PUT-IN-BAY WATERWORKS, LIGHT & RAILWAY CO v. RYAN(1901)
[181 U.S. 409, 410] In September 1892, the Electric Supply Company, a corporation and citizen of the state of Connecticut, filed in the circuit court of the United States for the northern district of Ohio a bill of complaint against the Put-in-Bay Waterworks, Light, & Railway Company, a corporation and citizen of the state of Ohio. It was alleged in the bill that the plaintiff company had, in June, 1872, sold and delivered to the defendant company certain materials and supplies to be used in the erection of the lighting apparatus, powerhouse, station, and railway of the defendant, of the value of $2,787.04, and that said supplies and material were used in the construction of the lighting apparatus and railway of said defendant, situated in Put-in-Bay island, in Ottawa county, Ohio, and that the entire amount of said claim was due and unpaid.
The bill further alleged that on September 7, 1892, the plaintiff company had filed with the recorder of Ottawa county an affidavit containing an itemized statement of the amount and value of the materials and supplies furnished under said contract of sale, with a statement of the account and terms of payment to be made thereunder and a description of the premises upon which said lighting apparatus and railway were located, which said statement and all connected therewith were duly recorded by said recorder in a book kept for that purpose; that the plaintiff has a lien on the premises and all the property of defendant company from the 7th day of June, 1892, for the amount due with interest; and that, in the premises, the plaintiff was entirely without remedy according to the strict rules of the common law, and could only have relief in a court of equity, where matters of such a nature were properly cognizable and reviewable.
The bill further alleged that the Railway Equipment Company, a corporation and citizen of the state of Illinois; John Arbuckle, Charles Ryan, and W. J. Ryan, citizens of the state of Ohio; James K. Tillotson, a citizen of the state of Ohio; [181 U.S. 409, 411] the Cleveland Electrical Manufacturing Company, a corporation and citizen of the state of Ohio; the Industrial & Mining Guaranty Company, a corporation and citizen of the state of New York; John P. Carrothers, a citizen of the state of New York; and H. H. Warner, a citizen of the state of New York,-claimed to have some interest in the premises upon which the plaintiff claimed the aforesaid lien; and the bill prayed that each of said parties should be required to appear and set up their respective claims, or be forever barred from setting up the same against the plaintiff. The bill prayed for an account with the defendant company, and for a decree of sale of said premises, etc.
On September 10, 1892, an answer and cross bill were filed by J. K. Tillotson. In this cross bill it was alleged that said Tillotson had built and equipped the railroad of the defendant company, and had received in payment therefor the stock of said company and mortgage bonds to the amount of $125,000; that he had contracted with John P. Carrothers and H. H. Warner, as owners and controllers of the Industrial & Mining Guaranty Company of New York (named as defendants in the bill of complaint), to sell and dispose of said stock and bonds, but that said Carrothers and Warner had not sold or accounted for the said stock or bonds, but that siad Carrothers, claiming to be the owner of the capital stock of said defendant company, had elected himself president thereof, and had taken possession of said railroad, etc. It was thereupon prayed, in said cross bill, that a restraining order should be issued against said Carrothers and Warner and the said Industrial & Mining Guaranty Company, forbidding them, during the pendency of this suit, from selling or disposing of said stock and bonds, and that the court should appoint a receiver to take charge and custody of the railway and property in plaintiff's bill of complaint described, with instructions to care for and operate the same under the order of the court, and as, in the judgment of the court, might be for the interest of all parties concerned.
Thereupon, on September 10, 1892, a subpoena was issued summoning said Carrothers, Warner, and the Industrial & Mining Guaranty Company to appear and answer said cross [181 U.S. 409, 412] bill. On the same day a temporary restraining order was issued against said Carrothers and Warner as prayed for in the cross bill, and one L. S. Baumgardner was appointed receiver, who gave a bond as such receiver in form and amount approved by the United States district judge.
