Wabash Railroad Company v. Adelbert College of the Western Reserve University

• Decision Date: 06 January 1908
• Docket Number: No. 40,40
• Citation: 28 S.Ct. 182,208 U.S. 38,52 L.Ed. 379
• Parties: WABASH RAILROAD COMPANY, Plff. in Err., v. ADELBERT COLLEGE OF THE WESTERN RESERVE UNIVERSITY et al
• Court: U.S. Supreme Court

208 U.S. 38

28 S.Ct. 182

52 L.Ed. 379

WABASH RAILROAD COMPANY, Plff. in Err.,

v ADELBERT COLLEGE OF THE WESTERN RESERVE UNIVERSITY et al.

No. 40.

Argued November 6, 7, 1907.

Decided January 6, 1908.

This is a writ of error directed to the supreme court of the state of Ohio. In that court the defendants in error obtained a decree declaring that certain negotiable notes held by them, which had been made by the Toledo & Wabash Railway Company, were entitled to a lien on property once owned by that company and now owned by the plaintiff in error, and ordering a sale in satisfaction of that lien. The Federal questions presented and such facts as are deemed material to their decision are stated in the opinion.

Mr. Rush Taggart for plaintiff in error.

[Argument of Counsel from pages 39-41 intentionally omitted] Messrs.John W. Warrington, John C. F. Gardner, Thomas B. Paxton, Jr., and Murray Seasongood for defendants in error

[Argument of Counsel from pages 41-43 intentionally omitted] Mr. Justice Moody delivered the opinion of the court:

In 1862 the Toledo & Wabash Railroad Company owned and operated a railroad in Ohio and Indiana, and was incorporated under the laws of both states. That part of the property situated in Ohio was then encumbered by two mortgages, one to the Farmers' Loan & Trust Company for $900,000, and one to Edwin D. Morgan, trustee, for $1,000,000. That part of the property situated in Indiana was then encumbered by two mortgages, one to the Farmer's Loan & Trust Company for $2,500,000, and one to Edwin D. Morgan, trustee, for $1,500,000. In that year the company issued and sold unsecured sealed negotiable notes to the amount of $600,000, called equipment bonds. In 1865 this company consolidated with certain Illinois railroad corporations, thus creating the Toledo, Wabash, & Western Railway Company. This consolidation was authorized by and in part effected under a statute of Ohio. The holders of the equipment bonds have contended that the result of this consolidation was to give to these hitherto unsecured obligations an equitable lien upon the property of the corporation which issued them, and that the equity of redemption of that property went into the hands of the consolidated corporation encumbered by that lien. Upon this question this court and the supreme court of Ohio have, in the past, arrived at opposite conclusions; this court holding (114 U. S. 587, 29 L. ed. 235, 5 Sup. Ct. Rep. 1081) that the equipment bonds remained unsecured, and the Ohio court holding (45 Ohio St. 592, 16 N. E. 110, 18 N. E. 380) that the effect of the consolidation was to create the lien claimed. This suit was brought by the defendants in error, holders of some of the equipment bonds, in the courts of Ohio for the purpose of enforcing the lien stated. They prevailed by the judgment of the supreme court of the state, which affirmed a decree of a lower court establishing the indebtedness upon the bonds, declaring a lien to secure the payment of that indebtedness upon the property owned, subject to the mortgages hereinbefore stated, by the Toledo & Wabash Railway Company in 1865, and directing a sale of such of that property as was within the state of Ohio, in satisfaction of the lien.

The case is here upon a writ of error to the supreme court of Ohio to review this judgment. There are two Federal questions, it is contended, which were erroneously decided in the court below. The plaintiff in error insists: First, that the Ohio court had no jurisdiction to render the decree entered in the case, because the property affected by that decree was in the possession of a circuit court of the United States, and the questions litigated in this case were within the exclusive jurisdiction of the latter court. Second, that the decree of the circuit court of the United States for the district of Indiana in the case of Ham v. Wabash, St. L. & P. R. Co. was a final adjudication of the issues in the case at bar, binding upon the defendants in error, and conclusive against their right to maintain this suit. The defendants in error contend that these questions were not properly raised in the court below, or, if properly raised, that they are so unsubstantial as to be frivolous, and therefore move that the writ of error be dismissed. But the questions were clearly presented by the answer in the Ohio courts, the decree rendered could not have been made without deciding them against the contention of the railroad company, and we think that they are substantial and important. The motion to dismiss is therefore overruled, and we proceed to the discussion of the merits of the questions.

