St. Louis-San Francisco Ry. Co. v. McElvain

• Decision Date: 28 June 1918
• Docket Number: 4858.
• Parties: ST. LOUIS-SAN FRANCISCO RY. CO. v. McELVAIN.
• Court: U.S. District Court — Eastern District of Missouri

253 F. 123

ST. LOUIS-SAN FRANCISCO RY. CO. v. McELVAIN.

No. 4858.

United States District Court, E.D. Missouri.

June 28, 1918

Cravath & Henderson, of New York City, and William F. Evans, of St Louis, Mo. (Robert T. Swaine, of New York City, of counsel) for complainant.

C. G Shepard, R. L. Ward, and Everett Reeves, all of Caruthersville, Mo., for defendant.

SANBORN Circuit Judge.

This is an application for a preliminary injunction to prevent J. M McElvain from further prosecuting an action he has brought in the circuit court of Pemiscot county, Mo., against the complainant, St. Louis-San Francisco Railway Company, a corporation, and the purchaser at the foreclosure sale under the final decree of this court in North American Co. v. St. Louis & San Francisco Railroad Co. (in Equity, No. 4174, Consolidated Cause Final) 246 F. 260, and other cases, of all the property of that railroad company. McElvain's alleged cause of action is that the railroad company was indebted to him before the receivers of its property were appointed on May 27, 1913; that the final decree of foreclosure of the mortgages on its property and the sale thereof under that decree were made under a pre-conceived plan and agreement of the bondholders and stockholders of that corporation, whereby for their stock those stockholders received stock and bonds of the railway company which in effect bought at the sale under the decree and now holds the property of the railroad company. In its complaint the complainant has alleged the pertinent proceedings in the consolidated cause and in its constituent causes, and the nature of McElvain's action, including these facts:

The receivers of all the property of the railroad company were appointed on a general creditor's administrative bill in May, 1913, for the benefit of all the creditors of that corporation as their respective interests might appear. The bill in that suit was a class bill, brought by North American Company, a general creditor secured by none of the mortgages that have been foreclosed, a creditor of the same class as McElvain, for the benefit of itself and all others of that class. On April 3, 1914, Rail Joint Company, a corporation, and an unsecured creditor of the railroad company, filed its complaint in this court against the railroad company in behalf of itself and all other creditors of that company, alleged the insolvency of the railroad company, and prayed for the appointment of receivers of its property, the administration thereof, and the enforcement of the liens, rights, and claims of all its creditors. The railroad company answered, and on the complaint and answer this suit was, by order of this court, made on April 3, 1914, consolidated with the suit of the North American Company, and the appointments of receivers and all other orders in that suit were extended over the second suit and the consolidated cause, and the latter cause was named 'North American Co., Complainant, v. St. Louis & San Francisco Railroad Co., Defendant, in Equity, No. 4174, Consolidated Cause. ' On May 29, 1914, this court rendered an interlocutory decree in this consolidated cause No. 4174, to the effect that all the property of the railroad company was thereby sequestered and set apart to pay the debts and obligations of or against the railway company, that all the holders of claims or demands against the railroad company, and all persons who claimed any interest in or lien upon any of the funds or property in the hands of the receivers as creditors of the railroad company, should file verified statements of their claims with the special master, Hon. Thomas T. Fauntleroy, at St. Louis, Mo., on or before October 1, 1914, and that each of them who failed so to do should thereby be barred from any share in the distribution of any of said funds or property, or the proceeds thereof. McElvain filed his claim against the railroad company with the master under this interlocutory decree, and it was allowed by the master and this court as a general unsecured creditor's claim.