The United States marshal made return that he had served the restraining order and subpoena on said John P. Carrothers, and that said H. H. Warner and the Industrial & Mining Guaranty Company were not found.
Subsequently, on September 26, 1892, the Put-in-Bay Waterworks, Light , & Railway Company filed an answer to the bill of complaint, admitting that on June 7, 1892, the defendant had entered into a contract with the complainant company, whereby the latter company was to sell and deliver certain materials to be used in the construction of defendant's railway in Ottawa county, Ohio. The said answer contained the following allegations:
On September 26, 1892, the Put-in-Bay Waterworks, Light, & Railway Company filed an answer to the cross bill of Tillotson, admitting some and denying many of the allegations thereof, and containing the following allegation:
It also appears that the defendant company sued out of the [181 U.S. 409, 414] court of common pleas a writ of replevin against Tillotson, but it is not shown what the property levied on was.
Afterwards, on September 30, 1892, the answer and cross bill of Arbuckle, Ryan, & Company, who had been named as defendants in said suit, was filed, in which it was, among other things, alleged that said firm had furnished a large amount of machinery and of labor for the said Put-in-Bay Waterworks, Light, & Railway Company, which went into the construction of said railroad and powerhouse of said company, on which there was unpaid and due to the said Arbuckle, Ryan, & Company a balance of $11,153.60, and for which they had filed, on August 17, 1892, with the recorder of Ottawa county, Ohio, an affidavit and itemized account, by virtue of which proceeding they had obtained a lien upon the property and railroad of the defendant, the said railroad company. They therefore prayed for an account, and for an order directing the sale of the said property and railroad, and for the payment of their claim out of the proceeds of such sale.
On October 15, 1892, L. S. Baumgardner, theretofore appointed receiver, filed a petition showing cause why certain expenditures incident to the care and preservation of the railroad and its property since they had come into his hands, and other expenditures necessary to be made, required him to raise a sum of not less than $5,000, and prayed for leave to issue receiver's certificates for that purpose. This was followed by an order of the court authorizing the receiver to issue certificates to the amount of $5,000, and declaring said certificates to be a first lien upon all the property of said railway company in the hands of said receiver.
Afterwards, on October 29, 1892, a motion to discharge the receiver was made on behalf of the defendant railway company, which was accompanied by an affidavit of J. P. Carrothers, as president of said company, in which, among other things, it was stated that on September 3, 1892, the affiant, as president of said company, was compelled to and did institute replevin proceedings to obtain possession of the personal property of said company, and that by virtue of said action the property of said company was turned over to affiant as president thereof, excepting [181 U.S. 409, 415] the books, papers, muniments of title, and certain other of the personal property belonging to said company which were taken away and secreted by said Tillotson; and that said railway company obtained from the court of common pleas of Ottaws county a restraining order enjoining Tillotson from interfering with the company's peaceable enjoyment of the possession and control of said Put-in-Bay Waterworks, Light, & Railway Company, its property and business, such order to take effect upon the plaintiff giving an undertaking, as provided by law, in the sum of $5,000, to the satisfaction of the clerk of said court.
Afterwards, on November 12, 1892, an affidavit of one F. S. Terry, as manager and attorney of complainant company, was filed in the present case, in which, among other things, it was stated that the Electric Supply Company was induced to include all sums due for material furnished for use of the Hotel Victory Company in its account against said railroad; that the amount actually used in the construction of the Put-in-Bay Waterworks, Light, & Railway Company amounted to $861.23; that the balance of said material, to the amount of $1,925.81, was used inside of said Hotel Victory; that all of said material was ordered by said defendant Tillotson, as vice president of said defendant corporation, and was charged upon the books of the plaintiff corporation to the said Put-in-Bay Waterworks, Light, & Railway Company.
On December 22, 1892, the court overruled the motion to dismiss the receiver and to modify the order to said receiver to issue certificates; and an order was made, on the further petition of the receiver, allowing him to issue additional certificates to the amount of $5,000.
