Source: https://caselaw.findlaw.com/us-supreme-court/244/266.html
Timestamp: 2019-04-26 07:01:29+00:00

Document:
HAMER v. NEW YORK RYS. CO.
[244 U.S. 266, 267] Mr. A. S. Gilbert for appellants.
In September, 1907, the Metropolitan Company passed into the hands of receivers appointed by the circuit (now district) court of the United States for the southern district of New York. Soon thereafter default was made in the payment of interest on the Crosstown bonds. The customary bondholders' committee was formed, and 1,373 of the 1,500 bonds outstanding were deposited with it. At its request the Trust Company declared the bonds due and brought suit in the supreme court of New York to foreclose the mortgage. The court by special order granted an application of the Trust Company for permission to liquidate, in the foreclosure suit, its claim against [244 U.S. 266, 269] the Metropolitan Company on the guaranty. For that purpose the Metropolitan Company was joined as defendant; and a deficiency judgment for $1,745,344.21 was entered against it on February 20, 1912, in favor of the Trust Company.
The property of the Metropolitan Company had meanwhile been administered by receivers appointed by the district court of the United States for the southern district of New York; and the several committees representing its bondholders, stockholders, and creditors had adopted a plan and agreement for the reorganization of that company. Pursuant thereto its franchise and assets had been, on January 1, 1912, transferred to a new corporation, the New York Railways Company; and the securities and cash issued in exchange therefor were distributed among security holders, creditors, and otherwise, as in the plan provided. No provision was made in the plan for adjusting the liability of the Metropolitan Company arising out of its guaranty of the Crosstown bonds. The district court refused to allow the claim on the deficiency judgment to be proved in the Metropolitan receivership, because the date as of which claims against the property were ordered to be proved was January 15, 1908, and the claim on the guaranty was at that date contingent merely. Consequently neither the committee nor the Trust Company representing the Crosstown bondholders assented to the plan for reorganizing the Metropolitan Company.
It also appeared by stipulation that the holders of a large part of the Crosstown bonds deposited with the committee were citizens and residents of New York.
Plaintiffs admit that in respect to the Crosstown Company no cause of action on the bond vested in any one bondholder; since the bondholders were bound by the terms of the mortgage, under which all right to sue on the bonds and to foreclose the mortgage was in the Trust Company. But they insist that the rights of the bondholders against the Metropolitan Company on the guaranty were entirely distinct from their rights against the Crosstown Company on the bonds; that the guaranty vested in the holder of each bond a cause of action on which he could sue in his own name; that the original guaranty to the Trust Company was a naked promise to one for the benefit of another; that the judgment obtained by the Trust Company belongs to the holders of the bonds; that it is in this suit merely a 'use plaintiff,' a title owner of the judgment, who owes no duty to the plaintiff or other bondholders with reference thereto, has no interest in the result of the suit, and need not have been made a party thereto; and that, being a merely formal party, should be disregarded in determining the question [244 U.S. 266, 272] of jurisdiction. Before discussing whether the Trust Company has an interest, and, if so, its character and effect, the nature of this suit should be considered.
1. The cause of action.
2. The interest of the Trust Company.
Whatever may have been the situation originally with respect to rights of individual bondholders on the guaranty, we have now a single judgment held by the Trust Company as trustee for the pro rata benefit of 1,500 bondholders. The plaintiffs allege that they hold 1,373 of these bonds,-that is, a fraction only of the beneficial interest. It is thus clear that the minority bondholders as well as the railway companies defendant require for the protec- [244 U.S. 266, 273] tion of their respective interests that the Trust Company be a party to the litigation; the minority bondholders, so that they may share ratably in the proceeds; the railway companies, in order that they may, upon paying the amount of the judgment, be discharged from the possibility of further liability. The judgment is a unit and the relief sought on it is necessarily for the benefit of all. Blacklock v. Small, 127 U.S. 96, 104 , 32 S. L. ed. 70, 73, 8 Sup. Ct. Rep. 1096. But a suit by some bondholders does not, by the allegation that it is in behalf of all others similarly situated, become a class suit, binding on all. Wabash R. Co. v. Adelbert College, 208 U.S. 38, 57 , 52 S. L. ed. 379, 387, 28 Sup. Ct. Rep. 182. And for the protection of the Trust Company itself joinder as a party is essential, in order that, upon distribution of any proceeds, it may be discharged from obligations to its beneficiaries.
