Simpson v. South Western Railroad Company, 15765.

• Decision Date: 20 March 1956
• Docket Number: No. 15765.,15765.
• Citation: 231 F.2d 59
• Parties: W. H. B. SIMPSON et al., Appellants, v. SOUTH WESTERN RAILROAD COMPANY and Central of Georgia Railway Company, Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

231 F.2d 59 (1956)

W. H. B. SIMPSON et al., Appellants, v. SOUTH WESTERN RAILROAD COMPANY and Central of Georgia Railway Company, Appellees.

No. 15765.

United States Court of Appeals Fifth Circuit.

March 20, 1956.

Charles J. Bloch, Bloch, Hall, Groover & Hawkins, Macon, Ga., for appellants.

John B. Miller, Gen. Counsel, Savannah, Ga., H. D. Russell, Walter A. Harris, Macon, Ga., Harris, Russell, Weaver & Watkins, Macon, Ga., Miller & Beckmann, Savannah, Ga., of counsel, for appellees.

Before BORAH, TUTTLE and BROWN, Circuit Judges.

TUTTLE, Circuit Judge.

This is an appeal from an order of the District Court denying a motion to remand to the state court and an order dismissing the complaint originally filed by appellants, as minority stockholders of the South Western Railroad Company¹ against their own corporation, its directors and officers and the Central of Georgia Railway Company, alleging that under the provisions of a Georgia statute they were proceeding to prevent an ultra vires act in the nature of an agreement between South Western and Central whereby Central was to take possession of and operate all the railroad facilities of South Western.

The principal question decided by the trial court and the principal question presented on appeal is whether an action ostensibly posited on a state statute authorizing a minority stockholder suit against their own corporation, and an allegedly oppressive majority, acting for their own and not the corporation's interests is nevertheless a "civil action of which the district courts have original jurisdiction founded on a claim or right arising under the constitution, treaties or laws of the United States"² and is thus removable to the Federal Court if it seeks, in fact, to have the state court enjoin or suspend or set aside a course of action which the Interstate Commerce Commission has specifically authorized by appropriate order. The relevant sections from the statute which appellees point to as the laws of the United States on which appellant's right is founded are reproduced in the margin.³

Litigation between these parties or others asserting substantially the same conflict of interests has been long and arduous. It has been before this court previously in other aspects in Benton v. Callaway, 5 Cir., 165 F.2d 877, affirmed sub nom. Callaway v. Benton, 336 U.S. 132, 69 S.Ct. 435, 93 L.Ed. 553. It has been before a three judge district court in Benton v. United States, 114 F.Supp. 37, and before the Supreme Court of Georgia in South Western R. Co. v. Benton, 206 Ga. 770, 58 S.E.2d 905, certiorari denied 340 U.S. 815, 71 S.Ct. 44, 95 L.Ed. 599. The fact that there has already been a long story of litigation involving the effort of this small minority of the stockholders to achieve an opportunity to challenge what has seemed best for the corporation to the overwhelming majority, does not prevent our treating this chapter of the story with all the consideration which litigants have the right to command, when, as here, they appear to be standing on what they urge as rights accorded them under state laws. The failure of this court to repeat in wealth of detail all of the allegations of the complaint does not justify the conclusion that we have not carefully reviewed them in testing the analysis made of them by the trial court. Such omission from this opinion is made possible by the very excellent statement of the case by the able trial judge in his opinion which is reported at 128 F.Supp. 532.

In essence the appellants charge that the Central of Georgia Railway Company had acquired some 98% of the stock in South Western; that the interests of the majority were thus to favor Central; that Central selected the directors, eliminating any who were not Central employees; that there existed a dispute between South Western and Central as to the state of accounts between them resulting from operations subsequent to 1948; that Central's representatives on South Western's board were not interested or alert in asserting the point of view of South Western; that the new board, with majority stockholder's approval, had negotiated an agreement with Central to operate the railroad properties of South Western on terms unfair to South Western stockholders other than Central, such operating agreement being subject to the approval of the Interstate Commerce Commission; that such agreement amounted to a lease of the South Western road and transfer of its franchise, which was ultra vires and void under the Georgia laws; that South Western had some $1,200,000 worth of bonds and other liquid assets which had been turned over to the new officers upon their taking control.