On January 20, 1893, an appeal from the decree of the circuit court overruling the motion to discharge the injunction and to modify the order authorizing the receiver to issue certificates, and retaining jurisdiction, was taken by the Industrial & Mining Guaranty Company, a corporation of New Jersey, and one of the defendants in the cause, to the circuit court of appeals for the sixth circuit; and, on June 22, 1893, that court reversed the decree of the circuit court, the injunction was dissolved, [181 U.S. 409, 416] and the cause was remanded to the circuit court, with directions for further proceedings in conformity with the opinion of the circuit court of appeals. 7 C. C. A. 471, 16 U. S. App. 196, 58 Fed. Rep. 732, 746.
On December 14, 1893, the circuit court, in pursuance of the mandate from the circuit court of appeals, dissolved the injunction theretofore granted on the cross bill of Tillotson, and, on December 28, 1893, appointed Irvin Belford a special master commissioner for the purpose of examining the accounts of the receiver, with particular reference to the disposition made by him of the proceeds of the certificates, and also to report the expenses found by the master to have accrued to the defendants, or any of them, and the reasonable compensation to which the receiver was entitled, etc.
On March 31, 1894, Irvin Belford, the special master, filed his report in the circuit court, in which he found that the receipts of the receiver from all sources amounted to the sum of $12,230.90, whereof $8, 776.10 were from proceeds of receiver's certificates, and his expenditures amounted to the sum of $11,969.58, leaving a balance of cash on hand of $ 261.32. The master further found that the reasonable compensation to which the receiver was entitled was $2,200; of which $1,200 were for his personal services, and $1,000 for his attorney's fees. He also found that the expenses and costs incurred by the defendant, the Industrial & Mining Guaranty Company, consisting principally of attorney's fees, amounted to the sum of $8,795.25.
Subsequently, on June 12, 1894, the circuit court made the following order:
On December 5, 1894, Arbuckle, Ryan, & Company moved the court to dismiss the cause in compliance with the order previously made that said cause be dismissed when the receiver's certificates were paid, because, as alleged, that said certificates have been paid in full, but that Walker P. Hall and James E. Hutton, the holders of said certificates, have failed and refused to bring the same into court to have them canceled, etc.
On March 1, 1895, the following order was entered:
On October 5, 1895, a motion was made by the Put-in-Bay Waterworks, Light, & Railway Company to dismiss said action, and to direct the receiver theretofore appointed to forthwith deliver the property of the company in his possession and under his control, etc. [181 U.S. 409, 418] On May 6, 1896, Judge H. F. Severens entered an order fixing May 14 for the hearing of said motion, and further ordering that any other party or parties who might be interested in the action of the court to be taken upon said motion should have leave to intervene and be heard at said hearing.
On June 4, 1896, Judge Severens entered an order containing, among other things, the following:
On June 25, 1896, the defendant company filed another petition, renewing its motion that the receiver should be directed to surrender to the company the property in his possession, which petition contained, after certain recitals, the following paragraphs:
Whereupon, on July 15, 1896, Judge Severens entered an order granting the railway's petition for restoration of property upon giving a bond of $ 20,000, to be approved by the clerk of the court, for the use and benefit of the parties who might hereafter be entitled thereto, and providing that the obligors of said bond should bind themselves to secure the payment of all charges incurred in the receivership in this action, including his certificates aforesaid, which might finally be determined to be a lien upon the property of said railway company, and should, in giving this bond, submit themselves to the jurisdiction of the court to the end that the court might make such bond effectual for the collection of said charges by order or decree in this cause, etc.
On April 17, 1897, the following order was entered:
Several further motions were made not necessary now to mention, and finally on January 31, 1898, the court filed an opinion finding that there was not a sufficient available fund in the hands of the receiver with which to satisfy the receiver's certificates and other necessary charges, and that it was necessary to sell the railroad and other real estate and fixtures belonging to the works of the Put-in-Bay Waterworks, Light, & Railway Company, in order to raise a fund necessary to completely [181 U.S. 409, 420] satisfy the charges, and accordingly directed notice to be given to the several intervening parties.
