Source: https://caselaw.findlaw.com/us-supreme-court/161/115.html
Timestamp: 2019-04-18 17:36:08+00:00

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The Houston & 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 & 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 Mort- [161 U.S. 115, 117] gage,' 'Western Division First Mortgage,' 'Waco & Northwestern Division First Mortgage,' 'Main Line and Western Division Consolidated Mortgage,' 'Waco & 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 & 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.
On February 16, 1885, the Southern Development Company, a corporation organized under the laws of California, and a citizen and resident of that state, in its own behalf and in behalf of all other persons similarly situated who might intervene in the suit to protect their own interests, filed its bill of complaint in the circuit court against the railway company as a corporation organized under the laws of Texas, alleging, among other things, that it was a creditor of the defendant for large sums advanced for supplies, labor, operating, and managing expenses, and other necessary expenses, which defendant had promised to pay out of its earnings; that the indebtedness was in equity a charge upon defendant's income and property; that there had been a diversion of the income, and that by reason thereof a lien had resulted in complainant's favor, which it was entitled to have enforced. The bill alleged the absolute insolvency of the railway company, and that loss and injury would be occasioned by a sale of the property in [161 U.S. 115, 118] 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 & 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 incumbrances 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.
The circuit court made three orders on May 7, 1885, in these cases: In No. 185, as to sales of lands and their proceeds, and directing the receivers to account; in Nos. 183 and [161 U.S. 115, 119] 184 making that order applicable to those cases; and in No. 188 making the same order as to that case.
In No. 199 the same parties were joined as defendants, and a like [161 U.S. 115, 120] averment made as to the Farmers' Loan & 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 & 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 dobt. Process was issued and served.
On May 26, 1886, an order was entered by Mr. Justice Woods and the circuit judge in the six suits upon the mortgages, whereby it was ordered, adjudged, and decreed that no further proceedings should be taken in causes Nos. 183, 184, and 188 without notice to the railway company, and that causes Nos. 198, 199, and 201 should be [161 U.S. 115, 121] consolidated under No. 198, under the name and style of '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'; that in said cause Easton and Rintoul should stand as complainants, as trustees under the mortgages made by the defendant railway company, dated, respectively, July 1, 1866, and December 21, 1870; that the Farmers' Loan & Trust Company, expressly assenting thereto, should stand as complainant, as trustee under the mortgages made by the railway company, dated, respectively, June 16, 1873, October 1, 1872, May 1, 1875, and April 1, 1881; that Shepherd should stand as defendant, as trustee under the mortgage made by the railway company dated May 7, 1877; that the bills filed in causes Nos. 198, 199, and 201 should stand as bills in the consolidated cause, and might be amended by either complainant, as it might be advised; and that any party might file an answer to any original or amended bill; and that in case any one or more of the bills filed by the complainants in the causes consolidated should be finally dismissed, the remaining bill or bills should continue to stand as the bill in such consolidated cause. On the same day an order was made in said consolidated cause No. 198, appointing Nelson S. Easton, James Rintoul, and Charles Dillingham receivers of all the property of the railway company, and directing Clark and Dillingham, as receivers in No. 185, to immediately transfer and deliver all said property to the receivers so appointed. May 27, 1886, and after the possession of all the property in controversy had passed into the hands of Easton and Rintoul and Dillingham, as receivers, the court made a decree dismissing the bill of the Southern Development Company in No. 185 for want of equity, and declared and directed that: '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 & 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 & 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 & Northwestern Division consolidated mortgage. The railway company answered these bills May 2, 1888, and the Farmers' Loan & Trust Company answered Shepherd's cross bill on the same day. All the mortgages were thus under foreclosure except the Waco & Northwestern Division first mortgage. On May 4, 1888, the court made its decree of foreclosure and sale in consolidated cause No. [161 U.S. 115, 122] 198. The property was sold under the decree September 8, 1888, at Galveston, Tex. The property covered by the Waco & 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.
On December 23, 1889, Carey and others, as stockholders of the Houston & Texas Central Railway Company, filed their bill in the circuit court for the vacation of said sale and decree, and an amended bill February 18, 1890. The contents of these pleadings are largely set forth in Carey v. Railway Co., 150 U.S. 170 , 14 Sup. Ct. 63. The gravamen of the bill was that the decree was entered through collusion and fraud. Briefly, the bill alleged that prior to 1883, defendant Huntington, who, with his associates, controlled the Southern Development Company, formed a syndicate with them for the purpose of acquiring in his own interest and in the interest of that company and of the Southern Pacific Company the control of the Houston & Texas Central Railway Company in such manner that the railway might be run solely in the interest of the syndicate and the Southern Pacific Company, the rights of the stockholders being effectually shut out and barred. The bill further alleged that in January, 1885, the holders of the first mortgage bonds presented their coupons for payment, and it was fraudulently contrived by Huntington and his associates so that the coupons were cashed and secretly taken up by the Southern Development Company, without notice to the holders thereof; that thereupon that company commenced suit against the Houston & Texas Central Railway Company in the circuit court, and in February, 1885, the appointment of receivers was procured in that suit, the order being made with the consent of the railway company through its solicitors; that subsequently defendants Easton and Rintoul, trustees, filed their bills in the circuit court for foreclosure, and the Farmers' Loan & Trust Company filed its bill, which said bills were numbered 198, 199, and 201, and the causes were by consent consolidated as No. 198; that the suit of the Southern Development Company was dismissed, and thereupon receivers of the railway company were ap- [161 U.S. 115, 123] pointed 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.
