Lisman v. Knickerbocker Trust Co., 211 F. 413

211 F. 413 | 6th Cir. | 1914

KNAPPEN, Circuit Judge

(after stating the facts as above). [1] The rule is well settled that an appellate court need not, and ordinarily will not, decide a question purely moot; that is to say, when, without the fault of the appellees, a situation has arisen by which the issues raised by the appeal have become dead, so making a decision by the appellate court thereon nugatory Upon the point whether the questions presented are in fact moot, the court may satisfy itself, if necessary, by extrinsic evidence. Mills v. Green, 159 U. S. 651, 16 Sup. Ct. 132, 40 L. Ed. 293; Jones v. Montague, 194 U. S. 147, 24 Sup. Ct. 611, 48 L. Ed. 913; Richardson v. McChesney, 218 U. S. 487, 31 Sup. Ct. 43, 54 L. Ed. 1121; Buck Stove, etc., Co. v. American Federation of Labor, 219 U. S. 581, 31 Sup. Ct. 472, 55 L. Ed. 345; Gompers v. Buck Stove, etc., Co., 221 U. S. 418, 451, 31 Sup. Ct. 492, 55 L. Ed. 797, 34 L. R. A. (N. S.) 874; Meyers v. Cheesman (C. C. A. 6) 174 Fed. 783, 785, 98 C. C. A. 491. The fact that questions of costs are involved does not alter the rule as to the dismissal of moot questions. Wingert v. First National Bank, 223 U. S. 670, 672, 32 Sup. Ct. 391, 56 L. Ed. 605. The appeal from the order confirming the master’s report of sale of the stock and bonds pledged under the collateral trust agreement properly brings up for review only matters occurring since the decree appealed from. Every proceeding prior to those decrees may be reviewed, if at all, only under the appeals therefrom, which are still pending and are now before us. Sage v. Railroad Co., 96 U. S. 712, 714, 24 L. Ed. 641. It is apparent that by the foreclosures of the underlying mortgages, for which appellees are not shown to be in any wise responsible, the criticisms upon the action of the court since the decrees were rendered have become moot: This is so because it is clear that a resale could not bring a sufficient price to leave anything applicable to appellants’ securities under the supplementary lien of the consolidated mortgage. The value of the pledged bonds has been wiped out. If the Ann Arbor Railroad purchase was invalid, appellants are not concerned with the price brought on the trustee’s sale of the Ann Arbor stock. If the Ann Arbor Railroad purchase is valid, appellants are not hurt by the low price brought or by the time of sale; for, although it may well be that the conditions imposed by the order of sale respecting the qualifications of bidders and the advantage given to some of the appellees, as well as the pending contest over the validity of the Ann Arbor purchase, would naturally tend to. prevent-substantial competition, and thus depress the sale price, yet there is no substantial evidence even tending to show that under the most favorable conditions possible the Ann Arbor stocks could be made to bring, either when sold or now, more than the $5,000,000 plus interest for which they were originally pledged, and so the appeal from the order of confirmation (No. 2145) should be dismissed.

The same considerations would naturally lead to a dismissal of the appeals from the two decrees, unless appellants’ suggestion is well made that such dismissal, resulting in an adjudication of the meritorious questions of the validity of the Ann Arbor Railroad purchase and of the mortgage bonds issued -therefor, might prejudice appellants m case of action against the Knickerbocker Company for unlawfully certifying bonds issued on account of the Ann Arbor purchase, or against certain others of the appellees on account of alleged misconduct connected with such railroad purchase or the defaults under the consolidated mortgage and the collateral trust agreement. We are not prepared to say that such dismissal might not have the effect stated; and so, without deciding that question, and without indicating an opinion whether or not the record tends to disclose basis for such suggested actions, we proceed to consider the meritorious questions last stated.

[3] In approaching this question we must assume that the purchase of the stock of the Ann Arbor Railroad was intended as a means of obtaining the control, operation, and practical ownership of that road, so far as such railroad ownership can result from ownership of a substantial majority of its stock, and the consequent ability to direct the ■railroad’s affairs. Such is affirmatively shown to have been the intent of both parties to the purchase and sale, and such was the immediate and continued effect of the purchase. We, therefore, need not consider questions relating to mere stock purchase, not made and intended as a means of railroad purchase, control, and operation. In the absence of charter or other statutory provision therefor, the purchase in question would not be valid. Penn. Co. v. St. Rouis, Alton Elec. R. Co., 118 U. S. 290, 309, 6 Sup. Ct. 1094, 30 L. Ed. 83. The authority for the purchase relied upon by appellees is Act No. 30 of the Public Acts of Michigan of 1901 -(page 50), which we cite in the margin.¹ The Supreme Court of Michigan has not construed this particular statute. That court has, however, in the case of Dewey v. Toledo, A. A. & N. M. Ry. Co., 91 Mich. 351, 51 N. W. 1063, construed the earlier statute of 1873 (How. Stat. § 3403, 2 Comp. Laws Mich. 1897, § 6328), relating to the same general subject-matter. The earlier statute, the first section of which we also cite in the margin,² provided for the sale of the property and franchises of railroad companies, but liniited the provision to uncompleted roads.

