Phinizy v. Augusta & K. R.

56 F. 273, 1893 U.S. App. LEXIS 2667

• Court: U.S. Circuit Court for the District of South Carolina
• Decided: May 16, 1893
• Status: Published

Opinion

SIMQNTOK, District Judge.

The hill was filed by Charles H. Phinizy and Alfred Baker, trustees, against the Augusta & Knoxville Railroad Company and the Port Royal & Western Carolina Railway Company, for foreclosure of mortgage, praying the appointment of a receiver.

The Augusta & Knoxville Railroad Company, whose road extended from Augusta, in the state of Georgia, to Greenwood, in the state of South. Carolina, — a distance of nearly 70 miles, — was incorporated under acts of assembly of the state of South Carolina. It was also incorporated under an act of assembly of the state of Georgia. On the 1st of July, 1880, this company executed and delivered a mortgage of all of its property, tolls, and income unto William A. Walton, who is' now dead, and the present complainants, as trustees, to secure an issue of $650,000 coupon bonds, bearing interest at the rate of 7 per centum per annum. A provision is inserted in the mortgage that, in case interest shall remain unpaid on said bonds for three months after the same may become due, each and every bond shall become due and payable, and the trustees are empowered, upon application by holders of $50,000 of said bonds, and it is made their duty, to enter upon and take possession of the mortgaged property, and manage the same, with the option of selling the same, on 60 days’ notice, at sale for cash. After the execution of this mortgage, and the issue of the bonds thereunder, the Augusta & Knoxville Railroad Company consolidated with three other roads, all meeting at its terminus at Greenwood. These were the roads from Greenwood to Spartanburg, the road leading from Greenwood to Laurens, and thence to Greenville, S. C., and the Savannah Valley Railroad Company, from Greenwood to Anderson, S. C. The consolidation was effected under sections 1425-1428 of -the General Statutes of the state of South Carolina. The name adopted by the consolidated companies was the Port Royal & Western Carolina Railway Company.

By virtue of these sections of the statute law of South Carolina, all the property and rights of property and franchises of e'ach of these corporations were transferred to and vested in the new corporation, with this proviso:

, “That all rights of creditors, and all liens upon the property of said corporations, shall be preserved unimpaired, and the respective corporations may bo deemed to continue in existence to preserve the same; and all debts, liabilities, and duties of either of said companies shall thenceforward attach to said new corporation, and ho enforced against it, to the same extent as if said debts, liabilities, and duties had been incurred or contracted by it.”

Thenceforward the existence of the Augusta & Knoxville Railroad Company became and was merged in, and became an integral part of, the Port Royal & Western' Carolina Railway Company, and, except for the purposes set, out in the proviso, it ceased to be a corporation. After this consolidation the Port Royal & Western Carolina, the whole, or certainly a majority, of whose capital stock was owned by the Central Railroad & Banking Company of Georgia, and was so under the control oí that company, became a part of the Central Railroad system; and by proceedings had in the circuit court of the United States for the southern district of Georgia, eastern.division, in a cause of Rowena Clark et al. v. The Central Railroad & Banking Company et al., and in a certain other cause of The Central Railroad & Banking Company v. The Farmers’ Loan & Trust Company et al., was placed in the hands of receivers .and-- eventually in the' hands of one. receiver, H. M. Comer, Esq., who was president; of the dominant company. After the appointment of Mr. Comer, proceedings were filed in this district in the name of The Central Railroad & Banking Company v. The Farmers’ Loan & Trust Company, ancillary in character, praying the extension of the authority of this receivin' over that part of the Fort Royal & Western Carolina Railway Company in South Carolina. Recognizing and following the comity exercised between courts of the United States, this court adopted and ratified the appointment of Mr. Coiner.