Pending these proceedings the Atlantic Trust Company, a corporation and citizen of the state of New York, on March 7, 1898, asked and obtained leave to file an intervening petition or complaint against the defendant railway company, wherein it was alleged that said intervening company was the holder as trustee of certain bonds of said railway company aggregating $ 125,000, secured by a deed of trust or mortgage, bearing date June 16, 1892, on all the property, railroad, and franchises of said railway company; that said bonds were in default and unpaid; and thereupon prayed that said mortgage be declared a lien on said property and be foreclosed.
On November 21, 1898, the Put-in-Bay Waterworks, Light, & Railway Company filed a demurrer to the intervening petition of the Atlantic Trust Company, which demurrer was on January 31, 1899, overruled.
On December 12, 1899, the circuit court, Hon. Horace H. Lurton, circuit judge, and Hon. Henry F. Severens, present, entered an order containing, among other things, the following:
And thereupon, on the same day, Irvin Belford was appointed as special master to ascertain and report the number and ownership [181 U.S. 409, 421] of bonds secured by said mortgage, and the amount of principal and interest due thereon.
On December 15, 1899, the circuit court, present Hon. Horace H. Lurton, circuit judge, and Hon. Henry F. Severens, district judge, entered the following decree or order of sale:
On March 2, 1900, the report of M. A. Smalley, special master in chancery, was filed, showing that on February 24, 1900, he had sold to J. W. and C. W. Ryan, at public auction, for the sum of $16,501, all the property of the said defendant, the Put-in-Bay Waterworks, Light, & Railway Company; and on March 8, 1900, the court approved the said report and sale nisi; and on March 26, 1900, no exceptions or objections to the sale having been filed by any of said parties, it was ordered that the said order confirming said sale was made absolute, and the special master directed to immediately execute a deed for the property so sold by him to the purchasers.
On June 8, 1900, an order or decree of distribution was made, containing, among other things, the following:
On June 2, 1900, an appeal was allowed in the following terms:
Messrs. Joseph B. Foraker and Walter L. Granger for appellant.
Messrs. J. K. Hamilton and Wm. C. Cochran for appellees.
Mr Justice Shiras delivered the opinion of the court:
The contention in the brief on behalf of the appellant, that 'by the service of the writ of replevin issued from the state court the property came into the custody and possession of that court for all purposes of jurisdiction in that case, and no other court had a right to interfere with that possession except a court having a direct supervisory control over the court issuing the writ, or some superior jurisdiction in the premises, the state court having placed the property in the possession of the officers of the railway company as against the claim of Tillotson, by a writ of replevin, the United States circuit court in this case had no jurisdiction to issue an injunction or to appoint a receiver, by means of which the company and its officers were prevented from using and operating the railway property, which the state court had directed its officers to place in their hands,' seems to answer itself.
By the operation of the wirt of the state court certain personal property of the Put-in-Bay Waterworks, Light, & Railway Company was taken from the possession of one Tillotson and restored to that of the company, and by a restraining order Tillotson was prohibited from interfering with the use and operation by the company of its railway property. Whatever, then, may have been the nature or merits of the questions between the railway company and Tillotson, it is conceded that the actual possession of the property, whether real or personal, was in the railway company at the time when, in the suit of the Electrical Supply Company, the receiver was appointed by the [181 U.S. 409, 430] circuit court of the United States. It is too plain for argument that the replevin suit, affecting only certain articles of personal property, and arising out of a controversy between the railway company and Tillotson, its vice president, could not draw into the jurisdiction and control of the state court the railroad and franchises of the railway company, so as to preclude creditors of the company from instituting proceedings in the Federal court. As respects the restraining order, if such were even issued, it does not appear that Tillotson ever disobeyed it, and, if he did, he personally would be answerable to the state court. It may be further observed that it is not made to appear that the restraining order ever became operative as an injunction by the filing of a bond in $5,000, which was imposed as a condition for its issuance. At all events, and conclusively as to the merits of this contention, the property and franchises which are the subject-matter of the present suit were not, either actually or constructively, in the possession of the state court when the Federal court appointed its receiver.
