Wasley v. Chicago, R. I. & P. Ry. Co.

147 F. 608, 1906 U.S. App. LEXIS 4900

• Court: U.S. Circuit Court for the District of Northern Iowa
• Decided: September 8, 1906
• Docket: Nos. 285, 289
• Status: Published

Opinion

REED, District Judge

(after stating the facts). The articles of consolidation of the defendant company have been set out at some length in the foregoing statement for the reason that it is contended on behalf of the defendant that they show that the purpose of the consolidation of the several companies therein named was simply to take over by the Chicago, Rock Island & Pacific Railroad Company (the Iowa and Illinois corporation) the properties and rights of the five Iowa corpdrations named therein; to change the name of that corporation to that of the defendant company, and to reincorpórate the same under.the law of Illinois alone. If it should be conceded that such was the purpose of those articles it would not change their legal effect as a consolidation of the several companies into one. Yazoo, etc., Co. v. Adams, 180 U. S. 1-17, 21 Sup. Ct. 240, 45 L. Ed. 395. And if the only purpose was to take over the properties of the other Iowa corporations by the Chicago, Rock Island & Pacific Railroad Company, that company would be the real party in interest in these actions under a mere change of name, and its reincorporation in Illinois alone would not divest it of its character as a corporation of Iowa, and it would still be a corporation of each of said states. It is admitted that under the articles of consolidation of August 20, ,1860, the capital stocks and properties of the Chicago & Rock Island Railroad Company, the Illinois corporation, and of the Chicago, Rock Island & Pacific Railroad Company, the Iowa corporation, were consolidated into one company under the name of the Chicago, Rock Island & Pacific Railroad Company, and that such consolidation was effected under the laws of each of the states of Iowa and Illinois, and was not merely an incorporation in Iowa of the Illinois corporation. The Illinois company was not authorized to and never did extend its road into Iowa, and its only rights in that state were under the articles of consolidation with the Iowa corporation under the laws of that state. That consolidation was effected in Iowa under sections 1332-1334, Revision of 1860, which are substantially the same as sections 1275-1277, c. 5, of the Code of Iowa of 1873, under which the consolidation of June 2, 1880, was effected. These sections are:

“Sec. 1275. Any such corporation may join, intersect, and unite its railway with the railway of any other corporation at such point on the boundary line of this state as may be agreed upon by such corporations. And with the assent of three-fourths in interest of all the stockholders, may by purchase or sale, or otherwise, merge and consolidate the stock, property, franchises, and liabilities of such corporations, making the same one joint stock corporation upon such terms as may be agreed upon not in conflict with the laws of this state.

“Sec. 1276. Any such corporation which has or may construct its railway so as to meet or connect with any other railway in an adjoining state at the boundary line of this state, shall have power to make such contracts and agreements' with the corporations controlling such railways in an adjoining state, for the transportation of freight and passengers, or for the use of its railway by such foreign corporation, as the board of directors may see proper.

“Sec. 1277. Any such corporation organized for the purpose of constructing a railway from a point within the state may construct or extend the same into or through any other state under such regulations as may he prescribed by the laws of such state; and the rights and privileges of such corporation over said extension in the construction and use thereof, and in controlling and applying the assets, shall be the same as if its railway was constructed wholly within this state.”

A statute of Illinois, approved February 28, 1854, is substantially to the same effect. See Nugent v. Supervisors, 19 Wall. 242, 22 L. Ed. 83. Section 1275 provides for the consolidation of the stocks and properties of the different corporations .into one corporation, and the articles of consolidation of June 2, 1880, under which the defendant company exists, plainly provide that the several parties thereto, namely, the Chicago, Rock Island & Pacific Railroad Company, a corporation of Iowa and Illinois, and the five Iowa corporations named, severally do convey, covenant, and agree, and do hereby consolidate, unite and merge their capital stocks and corporate and other franchises, rights, privileges and property of every nature and description, and hereby create one consolidated corporation which shall be known by the corporate name of the Chicago, Rock Island & Pacific Railway Company, which shall exercise the powers, rights, and privileges therein specified. The existence of the consolidated corporation ‘"shall commence on the first: day on which the certificates required by law, showing the approval by the required majority of the stockholders of each of the parties hereto, of the proposition to create said consolidated corporation arc on file in the offices of the Secretary of State for the state of Illinois, the recorder of Cook comity, in said state, the Secretary of State for the state of Iowa, and the recorder of Scott comity in said state, and shall continue for a period of fifty years thereafter, which existence may be renewed from time to time as may be required by the laws of the states of Illinois and Iowa.” This is not merely a uniting or joinder of several corporations under one management for the purpose of operating the same as one company in which the identity of the several companies is preserved, but is unmistakably the creation of a new corporation in which the capital stocks of the old corporations as well as their properties, rights, and franchises arc consolidated, and in which the stockholders of the old corporations become stockholders in the new, and associate themselves anew under the name of a new corporation to which the properties and rights of the several old corporations are conveyed and transferred, and which assumes the liabilities of the old companies.

