« PreviousContinue »
courts, on the line of the road, should be interfered with as little as possible. It is doubtless convenient, and a saving and protection to the railroad company and its mortgage bondholders, to have the litigation growing out of the operation of a long line of railroad concentrated in a single court, and on the equity side of that court, where justice is administered without the intervention of a jury. But, in proportion as the railroad and its bondholders profit by such an arrangement, the citizen dealing with the receiver is subjected to inconvenience and expense, and he is deprived of the forum, and the right of trial by jury, to which, in every other case of legal cognizance, he has the right to appeal for redress. It is not necessary for the accomplishment of the purposes for which receivers of railroads are appointed, to impose such burdens and deprivations on citizens dealing with the receiver. And neither the railroad company nor its bondholders have any equity to ask it. Where property is in the hands of a receiver simply as a custodian, or for sale or distribution, it is proper that all persons having claims against it, or upon the fund arising from its sale, should be required to assert them in the court appointing the receiver. But a very different question is presented where the court assumes the operation of a railroad hundreds of miles in length, and advertises itself to the world as a common carrier. This brings it into constant and extensive business relations with the
Out of the thousands of contracts it enters into daily as a common carrier, some are broken, and property is damaged and destroyed, and passengers injured and killed by the negligence and tortious acts of its receiver and his agents. In a word, all the liabilities incident to the operation of a railroad are incurred by a court where it engages in that business; and, when they are incurred, why should the citizen be denied the right to establish the justice and amount of his demand, by the verdict of a jury in a court of the county where the cause of action arose and the witnesses reside? If the road was operated by its owners or its creditors, the citizen would have this right; and when it is operated for their benefit by a receiver, why should the right be denied ?
“ It is said that if suits are allowed to be brought in the courts
of common law the plaintiffs would probably receive more by the verdict of a jury than would be awarded to them by the master or chancellor, and that to compel the receiver to answer to suits along the entire line of the road, subjects him to inconvenience and entails additional expense on the estate. This is probably true. But why should a court of equity deprive the citizen of his constitutional right of trial by jury, and subject him to inconvenience and loss, to make money for a railroad corporation and its bondholders? If the denial of the right to sue can be rested on the ground that it saves money for the corporation and its creditors, why not carry the doctrine one degree further, and declare the receiver shall not be liable to the citizen at all for breaches of contract, or any act of malfeasance or misfeasance in his office as receiver? This would be a great saving to the estate. The difference is one of degree and not of principle. When a court, through its receiver, becomes a common carrier, and enters the list to compete with other common carriers for the carrying trade of the country, it ought not to claim or exercise any special privileges denied to its competitors, and oppressive on the citizen. The court appointing a receiver of a railroad, and those interested in the property, should be coutent with the same measure of justice that is meted out to all persons and corporations conducting the like business. The court appointing a receiver cannot, of course, permit any other jurisdiction to interfere with its possession of the property, or control its administration of the fund; but, in the case of long lines of railroad, the question of the legal liability of its receiver to the demands of the citizen, growing out of the operation of the road, should be remitted to the tribunals that would have jurisdiction if the controversy bad arisen between the citizen and the railroad company; giving to the citizen the option of seeking his redress in such tribunals, or, by intervention in the court appointing the receiver.” 1
At the time this rule was adopted by that court, it was made the subject of a good deal of unfavorable criticism, but all further contention on the subject is silenced by sec. 3, act of
1 Dow v. Memphis & Little Rock R. Co., 20 Fed. Rep. 260.
March 3, 1887, which reads as follows:1 “ That every receiver or manager of any property appointed by any court of the United States may be sued in respect of any act or transaction of his in carrying on the business connected with such property, without the previous leave of the court in which such receiver or manager was appointed; but such suit shall be subject to the general equity jurisdiction of the court in which such receiver or manager was appointed, so far as the same shall be necesstry to the ends of justice.”
After a long struggle, the rule announced in Dow v. Memphis & Little Rock R. Co., and vigorously and ably contended for by Mr. Justice Miller in his dissenting opinion in Barton v. Barbour, has, by act of Congress, become the law of the land aud obligatory on all Federal courts.
