182 F. 865 | U.S. Circuit Court for the District of Western Michigan | 1910
Upon filing the bill on November ¾9, 1909, Judge Knappen made an order to show cause why a preliminary injunction should not issue as prayed, returnable promptly, and a restraining order forbidding the city of Kalamazoo in .the meantime from proceeding to forfeit the franchise of the Michigan United Railways Company. By agreement of counsel, the hearing of this injunction motion-has been repeatedly continued, and by express consent of the city of Kalamazoo, by its counsel, the restraining order has been allowed to continue in force until this time. The motion has now been 1 argued, and the argument has been made'to cover the substantial merits of the case.
The Michigan United Railways' Company is the owner of a fran- ’ chise to operate a street railway in the city of Kalamazoo, and controversies arose between it and the city as to whether it was performing the obligations of its franchise. Different branches of this controversy resulted in different suits and proceedings in the state courts; and finally, on November 15, 1909, the city council passed a resolution reciting and finding that the railways company had not performed the
The defenses urged against the bill are:
(1) That the city has not yet taken any action, but has only given notice preparatory to a hearing under the provisions of the franchise, and that it should not be presumed that the city intends to or will take any unlawful action.
(3) That this court cannot control the legislative action of a branch of the state government.
(3) Generally, that this court ought not, under the circumstances, to assume such a general control of the entire controversy as is invoked by the bill.
There is also always present the question of jurisdiction, which is claimed to exist both by diverse citizenship and by the presence of federal questions. The railways company is a citizen of Michigan, its interests are, certainly, in many particulars identical with the interests
It is suggested that the substantial injury claimed is one to the right of the mortgagor, in the nature of an injury to the possession, and hence that the mortgagee’s interest is too remote to be the basis of an injunction bill ;r but the matter alleged) here seems rather to be in the nature of an injury to the fee, analogous to waste in real estate, and under settled rules the mortgagee may have an injunction against waste. This is because he has an interest which enables him to maintain a suit in equity, and, excepting for the technical distinctions' attending waste, it cannot be important whether the injury is. done by the mortgagor or by a stranger.
Although it is true that the franchise was a contract between the city and the railways company, and that the trustee mortgagee is in a sense the assignee of that contract, yet the right of equitable action sued upon is not one which passed by the assignment, so that complainant sues as an assignee; nor is the suit one to enforce a promise made to complainant’s assignor, as in N. Y. Guaranty, etc., Co. v. Memphis Co., 107 U. S. 205, 2 Sup. Ct. 279, 27 L. Ed. 484, and in American, etc., Co. v. Home Water Co. (C. C.) 115 Fed. 176. The claim is rather on account of a tortious injury done or threatened! to the property rights and interests of the trustee long after the assignment of those rights and interests to it; and, while the railways company has a similar claim, yet the claim sued upon, affecting the mortgage interest, first accrued to the mortgagee. It is immediate and not derivative.
Nor are these similar claims and rights (one vested in the railways company and one in the mortgagee) so unitary or interdependent that the railways company must be aligned with the complainant, and the diverse citizenship jurisdiction thereby defeated. If the only thing sought was to prevent the city from revoking the franchise, this result might follow as said in Consolidated Water Co. v. San Diego, 84 Fed. 369 and cases cited; but the bill in this case goes much fur- ' ther, and shows interests distinctly adverse as between complainant and defendant railways company. It seeks, in substance, to prevent the city from enforcing unlawful requirements, and to compel the railways company to observe all ordinances and regulations which are lawful. The city is not only to be prevented from destructive action, but the railways company is to be driven into the necessary conserving action. It may be true that there is no actual quarrel between the trustee and the railways company at this time, and that the railways company wishes this action to be prosecuted; but the adversity of interest does exist sharply and distinctly.
The independent right of a mortgagee to bring such a suit is, to
The only intimation I find to the contrary is by McPherson, District Judge,_ in Illinois Trust & Savings Bank v. Minton, 120 Fed. 187. The circumstances were different from those now involved, and the comments made seem not applicable to the present situation.
My conclusion is that the mortgagee, as trustee, may in his own right, and not as assignee, demand an injunction to prevent unlawful, imminent, and irreparable injuries to the mortgaged franchise; that this right is distinct from, and independent of, any analogous right remaining in the mortgagor, and may be independently exercised; that the mortgagor has interests which may be adverse to some of the rights alleged and relief sought under the bill, and is therefore properly a party defendant; and hence that this court has jurisdiction of this case upon the ground of diverse citizenship alone.
