Ames v. State of Kansas Johnston Kansas Pacific Railway Company

John F. Dillon, Wager Swayne, and A. L. Williams, for plaintiffs in error.

W. A. Johnston, W. H. Rossington, and C. A. Seward, for defendants in error.

Each of these writs of error brings up for review an order of the circuit court remanding a case to the state court from which it had been removed, and the two cases may properly be considered together. The material facts are these:

The Leavenworth, Pawnee & Western Railroad Company was incorporated by the legislature of the territory of Kansas in 1855, to build a railroad from the west bank of the Mississippi river, in the town of Leavenworth, to or near Fort Riley, and from thence to the western boundary of the territory, which was the east boundary of Utah, on the summit of the Rocky mountains. 10 St. 283, c. 59, § 19. In 1857 this act was amended so as to authorize the construction of a branch from some favorable point on the main line to some point on the southern boundary of the territory. Where an easy connection could be made with a line of road extending to the Gulf of Mexico, and also of a branch to the northern boundary of the territory. The company was organized under these acts in 1857, and before January 1, 1862, had located its line from Leavenworth to Fort Riley, and had, to a large extent, secured its right of way and depot grounds.

On the first of July, 1862, the first Pacific Railroad act was passed by congress, gress, incorporating the Union Pacific Railroad Company, and providing for government aid in the construction of the several roads brought into the system, the Atlantic and Pacific coasts. 12 St. 489, c. 120. By section 9 of this act the Atlantic and Paciflc coasts. 12 St. 489, c. 120. By section 9 of this act the Leavenworth, Pawnee & Western Railroad Company of Kansas was authorized to construct a railroad and telegraph line from the Missouri river, at the mouth of the Kansas river, on the south side thereof, so as to connect with the Pacific Railroad of Missouri, to the point in the territory of Nebraska then established as the eastern terminus of the Union Pacific road. Provision was made for government aid to this company in all respects like that to the Union Pacific. Section 16 is as follows: 'That at any time after the passage of this act all of the railroad companies named herein, and assenting hereto, or any two or more of them, are authorized to form themselves into one consolidated company. Notice of such consolidation, in writing, shall be filed in the department of the interior, and such consolidated company shall thereafter proceed to construct said railroad and branches, and telegraph line, upon the terms and conditions provided in this act.' The Leavenworth, Pawnee & Western Company accepted the provisions of this act, and was thereafter designated as the Union Pacific Railroad Company, Eastern Division. By the act of July 2, 1864, c. 216, § 12, (13 St. 361,) the company was required to build its railroad from the mouth of the Kansas by way of Leavenworth, or, if that was not deemed the best route, to build a branch from Leavenworth to the main stem at or near Lawrence. This act also made provision, by section 16, for the consolidation of any two or more corporations embraced in the system, upon such terms and conditions as they might agree upon, not incompatible with the laws of the states in which the roads of the companies might be.

On the third of July 1866, c. 169, (14 St. 80,) the company was permitted to make its connection with the Union Pacific at any point not more than 50 miles westerly from the meridian of Denver. By another act passed March 3, 1869, c. 324, (15 St. 324,) the company was authorized to extend its road to Denver, in the territory of Colorado, and from there to make its connection with the Union Pacific at Cheyenne, over the road of the Denver Pacific Railway & Telegraph Company, a Colorado corporation; power being given to contract with the last-named company for that purpose. On the same day a joint resolution was passed by congress, (No. 23, 15 St. 348,) authorizing the Union Pacific Railroad Company, Eastern Division, by a resolution of its directors, filed in the office of the secretary of the interior, to change its name to the Kansas Pacific Railway Company. Under this authority the road was built from its junction with the Missouri Pacific Railroad in Kansas City, Missouri, through Fort Riley, in Kansas, to Denver, in Colorado, and government aid was furnished it under the acts of congress. From Denver it formed its connection with the Union Pacific road at Cheyenne, over the road of the Denver Pacific Company. It also built a branch from Leavenworth to Lawrence, but the road from Fort Riley to the original eastern terminus of the Union Pacific was never constructed.

