Source: https://supreme.justia.com/cases/federal/us/161/115/
Timestamp: 2019-04-21 06:51:36+00:00

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Justia › US Law › US Case Law › US Supreme Court › Volume 161 › Carey v. Houston & Texas Central Ry. Co.
no jurisdiction to make it is an ancillary suit and a continuation of the main suit so far as the jurisdiction of the circuit court as a court of the United States is concerned.
As the jurisdiction of the circuit court of the United States was invoked throughout this litigation upon the ground of diverse citizenship, and as this bill must be regarded as ancillary, auxiliary, or supplemental to the suit for the foreclosure of the mortgage, or, as it were, in continuation thereof, the decree of the circuit court of appeals in that suit being made final by section 6 of the Act of March 3, 1891, c. 517, 26 Stat. 826, no appeal lies to this court.
This was a bill filed by Carey, a citizen and resident of New Jersey, and seven other persons, citizens and residents of New York and citizens of Great Britain, respectively, as stockholders of the Houston and Texas Central Railway Company, in their own behalf and in behalf of all others similarly situated, in the Circuit Court of the United States for the Eastern District of Texas, against the Houston and Texas Central Railway Company, No. 1, a corporation created by and existing under the laws of the State of Texas, and a citizen of that state residing in the Eastern District; the Houston and Texas Central Railway Company, No. 2, likewise a citizen of Texas, and a resident of the Eastern District; the Central Trust Company of New York, a citizen of New York; the Farmers' Loan and Trust Company of New York, as trustee, a citizen of New York; Nelson S. Easton and James Rintoul, as trustees, citizens and residents of New York; Benjamin A. Shepherd, trustee, a citizen of Texas, and many other persons and corporations, citizens of New York, Kentucky, Texas, and Louisiana, to impeach and vacate a certain decree of the circuit court entered in the consolidated cause hereafter mentioned.
The Houston and Texas Central Railway Company was a corporation and citizen of the State of Texas and a resident of the Eastern District of that state, owning a railway consisting of a main line from Houston to Dennison; a line from Hempstead to Austin, called the Western Division, and a line from Bremond to Ross, known as the Waco and Northwestern Division, and a large quantity of lands acquired from the state. The property of the company was subject to the lien of seven mortgages, known as the "Main Line First Mortgage,"
"Western Division First Mortgage," "Waco and Northwestern Division First Mortgage," "Main Line and Western Division Consolidated Mortgage," "Waco and Northwestern Division Consolidated Mortgage," "Income and Indemnity Mortgage," and "General Mortgage." The company made default January 1, 1885, in the payment of interest on its Main Line first mortgage bonds and its Western Division first mortgage bonds. On February 11, 1885, Nelson S. Easton and James Rintoul, citizens and residents of the State of New York, trustees under the Main Line first mortgage and Western Division first mortgage, filed their two bills in equity in the Circuit Court of the United States for the Eastern District of Texas against the Houston and Texas Central Railway Company as a corporation and citizen of the State of Texas for the purpose of enforcing the trust provided in the mortgages, protecting the trust property, obtaining proceedings for the sale of certain lands covered by the mortgages, and for other relief, and prayed for an accounting, an injunction, a decree of sale of part of the trust property, and for a receiver. These suits were numbered 183 and 184 on the equity docket. The railway company appeared and answered these bills.
parcels, and prayed for the appointment of receivers, and the payment of complainant's claim out of the rents, revenues, and earnings of the property. The railway company appeared in this suit, which was numbered 185, and on February 20, 1885, an order was made by the circuit court appointing Benjamin G. Clark and Charles Dillingham joint receivers of all the property, real and personal, of said company. On the succeeding 20th of April, the Southern Development Company amended its bill, making Nelson S. Easton and James Rintoul, trustees, the Farmers' Loan and Trust Company, a corporation and citizen of the State of New York, and Benjamin A. Shepherd, trustee, under the Income and Indemnity mortgage, a citizen of Texas, and a resident of the Eastern District of that state, defendants thereto, and praying that accounts might be taken, liens and encumbrances marshaled, net earnings applied, and, if the amounts realized should not be sufficient for the payment of the claim, that the property should be sold for that purpose. The railway company answered the bill on its merits, and the defendants Easton and Rintoul, trustees, filed demurrers.