Touching the provision of this section, to the effect that the suit shall be subject to the general equity jurisdiction of the court, etc., the court in Central Trust Company v. The St. Louis, A. & T. Ry. Co.,' said: “It is true the act of Congress provides that, when the receiver is sued, the suit shall be subject to the general equity jurisdiction of the court in which such receiver
or manager was appointed, so far as the same shall be necessary to the ends of justice.' This clause of the act establishes no new rule, but is merely declaratory of the previously existing law. The receiver holds the property for the benefit of all persons having any interest in or lien upon it. The road is a unit. Broken into parts or deprived of its rolling stock, its value would be greatly impaired. Suits, therefore, which seek to deprive the receiver of the possession of the property, and all processes, the execution of which would have that effect, are subject to the control of the court appointing the receiver, so far as may be necessary to the ends of justice. The marshaling of the assets, and the orderly distribution of the fund or property according to the rights and equities of the several parties in interest, is not to be interfered with by the judgment or process of the State court. The judgment of the State court is conclusive as to the amount
1 24 Stat., Chap. 373, p. 554.
eceiver of the saction perty, eceiver to the
of the debt, but the time and mode of its payment must be controlled by the court appointing the receiver.”
The contention has been made and sustained in at least one Circuit Court of the United States that judgments recovered against receivers in actions at law in the State courts were not conclusive upon the receivers as to the amount of the debt, and, that the Circuit Court might in its discretion reduce the amount of the recovery in the State court. This is obviously an erroneous view. As was said in the case of Central Trust Company v. The St. Louis, A. & T. Ry. Co.: 1 “The right to sue the receiver in the State court would be of little utility, if its judgment could be annulled or modified at the discretion of this court. It is open to the receiver to correct the errors of the inferior courts of the State by an appeal to the Supreme Court of the State. But this court is not invested with appellate or supervisory jurisdiction over the State courts, and cannot annul, vacate or modify their judgments."'?
II. ONE HAVING A DEMAND AGAINST THE RECEIVER MAY FILE AN
INTERVENING PETITION IN THE FORECLOSURE SUIT - THE PROPER
One having a demand against the receiver has his election to sue the receiver in the State court or to file an intervening petition in the suit in which the receiver was appointed. It has been decided by the Circuit Court of Appeals of this circuit that when the petition of intervention seeks a recovery upon a purely legal demand, the intervener may rightfully demand a jury trial upon the issues of fact.
In the case of Rouse, Receiver, v. Hornsby, Hornsby filed his petition of intervention in the foreclosure suit in which the receivers were appointed, seeking to recover damages for an alleged personal injury. The receivers filed a motion in the court below asking that the petition of intervention be referred to "a master with instructions to find and report on both the law and the facts," and the intervener moved the court that a
8 67 Fed. Rep. 219.
jury be impaneled to try the issue. The lower court sustained the motion of the intervener. There was a trial to a jury and a verdict and judgment for the intervener and the receivers brought the case to the Circuit Court of Appeals, assigning among other errors, that the court below erred in not referring the case to the master, and in trying it before a jury. In answer to this contention the Circuit Court of Appeals said: “While the intervening petition was filed in the chancery suit, it had no relation to any equitable issue in that case and presented only a cause of action at law which the court very properly impaneled a jury to try." It is further said in the same case, that, “ As the intervening petition set up a cause of action exclusively cognizable at law and was tried by a jury, a writ of error was the appropriate mode of bringing the record into this court.”
III. OF THE DEBTS AND LIABILITIES OF THE RAILROAD COMPANY
WHICH HAVE PRIORITY OVER THE MORTGAGE DEBT. Another benefit inuring to the railroad company and its mortgage bondholders from a railroad receivership was the opportunity it afforded to escape the payment of all obligations of the company for labor, supplies and materials furnished and used in the construction, repair and operation of the road. Whenever a railroad company became so largely indebted for labor, material and supplies, and other liabilities incurred in the operation of its road, that it could profitably pay the expense incident to a receivership and foreclosure for the sake of getting rid of its floating debt, it sought the aid of a friendly mortgage bondholder, through whose agency it was quickly placed in the hands of a receiver, and immediately a court of equity was asked and expected to do the mean things which the company itself was unable or ashamed to do. The president of the company was commonly appointed receiver, and the work of repudiating its debts was swiftly and effectually accomplished through the aid of a court of equity. The floating debt incurred in improving and operating the road for the benefit of the company and its security holders was repudiated, and the road formally sold under a decree of foreclosure to a new company in name, organized by the owners of the stock and bonds of the old com