On the twenty-fourth of January, 1880, the Union Pacific Railroad Company, the Kansas Pacific Railway Company, and the Denver Pacific Railway & Telegraph Company, acting under the authority of section 16 of the Pacific Railroad act of July 1, 1862, and section 16 of the act of July 2, 1864, entered into an agreement for the consolidation of the three corporations into one, by the name of the Union Pacific Railway Company, and from that time the road of the Kansas Pacific Company, including that portion which lies in Kansas, has been operated and managed as the Kansas Division of the Union Pacific Railway Company. At the first session of the legislature of Kansas after this consolidation was effected, a resolution was passed directing the attorney general to inquire into its legality, and to report whether, in his opinion, the consolidated company was amenable to the laws of the state, whether the Union Pacific Railroad Company had usurped or was exercising rights and franchises within the state not authorized by law, or had in any manner failed to comply with or had violated any of the laws of the state, whether the Kansas Pacific Company was in law an existing corporation of the state; and whether the state had lost jurisdiction over the property of the corporation. At the next session another resolution was passed, directing the attorney general to institute proper proceedings in the supreme court of the state, 'in the nature of quo warranto, against the Kansas Pacific Railway relinquishment, and surrender of its relinquishment, and surrender of its powers as a corporation to such consolidated company, and also to institute like proceedings against the consolidated company, the Union Pacific Railway Company, for usurping, seizing, holding, possessing, and using the franchise and privileges, powers and immunities, of the Kansas Pacific Railway Company in the state of Kansas.'

Under these instructions the present suits were brought in the supreme the Kansas Pacific Company sets the Kansas Pacific Company sets forth the acts of the territorial legislature of Kansas incorporating the company and extending its powers, passed in 1855 and 1857; the organization of the company under its charter; the acts of congress, passed July 1, 1862, and July 2, 1864, granting aid to the company; and the construction of the road. It then avers 'that on the twenty-fourth of January, 1880, the said Kansas Pacific Railway Company wrongfully and unlawfully attempted to consolidate its said corporation with the Union Pacific Railroad Company, a corporation chartered under the said acts of congress of 1862 and 1864, whose line runs from the Missouri river at or near Omaha, Nebraska, to Ogden, in Utah territory, and the Denver Pacific Railway & Telegraph Company, whose line begins at the city of Denver, in the state of Colorado, and runs in a westward direction to a junction with the Union Pacific Railroad Company, at a place called Cheyenne, in the territory of Wyoming. And the said Kansas Pacific Railway Company unlawfully and wrongfully attempted to confer upon the said consolidated company all of its franchises, immunities, liberties, and privileges granted by virtue of its charter aforesaid, and to merge the same into a pretended corporation, not created by the laws of the territory or state of Kansas, nor owing any duty to the territory or state of Kansas, but a pretended corporation, created, if at all, by acts of congress, and amenable only to federal control, and subject only, as to its rights and the causes of action which might thereafter exist against it, to the jurisdiction of the federal tribunals. And the said attorney general gives the court further to understand and be informed that the said Kansas Pacific Railway Company unlawfully and wrongfully entered into articles of consolidation with said Union Pacific Railroad Company and the said Denver and Pacific Railroad & Telegraph Company, which were expressly in violation of its charter, and in conflict with the duties and obligations owing by it to the state of Kansas under the provisions and terms of its charter aforesaid; and further, that said articles were in conflict with the laws of the state of Kansas respecting railroad corporations and the right of railroad companies to consolidate, and were not compatible with such laws.' The bill then sets forth a copy of the articles of consolidation, from which it appears that the sole and only authority relied on for the consolidation was that contained in the several acts of congress, and that the intent of the parties was to organize the company thereby formed 'under the said acts of congress, and to make the said acts of congress the charter or constituent acts of this company, as fully as if the same were incorporated herein at large.' The contract then appointed directors of the new company, and the place for holding the annual meeting of stockholders, until otherwise ordered, was fixed at the company's office in the city of New York. The then existing by-laws of the Union Pacific Railroad Company were also provisionally adopted and made applicable to the new company. It is then averred that it was the duty of the Kansas Pacific Company to make certain reports to the secretary of state of Kansas, which it had wholly failed to do, and that it held 'its general offices and all accounts of its operations at the general offices of said pretended consolidated company, at the city of Omaha, in the state of Nebraska, and alleges and pretends that the said corporation, the Kansas Pacific Railway Company, no longer owes any duty under its charter as aforesaid to the state of Kansas, but that it is controlled as to its chartered obligations by the acts of congress creating the Union Pacific Railroad Company, and by the unlawful articles of consolidation aforesaid.' It is then charged that the company has violated the laws of the state by failing to keep its general offices for the transaction of business within the state, and removing them to Omaha and placing 'the same under the absolute order, control, and disposal of the said pretended consolidated company.' Then it is alleged that the road of the Kansas Pacific Company is run as the 'Union Pacific Railway Company, Kansas Division,' and managed by the new corporation; that 'since the pretended consolidation as aforesaid the said Kansas Pacific Company has wholly failed and neglected to designate some person residing in each county into which its said line of railroad runs, or in which its said business is transacted, on whom all process and notices issued by any court of record, or justices of the peace of such county, may or might be served,' and that it has also failed from the same time 'to file a certificate of the appointment or designation of such person in the office of the clerk of the district court of the county in which such person resides.'