March 18, 1885, the Farmers' Loan and Trust Company, a corporation and citizen of New York, filed its bill in equity in the circuit court against the railway company, which was numbered 188 on the equity docket, alleging that it was the trustee under the Waco and Northwestern Division first and consolidated mortgages, and the Main Line and Western Division consolidated mortgages; that the mortgagors had violated many of their agreements, and that default had been made in the payment of interest; that the company was insolvent; that the suits hereinbefore mentioned were pending; that the trust property was in jeopardy, and it prayed for an accounting, injunction, and a decree of sale of part of the trust property, and for a receiver of all the property of every description of the railway company, with the usual powers. The railway company answered this bill on the merits June 22, 1885.
184 making that order applicable to those cases, and in No. 188 making the same order as to that case.
"hereinafter described, that company would be found benefited by, and it is to their advantage that, the judgment and relief hereinafter prayed for, or some part thereof, should be granted to your orators. That said property covered by the said first mortgage on said main line, as well as all the other property, assets, and effects of said railway company, being now in the hands of this court, by the receivership existing in respect of the same, and your orators thereby being required by law to institute this action in this court and to come before this tribunal in order to reach the property in its possession and to obtain its rights concerning the same, and all the parties interested in the property covered by said mortgage on the main line, as well as all the other mortgages and property of said railway company, being now before the court in said actions hereinbefore described as Nos. 183, 184, 185, and 188 on the equity docket of this court, the said Farmers' Loan and Trust Company may and should be made a party defendant in this cause, irrespective of its citizenship, and said corporation should be brought in as a defendant herein by the order and direction of this court, and should be bound by the judgment and proceedings herein."
The record does not show that this company was made a defendant or appeared at this stage of the proceedings.
averment made as to the Farmers' Loan and Trust Company. Process was issued under both of these bills against the railway company and Shepherd, trustee, and duly served upon them. Thereafter, and on April 24, 1886, the Farmers' Loan and Trust Company filed a bill in equity in the circuit court for the foreclosure of the general mortgage, which was numbered 201. The railway company was made sole party defendant, and the bill prayed for a sale of all the property of the railway company to satisfy the mortgage doubt. Process was issued and served.
"Nelson S. Easton and James Rintoul, Trustees, and the Farmers' Loan and Trust Company, Trustee, against the Houston and Texas Central Railway Company and Benjamin Shepherd, Trustee, Consolidated Cause;"
"All said property being now in the custody of the court, and such custody and control being continuous, the entry of this decree shall operate ipso facto a transfer of the legal custody of said property from said Clark and Dillingham to the said receivers in No. 198."
Various amendments were subsequently filed.
The railway company answered in consolidated cause No. 198, September 3, 1886. The Farmers' Loan and Trust Company, though co-complainant in the consolidated cause, answered the bills of Easton and Rintoul, trustees, August 2, 1886.
On April 30, 1888, Shepherd, trustee, with leave of court, filed a cross-bill in No. 198 to foreclose the Income and Indemnity mortgage, and the railway company answered, admitting the truth thereof.
On May 1, 1888, the Farmers' Loan and Trust Company filed bills in the nature of cross-bills, with leave of court, to foreclose the Main Line and Western Division consolidated mortgage and the Waco and Northwestern Division consolidated mortgage. The railway company answered these bills May 2, 1888, and the Farmers' Loan and Trust Company answered Shepherd's cross-bill on the same day. All the mortgages were thus under foreclosure except the Waco and Northwestern Division first mortgage.
On May 4, 1888, the court made its decree of foreclosure and sale in consolidated cause No.
