Stirling v. Seattle, R. & S. Ry. Co.

• Citation: 198 F. 913
• Decision Date: 22 August 1912
• Docket Number: 2,158.
• Parties: STIRLING et al. v. SEATTLE, R. & S. RY. CO.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

198 F. 913

STIRLING et al. v. SEATTLE, R. & S. RY. CO.

No. 2,158.

United States District Court, W.D. Washington, Northern Division.

August 22, 1912

C. G Little and Walter S. Fulton, for complainants.

Kerr &amp McCord, for defendant.

CUSHMAN District Judge.

This suit was brought by certain bondholders and creditors of the defendant, alleging the insolvency of the defendant and praying for the appointment of a receiver to take charge of all of the defendant's property, the ascertainment of claims against the estate for the sale of the property, the payment of the claims, and for general relief.

Upon the same day that the complaint was filed the defendant answered, admitting the allegations of the complaint, and a receiver was thereupon appointed. Thereafter one William R Crawford, a stockholder of the defendant, asked leave to file a petition and affidavit, purporting to show lack of jurisdiction in this court. The request was denied. Petitioner applied for a writ of mandate in the Court of Appeals of the Ninth Circuit, upon the hearing of which that court ordered the filing in this court of said petition directing that it be considered and determined.

The petition alleges want of jurisdiction in that, at the time of the commencement of the suit in this court, there was another action pending in the superior court of the state of Washington between the same parties, concerning the same subject-matter, and for the same relief.

The plaintiffs herein answered the petition, admitting the pendency of the action in the state court, but denying that it was similar to the suit in this, either as to parties, subject-matter, or relief sought.

The issue thus made was tried upon affidavits and court records, which show that the suit pending in the state court, which it is claimed ousted the jurisdiction of this, is between William R. Crawford, plaintiff, and the Seattle, Renton & Southern Railway Company, a Washington corporation, William R. Stirling, Augustus Peabody, Alexander Smith, James L. Houghteling, Jr., copartners doing business under the style and firm name of Peabody, Houghteling & Co., Augustus S. Peabody and First Trust & Savings Bank of Chicago, Ill., an Illinois corporation, trustees, and Augustus S. Peabody, trustee, defendants, thus including all the parties to the present suit as defendants therein, together with certain trustees.

The complaint states the incurring of the debts by the railway company, made the basis of plaintiffs' suit herein. That the security for these obligations were held by certain trustees for the benefit of Peabody, Houghteling & Co. That the defendant Peabody, Houghteling & Co. wrongfully refused to purchase certain of the railway company's bonds covered by said security which they had therein agreed to buy. That thereby the defendant railway company was forced to issue notes to the defendant Peabody, Houghteling & Co., secured by all the stock of its stockholders, save five shares, which were withheld to qualify its trustees.

They were further compelled to give an option on all the stock, retire the board of trustees and put in their place agents of Peabody, Houghteling & Co.; that the defendant railway company was further compelled to pledge its net income to be forwarded each month to the Peabody, Houghteling & Co. in Chicago, the fund thereby created to be used for the sole purpose of paying the interest on the bonds and notes owing said firm.

That, at this time, there were pending certain suits in the state court for the reduction of fares on the line of the defendant railway company, which, if successful, would render it unable to pay the interest on its bonds and notes. That the defendant Peabody, Houghteling & Co. agreed to defend these suits and, if necessary, bring and prosecute a suit in this court to prevent this reduction.

That, during the term of the option on the stock, the defendant Peabody, Houghteling & Co. demanded and took over the entire property of the railway company and thereafter exercised complete control of it, claiming full authority to direct its affairs, without reference to the board of trustees, taking upon themselves all corporate powers.

That, from the time said firm took control of the railway company, they failed and refused to set aside the net income, as agreed, for the payment of the interest on the bonds and notes. That ever since that firm has refused to proceed, as agreed, with the suits to prevent the reduction of its fares, and has prevented the railway company from so proceeding; has refused to fix a tariff, as provided by law, that would pay the expenses of operation and interest on the debt.

