132 F. 921 | U.S. Circuit Court for the District of Eastern Virginia | 1904
The question presented for the consideration of the court is whether the petitioners, individual stockholders and bondholders of the defendant, the Virginia Passenger & Power Company, under the facts and circumstances of this case, should be allowed as such to intervene in these proceedings and be made parties defendant thereto.
The general rule in j'udicial proceedings, that all persons interested in a controversy should be made parties thereto in order that their rights may be determined and concluded, is conceded. That there are exceptions, however, to this proposition, is equally clear, and particularly is this true in proceedings in the federal courts in foreclosure suits, and suits for the administration of trust estates. There if is the well-settled doctrine — too well established to need elaboration — that the trustee in the mortgage or trust deed, or other instrument creating a trust estate, speaks and acts for the cestuis qui trust, and that the latter are neither necessary nor proper parties, where the fitness of the particular trustee, or his conduct as such in failing to efficiently, honestly, or impartially discharge his duties, is not brought in question. This is a rule largely the result of convenience, and in order to .facilitate the proper conduct of litigation. To admit each individual bondholder or stockholder of a corporation to appear of his own motion, and proceed to assert his rights as he may be advised, when the same can be as well asserted through the trutstee, will not be tolerated. Indeed, it has become the
As to the first question, the court cannot see its way clear at this stage, and in this purely collateral manner, to inquire into the legality of the substitution of the trustee. The mortgage makes provision for the change, and since the same appears to have been made in due conformity therewith several months before, and apparently without relation to this suit, presumably such a change was regularly made; and the court should not, at the mere instance of a bondholder seeking to be admitted a party to a foreclosure proceeding instituted by such trustee, upon the request, as is claimed, of a majority of the bondholders secured in the mortgage, undertake either to impugn the right of the trustee so
Coming to the second proposition, as to the objection to the complainant company as a fit trustee, it will be well to consider for a moment the relation that trustees in railroad mortgages occupy to their cestuis qul trust. In discussing this question, Mr. Chief Justice Waite, speaking for the Supreme Court of the United States in Shaw v. Railroad Co., 100 U. S. 611, 25 L. Ed. 757, said:
“The trustee of the railroad mortgage represents the bondholders in all legal proceedings carried on by him, affecting his trust, to which they are-not actual parties, and whatever binds him, if he acts in good faith, binds them.”
And, referring to the particular case, he further said:
“The trustees had an undoubted right to commence these suits when they did, and it is apparent from the whole record that all their proceedings, both before and after the sale, were in the interest of their beneficiaries generally, since one hundred and eighty in number, representing in the aggregate-eight million out of the eight million five hundred thousand dollars of bonds outstanding, accepted the result and exchanged their bonds for stock in the new corporation. To allow a small minority of bondholders, representing a comparatively insignificant amount of the mortgage debt, in the absence of any pretense even of fraud or unfairness, to defeat the wishes of such an overwhelming majority of those associated with them in the benefits of their common security, would be to ignore entirely the relation which bondholders,, secured by a railroad mortgage, bear to each other. Railroad mortgages are a peculiar class of securities. The trustee represents the mortgage, and, in executing his trust, may exercise his own discretion within the scope of his powers. If there are differences of opinion among the bondholders as to what their interests require, it is not improper that he should be governed by the voice of the majority, acting in good faith and without collusion, if what they ask is not inconsistent with the provisions of his trust.”
This case aptly states the doctrine as settled by the Supreme Court of the United States in that and previous cases, and has since been followed therein. Kerrison v. Stewart et al., 93 U. S. 155, 160, 23 L. Ed. 843; Richter v. Jerome, 123 U. S. 233, 246, 8 Sup. Ct. 106, 31 L. Ed. 132; 9 Rose’s Notes, 877. And perhaps in no other judicial district in the United States is the doctrine more firmly established than in this. Richards v. C. & O. R. Co., 1 Hughes, 28, 34, Fed. Cas. No. 11,771; Skiddy v. A. M. & O. R. Co., 3 Hughes, 320, Fed. Cas. No. 12,922; Clyde v. R. & D. R. Co. (C. C.) 55 Fed. 445. Counsel for the petitioners have specially referred the court, in support of their contention, to the-cases of Bronson v. La Crosse R. Co., 69 U. S. 283, 17 L. Ed. 725, arid Farmers’ Loan & Trust Co. v. Northern Pac. R. Co. (C. C.) 66 Fed. 16£t
In the case at bar, complainants except to the sufficiency of the charge in the bondholders’ petition affecting the eligibility of the trustee, and insist that no valid averment of disqualification is made. In this connection it will be borne in mind that the objection relates only to the suitableness of the trustee by reason of its relation to certain bondholders, and not to anything that has been done by the trustee. The fact that a large bondholder in the defendant company happens also to be a director, and two of his brothers likewise directors (one being president), out of a board of 24 constituting the directory of the company, named as trustee, is not of itself sufficient to make ineligible such company to act as trustee, in the absence of some specific averment of misconduct on the part of the trustee; and it will not do, where no compíáint is made as to what had been done, but merely of what may be done, to invoke the doctrine of the uselessness of making requests for relief to the trustee. The court, under these circumstances, should look to what the trustee has done of an objectionable character before declaring it to be disqualified, and admitting the individual bondholders on account thereof to appear for themselves. In this case, all that the trustee has done is in accordance with the terms of the mortgage. The mortgagor being in default, the trustee instituted the usual foreclosure proceedings, and asked a court of competent jurisdiction to appoint receivers to take charge of the property and duly administer the same for the benefit of all persons in interest; and such action has been taken, receivers appointed, one of them being a leading member of the bar of the court, and confessedly the most experienced person in the community for such position. This action thus far taken, what and however great the conflict may be between the bondholders themselves, cannot prejudicially affect one to the exclusion of the other, as the receivers so appointed are the hands of the court to act for the benefit of all. Until it is alleged and sufficiently made to appear that the trustee or its counsel has been guilty of some act detrimental or antagonistic £o the interest of the petitioners, or until some charge of negligence, fraud, or incompetency is made against the trustee, the court should not be asked to in effect retire the trustee in the mortgage from the conduct of the litigation in hand, and to substitute in its place and stead individual bondholders to conduct such litigation. Parties in interest, quasi, though not actual, parties, can and should always be afforded a hearing as to matters affecting their own rights. They will have the right to go before the master, and establish their claims, and contest inose of any other bondholders; can bring to the attention of the court any misconduct or dereliction of duty on the part of the complainant trustee, or others connected with the conduct of the litigation or management of the property under the court’s control. And this may be •carried to the extent of the removal of an improper, incompetent, and derelict trustee, and the substitution of another in his stead. But none of these things should be done unless charges of unfaithfulness be specifically made and established, or unsuitableness clearly shown. The A. M. & O. R. Co. Case, 3 Hughes, 350, 351, Fed. Cas. No. 12,922; Clyde v. R. & D. R. Co. (C. C.) 55 Fed. 445.
It follows from what has been said that, in the opinion of the court, the petitioners have not set forth such a case in their petition as entitles them to intervene here, and such right to intervention, and the filing of their petition, is denied.
It having been suggested that William Northrop, one of the receivers heretofore temporarily appointed, is an improper person to be se