Vallery v. Denver & R.G.R. Co.

• Decision Date: 02 August 1916
• Docket Number: 4663.
• Parties: VALLERY v. DENVER & R.G.R. CO. et al.
• Court: U.S. Court of Appeals — Eighth Circuit

236 F. 176

VALLERY v. DENVER & R.G.R. CO. et al.

No. 4663.

United States Court of Appeals, Eighth Circuit.

August 2, 1916

Clayton C. Dorsey and Pierpont Fuller, both of Denver, Colo. (Henry T. Rogers, Daniel B. Ellis, Lewis B. Johnson, George A. H Fraser, and Gerald Hughes, all of Denver, Colo., and Joline Larkin & Rathbone, of New York City, on the brief), for appellant.

Russell G. Lucas, of Denver, Colo. (Henry McAllister, Jr., and Elroy N. Clark, both of Denver, Colo., on the brief), for appellees.

Before SMITH and CARLAND, Circuit Judges, and AMIDON, District Judge.

CARLAND Circuit Judge.

In order to properly understand the questions which are before us for decision, a brief statement of the proceedings in the court below will be made. The complaint was filed March 16 1915. April 5, 1915, the defendants filed motions to dismiss. October 26 and 27, 1915, the motions were argued and submitted. December 2, 1915, the plaintiff filed a motion for leave to file a supplemental complaint. January 17, 1916, an order was entered granting the motions to dismiss, and the complaint was dismissed accordingly. On the same day the plaintiff filed a motion to stay and vacate the order dismissing the complaint and for leave to file an amended complaint. February 8, 1916, the motions filed December 2, 1915, and January 17, 1916, were overruled. The plaintiff thereupon appealed from the order dismissing the complaint and also from the orders made on February 8, 1916. By stipulation the several appeals have been consolidated and are to be heard on one record.

The points relied on to sustain the decree dismissing the complaint are as follows: (1) Want of jurisdiction; (2) the receiver had no title to maintain the action; (3) the facts stated in the complaint do not constitute a cause of action. The first two points may be considered together, as they are based upon the same facts and reasoning. There being no diversity of citizenship or a federal question in the case, the jurisdiction of the court and the right of the receiver to maintain the action must depend upon the fact as to whether this action is ancillary to and dependent upon the action brought by the Central Trust Company against the Colorado Midland Railway Company in which action the plaintiff was appointed as receiver. By stipulation we may refer to the record in said action, in determining the questions now under discussion. The original complaint in the receivership action was filed December 13, 1912, and the receiver was appointed the same day with the consent of the defendant therein. It cannot be denied but that the order appointed him receiver of all the property of whatever kind and description belonging to the Colorado Midland Railway Company, and authorized him to take possession of the same and to institute suits for the protection thereof.

It is claimed, however, that this order must be limited and construed with reference to the complaint in the action in which the order was made, and that as thus limited and construed it will appear that as the action was simply one to foreclose a mortgage, the court had no jurisdiction or authority to appoint a receiver of any property not subject to the lien of the mortgage, and that as this court held in Trust Co. v. D. & R.G.R., 219 F. 110, 135 C.C.A. 12, that the 7,371 1/2 shares of stock of the Rio Grande Junction Railway Company in controversy in the present action was not subject to the lien of the mortgage, the receivership did not and could not extend to it. A third and supplemental complaint was filed in the receivership suit July 15, 1913, and the receivership was continued and extended under said amended and supplemental complaint with all the powers in the receiver that had theretofore been granted. By special order authority to bring the present suit was granted to the receiver. We do not deem it necessary or profitable to enter into a review of the decisions which the industry of counsel have presented in the briefs upon this question. It would seem that the application of elementary principles to the facts must determine that the receiver had a right to commence this action, and that the court had jurisdiction thereof. When the District Court made the order appointing the receiver, it had jurisdiction of the subject-matter and the parties. The complaint prayed for a receiver of all the property of the Midland Company, and the amended complaint prayed for a deficiency judgment which would seem to be inevitable from the allegations of the complaint. With the consent of the defendant Midland Company the court extended the receivership over all its property. The plaintiff in the action claimed a lien upon the stock in controversy in this action so that the order when it was made was not only in conformity to the desire of all parties to the action, but was also consistent with the pleadings. The order therefore was not void, and as against a collateral attack like that now made it must be held to have given the receiver title to maintain this action. Shields v. Coleman, 157 U.S. 168, 15 Sup.Ct. 570, 39 L.Ed. 660; Gunby v. Armstrong, 133 F. 417, 66 C.C.A. 627; Platt v. N.Y. & S.B. Ry. Co., 170 N.Y. 451, 63 N.E. 532; Miller v. Brown, 1 Neb. (Unof.) 754, 95 N.W. 797; Grand Trunk Ry. Co. v. Central Vermont Ry. Co. (C.C.) 85 F. 87; Horn v. Pere Marquette Ry. Co. (C.C.) 151 F. 626; 34 Cyc., pp. 164, 165.

All parties before the trial court in the receivership suit, including general creditors, have treated the same as being for the benefit of general creditors as well as the bondholders. The District Court itself has so treated it and notice to all creditors to present claims has been given. The decision that the stock sued for in the present action was not covered by the lien of the mortgage did not determine that it did not belong to the Midland Company. Whether the Midland Company has any interest therein is the principal issue in the present action. If it has no interest therein, then the plaintiff will fail. We think it clearly appears from what has been said that the present action is ancillary to the receivership, and that the court had jurisdiction. We now turn to the complaint to ascertain whether it states a cause of action against the defendants or either of them. Upon this question little need be said.

Laying aside the question of the present interest of the Midland Company in the 7,371 1/2 shares of the Junction Company stock, let us examine the allegations of the complaint with reference to this stock prior to the sale thereof by the trust company to the Denver & Rio Grande. The complaint alleges that, beginning with the year 1907, the Denver & Rio Grande, controlling a majority of the directors of the Junction Company and one-half of the board of directors of the Midland Company, inaugurated a practice pursuant to which the Denver & Rio Grande and the Midland Company, instead of paying to the Junction Company the full amount of 30 per cent. of the gross earnings from business on the railway of the Junction Company, as required by the terms of the agreement between the parties, paid only such portion of said 30 per cent. as was sufficient to cover interest on bonds and other fixed charges and also to pay a dividend of 5 per cent upon the outstanding stock of the Junction Company; that the payments of rentals at all times since 1907 have been much less than 30 per cent. of said gross earnings required to be paid as rentals to the Junction Company; that pursuant to this practice the unpaid balance required to make up a total payment from each of said companies for each year of 30 per cent. of said gross earnings has been carried as a charge in favor of the Junction Company, and against each of said lessee companies and as an accumulated surplus in favor of the Junction Company in which the holders of the stock of said Company were entitled to participate; and that such surplus at the end of the fiscal year of 1912, to wit, November 30, 1912, amounted in the aggregate to $642,010.89; that by reason of the accrued rentals so uncollected the Denver & Rio Grande became indebted to the Junction Company in the sum of $503,160.96, and the Midland Company in the sum of...