1. The first question is whether a circuit court of the United States had exclusive jurisdiction of the issues determined by the Ohio court in the case at bar. Before beginning the discussion of that question it is necessary to state the facts out of which it arises. The Toledo, Wabash, & Western Railway Company, whose property was encumbered, as we have seen, by mortgages of the Toledo & Wabash, for $5,900,000, and by the claim of lien of the equipment bonds, and by other mortgages upon the property of other corporations which entered into the consolidation, itself executed two mortgages upon all its property. By the foreclosure of one of these mortgages the property became vested in the Wabash Railway Company. This company, after executing a mortgage on its property, consolidated with another railway company, creating the Wabash, St. Louis, & Pacific Railway Company. This company executed in 1880 a mortgage on its property to the Central Trust Company of New York and James Cheney for $50,000,000. On May 27, 1884, the Wabash, St. Louis, & Pacific Railway Company, having fallen into financial difficulties, filed a bill in the Federal courts in six states, alleging its insolvency and asking the appointment of receivers. Thereupon receivers were appointed, qualified, and took possession of the property. Thereafter the Central Trust Company and Cheney began proceedings in several state courts for the foreclosure of their mortgage of $50,000,000. These proceedings were removed to the Federal courts, and upon them a sale, under the direction of those courts, was made in 1886 to a purchasing committee. Before this sale, however, on October 17, 1884, the circuit court of the United States for the western division of the northern district of Ohio dismissed the bills for receivership and for the foreclosure of the Cheney mortgage as to all parties who claimed liens prior to that mortgage. After the sale upon the foreclosure of the Cheney mortgage proceedings for foreclosure of several other mortgages prior to it were begun in the circuit courts of the United States, consolidated, and resulted in decrees for foreclosure and sale under all the mortgages. These decrees were entered in the various circuit courts on March 23, 1889. In the meantime the property remained in the possession of the circuit court, through its receivers. The sale under these decrees was made to a purchasing committee, by whom it was conveyed to a new corporation, the Wabash Railroad Company, the plaintiff in error. By order of the circuit court for the northern district of Ohio, made on June 18, 1889, possession of the property was delivered by the receiver to the purchasing committee, and he was discharged. Since August, 1889, the plaintiff in error, the Wabash Railroad Company, has been in powssession of the property under the terms of the decrees of March 23, which presently will be stated. None of the defendants in error were parties to the proceedings in the circuit courts of the United States, and an attempt to remove this case from the Ohio courts to the circuit court of the United States, resisted by the defendants in error, failed. Joy v. Adelbert College, 146 U. S. 355, 36 L. ed. 1003, 13 Sup. Ct. Rep. 186.

It appears from this statement that the railroad property affected by this controversy was in the actual possession, through receivers, of circuit courts of the United States from the date of the appointment of receivers, May 27, 1884, to the date of their discharge and the delivery of the property to the purchasing committee, which was ordered on June 18, 1889, and was accomplished about July 1, 1889. It cannot be and apparently is not disputed that, during that period, the property was in the possession of the circuit courts of the United States, and that that possession carried with it the exclusive jurisdiction to determine all judicial questions concerning the property. But it is earnestly contended that, when the property passed out of the actual possession of the United States courts, in conformity with their decrees, into the hands of the purchasers under the decrees, the exclusive jurisdiction of the United States courts came to an end. The applicability of this contention to the case at bar will appear upon a fuller statement of the origin and progress of the case at bar in the courts of Ohio. The suit was begun on April 28, 1883, by Adelbert College alone, which was the owner of two of the equipment bonds, each of the par value of $500, and prayed for the decree which, with some variations, not material to be stated, was finally given. Nothing of moment, beyond the service of process and the filing of pleadings, occurred until 1889, when several other holders of the equipment bonds joined in the suit as coplaintiffs, by filing, with leave of court, what is denominated an answer and cross petition, in which they prayed relief similar to that sought by the original plaintiff. This petition is verified on January 2, 1889, but the date of its filing does not appear in the record. Later, other similar cross petitions were filed by leave of court. Pleadings continued to be filed from time to time by the different parties to the suit, the last appearing in the record being one verified March 9, 1896, thirteen years after the beginning of the suit and seven...