That in April, 1912, the said firm notified the plaintiff in that suit, William R. Crawford, that the railway company had no money to pay the semiannual interest falling due May 1st. That this was the first that such plaintiff knew that the net income and other money, the proceeds of the sale of the notes remaining in the hands of said firm, had not been set aside for that purpose, as agreed. That, four days later, the annual stockholders' meeting of the railroad company, provided by law, was to be held. That at such meeting the president of the railway company, the agent of the said firm, acting at its instance and under its direction, adjourned the meeting until June 12th, refusing to disclose the condition of the company and forestalling any consideration of its affairs or ways and means to provide for the payment of such interest, and thereafter refused to call any stockholders' meeting for that purpose.

That all this was done by the defendant firm and its agents to procure default in the payment of the interest due May 1st, to render valueless the period of grace allowed after default, under the terms of the agreement of the parties, and to obtain the stock of the company and its property.

That, in violation of the trust deed securing the bonds, the defendant firm, in the furtherance of this conspiracy, had caused its agent, the president of the railway company, to issue to them demand notes in large amounts.

That a large amount of permanent improvements had been made to said railway company's property by said firm and unnecessary equipment bought, in order to dissipate its income and money on hand, thus insuring default in the payment of the interest to them, and that they might become the owners of the railway company's stock and its property.

The plaintiff, with other relief, prayed for an accounting between the defendant railway company and the defendant Peabody, Houghteling & Co., and Peabody, trustee; that all money expended in unnecessary betterments and maintenance be charged to said firm; that said firm be compelled to pay the semiannual interest on the bonds and notes, thereby preventing a default; that a default and forfeiture on account of a failure to pay this interest be enjoined; that the board of trustees of the defendant railway company be adjudged the possession and control of its property; that the defendant Peabody, Houghteling & Co., and Peabody, trustee, be decreed usurpers, having no right to its management, control, or property; that a receiver be appointed to take possession and management of the railway company's property, its books, papers, and files, and to be vested with all the authority usually vested in like cases, the receiver not to allow or permit any of the records or books of the company to be changed or taken from his possession, or permit said firm, or any of its agents, to cancel, transfer, or reissue any stock on the books of the company, to preserve, during the receivership, the status quo of said property and effects, to conserve and preserve, during the receivership, the property and assets of the defendant railway company, and for general equitable relief.

The petition challenging the court's jurisdiction showed that, subsequent to the filing of this bill of complaint, in the state court, there was filed, in the same suit, a supplemental bill of complaint, alleging the failure of the defendant railway to pay a number of plaintiff's debts therein enumerated; that for a long time prior to May 1, 1912, that company had been in imminent danger of insolvency; that ever since May 1, 1912, it had been insolvent. The supplemental complaint prayed for the appointment of a permanent receiver.

The evidence shows the following proceedings in the state court, upon the complaint therein, prior to the filing of a bill of complaint in the suit in this court:

An order appointing a temporary receiver, with an order directed to the defendant railway company to show cause why a permanent receiver should not be appointed, which receiver thereafter qualified and took possession of the defendant railway company's property.

The appearance by the railway company, asking the transfer of the cause to another judge of the same court and an order granting the same.

The filing of a number of affidavits on the part of the plaintiff and the defendant railway company on the question of the continuance of the receivership.

An order made, discharging the temporary receiver on May 8, 1912. An order denying the appointment of a permanent receiver on the same day and the filing of a supplemental complaint by the plaintiff, alleging that the defendant railway company was in imminent danger of insolvency prior to May 1st, and that it had been insolvent ever since that date.

May 10th. A nunc pro tunc order, as of May 8th, denying the appointment of a permanent receiver upon the complaint and supplemental complaint.

May 13th. An affidavit for the publication of summons, directed to the nonresident defendants; that is, all of the defendants other than the defendant railway company.

On the next day, May 14th,...