Woodbury v. Allegheny & K. R. Co.

• Decision Date: 26 August 1895
• Docket Number: 33.
• Citation: 72 F. 371
• Parties: WOODBURY et al. v. ALLEGHENY & K.R. CO. et al.
• Court: U.S. District Court — Western District of Pennsylvania

72 F. 371

WOODBURY et al. v. ALLEGHENY & K.R. CO. et al.

No. 33.

United States Circuit Court, W.D. Pennsylvania.

August 26, 1895

[Copyrighted Material Omitted]

C Walter Artz, for complainants.

Jack &amp Roberts and A. Moot, for defendants.

Before ACHESON, Circuit Judge, and BUFFINGTON, District Judge.

BUFFINGTON District Judge.

This bill in equity was filed August 23, 1892, by Woodbury & Moulton, a firm whose members are citizens and residents of the state of Maine, against the Allegheny & Kinzua Railroad Company, a consolidated corporation of the states of Pennsylvania and New York, Spencer R. Bullis and Sarah E., his wife, the Central Trust Company, a corporation of the state of New York, and others, to foreclose a joint mortgage given by the said railroad and Bullis to the said trust company. The mortgage is dated February 1, 1890, is recorded March 10, 1890, in McKean county, Pa., and in Cattaraugus county, N.Y., and is to secure payment of $500,000 of the bonds of said railroad. Of the bonds, $200,000 are in the trustee's hands, unissued. Of the $300,000 issued, $15,000 were paid under a sinking-fund provision, leaving $285,000 outstanding. Default was made of the semiannual interest due February 1, 1892, and on the principal of $15,000 of bonds then payable under the sinking-fund clause. Pending such default, the trustee (upon the written request of more than 50 per cent. of the bondholders to so declare and to foreclose), in pursuance of the provisions of the mortgage, declared the entire outstanding issue of bonds due. In pursuance of the above request of the bondholders the Central Trust Company, the trustee, in April, 1892, began an action to foreclose in the supreme court of the state of New York, Cattaraugus county. Thereupon the railroad company filed in said court against the trustee and others, in which, on July 26, 1892, that court, by an order which is still in force, enjoined the trustee from proceeding in said action. On August 17, 1892, the present complainants, the owners of $50,000 of said outstanding bonds, and who had joined in the previous noted request to the trustee, requested the trustee, among other things, to bring an action to foreclose in Pennsylvania, where most of the mortgaged property was situate. This the trustee declined to do, on account of the pending order above recited; whereupon the complainants filed the present bill to foreclose on behalf of themselves and other bondholders. To it the trustee has made no defense or objection. On October 5, 1892, the railroad company and Bullis filed separate demurrers, alleging the bill contained no averment that 'a written request of the bondholders of a majority in amount at par value of the outstanding and unpaid bonds issued under the mortgage sought to be foreclosed by said bill, accompanied by proper bonds of indemnification, was made to the trustee under said mortgage, requesting the commencement of this suit by it. ' They also filed special pleas to the effect that the trustee had, before the bringing of this suit, brought a bill to foreclose the same mortgage in the supreme court of New York, Cattaraugus county, which suit was pending and undetermined. These pleas and demurrers were, on February 6, 1893, overruled. The same questions being raised on final hearing, we have re-examined them, and find no reason to change the views then held. Article 6 of the mortgage provides that the trustee 'shall, upon the written request of the holders of a majority in amount at par value of the outstanding and unpaid bonds which may have been issued hereunder, and upon being properly indemnified, and whenever entitled to do so by the terms hereof, institute proceedings to foreclose this mortgage, whenever the holders of a majority in value of said outstanding and unpaid bonds may direct; and, in absence of any such direction, then as the trustee may deem expedient. ' This the bill (paragraph 11) expressly alleges was done, viz.: 'Said trust company was duly requested in writing by the holders of more than 50 per centum of the said bonds outstanding to exercise its option, and to declare that the principal of all the bonds secured by said mortgage or deed of trust should become immediately due and payable, anything contained in the said bonds to the contrary notwithstanding, and to foreclose said mortgage or deed of trust;' and we find such demand was made before the New York suit was begun. The bill also avers, and the proofs show, an additional notice and request by the complainants to the trustee before this bill was filed. By this precedent request the trustee was called upon to execute the trusts imposed by the mortgage upon it for the bondholders. Ashhurst v. Iron Co., 35 Pa.St. 30; Bradley v. Railroad Co., 36 Pa.St. 152; Com. v. Susquehanna & D.R.R. Co., 122 Pa.St. 306, 15 A. 448. Indemnification was a right personal to the trustee, which it could, and presumably did, waive, for it has not raised any such question, or, indeed, any objection to the present bill. The property and line of the respondent railroad being situate in two states, and the road a consolidated one under the laws of both, the courts of each state had jurisdiction to foreclose and sell the entire line. Muller v. Dows, 94 U.S. 444; McElrath v. Railroad Co., 55 Pa.St. 208. See, also, Massie v. Watts, 6 Cranch, 148, and Burnley v. Stevenson, 24 Ohio St. 474. That the mere filing of a bill to foreclose in the New York state court did not oust the jurisdiction of the circuit court for the Western district of Pennsylvania is clear. Stanton v. Embrey, 93 U.S. 548; Gordon v. Gilfoil, 99 U.S. 168. While the New York court enjoined the trustee from bringing all suits upon the matters involved in the suit before it, and the trustee prudently obeyed the order, yet the mere pendency of that suit, or the subsequent restraining order upon the trustee, did not, in the absence of a final decree by that court, oust the jurisdiction of the United States circuit court of the Western district of Pennsylvania, or prevent it from entertaining a suit and determining all questions properly brought before it, although the same questions might be involved in the suit pending and undetermined in the first-named court. The right and duty to foreclose having been settled by the proper number of bondholders, and the hands of the trustee having been tied in an attempt to foreclose, are the cestuis que trustent thereby deprived of their right to prosecute their foreclosure in the circuit court of the United States in another state, and one where the bulk of the property mortgaged lies? Assuredly not, and the wisdom of the rule is apparent from this case. The railroad company, having obtained the restraining order in July, 1892, in the court first appealed to, has not taken a single step towards obtaining a final decree in that case, and yet, in the absence of such a decree, or of any attempt to secure one, now suggests that the federal court, in which a vast amount of proofs have been taken, and a huge record presented for final decree, is powerless to afford complainants relief because of the mere pendency of the other bill. We are of opinion the circuit court originally had jurisdiction of the subject-matter of their present bill; that its jurisdiction was not ousted by the filing of a bill in the New York state court; and that under the facts peculiar to this case the complainants had the right to file this bill, and, having filed it, and all parties in interest having appeared and taken part in the case, including the railroad company, Mr. Bullis, and the trustee, our jurisdiction to foreclose the mortgage upon all the property included therein, as well that within the state of New York as that within the state of Pennsylvania, seems to us to be clear. Muller v. Dows, 94 U.S. 444; Massie v. Watts, 6 Cranch, 148; Bradley v. Railroad Co., 36 Pa.St. 141; Burnley v. Stevenson, 24 Ohio St. 474; McElrath v. Railroad Co., 55 Pa.St. 208.

