Missouri Pacific Railway Company v. Fitzgerald

This was a petition filed December 24, 1888, in the district court for Lancaster county, Neb., by John Fitzgerald, suing on behalf of himself and all other stockholders of the Fitzgerald & Mallory Construction Company against that company and the Missouri Pacific Railway Company, a corporation organized under the laws of Missouri, Kansas, and Nebraska. The petition was based on two contracts (copies of which were annexed), one bearing date April 28, 1886, between the Fitzgerald & Mallory Construction Company and the Denver, Memphis & Atlantic Railway Company, a corporation organized under the laws of the state of Kansas. By this contract the Construction Company agreed to build a railroad in Kansas from the east to the west line of that state; to furnish all materials and money; to equip the same with at least $1,000 of rolling stock per mile; to grade the line according to the engineer's surbeys; to furnish oak ties on curves, not less than 2,600 to the mile, and steel rails not less than 26 pounds to the yard; to build such depot and stations as the Denver Company should require, and all necessary sidings or turnouts, and, generally, to construct the road equal to railroads then being built in Southern Kansas. The Denver Company agreed to pay $16,000 per mile of its full-paid capital stock for every mile of completed road constructed, and $16,000 in its first mortgage bonds per mile of single track of the road which bonds were each to be for $1,000, or such other denomination as the parties should agree upon, draw interest at 6 per cent., be dated July 1, 1886, run 30 years from date, and be secured by a trust deed on the line and branches. They were to be delivered as the Construction Company required them. The Denver Company was also to deliver to the Construction Company all municipal and county bonds voted and to be voted in aid of the railroad, and all donations thereto, and procure the right of way in advance of the work, so as not to delay the construction, but the Construction Company was to pay for the right of way.

The other contract, dated May 4, 1886, was between the Missouri Pacific Railway Company and the Construction Company. It recited the contract of April 28th, and also that the Missouri Pacific Company desired to obtain control of the railway. The Construction Company agreed to sell to the Missouri Pacific Company all the securities which it should receive under the first contract, for which the Missouri Pacific Company was to deliver to it 5 per cent. bonds at the rate of $12,000 per mile of completed road. The Missouri Pacific Company also agreed to transport at cost the men and material of the Construction Company while it was carrying on the work.

The petition alleged that the Construction Company was a corporation of Iowa, having a capital of a million and a half, divided into shares of $100 each, of which Fitzgerald held 1,500, S. H. Mallory 1,500, and Gould and other citizens of New York something over 10,000; that the holders of over 8,000 shares were officers and directors of the Missouri Pacific Company; and that the bankers of the latter company held 2,000 shares. It was further alleged that shortly after the execution of the two contracts all the directors of the Denver Company, except Fitzgerald and Mallory, resigned, and their places were filled by officers and directors of the Missouri Pacific Company; that the directory of the Construction Company was changed so that of its five directors three were connected with the Missouri Pacific Company, Fitzgerald and Mallory being the other two. The work in the field was carried on by Fitzgerald and Mallory, and the financial dealings of the Denver and the Construction Companies were in the hands of the New York directors. Fitzgerald complained of many transactions of the New York directors of the Construction Company which were prejudicial to himself and other creditors and stockholders and in the interest of the Missouri Pacific Company.

The road was built by the Construction Company, and Fitzgerald alleged that, after that was accomplished, he made efforts to secure an accounting between the Missouri Pacific and the Construction Companies, which were unsuccessful, and he brought the suit as a stockholder for the purpose of settling the dealings between the two companies.

The petition also averred that the Denver Company failed to comply with the provisions of the contract in reference to procuring the right of way, to the damage of the Construction Company, for which it charged that the Missouri Pacific Company was liable.

It was also alleged that the Construction Company not only owed Fitzgerald individually a large amount of money, but for money expended in the bringing of this as well as other suits, for attorney's fees, and other like matters, for which he asked reimbursement.

The prayer of the petition was that an accounting be had between the Missouri Pacific Company and the Construction Company; that certain action of the board of directors and arrangements between the Missouri Pacific Company and the Construction Company be declared null and void; that the Missouri Pacific Company be compelled to account in relation to certain enumerated matters and generally, and pay over all moneys found due to the Construction Company; also that complainant 'be reimbursed for all expenses and attorneys' fees in other suits that he has been forced by the action of said directors to commence, as well as in this case'; and for general relief.

