three mortgages have agreed with the Great Northern Railway Company to procure a foreclosure sale of the property covered by these mortgages to a committee of these bondholders, for the benefit of all the holders of bonds secured by said mortgages; to organize a new corporation, in which they will cause the title to all of said mortgaged property to be vested, subject to the lien of the first and divisional mortgages of the Northern Pacific Railroad Company; to cause the new corporation to make a fair and reasonable traffic agreement with the defendant for an interchange of traffic between the two systems, and for the joint use of the terminal facilities of each whenever such use is convenient and economical for both; to cause the new corporation to issue its bonds to the amount of $100,000,000 or more, secured by a lien upon its property, to issue its full-paid capital stock to the amount of $100,000,000, and to cause its stockholders to transfer to the stockholders of the Great Northern Railway Company, or to some one for their use, one-half of this stock. In consideration of this agreement, the defendant corporation has promised to enter into the traffic agreement with the new corporation, and to guaranty the payment of the principal of its bonds and $6,200,000 interest thereon annually; and it is about to perform this promise, against the demand and protest of the complainant.
The complainant is the owner of 500 shares of the capital stock of the defendant corporation, which is now worth more than $62,500; and he avers that, if this agreement is performed, his stock will be depreciated more than $5,000. He brings this suit on behalf of himself and all other stockholders similarly situated who may join with him, and alleges that this agreement is unlawful, because it is beyond the powers of the corporation to make or perform it, because it is in violation of chapter 29 of the Laws of Minnesota for 1874, which is: 'No railroad corporation, or the lessees, purchasers or managers of any railroad corporation, shall consolidate the stock, property or franchises of such corporation with, or lease or purchase the works or franchises of, or in any way control any other railroad corporation owning or having under its control a parallel or competing line; nor shall any officer of such railroad corporation act as an officer of any other railroad corporation owning or having the control of a parallel of competing line; and the question whether railroads are parallel or competing lines shall, when demanded by the party complainant, be decided by a jury as in other civil issues,'-- and because it is in violation of section 3, c. 94, of the Laws of Minnesota for 1881, which is: 'No railroad corporation shall consolidate with, lease or purchase, or in any way become owner of, or control any other railroad corporation, or any stock, franchises, rights of property thereof, which owns or controls a parallel or competing line. ' And he prays that the defendant may be enjoined from taking any steps towards its performance. The defendant answers that it has ample power to make and perform this agreement under its charter; that the true construction of the provisions of the acts of 1874 and 1881, cited, is that they do not amend or affect its charter; and that, if the opposite construction is adopted, they are void in so far as they prohibit or affect its right to make and perform this agreement, because they are in violation of section 10, art. 1, of the constitution of the United States. The complainant replies that the right to so amend the charter of this defendant as to prohibit the performance of this agreement was reserved to the state by section 17 of the act of 1856, under which the defendant was incorporated, and that the laws of 1874 and 1881 were a constitutional exercise of this reserved right.
A. H. Young and H. J. Horn, for complainant.
M. D. Grover, Davis, Kellogg & Severance, and E. P. Sanborn, for defendant.
If there is any principle of jurisprudence that is beyond dispute and discussion in this nation, it is this: An accepted act of incorporation of a private corporation is a contract between the state and the corporation. Any law of a state which impairs or destroys a valuable franchise granted by such an act impairs the obligation of the contract, and is without effect, unless, before or at the time of the passage of the act, the state reserved the right to enact such a law. Const. U.S. art. 1, Sec. 10; Dartmouth College Case, 4 Wheat 518, 684, 693, 695, 703; Bank v. Knoop, 16 How. 369, 380; Binghamton Bridge Case, 3 Wall. 51; Sala v. New Orleans, 2 Woods, 188, Fed. Cas. No. 12,246; Railroad Co. v. Reid, 13 Wa.. 264; Waterworks Co. v. Rivers, 115 U.S. 674, 6 Sup.Ct. 273; New Jersey v. Yard, 95 U.S. 104; New Orleans Gaslight Co. v. Louisiana, etc., Co., 115 U.S. 650, 6 Sup.Ct. 252; Monongahela Nav. Co. v. U.S., 148 U.S. 312, 13 Sup.Ct. 622; Mayor, etc., of City of Houston v. Houston City St. Ry. Co. (Tex. Sup.) 19 S.W. 127; Smith v. Railroad Co., 64 F. 272, 275; Boston & L.R. Corp. v. Salem & L.R. Co., 2 Gray,...
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