73 F. 49 | U.S. Circuit Court for the District of Nebraska | 1896
The Kansas City & Omaha Railroad Company (hereafter called the “Kansas Company”) has three lines of railroad, which aggregate 193.68 miles. They are situated in the state of Nebraska, and are tributary to the railroad of the St. Joseph & Grand Island Railroad Company (hereafter called the “Grand Island Company”). The Grand Island Company has 251.06 miles of railroad, and, prior to the receiverships -hereafter named, operated the railroads of the Kansas Company. The Omaha & Republican Valley Railway Company (hereafter called the “Valley Company”) has 482.04 miles of railroad, situated in Kansas and Nebraska, and one of its lines connects with one of the lines of the Kansas Company. The Union Pacific Railway Company has 1,827.59 miles of railroad, and among these a main line of road extending from Council Bluffs, in Iowa, to Ogden, in the state of Utah; another from Kansas City, Mo., to Denver, in the state of Colorado. Prior to the receiverships of these roads, they were all operated by the Union Pacific Railway Company as a part of the Union Pacific Bystem. The railroad of the Kansas Company was operated under a contract between that company and the Union Pacific Railway Company and. the Grand Island Company to the effect that the two latter companies would give to the Kansas Company such a share of the revenues derived from the business which passed over any part of the railroad of the Kansas Company and some part of the Union Pacific system that its income would pay its operating expenses, the interest on its bonds, and other fixed charges. Bondsio the amount of $2,940,000 had been secured upon the property of this l-oad by a first mortgage. In carrying out the irafiic contract between these three companies the earnings from the joint business had, prior to the receivership, been divided on a mileage basis with the allowance to the Kansas Company of a minimum haul of 50 miles. The effect of this division had been that at the end of each year there was a large deficit charged against tin; Kansas Company, which was paid by the Union Pacific Company and the Grand Island Company, under the contract. On October 13, 1893, this court appointed receivers of the property of these three railroad companies, and of all the other railroad companies that constituted a part of the Union Pacific Bye tern, under a bill filed in this suit on behalf of certain stockholders of the Union Pacific Railway Company, for the purpose of preserving the vast property in the control of that company from disintegration and dissipation, at the suit of separate creditors, of .marshaling its assets and liabilities, and of administering the trust which arose through the insolvency of the Union Pacific Railway Company and its constituent companies. These receivers, by direction of the court, renounced the traffic contract between the Kansas Company, the Grand Island Company, and the Union Pacific Company, and divided the earnings from the interchanged business between the Kansas Company and the other constituent lines of the Union Pacific System upon a mileage basis, with an allowance of a minimum haul of 50 miles to the Kansas Company, in the same way that these earnings had been divided prior to the receivership. The result of this division was that the expenses
On October 18, 1895, Benedict and others, the complainants in the bill for the foreclosure of the first mortgage upon the property of the Kansas Company, filed in that suit a petition, praying an order of the court, making a just and proper division of the rates and earnings of the Kansas road from interchanged business between that road and the railroads of the Union Pacific Railway Company, the St. Joseph & Grand Island Railroad Company, and the Republican Valley Company. The petition was referred to the master, with directions that notice thereof and of the hearing thereon should be given to these companies and to the trustees in the various mortgages secured upon their property. The Central Trust Company, the trustee under the first mortgage upon the Grand Island property, and the receivers herein, answered the petition. A hearing was had thereon before the master. The testimony before him on the part of all parties was without conflict, and it was to the effect that certain rules for the division of rates and earnings upon interchanged traffic, as between the property of the Kansas Company and the Grand Island Company, and as between the property of the Grand Island System, so called, and the properties of the Union Pacific System, were just and equitable, and that they ought to be applied to the division of all such earnings that had accrued after October 1, 1895. It, in effect, appears from the testimony that these rules for the division of the rates and earnings were practically agreed upon by the representatives of the various parties in interest at this hearing. The master accordingly reported this set of rules. No exception was taken to his report, and on December 11, 1895, this court ordered that these rules for the division of rates and earnings upon interchanged traffic between the properties of these various railroad companies should be applied by the receivers to the division of all such earnings that accrued subsequent to October 1, 1895. On May 23, 1895, the receivers filed in this court a petition for an order suspending the operation of the order of December 20, 1894. The court issued an order to the trustee under the first mortgage of the Grand Island Company, to the Grand Island Company, and to Benedict and others, complainants in the foreclosure suit against the Kansas Company, to show cause why the petition should not be granted, and referred the matter to the special mas-, ter for a hearing. The committee of the bondholders of the Kansas Company answered the petition, and a hearing was had before the master, who reported that, by reason of the commencement and pendency of the various foreclosure suits against the property of these various railroad companies, the order of December 20, 1894, became inapplicable and inoperative, in so far as it directed the payment of continuing deficits resulting from the operation of the