The answer of the Missouri Pacific Company was filed January 19, 1889, and admitted that defendant was a corporation duly organized under the laws of Missouri, Kansas, and Nebraska; but averred that the liability proceeded on, if any, was a liability of the company incorporated under the laws of the state of Kansas. It charged that, while the contract between the Denver and Construction Companies required the Denver Company to acquire the right of way, the Construction Company undertook to procure it, and became responsible to the Missouri Pacific Company for a good title; that some 15 or more miles of the railroad were built over the public lands without complying with the act of congress of March 3, 1875, granting to railroads the right of way through the public lands, so that for that distance of road the Missouri Pacific Company did not acquire such title as it was entitled to; and it claimed that, if there should be an accounting between the Construction Company and itself, it should not be required to pay or account for any portion of the line where the lawful right of way had not been secured, and that a deduction of $12,000 per mile of railroad so situated should be made. The answer further alleged that Fitzgerald had theretofore commenced suit in the district court of Lancaster county, Neb., against the Construction Company, to recover a sum exceeding $50,000, and caused garnishee proceedings to be instituted against the Missouri Pacific Company, upon which it was required to answer as to all moneys in its hands or under its control belonging to the Construction Company, or due from the Missouri Pacific Company thereto; but that it had no interest in Fitzgerald's individual claim or knowledge concerning the merits thereof. Various other admissions, denials, and averments were made in the answer upon the merits, which it is unnecessary to set forth. The Construction Company filed a demurrer to the petition.

On the same day, January 19, 1889, the Missouri Pacific Company filed its petition to remove the cause to the circuit court of the United States for the district of Nebraska on two grounds,-diverse citizenship and the question raised by the claim of the Missouri Pacific Company in respect of part of the road constructed over the public lands. It appeared from the pleadings that Fitzgerald was a citizen of Nebraska, and that the Construction Company was a corporation of Iowa; that the Missouri Pacific Company was a corporation organized under the laws of Kansas, Missouri, and Nebraska; but in its answer, as already stated, the Missouri Pacific Company claimed that it was not the corporation referred to in the petition, and that the liabilities arising under the contract were liabilities of the company organized and existing under the laws of Kansas. The Construction Company also filed a petition for removal.

The district court denied the petitions, and refused to accept the bonds. The Missouri Pacific Company, however, filed the record in the circuit court of the United States, and Fitzgerald filed a motion to remand, and a plea to the jurisdiction, which motion was denied, and the plea overruled, and the cause was referred to a special master to take proofs.

May 6, 1891, the cause came on to be heard upon the pleadings, proofs, and the report of the master, and the circuit court held that the cause had been improperly removed from the state court, and ordered it remanded, at the costs of the Missouri Pacific Company. The reasons for this conclusion are given in an opinion reported 45 Fed. 812. The cause having been returned to the district court of the state, the parties entered into a stipulation that the action be continued to the next September term then to be tried and that the depositions taken in the circuit court might be read as if taken in the state court. An amended petition and an amended and supplemental answer were filed. Trial was had as agreed in the district court of Lancaster county, which made a finding of facts, and rendered judgment against the Missouri Pacific Company.

The forty-seventh finding of fact was as follows: '(47) That about fifteen miles of railroad was laid out over government land; that no maps were filed with the secretary of the interior showing the lines of was over said government land in the state of Kansas, but maps were filed with the local land officers of the United States at Wa Keeney, Kansas, duly certified to, showing said right of way.'

Both parties appealed to the supreme court of the state, and that court rendered a judgment against the Missouri Pacific Company. 41 Neb. 374, 59 N. W. 838. The Missouri Pacific Company made application for a rehearing, pending which Fitzgerald died, and Mary Fitzgerald, as his administratrix, filed her petition for revivor and for a receiver of the Construction Company to collect the judgment. In support of the application for a receiver, it was alleged that about the time Fitzgerald recovered judgment, the Missouri Pacific Company caused a suit to be brought against the Construction Company in the name of the Kansas & Colorado Pacific Railway Company, which was owned by the missouri Pacific Company, and it was charged on various grounds that the action was collusive, and contrived to deprive the supreme court of the state of its jurisdiction, and Fitzgerald of the fruits of its judgment, and that a receiver had been procured to be appointed by the circuit court in that action in furtherance of that object.

