Illinois Steel Co. v. Ramsey

CARLAND, District Judge (after stating the facts as above). These appeals have been submitted upon one record. We are met at the threshold of appeal No. 3,011 with the objection that the order of November 6, 1908, striking the petition in intervention of appellant from the files is not appealable. The ‘reason for the objection is the [863] rule stated in Credits Commutation Company v. United States, 91 Fed. 573, 34 C. C. A. 14, as follows: "When leave to intervene in an equity ease is asked and refused, the rule so far as we are aware is well settled that the order thus made denying leave to intervene is not regarded as a final determination of the merits of the claim on which the intervention is based, but leaves the petitioner at full liberty to assert his rights in any other appropriate form of proceeding. Sueh orders not only lack the finality which is necessary to support an appeal, but it is usually said of them that they cannot be reviewed because they merely involve an exercise of the discretionarv powers of the trial court. Ex parte Cutting, 94 U. S. 14 [24 L. Ed 49]; Hamlin v. Railroad Co., 78 Fed. 664 [24 C. C. A. 271, 36 L. R. A. 826]; Jones & Laughlins v. Sands, 79 Fed. 913 [25 C. C. A. 233]; In re Street, Petitioner, 62 Fed. 218 [10 C. C. A. 446].” In this same case, however, the court also said: “It is doubtless true that oases may arise where a denial of the right of a third party to intervene therein would be a practical denial of certain relief to which the intervener is fairly entitled and can only obtain by an intervention. Gases of this sort are those where there is a fund in court undergoing administration to which a third party asserts some right which will be lost in the event that he is not allowed to intervene before the fund is dissipated. In such cases an order denying leave to intervene is not discretionary with the chancellor, and will generally furnish the basis for an appeal since it finally disposes of the intervener’s claim by denying him all right to relief.” The above language was approved by the Supreme Court in the same case on appeal. 177 U. S. 315, 20 Sup. Ct. 636, 44 L. Ed. 782. In the case .at bar the trial court had taken possession of all of the property the Railway Company had. The Steel Company, if it were to have anything to say as to the disposition of said property, was obliged to intervene so that it could be heard in the protection of its rights. It could not go anywhere else. The hill filed by Aigler by its very terms was filed as much for the benefit of the Steel Company as Aigler. The Steel Company, however, is not obliged to rely upon the exception to the general rule above stated in order to sustain its right to appeal from the order which ousted it as intervener. The case presented is not one where a court has refused to permit a stranger to the record to intervene. The court did permit the Steel Company to intervene and consent that process issue on the petition in intervention to all parties not of record was given by Aigler the complainant. Aig-ler, and Ramsey, the receiver, demurred to the petition for want of equity and the court on argument sustained the demurrer of Aigler with leave to the Steel Company to amend its petition. By these proceedings the Steel Company became a party to the cause, and the court could not finally dispose of its rights as it attempted to do without the right of appeal. We now come to consider the merits of the order striking the amended intervening petition of the Steel Company from the files. We are not informed by the record as to the grounds upon which the trial court based its decision. We have a right to infer, however, that the ruling of the court was based upon the grounds stated in the motion for the order and they were as follows: Eirst, that the intervening petition did not show that the Steel Company had any lien upon the property of the Railway Company in the hands of the court; and, second, that said petition did not show that the Steel Company was in any wise interested in the ad [864] ministration of the estate.in the possession of the court. Manifestly neither one of these grounds were tenable. The Steel Company was the holder of bonds of the par value of $160,000 secured by a first mortgage on all the property in the hands of the court and it was interested in the estate as a creditor for materials furnished the Railway Company to construct the road in the' sum of $129,124.64. What sort of logic is it which permits Aigler with a claim of less than $2,500 to invoke the action of the court, and denies the same privilege to the Steel Company? As was said by the Supreme Court in Louisville Trust Co. v. Louisville, etc., Ry., 174 U. S. 687, 19 Sup. Ct. 831 (43 L. Ed. 1130): “The facts apparent on the face of the record were such as justified, inquiry, and upon those facts, supported by the positive and verified allegations of the petitioner it was the duty of the trial court to have stayed proceedings and given time to produce evidence in support of the charges. Taking them as a whole they are very suggestive, independent of positive allegation; so suggestive, at least, that, when a distinct and verified charge of wrong was made, the court should have investigated it.” The Steel Company was entitled to intervene as a bondholder and as a general creditor, the proceeding being one to distribute all property of the Railway Company. Louisville Trust Co. v. Louisville, New Albany & Chicago R. R. Co., 174 U. S. 674, 19 Sup. Ct. 827, 43 L. Ed. 1130; Savings & Trust Company v. Baer Valley Irrigation Co. (C. C.) 93 Fed. 339; Farmers’ Loan & Trust Co. v. San Diego Street Car Co. (C. C.) 45 Fed. 518; Continental Trust Co. v. Toledo, St. L. & K. C. R. R. Co. (C. C.) 82 Fed. 642; Campbell v. Railroad Co., 1 Woods, 368, Fed. Cas. No. 2,366; Williams v. Morgan, 111 U. S. 684, 4 Sup. Ct. 638, 28 L. Ed. 559; Wallace v. Loomis, 97 U. S. 147, 24 L. Ed. 895; Williamson & Upton v. New Jersey Southern Ry. Co., 25 N. J. Eq. 13; Belmont Nail Co. v. Columbia Iron & Steel Co. (C. C.) 46 Fed. 336; Cook, Corporations, § 848e; Hamlin v. Toledo, St. L. & K. C. R. R. Co., 78 Fed. 664, 24 C. C. A. 271, 36 L. R. A. 826. The right to object to the mere right of the Steel Company to intervene, at the time the order was made had been waived by Aigler by consenting to the issuance of process and in demurring to the petition. Hamlin