It is stated in the hill under investigation, and it was insisted upon in argument, that, this appointment of Mr. Comer was coram non judice, being without and beyond the jurisdiction of this court. The'bill, as filed in this district, was a counterpart of that filed in Georgia, presumably to demonstrate its purpose as an ancillary bill. Named in it were several parties defendant, citizens of the state of Georgia, of which the eomjilainant was also a citizen. Rut ihe whole scope and purpose of the hill was the appointment of a receivin' for the Fort Royal & Western Carolina Railway Company. \'o relief was prayed, and no controversy, claim, demand, or interest; witli any Georgia corporation was made, shown, or suggested. With this prayer alone, and with the Port Royal & Western Carolina, Railway Company, this court dealt. And treating everfhing else in the hill ns surplusage, disregarding and ignoring the same, it; took jurisdiction, as between a corporation organized under the law of Georgia, and this Fori; Royal & Western Carolina Railway Company, organized under ihe laws of South Carolina, decreed as between them, and appointed a receiver. There can be no doubt, as ¡o its jurisdiction (o malo; this decree, and none as to the validity of ibis appointment of Tí. M. Comm- as receiver. But this appointment was as auxiliary to. and solely because of, the appointment made in the circuit couri of the southern district of Georgia; and if. for any reason, of comity or otherwise, it should seem best t,o iliis court to revoke this appointment, it can and will he done. Default having been made in the paymenr of Ínteres! coupons on bonds of Ihe Augusta & Knoxville Railroad Company, the dnties of the surviving trastees became active, instead of exercising, or waiting to he called upon to exercise, the powers conferred upon them in ihe mortgage, they have come into this court and have tilt'd their bill, praying foreclosure of this mortgage, and for the appointment; of a, receiver. To this hill they mads' the Augusta & Knoxville Railroad Company and ihe Fort; Royal & Western Carolina Railway Company parlies, claiming that, under the proviso of the section of the General statutes of South Carolina above quoted, their claim and lien have been enlarged and extended over all (he property of the last-mentioned railway-company, and including it, and its property in the prayer for a receiver. At the hearing the bill was so amended as to mate the Central' Trust Company of New York a party defendant. This company holds the majority of an issue of first mortgage bonds of the Port Royal & Western Carolina Railway Company, covering its entire property, including that eon-tributed by the Augusta & Knoxville Kailroad Company. When this last amendment was made the Central Trust Company of New York entered a special appearance for the purpose of filing an objection in the nature of a plea to the jurisdiction. This is of a twofold character:

1. That the complainants are citizens of the state of Georgia, and that the defendants the railroad and the railway company, are corporations both of Georgia and South Carolina. That the headquarters and principal place of business of each' of them are in Augusta, Ga., and so this court cannot entertain jurisdiction. This plea is overruled. By a long line of decisions, the supreme court have established the doctrine that the citizenship of a corporation is not determined or affected by the place or places where it does business.. This is determined by its act of incorporation, and it is a citizen of the state to which it owes its life, and of none other. Shaw v. Mining Co., 145 U. S. 449, 12 Sup. Ct. Rep. 935. Mr. Morawitz, in his work on Corporations, (section 996,) sums up the law thus::

“A corporation chartered by several states may, by the use of a fiction, be regarded as a distinct corporation in each state, within the purpose and meaning of the particular laws by which it may be effected. Thus it may be treated in each state as a citizen of that state only, in determining the jurisdiction of the federal courts.”

In section 999 he states it more accurately:

“For the purpose of determining the jurisdiction of the circuit court of tho United Slates, a corporation chartered by several states must, when sued in either state, be treated as a citizen of that state alone.”

He quotes Railway Co. v. Whitton, 13 Wall. 283, and a number of other cases, which justify him. And in Nashua & L. R. Corp. v. Boston & L. R. Corp., 136 U. S. 356, 10 Sup. Ct. Rep. 1004, the same doctrine is laid down.

2. The other objection is this: The bill abounds with allegations as to the invalidity of the ownership by the Central Bailroad & Banking Company of the stocks and bonds of this company, and with charges as to the invalidity of the appointment of H. M. Comer as receiver; that these are necessary parties; and that, if they be made parties, being citizens of the same state with the complainants, this court must lose jurisdiction. It is true that charges are made in the bill of the character stated against the Central Bailroad & Banking Company, but no controversy whatever is stated between that company and the complainants, and no sort of relief asked by them against the Central Bailroad & Banking-Company, and no right whatsoever to any relief shown. No order or decree made under these pleadings can affect in any way the Central Bailroad & Banking Company. All that is said is said arguendo, and may be stricken from the bill as surplusage, or perhaps as evidentiary matter only, without affecting the main scope of the bill. Were an amendment offered to make this company a defendant, and were such an amendment by any chance granted, a motion to dismiss the new defendant would at once be in order. With regard to Mr. Comer, he is the hand and repre-sentátive of (be court:. His presence is in the court, and he is recognized here. Charges made against him are charges against an officer already within the jurisdiction and control of the court. It would be a matter of supererogation to make him a party. This objection is overruled.