[2] The Dewey Case was a suit upon a note given for the purchase of the controlling stock of another railroad company. It was there expressly held that the sale of the stock of this other road to the Toledo, Ann Arbor & Grand Trunk Railway Company (the predecessor of the defendant in that ease and of the present Ann Arbor Railroad) was authorized by the statute of 1873 (Laws 1873,- No. 190). If the case before us involved the construction of the statute of 1873 we should be bound to accept the construction placed upon it by the Michigan Supreme Court, even though similar statutes'of other states may have been differently construed by the highest courts of those states. Maiorano v. B. & O. R. R. Co., 213 U. S. 268, 29 Sup. Ct. 424, 53 L. Ed. 792; Audas v. Highland Land & Bldg. Co. (C. C. A. 6th Cir.). 205 Fed. 862, 863, and cases there cited. It is true that the statute of 1873 is not before us, but if it is clear that the construction placed upon that statute would logically and necessarily involve a similar construction of the statute of 1901, we should equally feel bound by the construction of the earlier statute adopted by the highest court of that state. Such is the rule respecting the construction of constitutional provisions (O’Brien v. Wheelock [C. C. A. 7th Cir.] 95 Fed. 883, 905, 37 C. C. A. 309, opinion by Mr. Justice Harlan; Gt. Southern Hotel Co. v. Jones, 193 U. S. 532, 547, 24 Sup. Ct. 576, 48 L. Ed. 778); and we think it equally applies to statutory construction. The statute of 1901 much more naturally suggests the legislative intent attributed in the Dewey Case to the 1873 statute than did that earlier statute. The statute of 1873 applied only to uncompleted roads, the later statute contains no such limitation, but extends to “any railroad company that may be organized”; the earlier statute made no provision for stock purchase, the later statute expressly provides for acquisition and use of the road, its rights and franchises “by purchase of the stock, or otherwise, as may be agreed upon by the parties interested”; the statute of 1873 required the consent of two-thirds of the stockholders of the selling road “at any general or special meeting duly called for that purpose”; the act of 1901 provides only that “the stockholders owning a majority of the stock of said companies shall consent thereto.” We entertain no reasonable doubt that the Supreme Court of Michigan would construe the statute of 1901 fully as liberally as it construe'd the act of 1873. It is true that the action in the Dewey Case was against the maker of the purchase price note, and that the court gave, as an additional reason for its affirmance of the judgment below, that the contract had been completely executed, and so the defense of ultra vires was not available. But while it is true that a state decision, in order to be binding upon the federal courts,.must be “based alone upon the statute construed” (Adelbert College v. Wabash R. R. Co. [C. C. A. 6th Cir.] 171 Fed. 805, 96 C. C. A. 465, 17 Ann. Cas. 1204, and cases there cited), we know of no rule which denies conclusive effect to an express and definite construction of a state statute, from the mere fact that an additional and wholly independent reason was given for sustaining the judgment under review. Moreover, the construetion of the statute of 1873 was the utterance of the highest court of the state concerning the public policy of the state as declared by that statute; and we do not feel at liberty to disregard that construction. See Union Ry. Co. v. Illinois Central R. R. Co. (C. C. A. 6th Cir.) 207 Fed. 745, 750; also Zacher v. Fidelity Trust, etc., Co. (C. C. A. 6th Cir.) 106 Fed. 593, 599, 45 C. C. A. 480.

But were the rule respecting.the decision of the state court otherwise than we. have stated, the passage by the Legislature Of the more explicit act of 1901, nine years after the decision of the Dewey Case, and presumably with knowledge of that decision, is compelling evidence of the legislative intent that tire pertinent provisions of the later statute should be similarly construed; and it is common knowledge that more than one important railroad in Michigan has for many years been controlled through stock ownership by another railroad, and without apparent objection by the state authorities. We see no merit in the contentions that the statute authorizes such stock ownership bnly in aid of a prior acquisition of the physical property of the road, or that it imperatively requires either ownership of the entire stock or corporate action on the part of the selling company.

