Thompson v. Terminal Shares

• Decision Date: 10 May 1937
• Docket Number: No. 10731.,10731.
• Citation: 89 F.2d 652
• Parties: THOMPSON v. TERMINAL SHARES, Inc., et al.
• Court: U.S. Court of Appeals — Eighth Circuit

89 F.2d 652 (1937)

THOMPSON v. TERMINAL SHARES, Inc., et al.

No. 10731.

Circuit Court of Appeals, Eighth Circuit.

April 13, 1937.

Rehearing Denied May 10, 1937.

Jerome N. Frank, of New York City (Ernest A. Green and J. Porter Henry, both of St. Louis, Mo., and Culver, Phillip, Kaufmann & Smith, of St. Joseph, Mo., and Justin N. Reinhardt, of New York City, on the brief), for appellant.

Henry N. Ess, of Kansas City, Mo., and Godfrey Goldmark, of New York City (Elton L. Marshall, of Washington, D. C., and Max Freund and David W. Peck, both of New York City, on the brief), for nonresident appellees.

Richard L. Douglas, of St. Joseph, Mo. (Henry L. Jost and James S. Simrall, both of Kansas City, Mo., and William B. Cockley, of Cleveland, Ohio, on the briefs), for resident appellees.

Before GARDNER, SANBORN, and THOMAS, Circuit Judges.

GARDNER, Circuit Judge.

This is an appeal from orders sustaining motions to vacate an order for substituted service, to quash service of process thereon, to vacate and set aside an order for the issuance of writs of attachment, to quash writs of attachment and service thereof, to dismiss the cause, and to dissolve restraining orders. The cause was commenced as a suit in equity in a circuit court of the state of Missouri. Plaintiff below, appellant here, is trustee for the Missouri Pacific Railroad Company, a railway corporation in reorganization under the provisions of section 74 of the Bankruptcy Act, as amended (title 11 U.S.C.A. § 205). Nonresidents of Missouri who were made defendants are the appellees Terminal Shares, Inc., John P. Murphy, Henry A. Marting, and John J. Murray, as trustees, Alleghany Corporation, Guaranty Trust Company of New York, Marine Midland Trust Company of New York, and the members of Douglass & Co., a partnership. Other defendants and appellees were personally served within the state. The parties will be referred to as they appeared below.

Upon the verified pleading of the plaintiff, designated under the state practice as "petition," and an ex parte motion, the state court entered order for substituted service, both by publication and personal service without the state, as provided by sections 739 and 748, Revised Statutes of Missouri 1929 (Mo.St.Ann. §§ 739, 748, pp. 959, 971). Personal service without the state was made upon all the nonresident defendants, and publication of process was made in a Missouri newspaper. The state court also ordered that writs of attachment issue against the nonresident defendants, and attachment and garnishment processes were served upon the resident defendants, purporting to levy upon debts allegedly owing the nonresidents and certain stock owned by them in the resident companies. Temporary restraining order was entered against the resident defendants, enjoining them from permitting any transfer of any stock standing on their books in the name of any of the nonresident defendants.

After the foregoing proceedings had been had and taken in the state court, the suit was removed to the United States District Court for the Western District of Missouri. All the nonresident defendants appeared specially and filed motions to vacate the order of the state court for service of process on them and the service purporting to have been made thereunder, to quash the order for attachment and the attachments and garnishments pursuant thereto. The resident defendants did not, of course, attack the service of process on them, but moved to dissolve the temporary restraining order and to dismiss the bill because it did not state facts sufficient to entitle plaintiff to any relief as against them. All of these motions were granted, resulting in the orders from which this appeal is taken.

From a careful and painstaking reading of the voluminous bill of complaint, it appears that there are four contracts, all dated December 31, 1930, involving the sale of either all or two-thirds of the capital stock of the resident defendant corporations and certain obligations owing by them. The Missouri Pacific Railroad Company executed these contracts as buyer, and Terminal Shares Inc., executed them as seller. The total purchase price to be paid was $20,334,164, with interest from December 31, 1930. The contracts were drawn subject to the necessary approval or authorization of the Interstate Commerce Commission. The property described in the contracts was deposited in escrow with the defendant Guaranty Trust Company of New York. The railroad company had paid thereon $3,200,000, in quarter annual installments of $400,- 000 each, the last payment being made December 31, 1932. Alleghany Corporation controlled the voting stock of the Missouri Pacific Company. O. P. Van Sweringen was chairman of the board of the Missouri Pacific Railroad Company and with his brother controlled Alleghany Corporation. The payment of $3,200,000 by the railroad company was made because of compulsion by Alleghany Corporation. All nonresident defendants had notice of the terms of the contracts. Terminal Shares, Inc., is insolvent.

