Court Opinion

ID: 8849582
Source: CourtListenerOpinion
Date Created: 2022-11-26 17:09:00.155299+00
Date Added: 2024-06-11T17:05:27.138387
License: Public Domain

WOODS, Circuit Judge
(orally, after stating the facts). This case, as now presented, rests on the of Mr. Putnam, a bondholder,. and the intervening petition of labor claimants, and of the receivers in the case of The Mercantile Trust Company v. Chicago, Peoria & St. Louis Bailway Company.1 I do not think that the petition of the laborers, in itself, affords ground for appointing a receiver. What I said concerning their attitude in the other case is applicable here. They are simply creditors of the three companies. There is no obstacle to their enforcing their remedy at law against all the companies liable, if they can get them all into court at the same time, or against any of them separately; and, so far as they are concerned, the complications that arise out of the joint liability of the several companies are entirely immaterial. Their remedy is direct and easy. The fact remains, however, that, as between the companies concerned, there is complication or confusion of accounts to an extent that needs disentanglement, and there is force in the proposition, as a mere collateral consideration, that the existence of these accounts, and their character, lend support to the application for the appointment of a receiver, though furnishing, as already said, no legal ground for such action.
The bill or petition of the receivers of the other road presents, or would present, if there were necessity to determine the question, a more important and difficult inquiry. It shows the necessity of an accounting between these two companies, growing out of the operation of their roads under the joint arrangement which has heretofore prevailed; and I suppose the averments are sufficient to make a case for an accounting in equity. But whether, on such a bill, before any liability has been established, a court of equity ought to appoint a receiver, I think quite doubtful. I am inclined to believe, though not committing myself or the court to the proposition, that a bill for an accounting, under ordinary circumstances, does not warrant the appointment of a receiver until the account has been adjusted, and a liability established. But this, again, it is urged, though not itself a cause for an appointment of a receiver, furnishes strong support for the application, if otherwise well founded. If the Jacksonville road is allowed to go out of court as a corporation in the independent control of its own officers, the jurisdiction of this court over the question of an accounting would perhaps be lost.' These receivers, in order to enforce any remedy against that corporation, would probably have to go into a state court. I suppose there is no doubt of that; and the fact affords a strong motive, though not legal cause, for this court’s retaining possession, if it has and can hold, or ought to take, the possession. Theoretically, we are asked to take possession. By the order that *445we made the other day for the surrender of this line hy the receivers in the other case, the property is theoretically in the hands of the company, though actually yet in the custody of the court; and it is a question now of retaking possession hy appointing a receiver in this case.
This brings ns to the hill of the complainant, Putnam. On its face, this bill is sufficient, we think, to justify the appointment of a receiver. By the terms of the mortgage which the complainant, as one of the bondholders, seeks to enforce, the mortgagor was bound to pay taxes, and save the railroad company from default in that respect. It is alleged that such defaults have occurred. In respect to two counties, the details and the amounts involved are stated; and it is averred, in general terms, that in the other counties through which the road runs similar defaults have occurred. I agree with counsel that it was competent for—and, under the circumstances, the burden was fairly thrown on—the respondent to show 1hat there were no such defaults as are generally alleged, or that they were of slight significance, or for small amounts, if such are the facts. It is further alleged in the bill that the company is insolvent, the averment being of an indebtedness exceeding $200,000, of which the answer admits as much as $90,000; and it appears that within a short time there will be an installment of interest due on the bonded or mortgage debt amounting to about, $40,000. It is further averred that labor claims are unpaid, the showing in that respect being of a liability to the amount of $45,000. This company is liable for that amount, though its share of the debt, if equitably distributed between it and the other companies, is only 30 per cent, of that sum. Do these facts establish such insolvency as to justify the appointment of a receiver? The default in respect to taxes, and the significance of such defaults, have been strongly presented; and, to men familiar witli affairs, such delinquencies are necessarily significant. The penalties that arise from failure to pay taxes; the enormous interest in the form of penalties,—imply that the failure to discharge the liability came from a stress of circumstances practically impossible to be overcome.
There is another phase of this growing indebtedness of the company in which the mortgagees or bondholders are interested. By the law, as it has grown up under the case of Fosdick v. Schall, 99 U. S. 235. and later cases, establishing what is known in this circuit as the “six-months rule,” claims for labor and supplies, if not otherwise provided for, become entitled to preference over the mortgage debt. They, perhaps, do not constitute—I do not think they constitute—a lien on the property, such as to entitle the holders of them to apply for a receivership without first having established their demands. If such claims constituted a fixed or certain lien, their holders might he entitled to have receivers appointed to take care of their interests. But while there is not, strictly speaking, a lien, there is a preferential right, which may be enforced against the mortgaged property, if there he no other means of payment; and consequently, to the extent that such demands are permitted to accumulate, the rights of the mortgagee are liable to he postponed. This *446bondholder, therefore, has a right to apprehend that his interest will suffer in that respect; and even if the delinquent taxes were paid, as it has been suggested they might be, that element of danger to his rights would not be eliminated. I cannot escape the conviction that practically this road is insolvent, and to such a degree as to require the interference of the court.
There is force in the suggestion of counsel that the troubles of the company have come from the general financial stress. But it is from financial stress peculiar to the debtor, or affecting business generally, that insolvency is wont to happen; and, looking at the situation of the country as it is, there is no present promise or clear prospect of a recurrence of good times, and there may be ground for apprehending yet worse before the coming of better conditions. On the whole case, it is evident that it is better for all interests that the matters in dispute be kept within the control, and that the adjustment of the liabilities between these companies should be settled under the supervision, of one court. The case is in such shape that we may assert jurisdiction, and I believe the best interests of all parties, as well as of the public, will be promoted by the exercise of our authority. We will .therefore grant this petition.
There is another fact, somewhat aside, but important. It appears that the existing receivership, thus far, has been beneficial. Under the prior management, there had been default in the payment of current expenses for three or four months, amounting to about $140,000. One hundred thousand of that has been extinguished, and current expenses since the receivership have been paid; so that in less than three months the earnings of the road under the receivers have been sufficient to pay the operating expenses for nearly six months, and, with continued prosperity and successful management, the receivers, after a little while, may be discharged, and the roads returned to their owners. I think the proposition of separate receivers for the two roads is the right one.