Carey v. Houston T C Railway Company

Statement by Mr. Chief Justice FULLER: Stephen W. Carey, a citizen of New Jersey, and several other persons, citizens of New York and Great Britain, respectively, who sued as stockholders of the Houston & Texas Central Railway Company, in their own behalf, and in behalf of others similarly situated, filed their bill December 23, 1889, and an amended bill March 3, 1890, in the circuit court of the United States for the eastern district of Texas, against the Houston & Texas Central Railway Company, No. 1, the Houston & Texas Central Railroad Company, No. 2, the Central Trust Company of the city of New York, and the Farmers' Loan & Trust Company, corporations organized under the laws of New York, and a number of other corporations and individuals, citizens of Kentucky, Texas, New York, and Louisiana, seeking to vacate and set aside, upon the ground of collusion and fraud, and want of jurisdiction, a decree of foreclosure and sale entered by that court on May 4, 1888, in certain suits pending therein, and consolidated as one suit, to foreclose certain mortgages upon the property of that company, and to enjoin and restrain the defendants from carrying out a certain plan of reorganization, and issuing any stock or securities of the new company incorporated pursuant to such plan.

The amended bill alleged that the Houston & Texas Central Railway Company, between July 1, 1866, and April 1, 1881, executed seven mortgages or deeds of trust to different trustees as security for bonds issued by it, and averred that prior to 1883 the defendant Huntington, who, with his associates, controlled the Southern Development Company, a corporation of California, formed a syndicate with his associates for the purpose of acquiring, in his own interest, and that of the Southern Development Company, the control of the Houston & Texas Central Railway Company, and that, having obtained such control, the rights of the holders of the stock should be effectually shut out and barred, and the absolute control be acquired by the syndicate, so that the railway might be run solely in its interest, and that of the Southern Pacific Company. The bill then set up in detail certain proceedings alleged to be fraudulent and collusive, which culminated in the decree complained of, and a sale thereunder, and proceeded:

'Complainants further allege that, as they are advised and believe and charge, the said decree was and is absolutely invalid and void, and beyond the power of the court to grant; that there was no foundation for said decree, or jurisdiction in the court to award it, and that the same was entered by consent and agreement, and without any investigation or adjudication by the court, but was the result of agreement, simply, and was procured, as complainants allege on information and belief, by collusion and fraud on the part of said Huntington and his associates, and the directors and officers of said Houston & Texas Central Railway Company, and was and is a part of the scheme to acquire possession of said railway in the interest of said Huntington and the said Southern Pacific Company, without regard to the rights or interests of the holders of the stock of said company No. 1, and in direct disregard of the provisions and terms of the mortgages; that the defenses interposed, that the principal of the mortgages had not become due, and that the said railway could not be sold without a sale first of the lands, and the other defenses interposed, were substantilly abandoned and withdrawn, as part of the said wrongful and fraudulent scheme herein referred to; that the said defenses were never submitted to the court for adjudication or determination, nor was evidence heard or offered to sustain the same, but the decree was the result of the agreement which the bondholders had made with the said Southern Pacific Company and Central Trust Company, and the rights of the stockholders were not considered or protected by any of the parties to the record in said cause, nor submitted to the court for adjudication or investigation, nor were the stockholders in any way advised, or permitted to be informed, of the transaction herein complained of.

'Complainants further allege that, as they are advised and believe, the said decree is void for the further reason that there was and is in the said decree no finding by the court fixing the amount due from the Houston & Texas Central Railway Company, No. 1, under said several mortgages, at and prior to the recording of the said decree, and fixing the amount which the said company was required to pay to redeem its franchises, property, and rights from the lien of the said mortgages, nor was there, nor has there been, any judicial inquiry into that matter, and that the said decree contradicts the provisions of the several mortgages set up in the bills asking foreclosure, and is nonjudicial and void.'

Further averments followed in relation to the organization of the Houston & Texas Central Railroad Company, designated as No. 2, for the purpose of operating the railroad acquired at the sale, and the intention to issue mortgage bonds, and place them upon the market, etc.

The prayer of the bill was that the decree rendered by the court below on May 4, 1888, in the consolidated cause, be vacated and set aside, and adjudged and decreed to be fraudulent, collusive, illegal, and void, and that complainants be permitted to intervene and become parties defendant in said suit, and to be heard and defend the same; that the sale of the railroad and lands of the Houston & Texas Central Railway Company, No. 1, under said decree, be vacated and set saide, and the said railway and lands be restored to the possassion of the receivers appointed by the court; that the defendants be enjoined, temporarily and perpetually, from executing, delivering, or recording any mortgage upon the property of the company referred to in said decree, and from issuing, alienating, or parting with any shares of stock of the new or reorganized Houston & Texas Central Railroad Company No. 2, or any bonds secured by mortgage upon any property claimed to be possessed by said company, or any stock or bonds issued, or intended to be issued, pursuant to said reorganization agreement, and for further relief.

The defendants answered, denying the allegations upon which complainants sought to impeach the decree in the foreclosure proceedings against the Houston & Texas Central Railway Company, and in respect of the other transactions referred to in the bill, and asserted the regularity, integrity, and good faith of all of the proceedings therein assailed. Replications were filed, and evidence was taken on both sides. An injunction pendente lite was moved for, and denied. 45 Fed. Rep. 438.

March 15, 1892, the cause was set down for final hearing on the pleadings and proofs, and on November 16, 1892, the circuit court entered a final decree dismissing the bill as to all the defendants. The opinion of the court will be found in 52 Fed. Rep. 671. On December 3, 1892, complainants prayed two appeals from this decree,-one to this court, and one to the circuit court of appeals for the fifth judicial circuit,-which appeals were severally allowed. Citations were signed, and appeal bonds duly approved and filed, together with an assignment of errors on each appeal.

No question as to the jurisdiction of the circuit court was certified to this court by that court for decision, nor was any application made to the circuit court for such certificate, so far as appeared from the record.

A motion to dismiss the appeal having been made by appellees, appellants objected that the extracts from the record printed by appellees in support of their motion were insufficient for its proper decision, and moved for a postponement of the consideration of the motion, and to be allowed to make oral argument.

J. Hubley Ashton, Chas.

H. Tweed, and Adrian H. Joline, for the motion.

Jefferson Chandler and A. J. Dittenhoefer, opposed.

[Argument of Counsel from pages 175-178 intentionally omitted]

Mr. Chief Justice FULLER, after stating the facts in the foregoing language, delivered the opinion of the court.