The bill contains other allegations showing the relations, past and present, of the various defendants to the Missouri Pacific Railroad Company, to each other, and to the transactions involved, and their interest, if any, in the property against which plaintiff seeks to enforce a lien.

The bill charges that the contracts are invalid and unenforceable for the following reasons: (1) They were procured by fraud and coercion practiced on the Missouri Pacific Railroad Company, are improvident, unfair, unlawful, and overreaching and were executed by the railroad company because of the domination and control by the Alleghany Corporation over both the seller and buyer in the contracts, which violated the fiduciary duty owing the railroad company by Alleghany Corporation; (2) they are ultra vires on the part of the railroad company, in violation of sections 4546, 4555, 4654, 4655, 4659, 4666, Revised Statutes of Missouri 1929 (Mo.St.Ann. §§ 4546, 4555, 4654, 4659, 4666, pp. 1994, 1999, 2070, 2079, 2081), and sections 6 and 7, article 12, of the Missouri Constitution and of the railroad's charter; (3) they are in violation of the provisions of section 10 of the Clayton Act (title 15 U.S.C.A. § 20); (4) they were never submitted to the Interstate Commerce Commission for approval, as required by title 49 U.S.C.A. § 5 par. (2).

The bill asks a decree (1) for a rescission of the contracts; (2) that plaintiff had an equitable lien upon the property to the extent of the amount paid on the purchase price; (3) that defendants be required to account to plaintiff for payments made under the contracts; (4) that defendants be enjoined from transferring any shares of stock or obligations the subject-matter of the contracts; (5) that upon the equitable lien being decreed, the court order the property sold and the proceeds derived therefrom applied to the discharge of the lien.

An amended bill was filed by leave of court after process had been served and after defendants had entered their special or general appearances and filed their respective motions, but in our view of the issue presented, this amended bill cannot be considered because the jurisdiction of the court to make the order for substituted service must be tested by the facts as presented to the court at the time of the making of the order.

The nonresident defendants who, as already forecast, appeared specially and interposed the motions heretofore described, bottomed their motions upon the contentions that it appeared upon the face of plaintiff's bill that the relief sought was in equity and was of such nature that neither the lower court nor the state court from which said cause was removed had jurisdiction over the person of the defendants, and that neither of said courts had lawful right to compel the nonresident defendants, upon the service of process made outside of the state of Missouri, to defend in said suit; that under the statutes and decisions of the state of Missouri the issuance of an attachment or garnishment was illegal and void; that the property upon which the vendee's lien is sought to be enforced was personal property and that the interest of the nonresident defendants therein was not such as, under the laws of the state of Missouri and the decisions of that state, might be attached or garnisheed; that the suit being one in equity and not brought for partition, divorce, the foreclosure of a mortgage or deed of trust, or the enforcement of a mechanic's lien, or any other lien against either real or personal property, the statutes of Missouri did not authorize substituted service upon nonresident defendants; that the bill disclosed that the purported cause of action against the nonresident defendants was in personam; and that the immediate object of the bill was to procure an adjudication in personam against the nonresident defendants upon service of process without the state. The motions were all on substantially the same grounds.

On this appeal it is contended by plaintiff that the suit was one in rem to foreclose an existing vendee's or equitable lien on property within the jurisdiction of the court, and therefore it was error to dismiss the suit for lack of jurisdiction.

Exhaustive and searching briefs going to every phase of the alleged cause of action on its merits have been filed by the respective parties. The issue, however, is confined to the sole question of whether the lower court acquired jurisdiction to decide a justiciable controversy between the parties, and this is dependent upon the nature of the cause of action alleged, and not whether the plaintiff may ultimately be entitled to the relief demanded. Jurisdiction is the authority to hear and determine a cause. It does not depend upon the regularity of the exercise of that power, nor upon the correctness of the decision made, for the power to decide necessarily carries with it the power to decide wrongly as well as...