The validity of the mortgage, however, is assailed on the ground of an unauthorized alteration. The bonds were given by the railroad company alone. The mortgage was a joint one, in which the company mortgaged its property and franchises; and Spencer S. Bullis, who was its president, one of its large stockholders, and the owner of large bodies of timber land along its line in Pennsylvania and New York, mortgaged these lands as additional security for the company's bonds. At a meeting of the directors of the railroad held February 1 1890, a resolution was passed, which, after reciting that Bullis was to join in the mortgage, provided that 'the officers of this company are hereby authorized and directed to make, execute, and deliver said mortgage or deed of trust in such form as they may be advised by counsel, and to make, execute, and deliver under the terms thereof the bonds of said company to the number and in the amount hereinafter specified, substantially in the following form; that is to say' (then follows a copy of the bond). It would seem from the recitals in the resolution that both bonds and mortgage had been previously drawn, and it would appear the board adopted the specific form of bond, but made the form of mortgage subject to the advice of counsel. While this term is general, yet, under the proofs, Frank Sullivan Smith, Esq., who was counsel for Bullis, the company, and for Newcombe & Co., the negotiating brokers, was evidently the person contemplated. The mortgage, as originally prepared, was duly signed for the company by Mr. Bullis, its president, attested by Lewis F. Wilson, its secretary, and its execution acknowledged and proved by them, February 27, 1890. On the same day it was executed by Bullis as an individual, his wife joining, and duly acknowledged by...