The organization of a company styled the Houston & Texas Central Railway Company, designated in the bill as No. 2, after possession under the sale was acquired, for the purpose of operating the railway, was then set up, and the terms on which the stockholders of the original company were informed September 1, 1889, they could participate in the new company, which required payment of an enormous and unnecessary assessment, and constituted an attempt to compel the stockholders of company No. 1 to turn over their stock to Huntington and his associates, etc. The prayer of the bill was that the decree rendered by the court May 4, 1888, in the consolidated cause, be vacated and set aside and adjudged to be fraudulent, collusive, illegal, and void, and that complainants be permitted to intervene and become parties defendant in said suit, and be heard and defend the same; that the sale of the railway and lands of the Houston & Texas Central Railway Company, No. 1, under said decree, be vacated and set aside, and the said railway and lands be restored to the possession of the receivers; that defendants be enjoined temporarily and perpetually from delivering or recording any mortgage upon the property of the company referred to in said decree, and from issuing, alienating, or parting with any of the shares of stock of the new or reorganized [161 U.S. 115, 125] Houston & 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 Fed. 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 Fed. 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. Railway Co., 150 U.S. 170 , 14 Sup. Ct. 63. 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. 9 C. C. A. 687.
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. [161 U.S. 115, 126] Jefferson Chandler, George Clark, A. J. Dittenhoefer, and R. H. Landale, for appellants.
J. Hubley Ashton, A. H. Joline, and E. B. Kruttschnitt, for appellees.
By the fifth section of the judiciary act of March 3, 1891 (26 Stat. 826, c. 517), it is provided that appeals may be taken from the circuit courts directly to this court '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.' And we held, in respect of the direct appeal to this court taken from the decree of the circuit court in this cause, that such an appeal was not authorized simply because the jurisdiction of the circuit court over another suit previously determined by the same court might be involved, and we said: '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. Railway Co., 150 U.S. 170, 180 , 14 S. Sup. Ct. 63.
We are quite content with the conclusion there reached, for this suit is in itself unquestionably a distinct suit in the sense in which those words were used in disposing of the former appeal; and in respect of it the jurisdiction of the circuit court was not in issue, nor was any question of juris- [161 U.S. 115, 127] diction certified. Carey and his co-complainants did not intervene in consolidated cause No. 198, and seek to have the question of the jurisdiction of the circuit court therein certified to this court, and appeal directly therefrom; nor did they file a bill of review for error of law apparent in that the circuit court took jurisdiction as a court of the United States. The gravamen of the bill they did file was fraud and collusion, and the allegations of want of jurisdiction relate to prematurity in the attempt to foreclose, or to other matters not bearing on the jurisdiction of the federal courts as such. And the prayer was that the decree be vacated, and adjudged fraudulent, collusive, illegal, and void; that complainants might be permitted to intervene, and become parties defendant; that the sale of the railroad and lands of the company under the decree be vacated and set aside, '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 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).
It is denied that the jurisdiction of the circuit court in the present suit depended entirely, or at all, upon the fact that the opposite parties were citizens of different states, and insisted [161 U.S. 115, 128] 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 decree in that case was affirmed by this court (146 U. S. [161 U.S. 115, 132] 88, 13 Sup. Ct. 28), 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 & Trust Company, trustee, a citizen of New York, against the Houston & 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 incumbrancers, the validity of whose incumbrances is not drawn in question, are not indispensable parties to a bill to foreclose a mortgage so situated. Hagan v. Walker, 14 How. 29, 37; Jones, Mortg. 1439.
The bills in Nos. 198 and 199 were filed by Easton and Rintoul, trustees, citizens of New York, January 21, 1886, against the Houston & Texas Central Railway Company and Benjamin A. Shepherd, trustee, both citizens of Texas, to foreclose the Main Line first mortgage and the Western Division first mortgage, and it was alleged that the Farmers' Loan & Trust Company, trustee under subsequent mortgages, should be made a party defendant and brought in by the order and direction of the court, in view of the fact that the property was in the circuit court's possession, and complainants had therefore been obliged to institute their suit therein. These cases were consolidated by the order of May 26, 1886, the parties being arranged for the purposes of jurisdiction on the one side or the other of the matters in dispute, as indicated in Railroad Co. v. Ketchum, 101 U.S. 289 ; and, unless that [161 U.S. 115, 133] 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, etc., Co. v. Texas Cent. Ry. Co., 137 U.S. 171, 201 , 11 S. Sup. Ct. 61.
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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