To the state of facts presented here, Greene v. Republic F. Ins. Co. 84 N. Y. 572, which is strongly relied upon by plaintiffs, has no application. In that case the assignee of a chose in action, having recovered a judgment in Mississippi, where he was obliged (as by the common-law procedure) to sue for his own use in the assignor's name, was permitted to sue on the judgment in New York in his own name, since the New York Code requires suit to be brought in the name of the real party in interest. There the assignor, having assigned the cause of action, had no interest in it when the action was commenced in Mississippi, and consequently no interest in the judgment; and the judgment record so recited, declaring that it was 'for the use and benefit of Edward A. Greene.' Here there has been no assignment either of the cause of action or of the judgment. The prayer of the complaint was that the Trust Company 'as trustee may have judgment against . . . said Metropolitan Company;' and in accordance with that prayer judgment for the deficiency was entered. So far as the record discloses, the deficiency judgment against the Metropolitan Company, [244 U.S. 266, 274] like that against the Crosstown Company, and the property transferred by the mortgage, is held by the Trust Company as trustee for all the bondholders. 2 That under such circumstances the trustee is a necessary party to this suit is clear.
3. The affiliation of the Trust Company.
Since the necessary realignment of the Trust Company as party plaintiff is fatal to the jurisdiction of the district court, it is unnecessary to consider the legal effect of the fact stipulated, that a large part of the bondholdersrep- [244 U.S. 266, 275] resented by plaintiffs are likewise citizens and residents of New York.
4. Whether the suit is an ancillary one.
The plaintiffs, relying upon Wabash R. Co. v. Adelbert College, 208 U.S. 38, 53 , 52 S. L. ed. 379, 385, 28 Sup. Ct. Rep. 182, attempt to sustain the jurisdiction of the court on the ground that this suit is ancillary to the foreclosure proceedings against the Metropolitan Company in the district court. But the facts in that case bear no resemblance to those here under consideration. There the rights and lien which it was declared the Federal court had exclusive jurisdiction to ascertain and enforce were expressly reserved by the decree; and the purchaser under the decree took title expressly subject to them. The decree of foreclosure under which sale was made of the property of the Metropolitan Company, which was later transferred to the New York Company, contained, so far as appears from the record, no reservation whatsoever concerning liens or similar rights. And there is in the answer of the New York company the uncontroverted statement that the properties subject to the foreclosure 'were sold to the purchasers and to the New York Railways Company, free and clear of any lien, claims, or interest in any party outstanding, except the interests' of those expressly provided for in the plan of reorganization; and that the proceedings resulting in the deficiency judgment against the Metropolitan Company here sued on 'did not constitute a claim against, or a lien on, or an interest in, any of the property rights or estate of the Metropolitan Street Railway Company.' Furthermore, the bill in the instant case does not purport to be ancillary to the Metropolitan Company foreclosure proceedings. Plaintiffs here seek merely to establish an equity against the property of the New York Company, on the theory that the rights of the Crosstown bondholders have been improperly ignored. They set up a wholly independent cause of action.
[ Footnote 1 ] 'If there be any one principle of law settled beyond all question, it is this, that whensoever a cause of action, in the language of the law, transit in rem judicatam, and the judgment thereupon remains in full force unreversed, the original cause of action is merged and gone forever.' United States v. Leffler, 11 Pet. 86, 100, 101, 9 L. ed. 642, 647, 648. See also Mason v. Eldred, 6 Wall. 231, 18 L. ed. 783; Gaines v. Miller, 111 U.S. 395, 399 , 28 S. L. ed. 466, 467, 4 Sup. Ct. Rep. 426.
[ Footnote 2 ] See Knapp v. Troy & B. R. Co. 20 Wall. 117, 123, 22 L. ed. 328, 330; Richter v. Jerome, 123 U.S. 233, 246 , 31 S. L. ed. 132, 137, 8 Sup. Ct. Rep. 106.
[ Footnote 3 ] Venner v. Great Northern R. Co. 209 U.S. 24 , 52 L. ed. 666, 28 Sup. Ct. Rep. 328; Doctor v. Harrington, 196 U.S. 579 , 49 L. ed. 606, 25 Sup. Ct. Rep. 355; Kelly v. Mississippi River Coaling Co. 175 Fed. 482; Groel v. United Electric Co. 132 Fed. 252.
[ Footnote 4 ] Blacklock v. Small, 127 U.S. 96, 104 , 32 S. L. ed. 70, 73, 8 Sup. Ct. Rep. 1096; Harter Twp. v. Kernochan, 103 U.S. 562 , 26 L. ed. 411; Pacific R. Co. v. Ketchum, 101 U.S. 289 , 25 L. ed. 932; Allen-West Commission Co. v. Brashear, 176 Fed. 119; Shipp v. Williams, 10 C. C. A. 247, 22 U. S. App. 380, 62 Fed. 4.

References: v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v.