wlthitllEJ/ftnftod prayer. It emoodies the main object 'of the suit, which ,is'to 'pravent an adjudielLtkmin the state cdurtprior to the eonelusiotfbttl:ili!' suit in this cou:Mi;' In complainant's brief it is said: "The complainant requires awrit:oHnjunction against both defendants, ihordeI-: to maintain the Status quo until the rights of the parties aredeteJlI1lined, oilly obtainable in equity." As said in Hitchcock V.'GaJ.\"es'tOn, infra, "Without' this, all else is of no account. Any otherremMy wo1l1d be unavailing," Such an injunction is, however, expressly for:bidden by Rev. St.§ v. Carpenter, 91 U. So 256; mteheockv. Galveston,96U. So 341. As the purpose of this suiteow,dbe attained onJ.:y by the doing '6f that by this court which the taw has distinctly' 'provided that it shall not do, the bill is dis· misSed.' , ,
POLLITZ v. J!'ARMERS'LOAN &; TRUST SOU'l'IIERN PAC. CO. et a1. v. POLLITZ. ,
at
{Cii'OuitCourt;S.D. Ne'i\i York,' December 12, ls9Sl.) m
1.iti..¢ao4 .BONDS-TRtl'STEES-Au-rHORITYTO LITIGATION.
The trustees of rallroad mortgage bondholders represent such bondholdllrs,fP a,ay litigation, to the and" purpose of the suit is substantially Ute same. as ,a foreclj)Sure, of the ,mortgage, the fact that the trustE:le is a pitrty defendant instead of plaintitris immaterial, and the bondholders are bound by the decree, although they are 'not parties to the suit. 2.
Iu II. stilt to collect certain railroad bonds according to the terms of the origina,i'mortgage, itappeard that an of the company's. bonds, except plaintiff's, had been surrendered and exchanged pursuant to a reorganization agreement which he refused to accept; that by It judgment of the Unitro , :ll1tcuit court in Oregon the reorganiration had been substantially oonfirmed; that the trustee of the bondholders was a party defendant to the suit, IUld fairly reprE>Sellted the rights of all; that the interests Of 99 per cent. of the bondholdel's demanded the judgment; that the court, b.r its 9ecrE·e,. fully. recognized the rights of the nonconforming bondholders, providing that the company should execute an indemnity bond conditioned fortheparment of the bonds of the dissp-nting holdors, and that plaintifl' Dligpt fe<lQver unde!," the decree all that he was entitied to. A cross bill was filed to compel plaintifl' to surrender his bonds, and receive new bondl:l in lieu thereof, according to the reorganization agreement. Held. that the protected plaintiff's interest; that h!llllust surrender his old bonds, and accept the new ones, as provided for In the agreement; but that he was entitled to the same security afforded the majority bondholders.
.
,.
8. SAME-RlGH'l;'S OF DISSENTING BONDHOLDER.
The .' <:iross· complainant having taken· the position throughout the suit that complainant could at any time surrender his .bonds and receive new ones in lieu thereof under the Oregon decree, and c.oUDsel in their blief having o:ll'ered to dl;lliver the lieu bonds and cash upon ,such surrender, the Cl."oss cOJiIlplainant was not in a position to insist that complailiant had by misconduct forfeited his right to interest.
In Equity. Bill by Carl Pollitz against the Farmers' Loan & Trust Company, the Oregon & California Railroad Company, the Southern Pacific COmpany, and the Union Trust Company. Cross bill by the Southem Paciftc Company and the Oregon & California Railroad
POLLITZ
v.
FARMERS'LOAN & TRUST CO.
211
Company against Carl Pollitz. Oliginal bill dismissed. Decree for cross complainant. and W. A. Underwood and Melville Egleston, for cross defendant. James C. Carter and William D. Guthrie, for defendants and cross complainants. COXE, District .rudge. The complainant, Carl Pollitz, is the owner of 82 railroad mortgage bonds of the Oregon & California Railroad Company. All of the other in number-have been sur· rendered· and exchanged,· under a reorganization agreement, for new bonds of the same corporation guarantied bJ the Soutliern Pachic Company. The object of this suit is to collect the 82 bonds to the terms of the original mortgage-at 110 per cent. p11ncipal and interest thereon-out of certain sinking-fund moneys in the hands of the defenda.nt the Farmers' Loan & Trust Company, the trustee under the mortgage. Injunctions are prayed for to effectuate this object. The defenses are: First. That the court has no jurisdiction. Second. That It judgment of the United States circuit court of Oregon which, in substance. confirmed the reorganization and provided for the surrender and payment of the complainant's bonds, is a bar to this action. Third. That all these bonds were purchased by the complainant while acting in a fiduciary capacity as a member of a bondThat equity holders' committee which advocated the .will not permit him to reap profit as an individual by taking a position hostile to his duties and relations as a trustee. The cross bill prays for a decree that Pollitz be required to surrender his bonds and accept the new bonds in....lieu thereof: At the threshold of this controversy stands the Oregon decree. It is admitted that if this decree be valid and binding the bill must be dismissed. But the complainant argues that it is not binding because he was not a party, and, in any view, it was obtained by fraud, and is, therefore, a nullity. Was the complainant a necessary party to the Oregon suit? In Shaw v.Railroad Co., 100 U. S. 605, the supreme court says: "'I'he trustee of a Iaill'oad mortgage represflnts the bondholders in all legal proceedings carried on by him atIectinghis trnst, to which thcy are not actual parties, and whatever binds him. if he aC'ts in good faith, bindi! them. · · · The trustee repres :nts the mortgage, and in executing his trust may exercise his own discretion within the scope of his powers,"
In Beals v. Railroad Co., 133 U. S. 290, 10 Sup. Ct. Rep. 314, the court said: . ·".rhe former judgment was rendered by a court of competent jurisdiction, to which not only the railroad company that issued the bonds, but the surviving trustee under the mortgage made it!. the name of another company to secure the payment of those bonds, were made parties. The bondholders were thu'l fully re[}resented in that lmit. and bound by the decree ':tnd annulling the bonds and mortgage, unless the decree was fraUdulently ob" tained." "
212
I1lDikRAL, REPORTER,
vol. 53.