v. Toledo, St. L. & K. C. R. R. Co., 78 Fed. 664, 24 C. C. A. 271, 36 L. R. A. 826; French v. Gapen, 105 U. S. 509, 26 L. Ed. 951; Perry v. Godbe (C. C.) 82 Fed. 141; Weinberg v. Noonan, 193 Ill. 165, 61 N. E. 1022; Cyc. vol. 16, p. 203; Encyclopedia of Pleading and Practice, vol. 14, p. 102. Having obtained jurisdiction by the appeal from the order of November 6, 1908, ousting the Steel Company from the case, we may review the order of October 10, 1908, authorizing the issuance of receiver’s certificates whether the latter order is appealable or not. There is, however, persuasive authority that this latter order is appealable. Farmers’ Loan & Trust Company, Petitioner, 129 U. S. 206, 9 Sup. Ct. 265, 32 L. Ed. 656; Bibber-White Company v. White River Val. Electric R. Co., 115 Fed. 786, 788, 53 C. C. A. 282, 284. It was said by the Supreme Court in Wallace v. Loomis, 97 U. S. 162 (24 L. Ed. 895) as follows: “The power of a court of equity to appoint managing receivers of such property as a railroad, when taken under its charge as a trust fund for the payment [865] of incumbrances, and 1o authorize such receivers to raise money necessary for the preservation and management of the property, and make the same chargeable as a lien thereon for its repayment cannot at; this day be seriously disputed. It is a part of that jurisdiction always exercised by the court by which it is its duty to protect the trust funds in its hands. It is undoubtedly a power to be exercised with great caution; and if possible with the consent or acquiescence of the parties interested in the fund.” To this rule there is no exception. High on Receivers, page 407; Union Trust Company v. Illinois Midland Railway Co., 117 U. S. 455, 6 Sup. Ct. 809, 29 L. Ed. 963; American and English Encyclopedia of Law, vol. 24, p. 39 ; Alderson on Receivers, page 457. Where there is objection made to the issuance of receiver’s certificates they should not be issued on the unsupported petition of the receiver. Alderson on Receivers, 453, 455; Meyer v. Johnston, 53 Ala. 237. The trial court did not even have the official responsibility of its receiver to rely upon when it made the order authorizing the issuance of receiver’s certificates, but only the statement of the agent of the receiver, and that agent a person so related to the affairs of the Railway Company as to at once suggest to the court careful consideration of his petition. When a court of equity takes possession of railroad property through its receiver for the benefit of all having an interest therein, its honor and integrity is pledged as a guaranty that so far as the court can control the matter everything will he done to conserve and protect that property. It is because of this responsibility and obligation that in proper cases the court may authorize its receiver to issue certificates for the purpose of raising money where the income of the road is insufficient for the proper conservation of the same pending the litigation. The power to authorize the issuance of certificates is limited by, and is coextensive with, its obligation to conserve the property in its custody, and any expenditure of money that has not this primary purpose for its object is beyond the power of the court and unauthorized. To create an indebtedness which shall have priority over the claims of all persons interested in the property taken possession of by the court is a serious matter. Take the present case for illustration: Aigler obtains a judgment of less than $2,500 in amount against the Railway Company. He has a receiver appointed, and the receiver is authorized to issue and sell certificates to the amount of nearly $200,000, which shall be considered a part of a total issue of $500,000, and this is done within a little over four months from the date when the court took possession of a railroad 130 miles in length. The order of October 10, 1908, executed according to its terms would be confiscation, not conservation. In the case of Farmers’ Loan & Trust Co. v. Oregon Pacific R. R. Co., 31 Or. 237, 48 Pac. 706, 38 L. R. A. 424, 65 Am. St Rep. 822, the Supreme Court of Oregon in speaking of a railroad receivership used the following language: “And if at any time after the appointment has been made it become apparent to the court that it will be unable to pay and discharge the present or future liabilities incurred by its executive officer and manager, it should refuse to continue the operation of the road under the receiver unless its expenses are guaranteed. No court is hound or ought to engage or continue in the operation of a railroad or any other enterprise without the ability to promptly discharge its [866] obligations, and. unless it can do so it should keep out, or immediately go out of the business.” The above language was approved by the Supreme Court in Atlantic Trust Co. v. Chapman, 208 U. S. 360, 28 Sup. Ct. 406, 52 L. Ed. 528. We do not say that the receiver in the present case ought not to be authorized to issue any certificates. No court ought to de-' termine that, question simply on the showing made by Dorset Carter, the receiver’s agent. There should be a full and fair hearing on the petition.presented after due notice to all persons interested, and then, guided by the principles declared in the cases cited, the court should limit the amount of certificates if any are issued, to that sum which would be necessary to conserve the estate in its hands. Manifestly, the issuance of certificates to the' amount of $94,000 to raise money to pay labor and salary- claims, if any, incurred prior to June 2, 1908, was wholly unauthorized. Our conclusion on tliis branch of the case is that the order of October 10, 1908, was made without sufficient notice to those interested, and that the court did not have that particular and reliable information before it which was necessary in such a serious matter. The judgment of this court will be that the order of November 6, 1908, and of October 10, 1908, be reversed and the case remanded to the United States Circuit Court for the Eastern District of Oklahoma, with instructions to proceed in due course upon the intervening petition qf the Steel Company, and after due notice to all persons or parties interested to investigate the matters stated in.the petition of the receiver for the 'issuance of receiver’s certificates, and proceed thereon as law and justice may require, and .in conformity with the views herein expressed. ' .