State of Iowa v. Old Colony Trust Co. of Boston, Mass.

• Citation: 215 F. 307
• Parties: STATE OF IOWA et al. v. OLD COLONY TRUST CO. OF BOSTON, MASS., et al.
• Decision Date: 01 April 1914
• Court: U.S. Court of Appeals — Eighth Circuit

215 F. 307

STATE OF IOWA et al. v. OLD COLONY TRUST CO. OF BOSTON, MASS., et al.

United States Court of Appeals, Eighth Circuit.

April 1, 1914

In a suit to foreclose a mortgage given by the Ft. Dodge, Des Moines & Southern Railroad Company to secure the payment of a large issue of bonds, the court below, on the petition of the receivers appointed in that case, joined in by the railroad company itself, by the Old Colony Trust Company, complainant in the foreclosure suit, and by the American Trust Company an intervener in that suit and trustee in a second or junior mortgage given by the railroad company to secure an issue of $3,500,000 of refunding bonds, on December 7, 1912, made an order directing the receivers to dismantle and abandon a stretch of about 27 miles of the road in their possession extending from Goddard near its southeastern extremity to Des Moines Junction and to sell and dispose of the rails, ties and other movable property constituting the roadbed along that stretch and also to sell as an entirety so much of the line of road as lies between Colfax by way of Goddard and Newton. From this order the state of Iowa, the railroad commissioners of that state, and some individual patrons along the line of the road prosecute an appeal.

Prior to the filing of that petition, the state of Iowa joined by several patrons of the road had filed a petition to compel the receivers to continue the operation of the line sought to be abandoned. The petition was heard by the court on voluminous evidence taken, and overruled. At that hearing the court found that there was not sufficient public patronage on that line to justify its continued operation, but ordered the receivers to continue its operation in a limited way for a period of four weeks, and that for a period of 90 days special efforts should be made to sell or lease the line to some party or parties who would operate it; and if neither of these expedients proved successful that an application for its abandonment would be considered. The parties seem to have acquiesced in this order. No appeal was taken from it. Neither of these expedients proved successful, and the present petition of the receivers to abandon followed petition of the receivers to abandon followed.

The petition stated that the main line of road extending from Des Moines through Des Moines Junction to Rockwell City and other places had been constructed, extended, and reconstructed so as to form at the time the petition was filed a continuous connected system operated by electricity of about 125 miles; that the line extending from Des Moines Junction southeasterly to Goddard and thence to Newton had never been reconstructed like the balance of the system so as to be operated by electricity, but was operated by steam; that it was in a dilapidated and unsafe condition with ties rotten and bridges out of order; that to repair it so as to operate it by steam would require an expenditure of $125,000, and to repair and equip it for operation by electricity would require an additional amount of $275,000; that the receivers had no money and no means for raising the money for either such purpose; that there were few patrons only residing or doing business on this steam line that could not be accommodated by other lines of road constructed and operated in that region; that there was little public necessity for the operation of this line; and that the attempt to do so would imperil the successful operation of the balance of the system for which there was a great public necessity.

The petition stated that a part of this line located near its southeastern extremity extending from Colfax to Newton by way of Goddard, a distance of about 14 miles, was by reason of the fact that it could be used as a connection between a Des Moines interurban line and Newton, of some value above its junk or dismantled value, and might be sold for its reasonable value to the interurban line.

The prayer was that the petitioners might be authorized to dismantle and abandon the line of road between Des Moines Junction and Goddard and dispose of the salvage as best they could and that they might be authorized to sell the short line between Colfax, via Goddard and Newton, and that the court would order a proper and equitable disposition of the proceeds of such sales. There was also a prayer for general relief.

The state of Iowa by its Attorney General and the railroad commissioners of that state and some residents along the line sought to be abandoned, intervened and joined issue with the petitioners on the averments of the petition and pleaded affirmatively that there was an implied contract between the state and the original railroad company which constructed the line of road sought to be abandoned, that it should be perpetually operated, and that on the assurance that it would be perpetually operated certain persons had made donations and subscriptions for the construction of the road, and for that reason estoppel arose against its abandonment.

The issues so joined were submitted to the court 'on the evidence and on the argument of counsel'; but no such evidence is preserved in the record. We therefore cannot enter upon any original consideration of the testimony introduced before the trial court. All we have are the pleadings and facts found and incorporated in the order and decree of December 7, 1912, appealed from in this case.

The question therefore is whether on the pleadings and facts found the District Court erred in ordering the dismantling and abandonment and the sale and disposition respectively of the two portions of the line in question.

The decree discloses the following facts: On June 4, 1910, when the foreclosure suit was instituted, the Ft. Dodge, Des Moines & Southern Railroad Company was hopelessly insolvent. There were then outstanding bonds secured by the mortgage being foreclosed amounting to $3,500,000 in face value. There had been expended by the Ft. Dodge, Des Moines & Southern Railroad Company and the Newton & Northwestern Railroad Company, its predecessor, in the way of construction and reconstruction of the system of road, the aggregate sum of $5,146,189. There never had been net earnings available to pay interest on the mortgage debt or any return on the investment. Under orders of the court efforts had been made by the receivers and by Robert Ryan, one of the attorneys of patrons of the road residing along its line who had been appointed special master for that purpose, to sell, lease, or otherwise dispose of the line of road sought to be abandoned to some person or company that would operate it, but such efforts had proven ineffectual.

The decree then in the language of the trial court proceeds as follows:

'The court finds that the line of road from Des Moines Junction to Newton, and the line from Colfax to Goddard, is in a very dilapidated condition, and, not being operated, it is impossible to care for same, and the same is in a much more dilapidated and run down condition than it was at the commencement of this foreclosure proceeding, and such line of road is rapidly depreciating in value; that the bridges need rebuilding, the tracks need reconstruction and new ties, and it would be dangerous and impossible to operate said line of road in its present condition. The court further finds: That the said Ft. Dodge, Des Moines & Southern Railroad Company and its receivers have no equipment, motive power, or rolling stock with which such line of road could be operated. * * * That the portion of the line sought to be abandoned could not be safely operated without being rebuilt or reconstructed, and to rebuild and reconstruct this line of road, so that same could be operated by steam, with reasonable safety, would require an expenditure of at least $126,000, that, if the said line of road above described was electrically equipped, so that same could be operated with electricity, as the balance of the line of the Ft. Dodge, Des Moines & Southern Railroad is operated, it would require an additional expenditure of at least $147,000, making the financial outlay necessary to electrically equip the said line of road from Des Moines Junction to Newton, with the branch from Colfax to Goddard, in excess of $273,000. That the receivers of the Ft. Dodge, Des Moines & Southern Railroad Company, and the said railroad company, are wholly without means or credit to so reconstruct and rehabilitate said line of road.

'The court further finds that during the ten months from January 1 to November 1, 1910, while the said line of road from Des Moines Junction to Newton, a distance of 37 miles, was being operated, the gross earnings for such period were $25,266.45 less than the operating expenses, and in this deficit of operation expenses over gross earnings

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