i '
See, also, l{ent "(1"; 'lrblI;Oo;, 'l44U.S.75, '12 Sup:Ot·. Rep. 650; Richter v. Jerome, 123 U. S. 233, 8 Sup. Ct. Rep. 106; Bank v. Shedd, U. S. 74, 7 Sup. Ct. Rep. S07; Elwell v. Fosdick, 134 U. S. 500, "'" ' 10 Sup. Ct. Rep. 598. These authorities are, in my judgment, conclusive. If the trustee represents the bondllOldersin all matters relating to his trust it surely must be immaterial what is the form of the action which draws the trust into controversy. Whether plaintiff or defendant he stands sponsor for'them. It cannotbe possible that he represents them in a foreclosure suit and fails to represent them in an action like this where the principle involved is precisely the same. All law should be;. and generl1llyis, ba,sed upon reMon. For a distinction, lilm the one contended for, no plausible reason can be suggested. But it is saiq that the Oregon decree was obtained by fraud. The complainant, in malting the charge, appears to entertain the opinion that the trustj:le should have bent his entire energies to the protection of the complainant's wterests and his interests only. The fact that 99 per cent. of the bondlwlders entertained one opin,ion and the complainant another and that the trustee stood as the representative of all alike, seellls to haVe been overlooked. ,Was it the duty of the trustee to postpone a rea$onable and which wa,s the ahnost, unanimojIS desP:e,' of the in ,order that one reo calcitrant'might, use the weapon of 4elay thus placed in his hands and the coqr:ts for tb.e purpose of l?btaining better terms than the rest? If this were his duty there. would be more foundation for complainant's accusation. If, however. he owed the no such the c(mrse adopted by the trustee Eleems proper and, indeeq, commendable. VariOl,ls/1l.legations in the pleadings which joined the issue in the Oregon suit are pointed out as not in accordance with the facts, and acts of the parties are. referred to as indicating between the railroad com· pany and the trustee fol' the purpose of obtaining a hurried and an inequitable :is unnecessary to examine these alleged iJn.proprieties i;ll detail l:)ecause, to my mind, they are inconsequential. Even though the complainant be right regarding them they did not affect his interests injuriously. The pleadings, put the court in possession of, the salient points upon .which the decre(;l was founded. The trustee by it,s stated that it had at all times refused to cancel the until alt of. the outstanding bonds were fully paid and discharged or ,payment thereof prote(;ted and secured by the final decree of the court. In its demand for jud6'lllent the trustee prayed that before a decree should be made requiring it to cancel and Hatisfy the mortgage, (:ourt should, grant protection to the holders of the outstanding bonds by requiring a sum sufficient to the same with interest to be deposited under the order of the court, or that approved securityishould be given for this payment. The court, therefore, by the aJ,legations of the bill and answer knew all that it was necessary to know., awarE) thl'\,t phe holders of 8,513 bonds holdings for the new guarantied bOlds, and wished to exchange ,that the holders of 92 'bonds; at that time, had refused to surrender or, at least, had not surrendered. No other facts were necessary to
POLLITZ V" FARMERS' LOAN
&;
TRUST CO.
