Continental Trust Co. v. Toledo, St. L. & K. C. R.

59 F. 514, 8 Ohio F. Dec. 117, 1894 U.S. App. LEXIS 2709

• Court: U.S. Circuit Court for the District of Northern Ohio
• Decided: January 26, 1894
• Docket: No. 1,205
• Status: Published

Opinion

RICKS, District Judge,

(after stating the facts.) The receiver appointed by the court, to operate and manage the defendant railroad, pending foreclosure proceedings, is an officer of the court, and in that capacity represents all parties interested in the property. The persons employed by Mm occupy such a relation to the court, that, in a controversy between them and the receiver concerning any alleged wrongs and injuries committed by him, they may be heard by the court upon a proper application being made. When such application is made, it becomes the duty of the court to consider the same, and, if the allegations are of a character to make it proper to further consider them, the receiver should be required to file an answer thereto. The court will then be able to determine from such pleadings whether the issue between the parties is of such a character as to make it proper to hear testimony and make a formal investigation, either by reference to a master or by hearing witnesses in open court. But the very object in having a receiver experienced in the management of railroads to represent the court and operate the road and preserve the property preparatory to a sale is to relieve the court from the responsibility of its maintenance and management.

The receiver is chosen on account of his experience and sound judgment to operate the road for the benefit of the' creditors and all concerned. While he is the officer of the court, and subject to the orders and directions of the latter, yet his instructions are always general in their character. He is expected to look after the details of the business, and to apply to the court from time to time when special instructions seem necessary. The very nature of his relations to the court, and his duties to the creditors, entitle him to the largest degree of discretion possible in the discharge of his duties.

The court is constituted of several judges, and the railroad being operated extends through several judicial districts, so that it is difficult to secure uniformity in the administration of the property when an attempt is made to retain control of the details of the management in the court. It is therefore the settled practice, both as a matter of comity between the judges and as a matter of necessity to the proper and safe administration of the trust, to impose, as far as possible, the management of the property upon the receiver, and to remit the supervision of his management to the court in which he was appointed, and in which the primary jurisdiction attached.

In view of this well-defined policy, it must be apparent that in the operation of a railroad extending from Toledo to St. Louis the court must necessarily rely upon the receiver, and hold him responsible for details. His discretion in such management will not be interfered with, except where some abuse and wrong is manifest. In Taylor v. Sweet, 40 Mich. 736, Judge Cooley, speaking for the supreme court of Michigan, in reference to the employment of help in the management of business confided to a receiver in that case, said:

“The receiver, however, has ample power to employ them, and any other persons whose services he may need, and we think a court, which can know much less about the needs of the business than the receiver, ought not to interfere with his discretion unless some abuse is alleged and shown.”

In Kerr on Receivers the following principle is given in paragraph 175:

“If he is empowered by the court to continue the management of the business over which he is appointed, he may employ such persons as may be necessary for the purpose, and the court will not interfere with his discretion as regards such employment, unless some abuse is shown.”

These principles of law were declared in a case where a receiver was managing the business of a partnership. With how much greater force and pertinence do they apply to a receiver charged with looking after the intricate business of a great railroad 450 miles in length, requiring familiarity with detail and expert knowledge, which can only be acquired through long training and experience!

A controversy recently arose between the engineers, firemen, and trainmen on the East Tennessee, Virginia & Georgia Bailroad and the receivers in charge of that extended system, running through several states, as to an order of the latter concerning the wages of employes. The receivers were appointed in the circuit court of the United States for the eastern district of Tennessee. During the controversy, and while the chiefs of the organization of engineers and firemen were in Knoxville, negotiating with Receive:Fink on the subject, the former made representations as to the nature of the contention between them to Circuit Judge Lurton, then in Knoxville. The latter declined to entertain jurisdiction of the controversy, and remitted the question to the receivers, saying their decision would be final, unless palpable wrong and injustice were done.

