269 F. 987 | D. Colo. | 1920
Mr. Jefferson M. Levy and others, stockholders and members of a committee for stockholders of the Denver & Rio
The appropriate time and place for tírese petitioners to have assailed that judgment on the grounds they now urge was in the court that entered it, by motion or petition to set it aside and to permit the stockholders to defend against the cause of action there stated, or by a bill in equity in that court to avoid the judgment and enjoin its enforcement. The guaranty upon which that judgment is founded was1 assumed by the Denver Company in the year 1908. On May 17, 1917 (244 Fed. 485), in a suit to which the Equitable Trust Company, as trustee for the bondholders, was the plaintiff, and the Denver Company
On December 17, 1917, the Trust Comisany commenced an action upon that judgment against the Denver Company in the Supreme Court of the state of New York arid on March 13, 1918, a judgment was rendered in that court in favor of the Trust Company and against the Denver Company for $36,908,529.14. • Property of the Denver Company in New York was sold under writs of execution upon that judgment in June, 1918, and on May 26, 1920, and the proceeds of those sales were applied to the payment of that judgment. On August 23, 1917, the Trust Company, as trustee for the bondholders, brought an action in this court against the Denver Company upon the judgment against it in the United Stales District Court in New York, and on January 7, 1918, recovered a judgment against the Denver Company for $36,515,038.16. An execution was issued on that judgment and returned unsatisfied. On January 17, 1918, this suit in equity was instituted against the Denver Company to secure the application of all the remainder of its property to the payment of its debt. The Trust Company, as trustee for the bondholders, intervened and set up the New York judgment and its claims thereunder, a receiver was immediately appointed and is now in possession of the property of the Denver Company subject to the mortgages and liens upon it. Later the Trust Company was substituted for the original plaintiff and the decree in this suit was rendered in September, 1920, for the sale of the equity of the Denver Company in its property on November 20, 1920. During all these proceedings from 1908 down to September, 1920, the stockholders, who now ask to have this sale postponed and to intervene in this suit to set aside and enjoin the enforcement of the New York judgment, have made no objections to any of the proceedings and have presented none of the claims or defenses they-have suggested for the first time since September 1, 1920. They now invoke the action of this court of equity to stay the sale and permit a retrial of the issue adjudged in the United States courts in New York more than three years ago.
But nothing but conscience, good faith, and reasonable diligence
The facts in Leavenworth v. Chicago, R. I. & P. Ry. Co., 134 U. S. 688, 707, 709, 10 Sup. Ct. 708, 33 L. Ed. 1064, and (C. C.) 25 Fed. 219, 231, are very similar to those averred in this case. After a decree of ■ foreclosure and sale had been made Reavenworth county, a creditor of the defendant brought a suit in equity to set aside the decree on substantially the same grounds asserted in this case. That suit was tried on its merits and dismissed by Mr. Justice Miller with these remarks, which were adopted and approved by the Supreme Court on appeal:
“Though it may be said that the Southwestern Company made no such defense because it was in the control of the Rock Island Directory, which is plausible, if not sound, it is to be observed that this suit was in the court for more than a year; that it is iiardly possible that the authorities of the county of Leavenworth did not know of its pendency and who were the directors in its own company; and if it liad at any time appeared in that court and sought to make the defense it now sets up it would have been permitted to do so. * ® * The case is one not uncommon of a road completed, which in its first years did not earn enough money to pay its running expenses, its necessary repairs, and the interest on its bonded debt. Such roads have often been sold out under foreclosure proceedings, and passing into other hands have become successful and profitable. The original owners see then, when it is too late, that they permitted valuable property to pass from them which they would gladly retain. But courts of equity do not sit to restore opportunities or renew possibilities which have been permitted to pass by the neglect, the ignorance or even the want of means of those to whom they were once presented.”
