Von Herberg v. City of Seattle

• Decision Date: 20 August 1928
• Docket Number: No. 5445.,5445.
• Parties: VON HERBERG v. CITY OF SEATTLE et al.
• Court: U.S. Court of Appeals — Ninth Circuit

27 F.2d 457 (1928)

VON HERBERG v. CITY OF SEATTLE et al.

No. 5445.

Circuit Court of Appeals, Ninth Circuit.

July 16, 1928.

Rehearing Denied August 20, 1928.

R. P. Oldham, D. G. Eggerman, and Jay C. Allen, all of Seattle, Wash., for appellant.

Thomas J. L. Kennedy, Corp. Counsel, and Arthur Schramm, Jr., Asst. Corp. Counsel, both of Seattle, Wash., for appellees city of Seattle and others.

James B. Howe, Edgar L. Crider, and Emory E. Hess, all of Seattle, Wash., for appellee Puget Sound Power & Light Co.

Otto B. Rupp, of Seattle, Wash., for certain taxpayers.

Before GILBERT, RUDKIN, and HUNT, Circuit Judges.

RUDKIN, Circuit Judge.

The present suit was instituted against the city of Seattle, its treasurer and comptroller, by one Von Herberg, as bondholder, taxpayer, and warrant holder, to restrain the city and its officers, first, from using the funds of other utilities for the operating expenses and maintenance charges of the municipal street railway system; second, from using the general funds of the city in payment of such operating expenses and maintenance charges; and, third, from making any payments of principal or interest on the bonds theretofore issued for the purchase of the street railway system, and from removing from the city railway fund any money or credits until all warrants theretofore issued, or hereafter to be issued, payable out of such fund, for the operation and maintenance of the street railway system, have been paid in full, and directing the city and its officers to pay into the street railway fund all gross revenues of the street railway system until all such warrants have been paid. For reasons hereafter appearing, we are now only concerned with so much of the relief sought as relates to the question of priority between warrants issued for operating expenses of the railway system and bonds issued by the city in payment of the purchase price.

The ordinance authorizing the acquisition of the system and the issuance of bonds in payment of the purchase price provided that there should be created and established a special fund, to be known as the "municipal street railway bond fund," and the city obligated itself to pay into such fund out of the gross revenues of the municipal railway system a sum equal to the semiannual installments of interest upon all such bonds then outstanding and unpaid, and annually on or before the 1st day of March, beginning with March 1, 1922, and to and including March 1, 1938, the additional sum of $833,000, and on or before the 1st day of March, 1939, the additional sum of $839,000, for the payment of the principal of such bonds, at which time all of such bonds, with interest, will be fully paid; that such funds shall be drawn upon for the sole purpose of paying the principal and interest of the bonds from and after the date of such bonds, and so long as obligations are outstanding against such fund; that the city treasurer will semiannually, one calendar month prior to the date upon which any interest or principal shall become due, set aside and pay into such fund from the gross revenue of the entire municipal street railway system the several amounts above set forth, until all of such bonds, with interest thereon, are fully paid, and such fixed amounts out of such gross revenue were pledged to such semiannual payments of interest and such annual payments of principal, and constituted a charge upon such gross revenue superior to all charges whatsoever, including charges for maintenance and operation, save and except certain charges not deemed material here. The bonds issued pursuant to the ordinance contained similar recitals.

The plaintiff, Von Herberg, was the owner of certain warrants issued by the city for operating expenses of the street railway system, and claimed that his rights as holder of such warrants were superior to the rights of the bondholder. The purpose of the suit, so far as this branch of the case is concerned, was to restrain the city from carrying out its agreement with the bondholder, and from paying into the municipal street railway bond fund the amounts agreed to be so paid under the terms of the ordinance and the terms of the bonds issued pursuant thereto.

The complaint contained other averments as to the insolvency of the street railway system, depreciation of its properties, and decrease in its revenues; but these averments are not deemed material at this time. The city appeared in the suit, and filed an answer and cross-complaint and bill of interpleader. The answer denied nearly all the material allegations of the complaint, except the averments relating to the obligations assumed by the city under the provisions of the ordinance and bonds, as above set forth. The cross-complaint and bill of interpleader set forth the provisions of the ordinance relating to the purchase of the street railway system by the city and the issuance of the bonds in payment of the purchase price, as set forth in the complaint, and it was then averred that, pursuant to the obligations imposed by the ordinance, the city had transferred from the gross revenues of the municipal street railway system to the municipal street railway bond fund the sum of $1,145,665; that this amount was the full amount due on March 1, 1927, for principal and interest on the outstanding bonds issued pursuant to the ordinance, all of which bonds were owned by the Puget Sound Power & Light Company; that the plaintiff, Von Herberg, had purchased certain warrants payable from the street railway fund for operating expenses, aggregating in amount upwards of $100,000, and had made demand upon the city that the money so transferred into the municipal street railway bond fund be applied to the payment of his and other outstanding warrants theretofore issued for operating and maintenance cost of the municipal railway system; that the Puget Sound Power & Light Company had demanded that said money so transferred into the said fund be paid to it, to apply on bond interest and principal, under the terms of the ordinance; that each of the parties claimed to be the owner of or entitled to an interest in, or to have a lien upon, the sum so transferred to the municipal street railway bond fund; that the defendants disclaimed any interest or title in such money and said sum so held in said fund, but held the same in said fund inviolable for the purposes specified in the ordinance, unless otherwise ordered by the court; that all the outstanding bonds issued under the ordinance and owned by the Puget Sound Power & Light Company are subject to payment, both as to interest and principal, at the fiscal agency of the state of Washington in the city of New York, and, under the terms of the state fiscal agency law, such money in said fund must be transmitted by wire to the agency not later than February 16, 1927, and would be so transmitted unless otherwise ordered by lawful and jurisdictional decree; and that it was necessary that a show cause order be directed to Von Herberg and the Puget Sound Power & Light Company, in order that the respective rights of said parties to said fund might be determined by the court prior to that date. The prayer of the cross-complaint and bill of interpleader was that an order be issued, directing Von Herberg to show cause why the money in the municipal street railway bond fund should not be transmitted to the fiscal agency of the state of Washington in the city of New York, as provided by law, and directing the Puget Sound Power & Light Company to show cause why the money in the fund should not be applied on the warrants held by Von Herberg; that Von Herberg take nothing by his amended complaint, and that the same be dismissed; that the defendants have and recover their costs; that Von Herberg and the Puget Sound Power & Light Company be each restrained from further proceeding against the defendants in relation to the fund above set forth; that the parties be required to interplead concerning their claims to the same; that the defendants be discharged from all liability to any of the parties in relation thereto; that, in case said parties failed to answer the said cross-complaint and bill of interpleader, the court adjudge such party or parties so failing to answer to have no interest in the fund, and for general relief. Upon this cross-complaint a summons issued, directed to Von Herberg and to the Puget Sound Power & Light Company.

After service of the summons the Puget Sound Power & Light Company made application for a removal into the District Court of the United States for the Western District of Washington upon the ground that there were involved in the suit three separable controversies, one wholly between the plaintiff, Von Herberg, and the city of Seattle and its officers, to prevent the funds of utilities other than the street railway property from being diverted from such utilities, another wholly between Von Herberg and the city and its officers, to prevent the use of general funds of the city for the payment of operating expenses and maintenance of the street railway system, and a third wholly between Von Herberg and the petitioner, wherein Von Herberg was seeking to have his warrants declared superior to the bonds held by...