In Pennsylvania Co. v. Railroad Co., 118 U. S. 290, 6 Sup. Ct. 1094, 30 L. Ed. 83, a question arose as to whether or not a corporation of Illinois had become a corporation of Indiana. The court said:

“It may not be easy in all such cases to distinguish between the purpose to create a new corporation, which shall owe Us existence to the law or statute under consideration, and the Intent to enable a corpora Hon already in existence under the laws oí another state, to exercise its functions in the state where it is so received. The latter class of laws are common in authorizing insurance companies, banking companies, and others to do business in other states tiian those which have chartered them. To make such a company a corporation of another state, the language used must imply creation or adoption in such form as to confer the power usually exercised over corporations by the state, or by the Legislature, and such allegiance as a state corporation owes to its creator.”

The_ difficulty thus suggested cannot arise under the articles of consolidation of the defendant company, for they do not authorize the separate corporations, as such, to exercise their powers in either state. The consolidated company alone is authorized to do this, and its articles of consolidation comply in every essential respect with chapter 1, tit. 9, Code Iowa 1873, relating to the formation of corporations for pecuniary profit, including those Cor the construction of railroads, and other works of internal improvement, except that they do not appear to have been acknowledged by the several parties thereto. They designate Davenport in Scott county, as the principal place of business of the company in Iowa; were filed in the proper public offices in Iowa as required by that law, and the defendant has since been acting as, and exercising the powers and functions of, a railway corporation in Iowa thereunder. Upon such consolidation being effected the constituent companies passed out of existence and were immediately succeeded by the new corporatioñ in each of the states under whose laws the consolidation was effected. Clearwater v. Meredith, 1 Wall. 25, 17 L. Ed. 604; Shields v. Ohio, 95 U. S. 319-323, 24 L. Ed. 357; Railroad Co. v. Georgia, 98 U. S. 359-363, 25 L. Ed. 185; Keokuk & W. Ry. Co. v. Missouri, 152 U. S. 301-308, 14 Sup. Ct. 592, 38 L. Ed. 450; Yazoo, etc., Co. v. Adams, 180 U. S. 1-17, 21 Sup. Ct. 240, 45 L. Ed. 395.

In Keokuk & W. Ry. Co. v. Missouri, above, a statute of Missouri substantially the same as those of Iowa and Illinois above referred to was considered. Upon the effect of a consolidation of different railroads under such statute the court said:

“It Is difficult to see how the Legislature could provide more clearly tor the extinguishment of the prior companies and the formation of a new one, than by providing that the two companies shall become one; that new certificates of stock shall be issued in exchange for the stock of the constituent companies; and the consolidation agreement shall be recorded with the Secretary of State as the charter of a new company. In our opinion, this was the effect of the act in question.”

In Railroad Co. v. Georgia, 98 U. S. 359, 25 L. Ed. 185, a statute of Georgia authorized the consolidation of the stocks of two railroad companies upon such terms as might be agreed upon by the directors and ratified by the stockholders, and provided that when so consolidated they should be known as the Atlantic & Gulf Railroad Co., which was the name of one of the companies consolidating. In speaking of the effect of a consolidation under such statute the court said:

“Looking thus at the legislative intent appearing in the consolidation act, we are constrained to the conclusion that a new corporation was created by the consolidation effected thereunder in the place and in lieu of the two companies previously existing, and that whatever franchises, immunities, or privileges it possesses, it holds them solely by virtue of the grant that act made. That generally the effect of consolidation, as distinguished from a union by merger of one company into another, is to work a dissolution of the companies consolidating, and to-create a new corporation out of the elements of the former, is asserted in many cases, and it seems to be a necessary result. In McMahan v. Morrison, 16 Ind. 172 [79 Am. Dec. 418] the effect of a consolidation Vas said to be ‘a dissolution of the corporations previously existing, and, at the same instant, the creation of a new corporation, with property, liabilities, and stockholders derived from those then passing out of existence.’ * * * ‘Consolidation is a surrender of the old charter by the companies, the acceptance thereof by the Legislature, and the formation of a new company out of such portions of the old as enter into the new?”

The conclusion, therefore, is unavoidable 'that the defendant company is a new corporation created by and existing under the laws of both Iowá and Illinois, and that in so far as it exercises its powers and function in either state it is to be deemed, for the purpose of federal jurisdiction, a corporation of that state. This is so held in Muller v. Dows, 94 U. S. 444, 24 L. Ed. 207; Railroad Co. v. Wheeler, 1 Black, 297, 17 L. Ed. 130; Railroad Co. v. Meeh, 69 Fed. 753, 16 C. C. A. 510, 30 L. R. A. 250; Winn v. Wabash Railroad Co. (C. C.) 118 Fed. 55.