On May 22, 1914, the trustees under the general lien mortgage of the railroad company, dated August 27, 1907, filed their complaint in this court against the railroad company for the administration of the trusts created by that mortgage, its foreclosure, the appointment of receivers, and a sale of the property of the mortgagor covered by it to satisfy the debt which it secured. On July 9, 1914, the trustee of the refunding mortgage of the railroad company, dated June 20, 1901, filed its complaint in this court against the railroad company for the foreclosure of that mortgage, the appointment of receivers, and the sale of the property of the railroad company to satisfy the debt secured by that incumbrance. By an order of this court made on January 21, 1916, and by prior orders, all the suits hereinbefore mentioned were consolidated into the suit entitled 'North American Co., Complainant, v. St. Louis & San Francisco Railroad Co., Defendant, in Equity, No. 4174, Consolidated Cause, Final,' and the final decree was rendered in this consolidated cause, and also in each of the cases brought by North American Company, Rail Joint Company, the trustees under the general lien mortgage, and the trustee under the refunding mortgage, respectively.

That decree adjudged the respective rights of all the creditors of the railroad company in the mortgaged property and in the property free from mortgages, and in the distribution of the proceeds thereof, excepting only such rights and claims as by the decree were expressly reserved for the exclusive subsequent determination of this court. It adjudged the foreclosure of each of the mortgages, the sale of all the property of the railroad company, the application of the proceeds of its mortgaged property to the payment of the debts secured thereon and to the payment of the claims prior in right or superior in equity to those of the bondholders, and the application of the proceeds of the sale of the property that was free from mortgages to the payment of the creditors who had established their claims under the interlocutory decree according to their respective equities. Practically all the available property of the railroad company was covered by the mortgages, and the final decree rendered on March 31, 1916, provided that after the sale under the decree and the confirmation thereof the master should convey all the property to the purchaser, and that after such conveyance the purchaser should hold, possess, and enjoy that property free from the liens of the mortgages mentioned, and free from all claims, rights, interests, or equities of redemption of the railroad company, of its creditors and stockholders, and of all persons claiming through or under them.

The decree, however, in effect provided that, if the sale should be made to any purchaser for the benefit of any corporation organized, or to be organized, pursuant to any plan or agreement whereby any stockholder or stockholders of the railroad company should receive any stock, bonds, or other beneficial interest in such corporation on account of their stock in the railroad company, the sale would not be confirmed, unless there had been made to creditors of the railroad company who had presented their claims to the master or the court, in accordance with the orders of this court, a fair and timely offer of participation in such corporation through stocks, bonds, or otherwise. The sale under the final decree was made to or for the benefit of the complainant on July 19, 1916, pursuant to a plan and agreement made by the bondholders secured by the two mortgages and the stockholders of the railroad company, dated November 1, 1915, whereby the stockholders of the railroad company, upon the payment of certain specified amounts in cash, were entitled to receive certain amounts of bonds and stock of the complainant in proportion to the rank and amounts of the stock of the railroad company which they held and either assigned or surrendered. Before the sale under the final decree an offer was made to McElvain and to the other unsecured creditors, who had proved their claims before the master, of $50 par value of the 6 per cent. noncumulative preferred stock, and $50 par value of the common stock of the railway company for each $100 of their duly presented claims, and this offer to McElvain has since been repeated, the last time on March 1, 1918, but he has always rejected it.

After the sale under the decree notice was given to the railroad company and its attorneys in the consolidated cause final No. 4174, that a motion would be made to confirm the sale on August 29, 1916. Louis Houck and seven other unsecured creditors of the railroad company filed objections to the confirmation of the sale, which raised for determination by the court all the issues sought to be raised by McElvain by his action in the circuit court of Pemiscot county, Mo.; that is to say, that, because the railway company was organized for the purchase of the property at the sale under the decree pursuant to the plan and agreement whereby the stockholders of the railroad company were offered bonds and stock of the railway company upon the payment of certain amounts in cash and the surrender or assignment of their stock in the railroad company, a fraud was perpetrated on the unsecured creditors of the railroad company; that the railway company would not pay the full value of the property formerly owned by the railroad company, and would not pay for that property under the decree; that that property was, and after the sale still would be, subject to the payment of the claims of the unsecured creditors; and that the railway company would still be legally liable to pay them the amounts of their claims...