United States v. Union Pacific Railroad Company

• Citation: 98 U.S. 569,25 L.Ed. 143
• Parties: UNITED STATES v. UNION PACIFIC RAILROAD COMPANY
• Decision Date: 01 October 1878
• Court: United States Supreme Court

98 U.S. 569

25 L.Ed. 143

UNITED STATES v. UNION PACIFIC RAILROAD COMPANY.

October Term, 1878

APPEAL from the Circuit Court of the United States for the District of Connecticut.

The act of Congress making appropriations for the legislative, executive, and judicial expenses of the government, approved March 3, 1873 (17 Stat. 509), has the following language in its fourth and last section:——

'The Attorney-General shall cause a suit in equity to be instituted, in the name of the United States, against the Union Pacific Railroad Company, and againt all persons who may, in their own names or through any agents, have subscribed for or received capital stock in said road, which stock has not been paid for in full in money, or who may have received, as dividends or otherwise, portions of the capital stock of said road, or the proceeds or avails thereof, or other property of said road, unlawfully and contrary to equity, or who may have received as profits or proceeds of contracts for construction or equipment of said road, or other contracts therewith, moneys or other property which ought, in equity, to belong to said railroad corporation, or who may, under pretence of having complied with the acts to which this is an addition, have wrongfully and unlawfully received from the United States bonds, moneys, or lands which ought, in equity, to be accounted for and paid to said railroad company or to the United States, and to compel payment for said stock, and the collection and payment of such moneys, and the restoration of such property, or its value, either to said railroad corporation or to the United States, whichever shall in equity be held entitled thereto. Said suit may be brought in the Circuit Court in any circuit, and all said parties may be made defendants in one suit. Decrees may be entered and enforced against any one or more parties defendant without awaiting the final determination of the cause against other parties. The court where said cause is pending may make such orders and decrees, and issue such process as it shall deem necessary to bring in new parties, or the representatives of parties deceased, or to carry into effect the purposes of this act. On filing the bill, writs of subpoena may be issued by said court against any parties defendant, which writ shall run into any district, and shall be served, as other like process, by the marshal of such district.'

Following this, and constituting a part of the same section, are certain parovisions for the future government of the railroad company and its officers, to wit: that its books and correspondence shall at all times be open to inspection by the Secretary of the Treasury; that no dividend shall be made but from actual net earnings, and no new stock issued or mortgages created without consent of Congress; and punishing directors who shall violate these provisions. Also enacting that the corporation shall not be subject to the bankrupt law, and shall be subject to a mandamus to compel it to operate its road, as required by law.

A previous section directs the Secretary of the Treasury to withhold from every railroad company which has failed to pay the interest on bonds advanced to it by the government, all payments on account of freights or transportation over such roads, to the amount of such interest paid by the United States, and also the five per cent of the net earning of the roads due and unapplied as provided by law; and it authorized the companies who might wish to contest the right to withhold these payments to bring suit against the United States in the Court of Claims for the money so withheld.

The Attorney-General, pursuant to said fourth section, filed a bill in equity in the Circuit Court of the United States for the District of Connecticut against the Union Pacific Railroad Company, the Wyoming Coal Company, the Credit Mobilier Company, and some one hundred and fifty individual defendants.

