Court Opinion

ID: 9642378
Source: CourtListenerOpinion
Date Created: 2023-08-22 17:56:15.069042+00
Date Added: 2024-06-11T18:10:46.648948
License: Public Domain

STONE, Circuit Judge
(dissenting in part).
I concur in all of the results announced in the excellent opinion of Judge GARDNER except in the matter of priority of the claims of appellants. I cannot escape the conclusion that these claims are entitled to priority over all secured as well as unsecured creditors. This priority rests upon a ground urged by appellants: that their claims are “inherently preferential” because of their character.
I am not here concerned with the procedure for establishment of these claims, but with the effective enforcement of such as may be properly established. It is not a matter of definition of substantive rights. There can be no doubt of the existence of the substantive right of these claimants (upon proper proof of claims) to recover these overcharges. Ex parte Lincoln Gas & Electric Light Co., 256 U.S. 512, 41 S. Ct. 558, 65 L.Ed. 1066; Arkadelphia Milling Co. v. St. Louis Southwestern Ry. Co., 249 U.S. 134, 145, 39 S.Ct. 237, 63 L.Ed. 517. It is a matter of equitable remedy to make the enforcement of this undoubted right effective.
Where the trial court in a rate case has required the difference' in the rates to be impounded with the court or where it has required a bond protective of the rate payers (as in the Lincoln Gas Co. and Arkadelphia Milling Co. Cases, supra), the court has, in advance, provided for a remedy which is usually effective. Where, as here, no such provisions are made, the remedy must be sought other-where. Such remedy is to be sought in proceedings for that purpose in the rate case subsequent to final decree upholding the disputed rate or, under some situations, by actions in other courts. The situation here is that, under the final decree on mandate in the rate case, such claimants were expressly given the choice of proceeding in the rate case or of resorting to other courts. They are now properly in a court of equity invoking the full equitable powers of that court not only to determine the verity of their claims, but to accord to them an equitable remedy of enforcement which will assure realization upon such claims. The insolvency of this company creates the importance of the remedy to assure realization and makes such depend upon the right of priority of payment over secured and unsecured creditors. The search is for such priority. If such priority exists, it must be for a sound legal reason. Priorities arise in three ways: By statute, by situations created by the parties themselves through contract or tort relations, and by courts of equity. There is here no governing statute and no situation created by contract or by tort of the interested parties. This entire situation was created by the court of equity which issued the injunction, and if priority exists, it must be found in the equity powers of the court in which the claims are pending.
My brethren have diligently examined those equitable powers and are unable to find any ground for priority which is of tiny practical avail to these claimants. They find' that such claims are without the equitable rule as to priorities for labor or material furnished within six months; that they are outside the equitable rule governing constructive trusts ex maleficio; and that, if they might be within the equitable rule of constructive trusts, such is unavailing because the trust fund cannot be traced. With these three conclusions I agree. They ably discuss appellants’ contention that the claims are “inherently preferred” and reject that contention as unsound on principle and also on authority. If either of these positions is correct, the matter is ended. It is because I am unable to see that either is sound that I am compelled to dissent and, respectfully, to state my views concerning each.
First as to authority, because if there is governing authority which directs our *46steps, I am not at liberty to follow any other path. The authority relied on is St. Louis & S. F. R. Co. v. Spiller, 274 U.S. 304, and particularly the paragraph at page 311 of that opinion, 47 S.Ct. 635, 71 L.Ed. 1060, wherein the court discusses and disposes of the contention by Spiller that his claims were entitled to preference-“on the ground of public policy.”
In so far as the matter which influences me to think these claims are preferential, I can discover no authority in the Spiller Case because it seems to me that case involved a different situation and a different ground for alleged preference— in short, entirely different issues. While I shall hereinafter try to state the reasons which impel me to think sound the ground for preference in the instant case, it is necessary here to state that ground in order to contrast the lack of application of the Spiller Case. That ground is where the proper legislative authority establishes a service rate and thereafter enforcement of that rate is suspended by a court of equity (in its discretion) at the instance of and for the sole benefit of the service company pending a determination of the validity of the new rate and the new rate is finally judicially sustained, the improper collections made by the company solely because of such suspension are preferentially payable before contract obligations of the company, secured or unsecured. The foundation concept is that no such creditors should equitably profit from such ex-actions so secured and that the only way to prevent such inequity is by allowance of such preference.