198. The property was sold under the decree September 8, 1888 at Galveston, Texas. The property covered by the Waco and Northwestern Division first mortgage was purchased subject to that mortgage by George E. Downs for $25,000, and all the residue of the property of the railway company was sold to Frederick P. Olcott, President of the Central Trust Company, for $10,580,000. The sale was duly confirmed December 4, 1888.
in the consolidated cause, the company, through their counsel, consenting. It was also averred that in none of the mortgages was it provided that the failure to pay interest upon any of the bonds should be taken to precipitate the maturity of the principal, nor did they provide for nor permit the sale of the railway prior to the maturity of the principal of the bonds, and that the answer of the railway company in said suits expressly denied that the principal sum of the bonds had become due or demandable, and averred that the court had no power to decree a sale of the railway prior to the maturity thereof, or prior to the sale of the lands covered by the mortgages.
The bill then set up an agreement for the reorganization of the railway company, and alleged that, in pursuance thereof and of the scheme mapped out, complainants in the consolidated causes applied for, and on consent procured to be entered, the decree of May 4, 1888, for the foreclosure of the mortgages and a sale of the property, and the sale followed accordingly.
of the said wrongful and fraudulent scheme herein referred to; that the said defenses were never submitted to the court for adjudication or determination, nor was evidence heard or offered to sustain the same, but the decree was the result of the agreement which the bondholders had made with the said Southern Pacific Company and Central Trust Company, and the rights of the stockholders were not considered or protected by any of the parties to the record in said cause, nor submitted to the court for adjudication or investigation, nor were the stockholders in any way advised or permitted to be informed of the transaction herein complained of."
It was further averred that the decree fixed no amount due and no amount which the company was required to pay to redeem, and that it contradicted the provisions of the mortgages.
Houston and Texas Central Railroad Company, No. 2, or any bonds secured by mortgage upon any property claimed to be possessed by said company, or any stock or bonds issued or intended to be issued pursuant to the reorganization agreement, and for general relief.
The principal defendants at first demurred, and then answered the bill, denying the allegations upon which complainants sought to impeach the validity of the decree of the circuit court in the foreclosure proceedings and the other transactions referred to. Complainants filed replications. A motion for an injunction pendente lite was denied. 45 F. 438.
The cause came on for final hearing on the pleadings and proofs November 16, 1892, and the circuit court entered a final decree dismissing the bill as to all the defendants with costs. 52 F. 671.
Complainants prayed two appeals from this decree, one to the Circuit Court of Appeals for the Fifth Circuit and the other to this Court. The appeals were allowed, citations issued, and assignments of errors filed. On motion of appellees, the appeal to this Court was dismissed November 13, 1893. Carey v. Houston & Texas Central Railway, 150 U. S. 170. The case on the appeal taken to the circuit court of appeals was heard by that court, Circuit Judge McCormick presiding, and on June 5, 1894, being one of the days of November term, 1893, a decree was rendered affirming the decree of the circuit court.
May 2, 1895, a petition was presented to Circuit Judge McCormick, praying the allowance of an appeal from the decree to this Court, which on the same day was allowed by an order in writing upon the petition, and at the same time a citation was signed, and a cost bond approved. The petition for appeal and the order allowing the same and the bond and an assignment of errors were all filed May 2, 1895, in the office of the clerk of the circuit court of appeals. The record was filed here June 4, 1895, and appellees now move to dismiss the appeal.
"in any case in which the jurisdiction of the court is in issue; in such cases the question of jurisdiction alone shall be certified to the Supreme Court from the court below for decision."
"It is the jurisdiction of the court below over the particular case in which the appeal from the decree therein is prosecuted that, being in issue, and decided against the party raising it, and duly certified, justifies such appeal directly to this Court. This suit to impeach the decree of May 4, 1888, and to prevent the consummation of the alleged plan of reorganization, was a separate and distinct case, so far as this inquiry is concerned, from a suit to foreclose the mortgages on the railroad property, and no question of jurisdiction over the foreclosure suit or the rendition of the decree passed therein can be availed of to sustain the present appeal from the decree in this proceeding."
Cary v. Houston & Texas Central Railway, 150 U. S. 170, 150 U. S. 180.
"and the said railway and lands be restored to the possession of the receivers appointed by this Court, or such other officers or receivers as the court may name,"
for injunction, and general relief.