• In Muller v. Dows, above, a bill in equity was filed in the circuit court of the United States for the District of Iowa, by two citizens of 'New York, and a citizen of Missouri against the Chicago, Rock Island & Pacific Railroad Company, a consolidated corporation of Iowa and Illinois (one of the' companies consolidated as the defendant company), and the Chicago & Southwestern Railway Co., a consolidated corporation of Iowa and Missouri, under the statutes of Iowa above set out, and a similar statute of Missouri. An objection to the jurisdiction of the court rested upon the ground that one of the plaintiffs was a citizen of Missouri, and that the Chicago & Southwestern Railroad Co., was a corporation of Missouri and Iowa. But it was held that in the state of Iowa, the consolidated company was a corporation of that state alone; that the laws of Missouri had no operation in Iowa.

In Railroad Co. v. Wheeler, 1 Black, 286-298, 17 L. Ed. 130; the plaintiff was alleged to be a corporation created by the laws of Indiana and Ohio, and the defendant to be a citizen of Indiana. In holding that the Circuit Court of the United States for the District of Indiana did not have jurisdiction of the controversy, the court said:

“The Ohio & Mississippi Railroad Company is, therefore, a distinct and separate corporate body in Indiana from the corporate body of the same name in Ohio, and they cannot be joined in a suit as one and the same plaintiff, nor maintain a suit in that character against a citizen of Ohio or Indiana in r Circuit Court of the United .Stales.”

These and other cases are fully reviewed in Railway Company v. James, 161 U. S. 545, 16 Sup. Ct. 621, 40 L. Ed. 802, and the rule (Inducible from the conclusions there reached and the authorities cited is that, where a railway corporation created by the laws of one state extends its line into another state, or there acquires the railroad property of a corporation of that state, and there rein corporates or otherwise complies with its laws for the purpose of extending and using its line of railroad and property in that state, it remains for the purpose of federal jurisdiction a corporation of the state in which it was originally created. But, where two or more corporations consolidate their capital stocks and properties into one corporation in pursuance of the laws of different states which so authorize, the stockholders of the old companies becoming stockholders of the new, such consolidated company becomes a new creation and is to be deemed, for the purpose of federal jurisdiction, a corporation of each of the states under whose laws it is so consolidated. In this case (Railway Co. v. James), it is also held that whatever may be the effect of the legislation of one state by way of subjecting foreign corporations doing business therein to its laws, such legislation cannot avail to create a corporation of that state out of a foreign corporation in such sense as to make it a citizen of that state within the meaning of the federal Constitution. To have that effect it would be necessary to create the corporation out of natural persons whose citizenship could be imputed to the state creating the corporation. Unless, therefore, the stockholders of the constituent companies are to be deemed stockholders of the defendant company in this case, that company cannot be deemed a citizen of any state, and there could be no federal jurisdiction of it in any event. See, also, Louisville, etc., Ry. Co. v. Louisville Trust Co., 174 U. S. 552-565, 19 Sup. Ct. 817, 43 L. Ed. 1081.

The defendant relies mainly upon Nashua Railroad Co. v. Lowell Railroad Co., 136 U. S. 356, 10 Sup. Ct. 1004, 34 L. Ed. 363, and Walters v. Railroad Co. (C. C.) 104 Fed. 377. In the former named case the plaintiff as a corporation of New Hampshire brought suit against a Massachusetts corporation in the Circuit Court of the United States for the District of Massachusetts. The jurisdiction was sustained upon the ground that the legislation of New Hampshire and Massachusetts after the incorporation of the plaintiff in New Hampshire, did not have the effect to change the character of that company as a corporation of New Hampshire. In Walters v. Railroad Co. (C. C.) 104 Fed. 377, the defendant company, a corporation of Illinois, purchased the property of a Nebraska corporation, and then incorporated in Nebraska as required by its law, for the purpose of completing its right to the property and to operate the same in that state. Held that it was not to be deemed a Nebraska corporation for the purpose of federal jurisdiction.

- The present case upon its facts is not materially different from. Missouri Pacific Ry. Co. v. Meeh, 69 Fed. 753, 16 C. C. A. 510, 30 L. R. A. 250, and Winn v. Railroad Co. (C. C.) 118 Fed. 55. In the former of these cases the decision is by the Court of Appeals of this circuit, and in the latter the decision in effect is a decision of that court.

The conclusion, therefore, is that the pleas to the jurisdiction must be sustained, and each of the causes remanded to the court from whence it was removed. It is so ordered.