Our inspection of this record has not constrained us to hold that the circuit court lost its apparent jurisdiction of the case by reason of disclosures made subsequently in the progress of the case. The mere denial that the materials sold by the complainant to the railway company were of the value alleged in the bill did not, of itself, deprive the court of jurisdiction. Thereby was presented a question of fact into which the court had jurisdiction to inquire. Within the letter of the statute there was a controversy between citizens of different states, in which the matter in dispute was over the sum or value of $2,000.
The 5th section of the act of March 3, 1875 (18 Stat. at L. 470, chap. 137), provided that if 'any suit commenced in a circuit court, . . . it shall appear to the satisfaction of said circuit court, at any time after such suit has been brought or removed thereto, that such suit does not really and substantially involve a dispute or controversy properly within the jurisdiction of said circuit court, . . . the said circuit court shall proceed no further therein; but shall dismiss the suit.'
And it has been several times decided by this court that a [181 U.S. 409, 431] suit cannot properly be dismissed by a circuit court as not involving a controversy of an amount sufficient to come within its jurisdiction, unless the facts, when made to appear on the record, create a legal certainty of that conclusion. Barry v. Edmunds, 116 U.S. 550 , 29 L. ed. 729, 6 Sup. Ct. Rep. 501; Wetmore v. Rymer, 169 U.S. 115 , 42 L. ed. 682, 18 Sup. Ct. Rep. 293.
It is not clearly shown in this record that, at any time after the suit was brought, it was made to appear, to the satisfaction of the circuit court, that the suit did not really and substantially involve a dispute or controversy properly within the jurisdiction of said circuit court. On the contrary, it appears that the circuit court was not so satisfied, but overruled complainant's motion to dissolve the preliminary injunction and to discharge the receiver. Thereupon the cause was taken on appeal to the circuit court of appeals, and that court directed that the preliminary injunction granted by the circuit court should be dissolved, but held that, on that appeal, the circuit court of appeals had no jurisdiction to proceed further, and was without power to direct a dismissal of the bill or to vacate the order appointing a receiver.
It is true that observations were made by the judges of that court, based on affidavits made in the court below, that jurisdiction had been collusively obtained by reason of false statements of the amount of materials sold by the complainant to the defendant company; and they seem to have thought that by such affidavits the circuit court had been made to know that its equitable jurisdiction had been improperly invoked. Industrial & Min. Guaranty Co. v. Electrical Supply Co. 7 C. C. A. 471, 16 U. S. App. 196, 58 Fed. Rep. 733, 744.
But such observations of the learned court to dismiss the bill for want of jurisdiction. nor did they undertake to direct the circuit court to dismissthe bill for want of jurisdiction.
It further appears that, upon the filing of the mandate of the court of appeals in the circuit court, the counsel of complainant filed a motion to dismiss the bill, and claimed that the court of appeals had decided that the circuit court had no jurisdiction. This and subsequent motions to the same effect were overruled by the circuit court, and the circuit court of appeals denied an application for a writ of mandamus. 32 C. C. A. 611, 54 U. S. App. 781, 90 Fed. Rep. 831. [181 U.S. 409, 432] Pending these proceedings, and before the final decree of sale, the Atlantic Trust Company filed an intervening petition, alleging its ownership as trustee of 125 mortgage bonds of the defendant company; that there was the sum of $40,250 due and unpaid on account of said indebtedness; and praying for an account and for a decree of foreclosure, and that the lien of said trust company should be decreed to be a lien prior to those of the other creditors. As already stated, the circuit court overruled the defendant's demurrer to this intervening petition, and on December 12, 1899, the court entered an order that said intervening petition should be taken pro confesso, and appointing a master to ascertain and report the amount and ownership of the outstanding mortgage bonds. And subsequently, on December 15, 1899, the final decree or order of sale was entered, in which the court reserved for further consideration, as between Atlantic Trust Company and the Bodefield Belting Company, any and all questions arising between them as to the priority of their respective liens. A sale of all the property of the defendant railway company, in pursuance of said decree, was made on February 24, 1900; and, no objections or exceptions to the sale having been filed by any of the parties, on March 26, 1900, the sale was confirmed absolutely, and the master directed to execute a deed for the property so sold by him to the purchasers.