In the Spiller Case the situation was that the carrier has established a higher rate for live stock shipments. That rate became then the only legal existing rate which the carrier could charge or the shipper could pay. Complaining shippers paid that rate and later availed themselves of the remedy ' accorded by the Interstate Commerce Act to challenge the rate as unreasonable and to recover reparation (“damages” under the act) for the difference above a reasonable rate. Here, the state Legislature established a lower intrastate rate which then became the only legal rate the carrier could charge or the shipper pay. The carrier came into a court of equity to challenge the validity of that rate. It sought and obtained the exercise of the discretion of that court to protect it therefrom pending the litigation. This was sought and obtained solely for its benefit and to the harm of the shippers. No provision was made by the court (which had the undoubted power) to protect the shippers against these exactions if the carrier failed in its suit. A court of equity — not only empowered but required to do full equity to all parties — and that court alone made the exactions possible and it alone gave the carrier the full benefit thereof. Therefore, the situation here is whether that court is powerless to right the loss which it alone caused. The situation in the Spiller Case was at most simply an unjust enrichment (often “assimilated to an obligation of contract,” Texas & Pac. Ry. v. Pottorff, 291 U.S. 245, 261, 54 S.Ct. 416, 420, 78 L. Ed. 777), while here there was not only an unjust enrichment, but one caused solely by a court of equity which in that, as in all other matters before it, had the positive duty of employing all of its powers to do full equity to the shippers as well as to the carrier.
The issue in the Spiller Case as to “public policy” being a basis for preference is different from the basis for preference here present. There (274 U.S. 304, page 311, 47 S.Ct. 635, 71 L.Ed. 1060) the issue was whether the carrier having exacted illegal rates through the exercise of its “sovereign” power to fix rates and those exactions having passed into the property coming to the custody of the court through receivership, there then existed a duty to make restitution while the court held the property and, having failed so to do, the court could ■ require payment from the company acquiring the property. Here the issue is whether a court of equity having solely caused an improper exaction which passed into the property has power to right that wrong. It seems to me there is such lack of similarity between the two situations and the two issues as to remove the Spiller Case as any. authority here.
That thése claims are rights recognized and enforceable by the courts of the United States is established. That they would, at the very least, be entitled to rank as unsecured claims is -not challenged. The question is whether they are, because of their character, entitled to preference in the situation here. The majority opinion correctly states that the burden is on these claimants to establish a right to preference. There is no dispute that claims may be *47of a character so to appeal to a court of equity that they will be accorded preference because thereof. Courts of equity have repeatedly considered the particular character of claims urging preference and where the circumstances surrounding such seemed to merit preference, have so determined. Instances thereof are found in constructive trusts, equitable assignments, equitable liens, receiver’s certificates, and the six-month labor or material claims. The inquiry is whether the undisputed facts showing the character of these claims are sufficient to carry that burden —whether the circumstances surrounding them appeal to a court of equity as entitling them to preference.
In my judgment, the facts here should so appeal to a court of equity. The state Legislature established the reduced rates. They became the only legal rates. These claimants (as shippers) had a right to demand service at such rates and the carrier had no right to refuse. The carrier had the right to question the validity of those rates. The court resorted to by it had the power to protect the substantial rights of all parties pending the test. How it should exercise that power was a matter of sound discretion. The method employed here was to enjoin enforcement of the reduced rates and permit the rate difference to be collected and used by the carrier. This action was solely for the protection and benefit of the carrier. Final determination sustained the reduced rates. That determination settled that such rates were the only legal rates from their promulgation. The litigation had neither nullified nor changed them at any time. It had merely prevented their enforcement during and for the purposes of the suit. The shippers were entitled to return of the exactions made under the protection of the court’s order and with interest from date of payment, Arkadelphia Case, supra, 249 U.S. 134, page 147, 39 S.Ct. 237, 63 L.Ed. 517. If an improper exaction made for the benefit of one party and to the damage of another solely by the orders of a court of equity does not appeal to all of the powers of a court of equity to right the wrong so caused, I do not know what would. It is within such powers to declare a preference if such he necessary to right the wrong. Obviously, this should be done unless prevented by opposed equities in the situation which prevent. Are such equities present?