In Sanger v. Upton, Assignee, 91 U. S. 56, 59 (23 L. Ed. 220), Sanger was a stockholder in the Great Western Insurance Company. That corporation was adjudged a bankrupt on February 6, 1872; on April II, 1872, the bankruptcy court made an order that on or before August 15, 1872, Sanger and other stockholders pay to the assignee in bankruptcy specified amounts which it adjudged to be the portions of their subscriptions unpaid. She failed to pay and the assignee brought an action for the amount the bankruptcy court found'due from her. She sought to defend that action on the ground that she did not owe that amount. The Supreme Court said:
“She might have applied to the District Court to revoke or modify the order. Had she done so, she would have been entitled to be heard; but it does not appear that any such application was made. As a stockholder, she was an integral part of the corporation. In the view of the law, she was before the court in all the proceedings touching the body of which she was a member. In*993 point of fact, stockholders in such cases can hardly be ignorant of the measures taken to reach the effects of the corporation. If they choose to rest supine until cases against them like this are on trial, they must take the consequences. Not having spoken before, they cannot be permitted to speak then, especially to make an objection which looks rather to the embarrassment and delay than to the right and justice of the case. A different rule would be pregnant with mischief and confusion.”
To the same effect is Hutchinson v. Philadelphia G. S. S. Co. (D. C.) 216 Fed. 795.
There is no escape from the conclusion that, certainly as early as October, 1917, when sales of the property of the Denver Company under the New York judgment in the United States court commenced, these stockholders must be held to have had notice of the facts which would have incited a person of ordinary prudence under similar circumstances to an inquiry which, if pursued with reasonable diligence, would have developed the facts which these stockholders aver they discovered between September 1, 1920, and November 1, 1920. The failure and insolvency of the Western Pacific Company, the default in 1915 in payment of interest on the $50,000,000 mortgage bonds which their corporation had guaranteed, the foreclosure of the mortgage which secured them, and the sale of the property of the Western Pacific Company, the action of the Trust Company against their corporation and the judgment of $38,000,000 against it in the New York court in 1917, and its affirmance by the Circuit Court of Appeals in January, 1918, were matters of public notoriety, of which an ordinarily prudent stockholder of the Denver Company would not have been ignorant, and they were sufficient to incite such a person to an inquiry into the reasons for them which, if properly pursued, would have readily developed the personnel of the board of Directors of the Missouri Pacific, of the Western Pacific, and of the Denver Company, their relations and their acts, and the defenses, if any, now suggested to the action on the guaranty and the failure to present such defenses to the court. This and other courts have rendered judgments, sold and disposed of property of the Denver Company, and distributed its proceeds in reliance upon the justice and validity of that judgment, while these petitioners have stood by in silence and given no notice or warning that there was any defect or legal or equitable objection thereto until within two months of this date. The established principles and rules of equity, the decisions of the Supreme Court, and the long silence and delay of the petitioners so conclusively estopped them here that there is no reasonable cause to believe that either in the United States District Court of the Southern District of New York, where they now suggest they desire to present their petition or bill to avoid the judgment of June 14, 1917, nor in any other court of equity, can they succeed in their attempt to set it aside, and on this account it would be useless to permit them to intervene or to delay the sale.
But even if we were permitted to ignore the principles just stated and rested our conclusion on the facts set up in the petition and adduced at the hearing by affidavits and testimony, a like result must follow. These facts, some of which are asserted only on information and belief, fall into two classes: (a) Interlocking directorates of the Missouri
Our conclusion is that petitioners have failed to present any facts as a basis on which a court of equity would or could cancel and annul the New York judgment, that the facts necessary for that purpose do not exist and never occurred, and hence are not discoverable, and that now to put off the sale is only to defer the inevitable, without benefit to any one. This railroad has now been under receivership for almost three years and more than two-thirds of that time it has been operated by the government. Its physical condition has deteriorated both in rolling stock and safety of roadbeds, and we believe that the order of sale should stand.
The prayer of the petitioners in their petition must be and is denied.