The Missouri Pacific Company filed an answer and plea to this petition, denying collusion, and urging objections to the application for a receiver in this case, which, so far as necessary, are hereafter stated. A reply was filed by Mrs. Fitzgerald to this answer and plea. The supreme court, having granted a rehearing, entered an order of revivor, rendered judgment against the Missouri Pacific Company, and appointed a receiver. 62 N. W. 899. The pending writ of error was then sued out, and a motion to dismiss the writ for want of jurisdiction or to affirm the judgment was made.

The following are the errors assigned:

'(1) The court erred in taking or assuming any jurisdiction and in holding that it had any jurisdiction of this cause, forasmuch as it appeared by the record that the defendant the Missouri Pacific Railway Company duly and seasonably, and as within the time provided by the act of congress, filed and presented its petition and bond for removal of said cause to the United States circuit court for the proper district, to wit, the United States circuit court for the district of Nebraska, on the ground that in said suit there was a controversy wholly between citizens of different states, removable under said act to said United States circuit court for the district of Nebraska, which said bond was refused, and which said petition was denied, the defendant at the time duly excepting to such refusal and denial.

'(2) The said court erred in taking or assuming any jurisdiction, and in holding that it had any jurisdiction of this cause, forasmuch as in and by its said petition for removal of this cause to the United States circuit court for the district of Nebraska the said Missouri Pacific Railway Company set up and claimed a right, claim, privilege, immunity, and authority under an act of congress approved March 3, 1875, entitled 'An act granting the railroads the right of way through public lands of the United States,' and by reason of said act of congress claimed that said cause arose under the laws of the United States, which said claim and petition of said defendant were erroneously overruled by said district court of Lancaster county, Nebraska, and by said supreme court of Nebraska.

'(3) The said supreme court of the state of Nebraska erred in taking or assuming jurisdiction or in holding that it had jurisdiction of this cause, forasmuch as it appeared by the record in said cause that the defendant the Missouri Pacific Railway Company was, at the time when said cause was commenced, a citizen, resident, and inhabitant of the state of Missouri, within the meaning of the acts of congress of the United States relating to the jurisdiction of the federal courts, and the plaintiff, John Fitzgerald, was a citizen, resident, and inhabitant, of the state of Nebraska, but his said action was to enforce a cause of action as a stockholder of and for the benefit of the defendant the Fitzgerald and Mallory Construction Company, which was at sadi time a citizen, resident, and inhabitant of the state of Iowa, within the meaning of said acts of congress; and the controversy was therefore a controversy between citizens of different states, within the meaning of the said acts of congress relating to removal of causes. It further appeared from the record that the matter in dispute in said cause exceeded, exclusive of interest and costs, the sum or value of $2,000. It further appeared from the record that the defendant the Missouri Pacific Railway Company, upon the grounds aforesaid, including the ground of such diversity of citizenship and jurisdictional amount, duly and seasonably made and filed its petition in this cause in said court, to wit, the district court of Lancaster county, Nebraska, at the time, or at a time before the said defendant was required by the laws of said state of Nebraska, or by the rule of said state court in which such suit was brought, to answer or plead to the declaration or complaint or petition of the plaintiff for the removal of such suit into the said circuit court of the United States to be held in the district where such suit was pending, to wit, the circuit court of the United States in and for the district of Nebraska; and said defendant made and filed therewith, to wit, with its said petition, a bond with good and sufficient surety for its entering in such circuit court on the first day of its then next session a copy of the record in said suit, and for paying all costs that might be awarded by the said circuit court if said circuit court should hold that such suit was wrongfully and improperly removed thereto, which said petition was erroneously denied, and which said bond was erroneously refused by said state court, to which denial and refusal the said Missouri Pacific Railway Company then and there duly excepted.

'(4) The said supreme court of the state of Nebraska erred in taking or assuming or in undertaking to exercise jurisdiction of this cause and of the parties thereto by reason of the proceedings for the removal therof hereinbefore recited, and in denying the right and authority to set up and undertaken to be exercised by the said defendant the Missouri Pacific Railway Company under the statute and laws of the United States relating to the removal of causes of civil nature from the state to the federal courts.

'(5) The said supreme court of the state of Nebraska erred in taking or assuming to exercise jurisdiction in this cause, and to hear and determine the same, and to pronounce final judgment therein, forasmuch as it was made to appear to said court, and did appear, by the record in this cause, that the circuit court of the United States, in and for the district of Nebraska had duly taken and undertaken to exercise jurisdiction of said cause and of the parties thereto, and had by due judgment and order overruled and dunied application of the plaintiff herein to remand said cause to said state court, to wit, the district court of Lancaster county, Nebraska, and had by due order and judgment overruled a plea in abatement interposed by the said plaintiff to the jurisdiction of the said federal court, all of which orders and judgments of said federal court then remained in full force and effect, unappealed from, and unreversed.