If such counteracting equities exist, they must be found in the unsecured or secured creditors. No special circumstances or equities are here shown as to why any particular creditor (secured or unsecured) should have preference over or equality with these claimants. The situation is simply the general one of secured and unsecured creditors.
I think the record in this case rather strikingly illustrates the positive injustice which will ensue unless preference over all such creditors is accorded these claimants. These exactions passed into the treasury of the carrier. It makes no difference how they were there used for in any case they augmented what passed to the receiver by just that much either by preventing that much more indebtedness of some character or otherwise. There can be no doubt that all of the creditors have been benefited thereby just because the debtor carrier was so benefited. What greater right in equity and fair dealing have they to retain these compulsory payments than their debtor?
Moreover, it is quite obvious that this receivership proceeding was mainly caused by the situation brought about by the decision sustaining the state rate which meant a liability for return of the collected overcharges. The entire allegations of the bill upon which the receivership was initiated are not in the record, but there is one clause of quite evident importance which shows a number of claims amounting to more than a million dollars on account of overcharges in Missouri and a large amount of similar overcharge claims in Arkansas and the danger of a multiplicity of suits thereon and levies upon property of the carrier. It is further significant that this receivership lasted only about fourteen months until the final decree of sale. During this time, all of the liquidated personal injury claimants and practically all of the labor and material creditors had been paid in Ml so that the picture at time of reorganization included little more than the secured creditors, stockholders, and these rate overcharge claimants. The property was sold to a reorganized concern which consisted of the bondholders and stockholders of this company and of the Missouri Pacific Railway Company (which owned practically all of the Iron Mountain stock). In short, the secured creditors and the stockholders took over the property und.er a reorgani*48zation which accorded a subordinate place to the shipper claimants if their claims were without preference. Through these financial manipulations and judicial actions the complete picture is as follows: A state may fix a legal rate to be charged shippers; the carrier may contest that rate for years (here about nine years) ; during those years it may, under the protection of an injunctive order of a court of equity, improperly collect more than the established, rate; it may pass those collections into its business and use them freely therein; if finally unsuccessful in the rate litigation, it may pass through a receivership resulting in a reorganization by the secured creditors and the stockholders; it may vigorously contest the return of these improper exactions and finally compel the shippers to accept subordinate securities in the reorganized company without a cent of cash return of the money improperly exacted from them. The net result of this situation is that the shippers have had taken from them more than a million dollars under the orders of a court of equity of the United States, and through the actions of another court of equity of the United States the only recompense they can secure is subordinate securities in a reorganization of the carrier after practically all of the general unsecured claims have been paid in full. Such results do not accord with my conception of the powers and duties of a court of equity of the United States.
It makes no difference that such preference cannot be brought under some one of the existing classes of 'equitable remedies which have been employed to work out justice through preferential payment. While courts are properly conservative and rightly seek to fit the enforcement of rights into established remedies, yet “a court of equity’s modes of relief are not fixed and rigid. It can mold its remedies to meet the conditions with which it has to deal. The jurisdiction of equity is the whole domain of conscience, limited only by legislative enactment. The faculty of equity must be energetic, productive, and progressive. But to- exercise this right of the court of equity there must be some show of an injustice attempted or about to be perpetrated upon the petitioners.” Graselli Chemical Co. v. Ætna Explosives Co., 252 F. 456, 459 (C.C.A.2). To me, it seems sufficient if the situation of these claimants entitles them to preference. If so, the reorganized company is subject thereto because it took the property with the expressed condition in the order of sale that it would pay claims found to be so preferential.