Foley v. Guarantee Trust & Safe-Deposit Co.

74 F. 759, 21 C.C.A. 78, 1896 U.S. App. LEXIS 1988

• Court: Court of Appeals for the Eighth Circuit
• Decided: June 8, 1896
• Docket: No. 806
• Status: Published

Opinion

THAYER, Circuit Judge,

after stating the case as above, delivered the opinion of the court.

It is insisted by the aj)pellees that the bill of complaint fails to state a case which would warrant a court of equity in vacating the decree of foreclosure, because the allegations of the bill are, as a rule, vague and indefinite, and because those allegations which attempt: to charge fraud and collusion are mere statements of legal conclusions. There is some force, doubtless, in the view thus urged, —that the bill, taken as a whole, does not show that the complainants are entitled to any form of equitable relief; but we do not. find it necessary, on the present occasion, to express a definite opinion with respect to that contention. The case is before this court on appeal from an order refusing to grant a preliminary injunction to stay the sale of the mortgaged property under the decree of foreclosure. The application for such order was heard in the circuit court upon the pleadings, and upon certain affidavits and exhibits which were filed by the respective parties, both to support and to disprove the material averments contained in the bill and answer. It is not enough, therefore, to justify this court in reversing the order of the circuit court, that the complaint probably contains sufficient averments to warrant the relief prayed for; but it must be made to appear, before this court will undertake to interfere with the action of the circuit court, that there are reasonable grounds for believing that the material allegations of the bill tending to show fraud and collusion are true, and that they will probably be established on the final hearing of the case. In this latter respect the case fails. We think that the complainants below wholly failed to show that the material allegations of the bill were probably well founded in point of fact, and that they were for that reason entitled to injunctive relief. After a careful examination of the affidavits and exhibits, we have become satisfied that the Duluth & Winnipeg Railroad Company had defaulted in the payment of the interest on its bonds when the foreclosure suit was instituted, and that the railroad company was at the time utterly insolvent, and without means to meet its just obligations. We find no evidence whatever that the North Star Construction Company ever obligated itself, as charged in the bill of - complaint, to pay the interest on the bonds that were issued by the railroad company, until the railroad was fully completed; and there is no sufficient evidence to support the further charge contained in the bill, — that the said bonds, or a majority thereof, were held by the construction company and its stockholders when the foreclosure suit was instituted, and that they had severally acquired said bonds with the knowledge that the duty of paying the interest thereon had been assumed by the construction company. These primary allegations found in the bill of complaint seem to be wholly unsupported by the proof. We may furthermore add that we find no evidence in the present record which would justify us in placing any reliance upon the further allegations of the bill, that the Guarantee Trust & Safe-Deposit Company had acted in collusion with the defendant William C. Van Horne, and under his domination and control, either in bringing the foreclosure suit originally, or in prosecuting it to a final decree. That suit appears to have been brought by the Guarantee Trust & Safe-Deposit Company, as trustee in the mortgage, in the usual way, at the instance and request of a majority of the mortgage bondholders, and to have been prosecuted throughout in the usual manner for their sole benefit and advantage. Moreover, the evidence contained in the present record does not sustain the further charge contained in the bill of complaint, — that the defendant William C. Van Home acquired control of the Duluth & Winnipeg Railroad with the preconceived intent of depreciating its value, and buying it at a small cost. The circumstances under which he was induced to purchase a controlling interest in the stock of the construction company, and in that way to obtain control of the Duluth & Winnipeg Railroad, are fully explained in the affidavits and exhibits which have been filed by the defendants; and we are unable to say, upon the showing thus made, that it is even probably true that he was actuated by a fraudulent motive in purchasing said railroad, or that his management of the same after he had acquired it was in any respect fraudulent or unlawful. It is apparent, we think, that the allegations of the bill to which we have thus briefly alluded are those upon which the complainants place their chief reliance to obtain a decree vacating the decree of foreclosure, and other subsidiary relief. The proof offered in support of these allegations was, in our opinion, wholly inadequate to show that the facts alleged could probably be established on a final hearing of the case, and for that reason we have no doubt that the motion for an injunction was properly denied.

There are other facts disclosed by the record which would naturally and very properly disincline any court to grant an injunction staying the execution of the decree of foreclosure. The foreclosure suit, it seems, was commenced on October 11, 1891, and was pending from that time until January 16, 1896, when a final decree was entered. In the meanwhile, on January 31, 1895, certain stockholders of the Duluth & Winnipeg Railroad Company were permitted to intervene for the protection of their interests. They filed an answer to the bill of foreclosure, and also a cross bill, which latter pleading contained substantially all the allegations tending to show fraud and collusion between the parties to the foreclosure suit that are found in the present bill of complaint. These appellants made common cause with the interveners, by contributing to the expense of employing counsel and taking testimony, and thereby they became parties to that litigation. After such intervention proceedings had been pending for nearly a year, and after a full opportunity -had been given to investigate all of the charges of fraud and collusion that had been made by the interveners, the latter withdrew their opposition to the suit, and consented to a decree of foreclosure. The appellants aver that the action of the interveners in consenting to a decree of foreclosure was at the time unknown to them, and that the decree was entered without their knowledge or consent, but they fail either to aver or prove that the interveners were induced to withdraw their opposition to the foreclosure suit by any improper means or influences. Neither do the appellants aver or prove thai they made any effort to have the alleged fraudulent decree set aside or vacated for nearly three months after the same had been signed and entered of record. It is also a fact of much importance and significance that the present bill was tiled on April 4, 1896, only a short time before the mortgaged property was to have been sold under the decree of foreclosure, and that the filing of the bill was preceded by a demand, which appears to have been made upon th* defendant Van Horne by the complainants’ solicitors, that, in order to prevent the commencement of a suit “that might prove difficult to stop,” he should purchase the complainants’ bonds at par. In view of the facts and circumstances to which we have last adverted, we think it manifest that the complainants below did not show such diligence, or such evidence that the suit was commenced in good faith, as entitled them to the favorable consideration of a court of equity. If for no other reason than the one last suggested, we think that the circuit court was well warranted in refusing the relief prayed for. The order of the circuit court overruling the motion for an injunction 'is accordingly affirmed, and inasmuch as the pendency of the appeal has served to delay, and is still delaying, the execution of the decree of foreclosure, a mandate affirming the order of the circuit court will he forthwith issued.