Tin; exceptions to these two reports of the master present this question: Shall the $35,000 taxes for 3894, upon the property of the Kansas Company, and the deficit which resulted from operating it from the 1st of January, 3.895, to the 1st of October, 1895, be paid out of the property of the Kansas Company, or out of the revenues or property of the Grand Island Company, the Republican Valley Company, and the Union Pacific Company? The reports of the master leave these taxes and this deficit upon the property of the Kansas Company. The order of December 20, 3894, if it is still applicable to this period, charges them upon the connecting companies. The bondholders of the Kansas Company insist that, as the order of December 20, 1894, had been made by this court, they had a right to rely upon its continuous enforcement, and that the court, the companies owning connecting roads, and those holding liens upon them, are estopped by that order, and bound to enforce it, until the 1st of October, 1893, -when, by consent of the parties, the just and equitable rules for the division of the earnings upon interchanged business between these roads was put into effect. There might be force in this contention if the lines of railroad connecting with the property of the Kansas Company had remained in the hands of the receivers in the Ames suit, unaffected by the filing of bills of foreclosure and the-impounding of their earnings thereby. But within 10 days after the order of December 20, 1891-, was made, the trustee under the first mortgage of the Grand Island Company, against whose revenues 68 per cent, of this deficit and of these taxes was charged by the order of December 20, 1894, filed its bill of foreclosure, and impounded the revenues of the property of that company. The committee of the bondholders had notified the receivers that they would be held personally responsible if they paid this deficit out of the earnings of the Grand Island Company, which were thus impounded. It was evident to the receivers and to the court, and it was not unknown to the bondholders of the Kansas Company,that the purpose of the filing of this bill on behalf of this trustee was to present this question, and to insist that so large a portion of this deficit should not he charged against the revenues of that company. This was known to the bondholders of the Kansas Company, because as early as February 27, 1895, they filed in this court a petition praying that the receivers should be directed to pay the taxes of 1894, under the order of December 20th, and they took an order upon the trustee under the mortgage of the Grand Island Company, and upon various other parties, to show cause why the prayer of that petition should not be granted; and on April 5, 1895, the
It is contended, on the other hand, that all the taxes upon the property of the Kansas Company for 1894, and the entire deficit, which resulted between January 1 and October 1, 1S95, from the operation of the property of that company, and from the division of the earnings upon interchanged business upon a basis of mileage with an allowance of a minimum haul of 50 miles to that company, must be borne by the property of the Kansas Company, and that no part of the revenues which accrued to the Grand Island Company after the bill to foreclose the first mortgage upon its property was filed can be diverted to pay any portion of these taxes or this deficit, because the filing of that bill impounded all its earnings for the ben
The question presented by these exceptions thus becomes, what proportion of the earnings between January 1 and October 1, 1895, from business interchanged between the railroads of the Kansas Company and the railroads" of the Grand Island Company, the Republican Valley Company, and the Union Pacific Company justly and equitably belong to the Kansas Company? This question is not: difficult of solution. It is clear from the traffic contract between these railroad companies prior to the receivership, from the testimony, and the findings of the master, which resulted in the order of December 20. 1894, and from the rules for the division of rates and earnings which were established and put in effect from October 1, 3895, without .objection or exception on the part of any one of the parties in inferes! here, that a division of the earnings from'interchanged business upon the basis of mileage, with an allowance of a minimum haul of 50 miles to the Kansas Company, is neither just nor equitable. There is no testimony, no act of any of the parties, no finding of the master, no record of any kind to support the view that such a division of the interchanged business would be right. It is equally clear, from an examination of the evidence in this case, that the charge of the taxes of 1894 and the deficii during this period against the revenues and property of the Grand Island, Republican Valley, and Union Pacific Companies in the proportion stated in the order of December 20, 1894, would place upon Unan an unjust and unequal burdim. A single illustration is sufficient to demonstrate this proposition. The gross amount earned by the roads of the Kansas Company and the roads of tin; (Irand island Company from passenger and freight traffic originating or terminating on the roads of either company between July 31, 1894, and June 1, 1895, was 70,385.28. Of this amount the Kansas Company re
There was no error in the finding of the master that the receivers had no moneys applicable to the payment of the $35,000 taxes, and his recommendation that the petition for their payment be dismissed, and the exception to that report must be overruled.
There was no error in the findings and conclusion of the master that the order of December 20, 1894, for the payment of the deficit arising from the operation of the roads of the Kansas Company was inapplicable, and ought not to be enforced subsequent to the filing of the bill for the foreclosure of the first mortgage upon the property of the Grand Island Company. The exceptions to both these reports must accordingly be overruled, but an order will be made that the rules for the division of the rates and earnings upon interchanged traffic as between the property of the Kansas City & Omaha Railroad Company and that, of the St. Joseph & Grand Island Railroad Company and the properties of the other railroad companies con