The bill, after reciting certain provisions of the acts of July 1, 1862 (12 Stat. 480), and July 2, 1864 (13 id. 356), and other acts amendatory thereof, in relation to the Union Pacific Railroad Company, and alleging that the company was organized in October, 1863, and its road opened in 1869; that a board appointed under the joint resolution of April 10, 1869, reported deficiencies of construction, requiring an expenditure of $1,586,100; that the United States issued to the company bonds to the amount of $27,236,512, which, with the interest, after deducting one-half the compensation for services, made its aggregate liability, Jan. 1, 1873, $33,435,221.77; and that under the mortgage it executed Nov. 1, 1865, to secure the payment of its first-mortgage bonds, it has issued and disposed of them to the amount of $27,237,000; charges that, April 16, 1867, it executed a mortgage to secure the payment of its so-called land-grant bonds, providing for the application of the proceeds of all sales of its land from time to time in the redemption of such bonds; that it has issued $10,400,000 of them, at seven per cent interest, $8,811,000 of which remain outstanding and unpaid; that it intends to sell land and apply the proceeds to redeem them, to that extent impairing the security of the United States for the repayment of its bonds issued to the company; that the company, on Sept. 1, 1869, issued $10,000,000 of so-called income-bonds, at ten per cent interest, secured by an indenture pledging the net income for the interest, after paying that on the first-mortgage bonds and land-grant bonds; that it has also issued $2,500,000 of eight per cent bonds, secured by mortgage on its bridge across the Missouri River; that for the redemption of the income-bonds it intends to issue and put in the market eight per cent sinking-fund bonds for $16,000,000, secured by mortgage on the property of the company; that it has a floating debt of $2,000,000, and has issued certificates of stock amounting to $36,762,300; that, July 16, 1868, it entered into an agreement with Godfrey & Wardell, which was assigned April 1, 1869, to the Wyoming Coal and Mining Company, purporting, among other things, to lease the coal lands of the Union Pacific Railroad Company for fifteen years; that the stock in said coal company, with the exception of one-tenth thereof, is owned by stockholders and managers of the railroad company; that said contract is a fraudulent method of obtaining for them a monopoly of coal supplies and of the coal trade on the line of the road, and was made in contravention of sect. 3 of the act of 1862; that on Sept. 1, 1869, the railroad company made a contract with the Atlantic and Pacific Telegraph Company to transfer to the latter the entire line of telegraph and appurtenances constructed for the railroad company under the acts of Congress; that the managers of the two companies are in part or in whole the same; and that the arrangement is a fraudulent device to make for said managers illegal profits, and to deprive the United States of its lawful security and advantage from the telegraph line.

The bill sets forth an agreement with the Omaha Bridge Transfer Company, and charges that it is a fraudulent arrangement on the part of the managers and stockholders to transfer to themselves personally profits which equitably belong to the railroad company.

The bill then charges, among other things, that the cost of the road was less than one-half of the sum represented by the stock and other pretended outstanding liabilities; that the larger part of the stock and bonds was issued by certain defendants in the name of the company, to enrich themselves; that the greater portion of the stock was never paid for in cash, or in any other thing of equivalent value; that the company is insolvent; that the government bonds and a portion of the first-mortgage bonds would have been sufficient to construct the road, without any expenditure from stock subscribed, or from land-grant bonds, or from income bonds; and that the stock, if paid in cash or its equivalent, would have been sufficient with less than one-half of the government bonds to complete the road, without the issue of bonds by the company; that at its organization in 1863 $2,177,000 stock was subscribed, on which ten per cent was paid; but no considerable sum was afterward paid thereon, and no considerable amount of other subscriptions was ever made, except as part of the fraudulent transactions set forth; that at the organization of the company the practical management of its business was committed to the executive committee, whereof one of the defendants, Durant, then vice-president, was elected a member; that in August and September, 1864, he and his associates used the name of one H. M. Hoxie to disguise a contract made by them in the name of the company on one side, with themselves in the name of Hoxie on the other, to construct about two hundred and forty-six miles of the road between Omaha and the one hundredth meridian, at the price of $50,000 per mile, which was known to be in excess of a fair price therefor; that on Oct. 7, 1864, certain defendants, directors, and another, a stockholder, agreed with him to take large interests in this contract, with the design of becoming possessed of all the franchises and property of the company, and to use, manage, and dispose of the same for their private benefit; that in execution of said design they obtained, in November, 1864, control of the charter of the Credit Mobilier of America, a corporation of Pennsylvania, and on March 15, 1865, entered into a contract in writing to conduct its operations in connection with the railroad company, outside of its charter, at an agency in New York; that their intention was to substitute the Credit Mobilier as a contractor in the 'Hoxie contract,' and that on the same day they assigned to it the entire beneficial interest from the beginning in this contract, when the Credit Mobilier was organized to co-operate with the railroad...