This is the only proper practice to pursue in these controversies. Courts are not constituted to manage and operate railroads. The judges, learned in the law though they may be, are not experienced in large business undertakings. They are not trained in those departments of railroad management which relate to the wages of employes, to the numbers necessary for the maintenance of the roadbed and 1’or the safe operation of trains, to the tariffs for freight, and the purchases of supplies. Even if capable of mastering such details, their time will not permit. They are occupied in determining the legal rights of parties in litigated cases, and though in these days of large ventures and improvident railroad enterprises the courts are called upon, through receivers, to temporarily manage them pending litigation necessary to a foreclosure sale, yet:, as before stated, they assume this burden because it cannot be evaded; but they manage them through receivers, selected for their experience and demonstrated ability, and they rely upon .their experience and judgment to wisely and economically administer the trust.

In view of these well-setiled principles, let ns examine the application now before the court. Do the petitioners in this case show such an abuse of tbe power and discretion of the receiver as to call for the interference of the court? The facts set forth in the complaint have already been substantially stated. The most serious averment made is that the schedule of wages agreed upon in June, 1893, contained a provision that no abrogation of it should be made except upon 30 days’ notice, and it is averred that no such notice was given. The receiver avers that such notice was given. The fact is established not only that such notice was given on September 26, 1893, to tbe committee representing •the petitioners, but that negotiations concerning such reduction in wages, continuing over a month, were carried on between said committee and the superintendent of the road, acting for the receiver. Mutual concessions resulted, and a full hearing was had, and a decision made by the superintendent. From that decision an appeal was taken to the receiver. He heard the committee, made some further concessions, and then promulgated the schedule framed after such full negotiations and hearing, and ordered that It should take effect from November 1, 1893. In view of all those facts, I cannot see how the petitioners can so solemnly declare and aver that the receiver acted in. bad faith with them in changing the schedule of June, 1893, without the notice and hearing for which it provided.

Other facts recited by counsel, for the petitioners demonstrate the very embarrassments and difficulties already suggested that would confront the court should an investigation be undertaken as to the facts in issue. The petitioners seem to realize the force of the receiver’s statement that the proposed reduction in wages is absolutely necessary, because of the substantial decrease in the earnings, which are stated from the books to be $365,194.51 for the last six months of 1893, as compared with the same period of 1892, or at the rate of $2,000 per day. They undertake to break the force of this statement by controverting the fact, but they do not undertake to do this by challenging the correctness of the receiver’s books, or charging any manipulation in the accounts to make a false showing of the earnings. They attempt to show that there has been no such decrease,. based upon a table of gross and net earnings of 12 trains on specified days in the month of October, and a few in the months of September and November. With a candor that can only be inspired by confidence in their calculations, the petitioners seriously controvert the official statements from the books. Their calculations are, of course, incomplete, and involve but a small part of the expenses of the road, which extend far beyond the mere cost of motive power and the handling of freight.

If we pass to the other averments in the petition, we find further embarrassments that would attend a hearing and judicial finding on the issues presented. The petitioners deny that a reduction of the wages of those they represent is necessary, because they say a great saving in the expenses can easily be made by a reduction in the numbers of officers and clerks in several other departments. They proceed to propose a practical reorganization of the road, and suggest in detail certain officers and employes in the department of maintenance and repair of tracks, and in other branches of the business, whose services could be dispensed with. They aver that too many men are employed on certain divisions of the road in the repair of tracks, that too many men are employed in clerical work, and that unnecessary officers are employed at extravagant salaries. They specify those extravagant sums, and allege salaries allowed greater than are paid to any one in the employ of the receiver, or even to the receiver himself, as the court well' knowrs. The earnings of engineers and firemen are stated at a much lower figure than those shown to be paid by the receiver’s' answer, but ihose errors are shown to be reached by a wrong basis of calculation.

Reference is made to these1 general charges, and to the more detailed character of the issues presented, for the purpose of show-lag how useless and barren of results would be an investigation upon the questions of fact involved. This court must accept the official reports of the receiver and the stat(‘incurs of his boohs as final on any issue as to whether or not there has been a decrease in the earnings of the road. The verity of his accounts could hardly be said to he put in issue by a denial of a decrease of earnings founded on any calculations made on such a partial and imperfect basis as the earnings of a few trains, as set forth in the petition.