Having thus charged, appellants prayed the court to decree the operating agreement to be "ultra vires, null and void"; that it would cause serious injury to South Western and it was oppressive; that it be cancelled and operations under it be restrained and enjoined; that an accounting be rendered by defendants as to the disposition of the securities with a return of any of them that might have been transferred to Central in satisfaction of any alleged indebtedness or for any other purpose, pending a final determination of "all differences between South Western and Central."

Several basic facts emerge from even this short recitation of allegations and prayer for relief. The first is that the complaint definitely asked the Superior Court of Bibb County, Georgia to enjoin the operation of an agreement which had been authorized by the Interstate Commerce Commission. The court may take judicial notice of such order. The second is the fact that the complaint did not purport on its face to touch on any order of the Commission, although one had in fact been entered prior to the filing of the suit. The third is that no cause of action is asserted in the complaint other than that attacking the validity of the operating agreement and the right of the plaintiffs to bring the action under the Georgia statute, there being no separate cause of action for an accounting between the two corporations or an action for damages for improper management for prior years or a showing of irreparable injury or insolvency of defendants to support an action to enjoin the transfer of securities alone.

Thus, there is here nothing more or less than a state court suit seeking to prevent the defendants from carrying out an operating agreement between two railroad companies, both admittedly subject to all proper action of the Interstate Commerce Commission, which at the time of the filing of the suit had entered an order specifically authorizing it.⁴

It seems to us that the appellants are here forced into the narrow position of arguing that this suit is not a suit to "suspend, enjoin, annul or set aside" an order of the Interstate Commerce Commission because all it seeks is to suspend, enjoin, annul and set aside a course of action that the Commission order has approved and authorized. Further, it appears that this position is supportable, if at all, on two grounds: first, that the complaint must be looked at without reference to any outside pleadings or documents to determine whether it is a suit which "arises under the Constitution, laws or treaties of the United States"; second, that if the order of the ICC is to be considered, it is only permissive, and a suit to enjoin action authorized by the Commission is not a suit to enjoin an order of the Commission.

We find that both of these propositions have been decided against the contention of the appellants by the Supreme Court, the first in Lambert Run Coal Co. v. Baltimore & Ohio R. R. Co.⁵ and the second in Venner v. Michigan Central R. R. Company.⁶

Under our constitutional system Congress, of course, has plenary power to regulate commerce among the states. It had full power, therefore, to create the Interstate Commerce Commission and to prescribe its duties, giving to it such powers as necessary to accomplish its purpose, even though they might override powers otherwise belonging to the states. It also, of course, has full power to prescribe limitations on reviews and appeals from the actions of the Commission. This it has done in providing: that "the district court shall have jurisdiction of any civil action to enforce, enjoin, set aside, annul or suspend, in whole or in part, any order of the Interstate Commerce Commission"⁷; that "the procedure in the district courts in actions to enforce, suspend, enjoin, annul or set aside in whole or in part any order of the Interstate Commerce Commission * * * shall be as provided in this chapter"⁸; that "all actions specified in section 2321 of this title shall be brought by or against the United States"⁹; and that "an interlocutory or permanent injunction restraining the enforcement, operation or execution, in whole or in part, of any order of the Interstate Commerce Commission shall not be granted unless the application therefor is heard and determined by a district court of three judges under section 2284 of this title."¹⁰

In the Lambert Run Coal Company case, supra, the plaintiff brought an action in the state court to enjoin the defendant railroad from following rules for the distribution of cars which had been prescribed by the Interstate Commerce Commission. The suit made no mention of this latter fact. The suit was remanded, and the district court, sitting without invoking a three judge court, granted an injunction. The Supreme Court, on appeal, affirmed the action of the Court of Appeals for the Fourth Circuit, 276 F. 776, in reversing the judgment of the district court, but further held that the Court of Appeals should have ordered a dismissal of the case. The Supreme Court said 258 U.S. 377, 42 S.Ct. 351:

"* * * The fact that this was a suit to set aside an order of the Commission did not appear on the face of the bill; but it became apparent as soon as the motion to dismiss was filed. Jurisdiction cannot be effectively acquired by

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