.As. to the first defense: If the jurisdiction depended upon the constitutional provision against the passing of any law impairing the obligation of a contract, it might then be that the common council proceedings had not gone far enough to give a right of action, as no “law” had been passed, although, upon the general principles involved, I do not see why it should always be necessary to wait until the law has. been passed before resorting to equity. It is elementary that an injunction will be granted to prevent injury which is only threatened, where that injury will, if the injurious act is allowed to be committed, be irreparable; and, if the element of irreparable injury
The argument that the city council, had not determined anything, that it was only proceeding to a hearing, and that it might have madle some ordler with which the railways company would have been satisfied to comply is not persuasive. Disregarding the allegations of the bill that the proposed hearing was to be a sham and that the matter was already decided, it is fairly apparent from the city’s answer that it was definitely committed to the position, and by its answer recommits itself to'the position that the railways company was in vital default in many particulars, and that the city had! the power by a council resolution to forfeit the franchise, and that it was allowing the railways company to understand that the forfeiture would take place unless the railways company receded from at least some of its positions and yielded to some of the' demands which the railways company considered unlawful. Upon the argument, too, the counsel for the city insisted that it claimed the power and the right to forfeit the franchise by declaration of the council, and this is really the vital thing in controversy. It would be rather idle to dismiss a bill because the franchise had not been actually declared forfeited, when the city was proceeding in that direction, and claimed the right to continue the proceedings to effect, and when its intention to do so was so strongly indicated as it is by the city’s own actions and statements and positions in this case. If the danger of a declaration of forfeiture was not imminent, it would have been very easy to make that clear by a proper disclaimer of such intention.
As to the second defense: Reliance is had upon the Olathe Case, 156 Fed. 624. The general rule found in certain decisions of the Supreme Court and relied upon in the Olathe Case doubtless forbids that a federal court should often, if ever, enjoin proposed action by the legislative body of a city, which action is within the discretionary, legislative power of that body, however great a wrong such action may promote; but, if the proposed action of the common council in this case is wholly beyond its power, not within the limits of legislative discretion, and works injury to complainant’s property rights, then, it is argued, that the rule does not apply, and that an injunction
Regardless of the form of the injunction, the underlying question is as to the power of the city to declare a forfeiture, and I am satisfied that the city has no power to determine that this franchise was forfeited, whatever the default of the railways company may be, but that such determination can be made only in a judicial proceeding, in a proper court, where both parties may be heard, and the issue, as to their respective rights, impartially determined.
In Union City Railway Co v. Saginaw Circuit Judge, 113 Mich. 694, 71 N. W. 1073, it was held that the common council had the right of forfeiture, but it appeared to have been an express provision of the franchise that, in case of default, “the city shall have the right * * ⅜ to forfeit * * * all rights and privileges of said companies,” and also that “the common council may, upon a vote of two-thirds of the aldermen elect, revoke the privileges and authority hereby granted.” Judge Grant’s opinion recites that “council for the city concede that, if the contract simply provided for a forfeiture, it would be compelled to proceed in the courts”; and the decision is that, inasmuch as the breach or default was conceded, nothing remained calling for judicial action. ■
In the present case, the charter provision is that, in case of default, “then, after ten days’ notice, the rights, privileges, interest, permission, andl authority hereby .granted shall thenceforth cease and be forfeited, and the said city of Kalamazoo be entitled to take posses
Another sufficient ground of jurisdiction is found in the alleged imminent danger that property will be taken without due process of law. Whether or not the proposed revoking resolution would be properly called legislation, and, even if it was within the power of the council to declare a forfeiture where the necessary basis of facts existed, such a declaration, where these necessary facts did not exist, and the attendant enforcement of the declaration by force might be a taking of property such as is forbidden by the fourteenth.amendment. This, also, I understand to be the distinct holding of the Court of Appeals of this circuit in the Memphis Case. If the council is wholly without power to make the proposed declaration, then, it might be, as intimated in some of the cases, that the action would be of individuals only, and there would be no action of the state sufficient to violate the constitutional prohibitions (though the Memphis case seems to hold otherwise)-; but, if the council has any such power, then its unjustifiable exercise thereof' should be prevented by way of enforcement of the “due process” clause.
The defendants insist that by dismissing the appeal in the Saginaw Case (168 U. S. 706, 18 Sup. Ct. 947, 42 L. Ed. 1214), the Supreme Court decided that no federal question was involved in such a controversy as this. I think that was not the point decided. It was held that where the courts of the state had construed a contract with a street railway company, and had found the true meaning of the contract to be that the railway company had consented to vest in the city the right of declaring a forfeiture, then no federal question was involved in this construction. To apply that rule to the present case would be begging the question, because, with reference to this contract, no state court has so held, and such construction appears to me quite unjustifiable.
As to the third defense, and generally: The bill by paragraph 41 makes a basis for relief in the nature of interpleader, although such relief is not specifically prayed. This is a formality, and it should be . considered as asked for. A bill of interpleader, strictly so called, will not lie where complainant claims any interest in the subject-matter (Killian v. Ebbinghaus, 110 U. S. 571, 4 Sup. Ct. 232, 28 L. Ed. 246), but equitable relief, analogous to interpleader, will often be granted in aid of complainant’s interest, when there are other interconflicting interests (Street’s Fed. Eq. Pr. § 2235; Killian v. Ebbinghaus, 110 U. S. 572, 4 Sup. Ct. 232, 28 L. Ed. 246; Pacific National Bank v.
