Pitcairn v. American Refrigerator Transit Co.

• Decision Date: 21 March 1939
• Docket Number: No. 11136,11137.,11136
• Citation: 101 F.2d 929
• Parties: PITCAIRN et al. v. AMERICAN REFRIGERATOR TRANSIT CO. et al. AMERICAN REFRIGERATOR TRANSIT CO. et al. v. PITCAIRN et al.
• Court: U.S. Court of Appeals — Eighth Circuit

101 F.2d 929 (1939)

PITCAIRN et al. v. AMERICAN REFRIGERATOR TRANSIT CO. et al. AMERICAN REFRIGERATOR TRANSIT CO. et al. v. PITCAIRN et al.

Nos. 11136, 11137.

Circuit Court of Appeals, Eighth Circuit.

February 23, 1939.

Rehearing Denied March 21, 1939.

N. S. Brown, of St. Louis, Mo. (Homer Hall, of St. Louis, Mo., on the brief), for Norman B. Pitcairn and others as receivers, etc.

J. A. C. Kennedy, of Omaha, Neb. (Yale C. Holland, G. L. DeLacy, E. J. Svoboda, and R. E. Svoboda, all of Omaha, Neb., on the brief), for interveners Manufacturers Trust Co. of New York and others.

Thomas T. Railey, of St. Louis, Mo., for American Refrigerator Transit Co. and others.

Before GARDNER, SANBORN and WOODROUGH, Circuit Judges.

GARDNER, Circuit Judge.

This was a suit in equity originally brought by the Wabash Railway Company as plaintiff, against the American Refrigerator Transit Company and the Missouri Pacific Railroad Company as defendants, seeking certain equitable relief. The parties to these appeals are successors in interest to the original parties, to whom have been added by leave of court certain interveners appearing on behalf of certain mortgage holders. The case was before this court on the appeal of plaintiff Wabash Railway Company from an order dismissing its first amended petition. Wabash R. Co. v. American Refrigerator Transit Co., 8 Cir., 7 F.2d 335. The nature of the suit and the facts as they were then pleaded by plaintiff fully appear in the opinion of the late Judge Kenyon speaking for this court on the former appeal.

It is sought to have determined (1) the legal relationship between the refrigerator company and the owners of its capital stock, the Wabash Railway Company, and the Missouri Pacific Railroad Company, and (2) the respective proprietorships of said railway companies in the refrigerator company's surplus.

On June 1, 1881, the Missouri Pacific Railroad Company, the St. Louis, Iron Mountain and Southern Railway Company, and the Wabash Railway Company, caused the American Refrigerator Transit Company to be incorporated, with an authorized capital stock of $500,000.00, to be divided among the incorporating railway companies equally, share and share alike. The authorized capital was not paid in by the incorporators, but each furnished the refrigerator company the sum of $14,985.00 in cash for working capital, and 100 refrigerator cars. For the use of the refrigerator cars the railroad companies received a rental of $5.00 per month per car.

Concurrently with the act of incorporation, the railway companies executed two contracts under date June 1, 1881, one an operating contract providing that compensation should be paid for the use of the refrigerator company's equipment and services, and the other a contract which provided that the earnings of the refrigerator company, after its expenses were paid, should be divided among the three railroad companies "in the proportion which the business done and money earned over the roads or lines of each party shall bear to the whole earnings of said first party during the period for which such distribution is made, the several parties hereto hereby agreeing to the payment of dividends in that proportion on their stock." This is referred to as the stockholder's contract. It was agreed in this contract that the stock in the refrigerator company should be held and transferred subject to its provisions, and that all certificates of stock should contain full reference to the agreement and be expressly subject to all its provisions.

In 1894, the refrigerator company had a surplus in excess of $500,000.00, and the capital stock then held by the three railroad companies was surrendered and new stock was reissued against $500,000.00 of the surplus. The reissue of the stock to the three railroad companies was on the basis of revenues previously contributed by each respectively, as provided in the contract of June 1, 1881. After this reissue, the respective parties did not each hold the same proportion of stock, but the Missouri Pacific owned 18.6%, the Iron Mountain 57.057%, and the Wabash 24.343%, of the outstanding stock. The stock of the Iron Mountain was transferred to the Missouri Pacific in 1917.