Then the court is asked to hear testimony and pass upon the question of whether a few section foremen or dcjmty division superintendents or a few clerks could be dispensed with, so that a reduction in the wages of others might be made unnecessary. The receiver avers that the petitioners are paid wages as high, and some higher, than is paid for the same kind of labor by competing lines in the same territory. This petitioners deny, and recite facts and figures which seem to sustain their claim, but which, as stated, are susceptible of explanation to sustain the receiver’s averment.

All these issues, if entered into, involve the court in a consideration of the entire present organization of this railroad, and in an examination as to the entire force of employes,- — whether they are too numerous, whether their wages are too high, whether some could he entirely dispensed with or their duties combined in a fewer number, whether the rates of freight are too high, whether the earnings could he increased and the expenses diminished.

The very statement of the questions necessarily involved and to l)e fully considered and determined by such an investigation, and the nature of the evidence to be taken and considered in support of the various issues presented, is in itself sufficient to suggest the answer that the court cannot entertain any such proposition. As before stated, the determination of all such matters must necessarily rest with the receiver, and only when it is manifest that he has abused that discretion will the court interfere. It will then interfere, not by assuming to reverse his administration and settle (he details of such complaints, hut by selecting a new receiver, to whom such matters can more satisfactorily be intrusted. But no such abuse is shown.

I have treated this petition with the greatest respect, and have given it full and fait- consideration. It is presented by over 500 men, wffio believe they have a grievance which the court should hear. They have chosen to come into court and petition for redress for their alleged grievances, rather than strike, or embarrass the receiver hv any interference with the management of the property. I have therefore undertaken 1o state their claim at length and with fairness, to show them how impossible it is for a court to enter into a detailed investigation such as their petition invites with any possibility of reaching an intelligent and just • conclusion. Without impugning the sincerity or good faith of the petitioners, and without passing upon the facts set forth in their complaint, it is sufficient to say that the present financial condition of the property, and the unfortunate and deplorable general bnsiness depression and distress which, everywhere prevails, all combine to satisfy the court that the claims of the receiver that this reduction in wages was absolutely necessary and inevitable are so manifestly true and just that the court, upon the pleadings and facts, of which we must take judicial notice, must find that no case for interference with the receiver’s order is made.

The court the more readily reaches this conclusion because from repeated interviews with the receiver, and examination of the reports of earnings and expenses filed from month to month, I am satisfied this reduction of wages is unavoidable. During the time this property has been in the custody of the court, I have studied closely the policy and management of the receiver. He has the confidence of the court in the highest degree. He was chosen because of his long experience and conceded ability. The statement that during the six years of his management of the property now in his control, first as president and later as receiver, no serious accident has occurred, is the best proof that his duties have been faithfully discharged, and the confidence of the court is worthily bestowed. If the petitioners had presented to the receiver during their negotiations with him, or if they had suggested in their present application to the court, a reasonable proposition upon which they were willing to accept a fair reduction, and had placed their proposition in such shape that it did not involve the embarrassments and difficulties heretofore suggested, the court would feel hopeful that satisfactory results might follow further negotiations. But, in the absence of any such practical plan, it would be useless to give it further consideration.

The court feels authorized for these reasons to continue its management of this property under the judgment and discretion of the receiver, and to decline to interfere unless an abuse of that trust, is shown. To the proper management of the property it is essential that there should be discipline and co-operation among all employes, and that the authority vested in the receiver should be maintained. This will be the policy of the court, and only when an abuse of that authority is clearly shown will it interfere". The matter of wages is one that naturally appeals to the sympathy of all. It would be far easier, and much more agreeable, to accede to this demand than to refuse it. If it were a mere matter of personal preference, or an appeal to the generous impulses of the court or the receiver, there would be no reduction of wages; but this property is a trust, to be administered for the benefit of creditors, and must be maintained and preserved to the best possible advantage for the interests of those whose money is unfortunately involved in the insolvent company, as well as for the just and fair compensation of those whose labor operates and preserves it.

For the reasons stated, the motion of the petitioners for an order to the receiver to set aside the schedule now in force, and to grant an investigation as to the necessity thereof, is refused.