The consolidation is afterwards attacked because the roads were originally competing roads, and did not connect at the state line so as to form a complete and continuous line of railway. The next allegation is that the Kansas charter was forfeited by the diversion of the road 'to the use of a foreign corporation, outside of the jurisdiction of the state of Kansas, and beyond the reach of her authorities, with the declared intent that it shall be operated and used and worked, not according to the laws of Kansas, made or to be made to protect the rights of her people, but under and according to the provisions of other laws, alleged to have been enacted by the legislature of another government, for the regulation of another railroad, lying in another state.'

The prayer is that the 'Kansas Pacific Railway Company * * * be made to answer to the state of Kansas by what warrant it claims to have, use, and enjoy the liberties, privileges, and franchises aforesaid; and, further, by what warrant it claims and has exercised the right to put said railroad and its appurtenances into the possession and under the control of the above-mentioned foreign railroad company, and by what right it claims to maintain such foreign corporation in such possession, or in the enjoyment and exercise of the franchises and privileges bestowed by the state of Kansas exclusively on said Kansas Pacific Railway Company; and that * * * the said respondent company be adjudged to have forfeited all its rights, liberties, and franchises, and to be ousted from the same, and that the corporation be thereupon dissolved; and that it be further adjudged that the said franchises granted to the defendant by the state have become relinquished, abandoned, and forfeited to the state of Kansas, and that the same be resumed to the state, and that the state take possession of the said railroad, with all its appurtenances and fixtures, as public property, and make such disposition thereof as may be thought necessary to secure the rights of the state, saving the just interests of creditors and other third parties guiltless of the frauds, wrongs, and injuries herein charged against the corporation and the members thereof.'

The answer of the defendant, which, for the purposes of the suit, appeared in the name of the Kansas Pacific Railway Company, admits the consolidation and sets up the authority for that purpose under the laws of congress. All violations of the laws of Kansas are denied, and the position is distinctly assumed that the Kansas Pacific Company became, under the legislation of Congress, a corporation of the United States, and as such had full authority to enter into the agreement of consolidation which is complained of.

The petition against the individuals who, as is alleged, call themselves the board of directors of the Union Pacific Railway Company, charges them with using, without warrant, charter, or grant, the liberties, privileges, and franchises of being a railroad company to use and occupy the railroad of the Kansas Pacific Company, and averring that the road was built under the Kansas charter of the Leavenworth, Pawnee & Western Company. The prayer is that they may be made 'to answer to the state by what warrant they claim to have, use, and enjoy the liberties, privileges, and franchises aforesaid; and that upon a due hearing hereof the said defendants and said pretended railroad company be adjudged to have unlawfully and wrongfully usurped and appropriated the rights, liberties, privileges, and franchises aforesaid, and to be wrongfully and unlawfully using, enjoying, and exercising the same, and that they be ousted therefrom.'

The answer of the defendants sets up the legislation of congress affecting the original Kansas corporation, and the consolidation of that company with the Union Pacific & Denver Pacific Companies under this authority. They assert their right and that of the Union Pacific Railway Company, whose directors they are, to exercise within the state of Kansas all the powers, and to enjoy all the franchises and privileges, of the old Kansas Pacific Company, and this by reason of the consolidation of that company, under the authority of congress, with the other two companies.

The directors are all citizens of states other than Kansas.

As soon as the answers were put in, petitions were filed by the defendant in each case for the removal of the suit against them, respectively, to the circuit court of the United States for the district of Kansas. The petition of the railroad company alleged as grounds for removal: (1) That the suit was one arising under the constitution and laws of the United States; and (2) that the defendant was a corporation, other than a banking association, organized under a law of the United States, and that it had a defense arising under the laws of the United States. That of the directors was also put on the grounds (1) that the suit was one arising under the constitution and laws of the United States; and (2) that the directors were sued as members of a corporation, organized under an act of congress, for an alleged liability of the corporation, and that their defense arose under and by virtue of the laws of the United States.

Each suit was duly docketed in the circuit court of the United States, and, on motion of the state, remanded to the supreme court of the state.

From these orders to remand, the railway company and the directors, respectively, took a writ of error to this court.

[Argument of Counsel from pages 457-459 intentionally omitted]

WAITE, C. J.