Rogers v. Nashville, C. & St. L. Ry. Co.

• Decision Date: 09 November 1898
• Docket Number: 550.
• Parties: ROGERS v. NASHVILLE, C. & ST. L. RY. CO. et al.
• Court: U.S. Court of Appeals — Sixth Circuit

91 F. 299

ROGERS v. NASHVILLE, C. & ST. L. RY. CO. et al.

No. 550.

United States Court of Appeals, Sixth Circuit.

November 9, 1898

[Copyrighted Material Omitted]

This is a bill filed by a stockholder of the Nashville, Chattanooga &amp St. Louis Railway Company, in behalf of himself and all other stockholders in said railway company who may desire to become parties complainant thereto, against the Nashville Chattanooga & St. Louis Railway Company and the Louisville & Nashville Railroad Company. The object of the bill is to obtain the cancellation of a lease entered into between the two corporations, whereby the Louisville & Nashville Railroad Company leased to the Nashville, Chattanooga & St. Louis Railway Company, for a term of 99 years, two lines of railroad connected and constituting a line of railway from Paducah, in the state of Kentucky, to Memphis, in the state of Tennessee. Separate demurrers were filed by each of the defendant companies, which were sustained by the circuit court, and the bill dismissed. The averments of the bill are substantially these:

(1) The complainant is a citizen of the state of New York, and is now, and has been for several years, an owner of shares in the capital stock of the Nashville, Chattanooga & St. Louis Railway Company, of the par value of $1,000,000.

(2) The Nashville, Chattanooga & St. Louis Railway Company is a corporation of the state of Tennessee, organized under a special legislative charter granted December 11, 1845, and owns and operates an original line of railway extending from Nashville to Chattanooga. Since the construction of this original line, said corporation has constructed, purchased, or leased several other lines of railroad now operated as one system in connection with its said main or original line. Among such acquired lines is one known as its St. Louis Division, extending from Nashville, via Hollow Rock and McKenzie, to Hickman, Ky. The capital stock of said company now consists of $10,000,000, divided into shares of $100 each.

(3) The Louisville & Nashville Railroad Company is a corporation of the state of Kentucky, chartered by a special act of the general assembly of that state, approved March 5, 1850; and its main and original line extends from Louisville, in Kentucky, via Bowling Green, to Nashville, in Tennessee, a distance of 185 miles. Since the construction of said original line it has purchased, constructed, leased, or otherwise extended its said line, until it now operates as one system some 3,000 miles of railroad. Among the additional lines thus acquired, is a railroad extending from its said main line at Bowling Green, in Kentucky, to Memphis, in Tennessee, via Paris and McKenzie, and known as the Memphis Division. It also acquired, and is now operating, a line from Nashville, in Tennessee, to St. Louis, in Missouri, via Evansville, Ind., and a line from Nashville to Decatur, Ala.; thence to Montgomery and Mobile, and thence to New Orleans. Besides these lines, it acquired a line from Louisville to Cincinnati, and numerous branch lines, both in Kentucky and Tennessee. Two other roads were subsequently acquired by said Louisville & Nashville Railroad Company, which form a continuous line from Paducah, in Kentucky, via Paris, Hollow Rock, Lexington, and Jackson, to Memphis, Tenn. This line of railway is the subject of the contract of lease between the two defendant corporations, which it is the object of the bill to set aside. This line so leased includes two originally separate railroads, originally constructed and operated by two distinct corporations. The title of the Louisville & Nashville Railroad Company to these two roads is thus stated by the bill: That part of the line extending from Paducah, in Kentucky, to Lexington, Tenn., was constructed and owned by the Paducah, Tennessee & Alabama Railway Company, a corporation organized under the laws of both Kentucky and Tennessee. The remainder of the line was constructed and owned by the Tennessee Midland Railroad Company, a corporation of the state of Tennessee. Both companies became insolvent, and defaulted in interest payments upon mortgage bonds. Under distinct foreclosure proceedings in the circuit court of the United States for the districts of Kentucky and West Tennessee, those roads were sold, and bought by one J. W. Phillips, whose bid upon each was $1,000,000, chiefly payable in the mortgage bonds of the respective companies. Phillips' bid was much less than the mortgage debt of either road. The conveyance to Phillips of the properties so sold is dated December 13, 1895. Subsequently, Phillips conveyed the same properties to the Louisville & Nashville Railroad Company for a recited aggregate consideration of $3,093,000. This deed bears date as of December 14, 1895.