"the judgments or decrees of the circuit courts of appeals shall be final in all cases in which the jurisdiction is dependent entirely upon the opposite parties to the suit or controversy being aliens and citizens of the United States or citizens of different states; also in all cases arising under the patent laws, under the revenue laws, and under the criminal laws and in admiralty cases."
The suits "of a civil nature at common law or in equity," of which the circuit courts of the United States have original cognizance, are enumerated in the first section of the Judiciary Act of March 3, 1887, 24 Stat. 552, c. 373, as corrected by the Act of August 13, 1888, 25 Stat. 433, c. 866.
that jurisdiction was entertained because it was a bill to set aside a foreclosure decree entered in the circuit court by consent, and in pursuance of a fraudulent plan to reorganize the company, and the res was in possession of the court, whether "rightfully or wrongfully." The ground of jurisdiction thus suggested is not a ground of federal jurisdiction, but of the exercise of the powers of courts of superior general jurisdiction, and it undoubtedly exists over all suits and proceedings ancillary, auxiliary, or supplemental to other suits, of which the circuit courts have cognizance as courts of the United States.
"The question is not whether the proceeding is supplemental and ancillary or is independent and original in the sense of the rules of equity pleadings, but whether it is supplemental and ancillary, or is to be considered entirely new and original in the sense which this Court has sanctioned with reference to the line which divides the jurisdiction of the federal courts from that of the state courts. No one, for instance, would hesitate to say that according to the English chancery practice, a bill to enjoin a judgment at law is an original bill in the chancery sense of the word. Yet this Court has decided many times that when a bill is filed in the circuit court to enjoin a judgment of that court, it is not to be considered as an original bill, but as a continuation of the proceeding at law -- so much so that the court will proceed in the injunction suit without actual service of subpoena on the defendant, and though he be a citizen of another state, if he were a party to the judgment at law."
"And since, where jurisdiction would not obtain in an independent suit, an intervening proceeding may nevertheless be maintained as ancillary and supplemental under the jurisdiction already subsisting, such proceeding is to be regarded in that aspect even in cases where the circuit court might have had jurisdiction of an independent action. Here, as we have said, the jurisdiction of the circuit court was invoked in the first instance by the filing of the bill, and it was under that jurisdiction that appellee intervened in the case, and that jurisdiction depended entirely upon diverse citizenship. . . . If the word 'controversy' added anything to the comprehensiveness of the section, the fact remains that the exercise of the power of disposition over this intervention, whether styled 'suit' or 'controversy,' was the exercise of power invoked at the institution of the main suit, and it is to that point of time that the inquiry as to the jurisdiction must necessarily be referred. Colorado Central Mining Co. v. Turck, 150 U. S. 138. Nor can the conclusion be otherwise because separate appeals may be allowed on such interventions. Decrees upon controversies separable from the main suit may indeed be separately reviewed, but the jurisdiction of the circuit court over such controversies is not therefore to be ascribed to grounds independent of jurisdiction in the main suit."
like on familiar and recognized principles of general law and practice, but the ground on which their jurisdiction as courts of the United States rests is to be found in the statutes, and to that source must always be attributed. Manifestly the decree in the main suit cannot be revised through an appeal from a decree on ancillary or supplemental proceedings, thus accomplishing indirectly what could not be done directly. And even if the decree on such proceedings may be in itself independent of the controversy between the original parties, yet if the proceedings are entertained in the circuit court because of its possession of the subject of the ancillary or supplemental application, the disposition of the latter must partake of the finality of the main decree, and cannot be brought here on the theory that the circuit court exercised jurisdiction independently of the ground of jurisdiction which was originally invoked as giving cognizance to that court as a court of the United States."
Complainants and defendants in the bill under consideration were not all citizens of different states, and the jurisdiction of the circuit court over the suit did not purport to be founded upon diverse citizenship. Independently, therefore, of the foreclosure suit, the decree in which was sought to be impeached, the bill was not sustainable in the circuit court.