We may add that we think the title of the act of 1901 broad enough to sustain the construction we have put upon it. The two railroads are apparently within the purview of the statute of 1901. They have not the same terminal points, the southern terminus of the Detroit, Toledo & Ironton being on the Ohio river, its northern at Detroit, on the eastern shore of Michigan; the southern terminus of the Ann Arbor is at Toledo, its northern on the western shore of Michigan. The Detroit, Toledo &• Ironton crosses the state line about 30 miles west of Toledo, taking a circuit of about 50 miles to reach Dundee (which is 30 miles or so north of Toledo), from which crossing the two roads run nearly at right angles to each other. The fact that the Detroit, Toledo & Ironton holds the portion of its line from Tecumseh to Dundee by terminable lease is not controlling. They are not in a proper sense competing roads; through the railroad connection at Dundee and the Ann Arbor ferry system at Frankfort a continuous line is formed between the Ohio river and the territory of the upper Great Lakes, a distance of over 600 miles, thus joining the south-bound transportation of northern iron ore with the north-bound carriage of southern coal. The only portions of the two roads permitting even a semblance of local competition is the part of the Ann Arbor between Toledo and Dundee and the portion of the Detroit, Toledo & Ironton between that place and the Michigan-Ohio line. But Dundee is not a terminal, it is a junction; and, in view of the network of railroads in the space inclosed by these portions of the two roads in question, connecting with both Toledo and Detroit, this competition would seem practically'negligible. Such portions become in fact, as related to the main or through line, merely locals or branches. L. & N. Ry. Co. v. Kentucky, 161 U. S. at page 687, and following, 16 Sup. Ct. 714, 40 L. Ed. 849.

It is urged that this, railroad purchase contravenes section 2 of article 19a of the Constitution o’f 1850, then in force, which requires at least 60 days notice of proposed railroad consolidation to be given to all stockholders. The roads were never in fact consolidated, and there is nothing in the record action which indicates an intention to consolidate.

We conclude that the Ann Arbor purchase was authorized by the Michigan statute. We see nothing opposed to this conclusion in Mackintosh v. Flint & Pere Marquette R. R. Co. (C. C.) 34 Fed.582, decided previous to the enactment of any Michigan statute providing for the purchase by one railroad of the completed road of another company.

The Ann Arbor purchase being authorized, the Detroit, Toledo & Ironton obviously had power to issue its mortgage bonds therefor, the statute giving the purchasing railroad express authority to—

“issue its bonds, secured by trust deed or mortgage, upon its railroad property, rights and franchises, including the property and rights thus acquired.”

' Such was precisely the course taken. The issuing, as a convenient method of financing, of collateral trust notes secured by the mortgage bonds and the purchased stock was not a departure from the statutory permission.

[4] Were the bonds in question properly securable under the consolidated trust mortgage? That instrument provided for issuing, to the maximum of $8,252,000, mortgage bonds, whose proceeds should be used—

“only for or in aid of the purchase or construction of extensions, branches or spurs, to the existing system of the railway company, the improvement of the terminals at Toledo or elsewhere upon the lines of the railway company, the construction of a bridge or bridges across the Ohio river * * * the construction of * * * extensions in the state of Kentucky or West Virginia or both * * * the acquisition of additional terminals * * * and such other purposes as the board of directors of the railway company may deem calculated permanently to increase the business and earning capacity of the property.”

There is here no express authority for issuing bonds to pay for the purchase of railroad stocks; but if we have correctly interpreted the Ann Arbor purchase as one of a railroad property, for operation as such, the issue of the consolidated mortgage bonds would seem to be included in the broad terms “such other purposes as the board of directors of the railway company may deem calculated permanently to increase the business and earning capacity of the property,” unless forbidden (as appellants contend) by the rule of ejusdem generis, on the ground that the Ann Arbor purchase is not of the same class as those which had previously been specifically enumerated. But assuming, as we must, that the Ann Arbor purchase was a railroad purchase, for purposes of railway operation, and that the railway directors did in fact, as shown by their resolution, deem such purchase “calculated permanently to increase the business and earning capacity of the property,” such purchase would seem to be of the same broad general class as extensions to the existing system, improvement and acquisition of terminals, construction of bridges across the Ohio river (which would be an extension), or extensions in Kentucky and West Virginia. In our opinion, the issuing of the mortgage bonds in question was fairly authorized by the mortgage. These views as to the validity of the mortgage bonds relieve us from considering many interesting questions discussed by both parties.

In reaching the conclusion that the bonds issued upon the Ann Arbor purchase were validly secured by the consolidated mortgage, we of course have not considered the charge of alleged fraud as affecting the validity of the Apn Arbor purchase, because no satisfactory proof thereof has been made. Nor can appellants be heard to complain that the court below made its decision in the absence of such testimony, because appellants declined the permission given tp present such proof as might be desired touching the invalidity of the bond issue as secured by the Consolidated Mortgage; and this permission was not limited to the presentation of the questions of law arising out of the statute, the mortgage and record action, individually or corporate, but must be held to have extended to all testimony, oral or otherwise, tending to establish the invalidity of the bond issue.