(4) The bill further charges that in 1879 or 1880 the Louisville & Nashville Railroad Company purchased $5,500,000 of the $10,000,000 capital stock of the Nashville, Chattanooga & St. Louis Railway Company, and has ever since owned and controlled same. This stock, constituting a majority of the shares of the said Nashville, Chattanooga & St. Louis Railway Company, was conveyed in trust to the Central Trust Company of New York, to secure an issue of bonds, with the proviso that the voting power belonging to said shares of stock should be exercised by the said Louisville & Nashville Railroad Company, by means of proxies to be given to it, or its appointees, by the said trust company, from time to time. The bill specifically avers that 'this purchase of stock was made for the direct purpose of overcoming a mischievous rival, and of increasing the revenue of the Louisville & Nashville Railroad Company, to the loss of the Nashville, Chattanooga & St. Louis Railway Company. ' It is further charged that 'the Louisville & Nashville Railroad Company, by virtue of this ownership of the majority of stock in the Nashville, Chattanooga & St. Louis Railway Company, has for years dominated and controlled the policy and business of the latter road, and still dominates and controls it, though the Nashville, Chattanooga & St. Louis Railway Company is operated in its own name. ' It is charged that through the voting power of this stock 'it has from year to year elected a board of directors subservient to its own purposes,' and that the present board of directors, which includes as a member Mr. M. H. Smith, the president of the Louisville & Nashville Railroad Company, was elected by the vote of its shares; and that this board, as well as its predecessors in office at the time of the transaction complained of, are entirely subservient to the will, wishes, and interest of the said Louisville & Nashville Railroad Company.

(5) The history of the contract under which the two roads were leased to the Nashville, Chattanooga & St. Louis Railway Company, as stated in the bill, is this: The board of directors of the Nashville, Chattanooga & St. Louis Railway Company, during the entire time covered by the transactions complained of was composed of 15 members. On the 13th of December, 1895, a called meeting of the board was held at Nashville, at which were present only eight members, to wit, J. W. Thomas, G. M. Fogg, A. H. Robinson, M. Burns, J. H. Eakin, E. L. Jordan, N. C. Collier, and J. G. Aydelotte. At that meeting a resolution was adopted in these words: 'Resolved, by the board of directors of the Nashville, Chattanooga & St. Louis Railway Company, that the lease by the Louisville & Nashville Railroad Company to this company of the railroads and properties of the Tennessee Midland Railway and the Paducah, Tennessee & Alabama Railroad for a period not exceeding six months, upon such terms and conditions as may be approved by the president of this board, be, and is hereby, ratified and approved, and the president and secretary are hereby authorized, empowered, and directed to execute such contracts as may be necessary to put same into effect. ' December 17, 1895, another called meeting of the board was held, there being only eight members present, when an agreement for a 99-year lease was laid before the board, and ratified by a resolution in these words: 'Resolved, by the board of directors of the Nashville, Chattanooga & St. Louis Railway Company, that the lease by the Louisville & Nashville Railroad Company to this company of the railroads and properties of the Paducah, Tennessee & Alabama Railroad and the Tennessee Midland Railway, as this day read, be, and the same is hereby, approved, subject to ratification by the stockholders; and the president and secretary are hereby authorized, empowered, and directed to execute said lease. ' Another called meeting of the board was held on September 9, 1896, at which was present complainant, Rogers, then, but not now, a director, and eight others. At said meeting the final lease was adopted by the vote of all save complainant, who protested and voted against its adoption. This adoption was not subject to ratification of the shareholders, as was the case with the action taken at the preceding meeting. On the same day, and immediately after this action, the annual meeting of the stockholders was held for the purpose of considering this lease and selecting a board of directors. Without doing either, this meeting was adjourned until December 8, 1896, by the vote of the shares held by the Louisville & Nashville Railroad Company. Complainant attended the said stockholders' meeting for the express purpose of opposing and defeating said lease, and had been given proxies by other minority stockholders to be voted in the same way, and represented and held proxies for more than 15,000 shares, a sufficient number to have defeated the lease under the law as complainant insists the law to be. To the adjournment he objected...