It appears that, under the intervening petitions of other creditors than the complainant, there were involved, before and at the time of the decree of sale, liens and claims against the defendant's property largely in excess of the amount necessary to confer plenary jurisdiction on the circuit court. Jurisdiction having attached under the allegations legations of the original bill, and the court having proceeded, in a proper exercise of its discretionary power, to appoint a receiver and to authorize a large expenditure of money raised by certificates, in order to protect and preserve the property in its custody, and the court having also, in the exercise of its power as a court of equity, allowed the intervention of other creditors, as between some of whom and the defendant company there was jurisdiction in the court, both as respects diversity of citizenship and amount of claims, [181 U.S. 409, 433] we think its jurisdiction did not fail by reason of anything that appeared in ex parte affidavits filed on behalf of the defendant company, denying the truth of the allegations contained in the original bill in respect to the amount in dispute.
In Krippendorf v. Hyde, 110 U.S. 283 , 28 L. ed. 148, 4 Sup. Ct. Rep. 30, it was said: 'The equitable powers of courts of law over their own process, to prevent abuse, oppression, and injustice, are inherent and equally extensive and efficient, as is also their power to protect their own jurisdiction and officers in the possession of property that is in the custody of the law. Buck v. Colbath, 3 Wall. 334, 18 L. ed. 257; Hagan v. Lucas, 10 Pet. 400, 9 L. ed. 470. And when, in the exercise of that power, it becomes necessary to forbid to strangers to the action the resort to the ordinary remedies of the law for the restoration of property in that situation, as happens when otherwise conflicts of jurisdiction must arise between courts of the United States and of the several states, the very circumstance appears which gives the party a title to an equitable remedy, because he is deprived of a plain and adequate remedy at law; and the question of citizenship, which might become material as an element of jurisdiction in a court of the United States when the proceeding is pending in it, is obviated by treating the intervention of the stranger to the action in his own interest as what Mr. Justice Story calls, in Clarke v. Pitkin, 124 U.S. 132 , 31 L. ed. 1044, a dependent bill.'
Circuit Judge Severens, in his opinion in the present case, aptly referred to the case of Gumber v. Pitkin, 124 U.S. 132 , 31 L. ed. 374, 8 Sup. Ct. Rep. 379, as containing an elaborate exposition of the principles upon which a court of equity may proceed when the rights of intervening creditors are to be dealt with, and upon which principles the circuit court proceeded in this case.
We fail to perceive any equities in the position of the appellant company. All its creditors, as well the original complainant as the several intervening creditors, have acquiesced in the action of the circuit court, and have availed themselves of the remedy afforded by the sale of the defendant's property. Having failed and declined to accept the opportunity afforded by an interlocutory order to regain possession of its property, by giving a bond to pay such charges as the court should determine [181 U.S. 409, 434] to be just and proper, and not having offered, at last, to pay the claims and liens adjudged to be just and proper, the defendant company seems to us to have suffered no injustice. However this may be, the case is before us only on the question whether the circuit court had jurisdiction to entertain the said cause and render the decrees so appealed from, and this we answer in the affirmative, and direct the appeal to be dismissed, with costs.
Let it be so certified.