[5] We think also that the court was not bound to permit appellants, as a matter of right, to intervene generally for the purpose of trying out the question of liability of Hollins' & Co. to account for railroad stocks acquired in connection with the reorganization, or the liability of that firm or others for profits on the Ann Arbor purchase, or for damages on account of defaults suffered under the mortgage and collateral trust agreement. These issues were collateral to the foreclosure suits, and were not concluded by the decrees made. The court was vested with a certain amount of discretion in determining whether to permit intervention for the purposes stated; this discretion does not appear to have been improvidently exercised, and no appeal lies from the action complained of. Credits Commutation Co. v. United States, 177 U. S. 311, 314, 20 Sup. Ct. 636, 44 L. Ed. 782; Toledo, St. L,. & K. C. R. R. Co. v. Continental Trust Co. (C. C. A. 6th Cir.) 95 Fed. 497, 535, 36 C. C. A. 155. So far as concerns the effect of the alleged collusive defaults upon the right to decree of foreclosure and sale, it is apparent that when the decree was made the time had actually come, rightly or wrongly,- when the sale should be no longer delayed. Indeed questions relating to the time of sale and restrictions upon bidding (as well as the practical application of the damages claimed from Hollins & Co. against the value of their Detroit, Toledo & Iron-ton bonds and stock) have become moot, so far as this present litigation is concerned, through the foreclosure of the underlying mortgages; and it cannot rightfully be claimed that the court’s refusal to permit appellants to intervene, or its delay in rejecting their persistent efforts to that end, are responsible for their failure to realize on their securities.

The decrees in Nos. 2120 and 2121 are accordingly affirmed, with costs. The appeal from the order of confirmation in No. 2145 is dismissed.

1 “(No. 30.) An act to authorize any railroad company now organized or that may hereafter be organized under the laws of this state, to sell, lease and convey its property and franchises to any other railroad company, whether organized within or without this state; and to acquire by lease or purchase from the owner of any other railroad such road or any part or portion thereof, whether located within or without this state, together with the rights and franchises connected therewith; and to provide for securing payment therefor ; and to repeal act number one hundred two of the session laws of eighteen hundred ninety-three.

“The People of the State of Michigan enact: Section 1. It shall be lawful for any railroad company organized, or that may be organized, under the laws of this state, to sell, lease and convey its road, together with the rights and franchises connected therewith, or any part or portion thereof, to any other railroad company, whether organized within or without this state; and to acquire by lease or purchase from the owner of any other railroad such road, together with the rights and franchises connected therewith, or any part or portion thereof, whether located within or without this state; and for the railroad company so purchasing or leasing to acquire and use such road rights and franchises by purchase of the stock, or otherwise, as may be agreed between the parties interested, said railroads not having the same terminal points, and not being competing lines: Provided, that the stockholders owning a majority of the stock of said companies shall consent thereto: And provided further, that the company so purchasing or leasing shall hold and operate such road and said property and franchises subject to all the duties and obligations and with all the rights and privileges prescribed by the general railroad laws of this state.

“Sec. 2. The railroad company purchasing or leasing by virtue of this act may issue its bonds, secured by trust deed or mortgage, upon its property, rights and franchises, including the property and rights thus acquired, to make payment therefor; and such trust deed or mortgage shall have the effect of a purchase-money security: Provided, that nothing herein contained shall prejudice' the rights of pre-existing creditors of the corporation from which such property and rights are purchased or leased.

“Sec. 3. Act number one hundred and two of the session laws of eighteen hundred ninety-three and all acts and parts of acts in anywise contravening the provisions of this act are hereby repealed.

“This act is ordered to take immediate effect. Approved March 28, 1901.”

2 “(6328) Section 1. The People of the State of Michigan enact, that it shall be lawful for any railroad company in this state which shall have entered, in good faith, upon the work of constructing its road, and shall have become unable to complete the construction of the same or any part thereof, to sell, and convey the whole or any part of its road so partially completed, together with the rights and franchises connected therewith, ’ to any other railroad company or corporation of this state not having the same terminal points and not being a competing line: Provided, that at any general or special meeting duly called for that purpose the stockholders carrying [owiiing] two-thirds of the stock of said company shall consent thereto: And provided further, that the company or corporation so purchasing shall hold such property and franchises, subject to all the obligations and duties, and with all the rights and- privileges prescribed by the general railroad law of this state.”