Stone v. Cleveland, C., C. & St. L. Ry. Co.

• Decision Date: 13 June 1911
• Citation: 202 N.Y. 352,95 N.E. 816
• Court: New York Court of Appeals Court of Appeals
• Parties: STONE et al. v. CLEVELAND, C., C. & ST. L. RY. CO. et al.

202 N.Y. 352

95 N.E. 816

STONE et al.

v.CLEVELAND, C., C. & ST. L. RY. CO. et al.

Court of Appeals of New York.

June 13, 1911.

Appeal from Supreme Court, Appellate Division, Fourth Department.

Action by Henry M. Stone and another against the Cleveland, Cincinnati, Chicago & St. Louis Railway Company and another. Judgment of the Fourth Appellate Division (136 App. Div. 907,120 N. Y. Supp. 1147) affirming a judgment for plaintiffs, and the named defendant appeals. Reversed, and new trial granted.

Thomas D. Powell, for appellant.

Irving W. Cole, for respondents.

HISCOCK, J.

Plaintiffs undertook to ship a car load of horses from Van Wert, Ohio, to Buffalo. Some of the horses being injured in transit, they recovered a verdict for damages against the appellant. It will be assumed without consideration that there was sufficient evidence on which to rest a verdict against some carrier. The only question which I shall consider is whether there was any proof establishing liability on the part of the appellant.

The point of shipment was situated on the Cincinnati Northern Railroad, and at the end of its line the horses were to be delivered to the New York, Chicago & St. Louis Railroad, which would carry them to the point of destination. The horses were received by, and the contract of shipment expressly and exclusively made with, the former company. No part of appellant's railroad proper was within the shipping route, and it did not directly or in name have anything to do with the shipment or become a party to the contract therefor. It is, however, claimed that indirectly it so controlled and operated the Cincinnati Northern Road as to be responsible for its transgressions, if there were any.

This claim, thus far approved of by the courts, rests on three lines of evidence, the important portions of which will be summarized.

Concededly the appellant owned a majority of the capital stock of the shipping road. By this stock of course it controlled the selection of directors, a minority of whom were directors of its own road. This board of directors selected the executive officers, several of whom respectively held corresponding or other places in the organization of the appellant. Such executive officers at some points occupied offices situate in the same building, and in one case in the same suite of rooms, with those maintained by the appellant. In various reports made, both by the appellant and the Cincinnati Northern, to public officials of the state of Ohio, it was stated in substance that the appellant ‘controlled’ the latter road, but in each case such reports by other information made it plain that the control there spoken of had reference to the ownership of a controlling amount of stock.

In the second place, a ‘folder’ and pages from a railroad guide were introduced which, amongst other things, advertised ‘New York Central Lines,’ and in connection therewith a ‘Big Four Route’ (appellant being known as the Big Four Railroad), and stated the aggregate ‘mileage of the Big Four Route as operated under the following divisions,’ one of which was the Cincinnati Northern Railroad. In addition, one of appellant's officials who was called as a witness stated that for advertising purposes the Cincinnati Northern Railroad was known as part of the ‘Big Four’ route or system.

Lastly, a livery stable keeper called by the plaintiffs and who had never been connected with the operation of either road swore in terms that the Cincinnati Northern was operated by the appellant. However, this testimony by which he essayed with considerable confidence to settle the legal relationship of two important railroad corporations, when stripped of what were mere conclusions, shrank to a statement that he had at times seen rolling stock of the appellant, like that of many other roads, pass over the Cincinnati Northern. We are so thoroughly agreed on the inconclusive character of this testimony that it may be eliminated from further discussion.

[1] Doing this, the question substantially becomes whether evidence makes one railroad corporation responsible for the ordinary daily operations of another, when it discloses that the first owns a majority of the capital stock of the latter and thereby controls its corporate organization, which, however, remains legally distinct and separate, and by reason of such stock control or other influence has assembled the latter road with others into a transportation‘route’ or system which is advertised and known by its name. I do not think that it does, and certainly, in my opinion, it does not warrant such a conclusion when, in addition to the facts thus summarized, it further appears, as in this case, that the subordinate railroad in all respects maintains its corporate identity, makes its own contracts, keeps its own accounts, collects its own revenues, and pays its own operating expenses, and that the only financial interest of the controlling road is by way of dividends on its stock.

[2] It is well established that the ownership of a majority of the stock of a corporation, while it gives a certain control of the corporation, does not give that control of corporate transactions which makes the holder of the stock responsible for the latter. This question was recently settled in Senior v. N. Y. City Ry. Co., 111 App. Div. 39,97 N. Y. Supp. 645; affirmed, without opinion, 187 N. Y. 559, 80 N. E. 1120. In that case it appeared that the defendant owned more than 90 per cent. of the capital stock of the Forty-Second Street Railroad Company, and operated a railroad intersecting the same. It was sought to hold it responsible for a penalty under a statute (Laws 1890, c. 565, § 101, amended by Laws 1897, c. 688, § 1), which provided that no corporation ‘constructing and operating a railroad’ should charge any passenger more than five cents for one continuous ride, etc. The defendant, subject to the general provisions of law, absolutely controlled the organization and thus indirectly the operations of the Forty-Second street line, but it was pointed out in the opinion of the Appellate Division that mere control of a corporation operating a railroad did not mean in a legal sense control of the operation of the road, and that a person could not be said to be in control of the management of the property of a corporation simply because he owned a majority of the latter's stock.

In Pullman Palace Car Co. v. Missouri Pac. Ry. Co., 115 U. S. 587, 596, 6 Sup. Ct. 194, 198 (29 L. Ed. 499), the plaintiff, under a contract whereby the defendant agreed to use the former's cars on ‘its own line of road and all roads which it now controls or may hereaftercontrol,’ etc., sought to compel the use of its cars on the St. Louis & Iron Mountain Railway on the ground that the defendant controlled the latter company. The court dismissed the bill, saying: ‘Confessedly the St. Louis, Iron Mountain & Southern Company keeps up its own corporate organization. It operates its own road. It has its own officers, and makes its own bargains. The Missouri Pacific owns all, or nearly all, its stock, and in that way can determine who shall constitute its board of directors, but there the power of that company over the management stops. The board when elected has controlling authority, and for its doings it is not necessarily answerable to the Missouri Pacific Company. The two roads are substantially owned by the same persons and operated in the same interest, but that of the St. Louis, Iron Mountain & Southern Company is in no legal sense controlled by the Missouri Pacific. * * * The Missouri...