The two contracts of June 1, 1881, were re-executed as of January 1, 1894. The operating contract provided that on all business done with the refrigerator company, the railroad should pay it on all freight carried in the cars of the refrigerator company, a commission of 12½% of the charge received by the railroad for transportation of the property over its road, and one cent per mile for each mile any car should be used on its line. Earnings of the refrigerator company were distributed to the stock-owning railroad companies in accordance with the contract until 1908. After that time no dividends or earnings were distributed, but all net revenues were used for the acquisition of additional equipment and other property by the refrigerator company. In 1902, a controversy arose as to the proper distribution of surplus among the railroads. On March 20, 1917, the refrigerator company, through action of its board of directors, which then consisted of four of the chief executive officers of the Missouri Pacific and two of the chief executive officers of the Wabash, at a special meeting attended by three Missouri Pacific directors and one Wabash director, terminated the operating contract and purported to terminate the stockholder's contract for division of earnings. The Wabash director did not vote on the question. The operating contract contained a provision that it should remain in force for ten years and that thereafter it could be terminated by a sixty-day notice by either party, but no like provision for cancellation was contained in the stockholder's contract. Written notice of attempted termination of both contracts was given the railroads by the refrigerator company. On May 21, 1917, the Wabash wrote to the refrigerator company acquiescing in the termination of the operating contract, but denied the right of the refrigerator company to terminate the stockholder's contract. Since that time the refrigerator company has continued to carry on its business successfully and with no controversy except as to the question of the proper basis for division of its surplus among the stockholding railroads.

In 1921, the Wabash commenced this suit in equity, and in its first amended bill of complaint sought relief as follows: (1) that the refrigerator company be decreed to be the joint agency and instrumentality of the railroad companies by reason of the operating and stockholder's contracts, but decreed to be vested with an equitable lien upon the entire net income or surplus earnings of the refrigerator company, and that the investment of the net surplus earnings of the refrigerator company resulted in a trust in the property acquired for the benefit of the respective railroad companies (3) that there be an accounting of all operations of the refrigerator company during the entire period the operating and stockholder's contracts were in force; (4) that the court decree enforcement of an arbitration award made February 3, 1912, under submission of certain phases of the controversy to an arbitrator; (5) that the court decree invalid the action taken to terminate the stockholder's contract and decree specific performance thereof.

The lower court sustained a motion to dismiss the bill, but on appeal we reversed the action of the lower court. Wabash Railway Company v. American Refrigerator Transit Co., 8 Cir., 7 F.2d 335. The opinion remanding the case for further proceedings was filed July 22, 1925. The taking of testimony was not commenced until 1931.

On June 4, 1931, the Wabash again amended its bill of complaint, eliminating all allegations to the effect that the attempted termination and cancellation of the stockholder's contract should be set aside and specific performance be decreed, and prayed instead for a decree declaring the trust to exist, for an accounting of all operations of the refrigerator company from January 1, 1894 to May 19, 1917, that a trust be decreed to exist on the latter date, and for a separate accounting of the trust estate operations from May 19, 1917, to date.

From January 1, 1918, to February 28, 1920, the railroads were under Federal control. After the period of Federal control, the contributions of the Missouri Pacific to the business of the refrigerator company greatly exceeded those of the Wabash, whereas prior to Federal control those of the Wabash had approximated the contributions of the Missouri Pacific.

The case was referred to a special master, who, on February 15, 1934, filed his report, to which certain exceptions were filed. After final hearing, on January 22, 1937, the lower court filed its opinion and order, holding that the stockholder's contract was in continuous force and effect. In its final decree, the court fixed the respective rights of the railroad companies as follows: Missouri Pacific, 66.078%; Wabash, 33.922%.

From the decree both parties have appealed. The plaintiff Wabash assigns errors which present the following questions: (1) Did the stockholder's contract come to an end on May 19, 1917? (2) Did the second amended bill of complaint set up a separate and distinct cause of action from that pleaded in the original amended bill of complaint?

The defendants American Refrigerator Transit Company and the Missouri Pacific and the interveners, have taken a cross-appeal, in which they contend that the court erred in failing to include refrigerator and other revenues and revenues from subsidiaries in apportioning earnings.

The appeal of the Wabash will be first considered. Counsel for the Wabash in their brief, with commendable frankness say:

"The question whether the Stockholder's Contract of January 1, 1894, came to an end on May 19, 1917, by force of the sixty-day notice given by the Refrigerator Company as...