'(6) The supreme court of the state of Nebraska erred in denying and overruling the plea in abatement to its jurisdiction interposed by the said defendant the Missouri Pacific Railway Company in answer and reply to the petition of Mary Fitzgerald, administratrix, to revive this action and cause in her name, as the successor of John Fitzgerald, the original plaintiff, then deceased.

'(7) The said supreme court of the state of Nebraska erred in denying the claim set up and claimed by the said defendant the Missouri Pacific Railway Company to immunity from any recovery for or in respect of seventeen miles of railroad constructed over the public domain by the said Fitzgerald and Mallory Construction Company in the name of the Denver, Memphis and Atlantic Railway Company, without compliance with an act of congress of the United States, approved March 3, 1875, entitled 'An act granting to railroads the right of way through lands of the United States,' specifically referred to and set forth in the answer of the said defendant the Missouri Pacific Railway Company in this cause.

'(8) Said supreme court of Nebraska erred in denying and overruling the plea in abatement of the defendant the Missouri Pacific Railway Company to the jurisdiction of said court wherein and whereby it appeared that on the 24th day of December, 1888, John Fitzgerald, the original plaintiff herein, instituted an action in his own name against the Fitzgerald and Mallory Construction Company to recover from said company an amount alleged to be due from said company, and thereby by due proceedings caused an attachment to issue and garnishment notice to be served upon the Missouri Pacific Railway Company, charging it as garnishee, and therby placing whatever fund or moneys might be due from it to said Construction Company in the custody of the law, and whereby it further appeared that by due proceedings had said action so instituted by said John Fitzgerald was in due time properly removed from the district court of Lancaster county, Nebraska, in which it was instituted, to the circuit court of the United States in and for the district of Nebraska, and under and by virtue of section 4 of the removal act of congress, March 3, 1875, the said attachment and garnishment proceedings were wholly removed into said circuit court of the United States, and said court then and there, by virtue thereof, acquired exclusive jurisdiction of said fund and moneys due from said Missouri Pacific Railway Company to said Fitzgerald and Mallory Construction Company, and of any controversy between said companies with respect to such fund.

'(9) The said supreme court of Nebraska erred in holding and deciding that under and by virtue of said removal act of congress the said fund so garnished in the hands of the Missouri Pacific Railway Company was not placed in the custody and under the exclusive control of said circuit court of the United States by reason of said removal of said action of John Fitzgerald against the Fitzgerald and Mallory Construction Company.

'(10) The supreme court of the state of Nebraska erred in appointing a receiver of the Fitzgerald and Mallory Construction Company, and in investing or undertaking to invest the said receiver with any cause of action against the defendant the Missouri Pacific Railway Company, forasmuch as it was made to appear, and did appear by the record in said court in said cause, that in a certain cause entitled 'The Kansas, Colorado and Pacific Railroad Company against The Fitzgerald and Mallory Construction Company,' theretofore and then pending in the circuit court of the United States in and for the district of Nebraska, by due proceedings had in the said circuit court, had appointed a receiver of said Fitzgerald and Mallory Construction Company, and of all of the property and assets thereof, and said receivership so appointed by said circuit court of the United States for the district of Nebraska had not been terminated and vacated, and said receivership had not been discharged.

'(11) The supreme court of Nebraska erred in allowing as a charge against the Missouri Pacific Railway Company in favor of said Fitzgerald and Mallory Construction Company various items of alleged indebtedness of the Denver, Memphis and Atlantic Railway Company to the said Fitzgerald and Mallory Construction Company.

'(12) The supreme court of Nebraska erred in refusing to allow as proper charges against the Fitzgerald and Mallory Construction Company the several items of indebtedness of said Construction Company to the Missouri Pacific Railway Company.

'(13) The supreme court of the state of Nebraska erred in holding that it had any jurisdiction to render and in rendering any judgment whatever against the defendant the Missouri Pacific Railway Company in this cause.'

J. M. Woolworth, for defendant in error.

John F. Dillon, Winslow S. Pierce, and B. P. Waggener, for plaintiff in error.

[Argument of Counsel from pages 568-574 intentionally omitted]

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