Sage v. Memphis & Little Rock Railroad Co. (18 F. 571)/Opinion of the Court

McCRARY, J.

The ostensible purpose of the complainant in applying for the appointment of a receiver in this case was to compel the defendant company to apply a part of its earnings to the payment of his judgment. It now sufficiently appears that this was not the real purpose. The process of the court has not been used in good faith to collect complainant's judgment, but as a means of placing the property and business of the defendant railroad company in the hands of the court to be managed through a receiver, to the end that the defendant may not be subject to suits in the ordinary course of judicial [p574] proceedings, and in order to enable the plaintiff and defendant, by agreement between them, through the receiver to apply all the earnings of the road during a series of years to the improvement and betterment of the property. In pursuance of this purpose the receiver, during the period of about nine months preceding his last report, had collected $886,773.38, and had expended $838,395.80 without applying a dollar toward the extinguishment of the complaint's judgment. And so far from proposing to pay the judgment or any part of it, he asks, in his report of April 9, 1883, for an appropriation of $631,930 for repairs.

It is also apparent that this is not an adversary proceeding, but one in which the parties complainant and defendant have acted and are still acting in concert. The complainant's judgment was rendered by consent, and on the same day the receiver was appointed without opposition, the defendant voluntarily appearing and waiving service of process. The receiver has acted in accordance with the wishes of both parties, and it is undoubtedly with the assent of complainant that he has made no effort to pay the judgment, or any part of it, out of the earnings of the road. In short, the complainant and defendant have sought to make use of this court as an instrument to carry on, through the hands of a receiver, the important business of the defendant corporation; and this, not for the purpose, in good faith, of enforcing the confessed judgment set out in the bill, but for the purpose of protecting the property of defendant from seizure upon legal process, while the earnings are being applied to the improvement of the road. In other words, the court is asked to stand between the company and its creditors, while the company is engaged in using the earnings, not to pay its debts, but to improve its property.

It is said that this policy is best for the company and its creditors. Whether this be so or not is for the company and its creditors to determine; it is not for the court to engage in the operation of a railroad through a receiver, because the interests of the parties concerned may be thereby advanced. It does not appear that any suit has been commenced to foreclose either of the mortgages upon the road. As to other and smaller debts, no good reason is seen why they should not be either paid or enforced by the ordinary judicial proceedings. As to the complainant's judgment, it might have been paid in full from the earnings before this date, if such had been the purpose of this proceeding, and if complainant had insisted upon it. We cannot be expected to continue the receivership under such circumstances. The views of this court upon this subject are well expressed in the opinion of, J., in the case of Overton v. Memphis & L.R. R. Co. 10 866, as follows:

"Undoubtedly there are cases in which a court of equity may, through its receiver, take possession and control of the property and business of corporations and individuals. But it is a jurisdiction to be sparingly exercised. [p575] None of the prerogatives of a court of equity have been pushed to such extreme limits as this, and there is none as likely to lead to abuses. It is not the province of a court of equity to take possession of the property and conduct the business of corporations or individuals except where the exercise of such extraordinary jurisdiction is indispensably necessary to save or protect some clear right of a suitor, which would otherwise be lost or greatly endangered, and which cannot be saved or protected by any other action or mode of proceeding. If, as in this case, the loss or danger can be averted by the lawful action of the suitor, or those he represents, he cannot successfully invoke the exercise of the extraordinary powers of a court of equity because that course would be more agreeable or convenient."

The order will be, that the receiver pass his accounts before the master with a view to his final discharge at an early date.

After the preparation of the foregoing opinion and order, but before it was filed, the court was asked to hear and consider further argument, and to delay action, which request was granted. Additional and very elaborate arguments were filed, but upon considering them, we found nothing to change our views as above expressed. Before announcing our conclusion, the writer of this opinion was presented with a written argument by counsel in the case, stipulating that the receiver should be discharged upon filing the receipt of the railroad company for the balance in his hands. An order of this character was signed under the impression that all the parties in interest had consented thereto. This impression may have been correct, but it is insisted by certain parties, who claim the right to be heard, that they did not consent, and that they now desire to be heard to object. They are understood to be judgment creditors who had applied for leave to intervene, and whose application was said is still pending. Although these persons were not technically parties to the record, they have at least the right to be heard upon their application to intervene, and to have that application formally passed upon before the receiver should be discharged in any irregular or unusual way. And it may well be that the court should hear their objection to this mode of discharge, upon the ground that they have an interest in the question as judgment creditors of the defendant. At all events, it would be improper, while these parties thus situated are objecting, to release the receiver from the duty of passing his accounts before the master.

The court can adhere to the order signed as above stated, only upon being clearly satisfied that it was in accordance with the desire of all who have any, even the slightest, interest in the matter. That order will therefore be set aside; and the court, of its own motion, and not acting upon the stipulation of counsel, directs that the order be as directed in the foregoing opinion, to-wit, that the receiver pass his accounts before the master, with a view to his discharge at an early day. The court adds that counsel have acted in good faith [p576] in presenting the argument, and in representing that it was signed for all the parties. That is strictly true, but it is also true that the order was signed under the impression that the application for leave to intervene by certain judgment creditors had been overruled, and was therefore not still pending.