"The bill falls within recognized cases which have been adjudged by this Court, and have been recently reviewed and reaffirmed in Krippendorf v. Hyde, 110 U. S. 276. On the question of jurisdiction, the suit may be regarded as ancillary to the Ketchum suit, so that the relief asked may be granted by the court which made the decree in that suit without regard to the citizenship of the parties, though partaking so far of the nature of an original suit as to be subject to the rules in regard to the service of process which are laid down by Mr. Justice Miller in Pacific Railroad v. Missouri Pacific Railway, 3 F. 772. The bill, though an original bill in the chancery sense of the word, is a continuation of the former suit on the question of the jurisdiction of the circuit court. Minnesota Co. v. St. Paul Co., 2 Wall. 609, 69 U. S. 633."
"There is no want of jurisdiction growing out of the fact that some of the defendants to the present suit are citizens of the same state (Ohio) with the complainant, inasmuch as this suit may properly be regarded as ancillary or supplemental to the original suit in which the decree complained of was made. It is well settled that in such cases, suit may be maintained without regard to the citizenship of the parties. Minnesota Co. v. St. Paul Co., 2 Wall. 609; Krippendorf v. Hyde, 110 U. S. 276; Railroad Co. v. Railroad Co., 111 U. S. 505. It is also well settled that a shareholder may interpose and set the machinery of the law in motion for the protection of corporate rights or the redress of corporate wrongs when the corporate management, after proper demand, refuse or fail to act in the matter."
The decree in that case was affirmed by this Court, 146 U. S. 146 U.S.
88, and there is a marked resemblance between the bill exhibited there and that before us.
We regard it as not open to argument that the jurisdiction of the circuit court, as a court of the United States, over this suit rested on the jurisdiction of that court over the suit in which the decree of May 4, 1888, was rendered, and we think it clear that that jurisdiction depended entirely upon diverse citizenship.
The bill in No. 201 was filed by the Farmers' Loan and Trust Company, trustee, a citizen of New York, against the Houston and Texas Central Railway Company, a citizen of Texas, April 24, 1886, to foreclose the general mortgage, and no other party was named as defendant. The ground of federal jurisdiction was diverse citizenship. How efficacious a decree could have been rendered in that cause if it had stood alone we need not consider, nor inquire when persons who might be considered necessary parties may be dispensed with as such. It may be noted, however, that the general mortgage was the last mortgage, and prior encumbrancers, the validity of whose encumbrances is not drawn in question, are not indispensable parties to a bill to foreclose a mortgage so situated. Hagan v. Walker, 14 How. 29, 55 U. S. 37; Jones on Mortgages § 1439.
order is to be disregarded, the question whether either case lacked an indispensable party became immaterial. Thereafter cross-bills and answers were filed, as has been stated. The jurisdiction over these three separate suits and over the consolidated cause depended entirely upon diverse citizenship, and if maintainable as to either of them, could be maintained as to all by reason of lawful possession of the res.
In No. 185, the Southern Development Company, a corporation and citizen of California, filed its bill against the railway company as a corporation and citizen of Texas, February 16, 1885, the jurisdiction resting upon diverse citizenship, and in that suit the court appointed receivers February 20, 1885, and took and retained possession of the property under that receivership up to May 26, 1886, when it was transferred to the receivers appointed in the consolidated cause, who thereby became receivers under each of the separate bills so consolidated, all of which had in fact been filed long after the property was in the possession of the court. Certainly possession under one or the other of these bills drew to the court the right to decide upon conflicting claims to the ultimate possession and control of the property, to marshal all liens upon it, and to enforce them. Morgan's Co. v. Texas Central Railway, 137 U. S. 171, 137 U. S. 201.
We conclude, therefore, that as the jurisdiction of the Circuit Court for the Eastern District of Texas as a court of the United States was invoked throughout the litigation upon the ground of diverse citizenship, and as this bill must be regarded as ancillary, auxiliary, or supplemental to the foreclosure suit, or, as it were, in continuation thereof, the decree of the circuit court of appeals was made final by the sixth section of the Act of March 3, 1891, and the appeal to this Court from that decree will not lie.
MR. JUSTICE PECKHAM was not a member of the Court when this motion was submitted, and took no part in its disposition.

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