In Blair v. Chicago, 201 U. S. 400, 26 Sup. Ct. 427, 50 L. Ed. 801, the Supreme Court approved the filing of a bill to settle a dispute with a city concerning the meaning, obligations, and performance of a street railway franchise; and, while that bill was filed by receivers in possession of the property, it seems to justify the present bill as in the nature of a bill of interpleader, if it be once conceded that a mortgagee has a property right for the protecting of which it may resort to an equity court. I conclude, therefore, that this case is a proper one for relief in the nature of interpleader, and that subsequent procedure and relief should conform to that theory. Such theory, carried out as indicated hereafter, seems to be a satisfactory solution, and perhaps the only one, of the existing complications, and a solution which will fully protect the rights of all parties and result in a speedy determination of all issues.
The bill of complaint can be amended as hereafter indicated, provided such amendment is made within 15 days. Such amendment will not affect the answers on file, which may stand as answers to the amended bill, and as the pleading basis of each party for the quasi-interpleader issue, provided that either party defendant may, within the same 15 days, amend its answer, as it may be advised,1 to perfect the same for the purpose of interpleader proceedings. As soon as the issues are thus perfected, they will stand referred to the master to take proofs and report his conclusion as to whether or not the railways company is in default in each one of the particulars alleged by the city in its answer, and, if it is, to what extent. Such proofs should be promptly taken, and the public importance of the controversy seems to require that it should take a considerable degree of precedence over other matters. In all cases where the court takes some degree of control of public utilities or interferes with municipal regulation, the public interest requires that the court take the burden of insisting that the controversy be ended with the utmost, attainable speed. Ninety days would seem to be ample time for the taking of the proofs, and 30 days further for the master’s report. The court will then decide how much default, if any, exists, and whether it is of a nature to require a. forfeiture, and, if so, will declare such forfeiture, and fix the conditions of performance by which it may be avoided. It is not intended by this procedure to interfere with the ordinary determination of any question of fáct or of law now pending in any other court. At the opening of the proceedings before him, the master will ascertain which of the issues, covered by the answers in this case, are so pending, and, if it appears that there are any which are so pending and which are not desired by all the parties to be disposed of in this case, the master will report such situation to the court for further instructions in that particular.
The other defaults, such as the use of unfit rolling stock, and general failure to give the stipulated service, are more serious, and cannot be covered by bond. They can be cured, if the -railways company does not furnish them, only by advances by complainant in aid of its security, or by receiver’s certificates duly issued for that purpose. I think the complainant’s general offer to do equity should be madle more specific, so that it cannot be misunderstood, and should be amended by a specific prayer that, in case forfeiture of the franchise should be contingently declared and the railways company should not perform the delinquent conditions, the bill be retained as a foreclosure bill, proceeding by virtue of the mortgage default which it would be then ascertained does now, in a substantial sense, exist; and that, in such cáse, unless the complainant furnish, or cause to be furnished, sufficient funds to permit and make possible the maintenance of the franchise, receiver’s certificates be issued for that purpose. It will not be necessary now to- incorporate in the bill all the formalities of a foreclosure bill, but only to make a sufficient basis for an amended or supplemental bill for that purpose and to commit the complainant to the position that it will either provide the necessary funds or cooperate in providing them through the means of receiver’s certificates.
The three individual defendants have filed a demurrer on the ground that it is not proper to join them as individuals, I think the allegations of the bill make them proper parties, not so much for the sake of personal relief against them, as to have before the court the apparently responsible officials of the corporation, for the purpose of greater certainty in enforcing the decrees and orders to be made.
It does not follow from the action directed in this case that the equity courts should assume full jurisdiction of the entire controversy between the city and a public service corporation every time a dispute arises about the meaning of a franchise. On the contrary, such jurisdiction should be assumed reluctantly and only in extreme cases. I think, however, that'where the controversy has been proceeding so long and has reached such a stage as indicated by the present bill, and has so many branches and! the crisis is so imminent and the danger of irreparable injury is so great, a case is made out calling for the exercise of this jurisdiction.
A provisional injunction to continue until the further order of the court may issue prohibiting the defendants from doing any acts in violation of the franchise contract, or calculated to cause a forfeiture, or in furtherance of, or in execution of, the proposed forfeiture. This will not prevent the city from exercising the power of ordinary regulation, given by the franchise, in matters that may arise from time to time. It is intended only to apply to acts in connection with, or following on, the proposed forfeiture of the franchise for the reasons set up in the resolution of November 15th.