213
pass the decree. Whether or not there was a dispute as to the bonds being subject to the terms of the committee'l'l agreement; whether or not the railroad company had at all times been willing to issue new bonds upon the conditions of that agreement, were questions not at all germane to the matter which the Court had in hand. 'The court was not misled by these allegations. The theory upon which it proceed('d was that all questions regarding the outstanding bonds must be considered in a light most favorable to the It dealt with the bonds as if they were valid and subsisting obligations of the railroad company which must be paid in cash to the last dollar due thereon, the moment the hold('rs, whoever they might be, presented them for payment. What more had the holders a right to ask? Had the complainant been a party substantially the same decree must inevitably have been entered. If his bonds had been presented to the court their immediate payment would, probably, have been provided for, but in other respect the decree would have been the same. Certainly the court would not have given a moment's consideration to the question whether the l:Illegations before alluded to were correct or incorrect. An overwhelming majority wished the plan of reorganization adopted without delay. A very small minority, had not assented to this plan. The coud, while feeling constrained to respect the wishes of the majority, fully recognized the rightS of the minority, by providing that the ra.ilroadcompany should execute and deliver a bond of indemnity with approved sureties in a sum equal, to double the face value of sneh outatanding bonds, conditioned that if the said railroad olshall well and truly pay, or cause to be paid, what- · ever amounts may" be due upon any of the said 92 first mortgage bonds, when and as the same shall have been duly and properly presented for payment, then the said obligation to be ",oid, otherwise to remain in full force and effect." It might have been wiser had the decree directed a sum to be deposited in the registry of the c0 11rt from which the clerk was to pay the bonds 011 presentation. But the substitution of an indemnity bond was within the dh,;cretion of the court and, in any view, it was a pardonable mistake. Certainly nothing is shown of which to predicate fraud. The court, undoubtedly, was of the opinion that if the nonconforming bondholders were placed in a pm'lition where they could not lose a, farthing they would have no reason to complain. The interests of 99 per cent. demanded that the decree be promptly granted. Tht; interests of 1 per cent. demandt'd that whatever was owing to tbem should be paid. They could ask nothing more. The decree was granted with all rights reserved to the minority. The complainant has no just ground for complaint.. The decree \Vas just and proper and it protected all interests. Indeed, it is not easy to, see why the complainant on the footing of the Oregon decree could not have recovered, and cannot now recover, all that he is entitled to. As the complainant was not a necessary party to the Oregon litigation, and as the decrootherein entered was not fraudUlent, it follows that the bill must be diRmissed, with costs. The dismissal of the original bill naturally leads to an allowance of
'FEDERALiREPORTER,
vol.
>"'1
thA!iupra1eroof the cross bill; If the suggestions, of counsel' :were correctly lJ:tIderstood at the argument no formal! or tecbnicalobjection iB'l'aised tQ·the consideration Of the cross bill, . it1befug the desire of all thatlthe:rights of the parties shall be determined in the'pending suit'ratherthan iIi renewed litigation here Ol'dn Oregon. The only question'IDooted upon this branch of the controversy is the question ofinoorest. It is arguedi, that because of his miscondllctinterest, shortHlbe withheld from the cross defendant.. It is not clear that ci'oS$ are in a position to present this question. 'l'heirpoSition throughout has been that the cross' defenda,nt could tknesurrender his bonds and receive ,the new one8 in lieu thereof. TlUttthis position was stated over a,nd OV1er a,gain is amply shown ".bY tlerecord. (Jpunsel reassert it in their brief and it appews iiDitheeross bill itself. At folio 22 are these words: "That your orator, the Southern PacIfio Compariy, is ready and willlng, and hete'by offers, upon the deposit of said 82 bonds' with the Union Trust of, N'ew York septempl\.rtite agreement, to deliver bonds and makepa;rment .!ncash, Jll ex<lhange therefor and in J,"espect thereto as in I\.lld by saidseptempartite agreement is providecl in respect to such bonds, upon deposit thereof with the said Union Trust Company."
cross defendant D\ay be "directed and required' forthwithte,. said. 82 first bonds with .. .. '. of N. ew.y.ork un der.. s. . . septempartite the Uil.ion. agreement." ,After ,all @s can the cross now insist that the surrender hili boudsand receive an Assuming they can, [am of the opmiQn that the facts, wi.U. not warrant the court in pronouncing · fluch a .· ,' The question of jllri,sdiction has not been diScussed as I consider that so far as this court is Concerned. 39 Fed. Re' 7 0 7 . , . '.' rhe prayer of the crossbill for the surrender of the old bonds and the delivery of new ones ,under the septempartite agreement should , be, allowed, with costs.' . >
AETNA LIFE INS. CO. v. PLEASAN'r TP. (Circuit Court, N. D. Ohio, W. D. January:1, 1893.)
1.
RAILROAD
Laws Ohio 1880, p. 157, which aUlhorizes a certain township to a few miles of railroad' within its limits, intended to ultimately form part of a continuous line of road to be operated and equipped by private capltal, COJ;lst. Ohio. art. 8, § 6, which prohibits tllf' genel'll] assembly froml\.uthol'1zins: aI1Y county, citr, town, or township to become a stockholder 14 any private corporation, or to raise money for or 'loun its credit in aid of such corpol'll.tion; anll bonds issued by a township for snch a purpose aI'evoid. Pleasant Tp. v. A.etna Life Ins. Co., 11 Sup. Ct Rep. ' 215, 13$ U. 8; 67, followed.
AID-CONSTITUTIONAL LAW.
2.
SAME-EvIDlllNOE.
In a suit on such bonds ,tb.e",answer set VP, the above facts as proving their invalidity. A demUrrer to the answer was sUstained. but this deoision was reversed by the sl1premecourt on the ground that the act authorizing' the issue was! nticollStitutional. Thereafter, in the trial court,