One other objection has been made at the hearing which must be noticed. It is said that the complainants derive all their powers from the trust deed by way of mortgage; that they are limited by this deed, and that the trust is to be strictly construed; that this deed limits their action by the request of holders of $50,000 worth of bonds, both in taking possession of and in selling the property; and that the property in which alone they have an interest is the road from Augusta to Greenwood. So their bili is itself demurrable, and their prayer for a receiver over all the property of the Pori Royal & Western Carolina Railway Company is preposterous. If the trustees assume to act, relying only upon the powers contained in the mortgage, they must show that the terms of the power have been strictly complied with. But they are the holders of the legal estate in this mortgage, — the mortgagees in trust for bondholders. They represent the bondholders in all litigation, and they cannot be ousted from this representation except upon some showing of misfeasance. They have the same right as any other suitor to come in and ask the aid of the court, aud this simply because they are legal owners of the mortgage. A trustee can always come into court of equity for aid or instruction in conserving his trust. And, if the view presented by the counsel for complainant has the shadow of reason for it, that by the terms of the sections of the General Statutes of South Carolina, above quoted, not only the liability upon these bonds has been assumed by the consolidated company, but that also the terms of their mortgage have been so enlarged and extended by this act as to bring all the property of the consolidated company within them, they have the unquestionable right to submit this question to the court, and to its decision thereon. See Kerrison v. Stewart, 93 U. S. 160; Shaw v. Railroad Co., 100 U. S. 605.

The case comes up upon the return to the rule to show cause why a receiver be not appointed, issued when the bill was filed. The return admits and confirms the allegations of the bill as to the insolvency of the Port Royal & Western Carolina Railway Company, and of that of the Augusta & Knoxville Railroad Company. It alleges, however, that this property is already in the hands of a receiver appointed by this court, and that no further appointment is necessary. It is true that the property is now in the hands of Mr. Comer, appointed receiver. This appointment, however, was made in proceedings filed by the Central Railroad & Banking Company, in order to maintain its system, and to subserve the interests of itself, and perhaps other stockholders. The present proceedings are instituted by creditors who seek protection of their interests as superior to those of any stockholder. They pray foreclosure of their mortgage and the sale consequent, thereon. The scope and purpose of these proceedings are vastly different from that of tbe bill under wliicb Mr. Coiner was appointed. That bill sought to preserve the status quo. These proceedings seek its destruction. The rights and equities of creditors — mortgage creditors especially — are paramount to those of stockholders. Besides this, Mr. Comer was appointed receiver solely for the reason that he had been appointed in the southern district of Georgia, and to give full scope to the decree of that court. He was appointed at the same time receiver of the Port Boyal & Augusta Bailway Company. 'These two railways in South Carolina occupy precisely the same relations with the Central Bailroad & Banking Company, and were both parties defendant in the Georgia case. The circuit court for the southern district of Georgia has recently reconsidered its action in appointing a receiver for the Port Boyal & Augusta Bailway Company, declaring such action unauthorized. There can be no doubt that the case of the Port Boyal & Western Carolina Bailway Company is on all fours with that of ilie Port Boyal & Augusta Bailway Company. If the order was coram non judice as to one company, it must be so as to the other. TJnder these circumstances, there can be no hesitation in now making the appointment of a receiver who can represent all interests and whose position will be unassailable.

Counsel have asked to be heard as to a proper person to be appointed receiver. Let this hearing be had at an early day.

On the day upon which this case was heard a bill was filed in this court — 8th May, 1893 — praying foreclosure of a mortgage on the property and assets of the Port Boyal & Western Carolina Bail-way Company, and for the appointment of a receiver. The complainant is the Central Trust Company of New York, the railway company being the sole defendant. The complainant is the holder in' trust of the majority of an issue of $2,500,000, bonds of the railway company, secured by a mortgage of its eniire property, tolls, and income. It is junior in lien to the mortgage of the Augusta & Knoxville Bailroad Company. As this last-named company has been merged in the Port. Boyal & Western Carolina Bailway,'and its business is inseparable from that of the last-named company, the receiver appointed must have charge of the entire road, and this whether the contention of the present complainants as to the effect of the proviso of the General Statutes on their mortgage be sound or not. The selection of a receiver will therefore be made after hearing counsel 'in both cases.