The repealing section of the Judiciary Act of 1887-1888 did not
reach § 8 of the Act of March 3, 1875, 18 Stat. 470, and that
section is still in force.
Jellinik v. Huron Copper Mining
Co., 177 U. S. 1,
177 U. S. 10.
A suit brought by owners of stock of a railroad company for the
cancellation of deeds and leases under and by authority of which
the properties of the company are held and managed is a suit within
the meaning of § 8 of the Act of March 3, 1875, 18 Stat. 470,
as one to remove incumbrances or clouds upon rent or personal
property and local to the district and within the jurisdiction of
the circuit court for the district in which the property is
situated, without regard to the citizenship of defendants so long
as diverse to that of the plaintiff, and foreign defendants not
found can be brought in by order of the court subject to the
condition prescribed by that section that any adjudication
affecting absent nonappearing defendants shall affect only such
property within the districts as may be the subject of the suit and
under the jurisdiction of the court.
Nonresident defendants appearing in the circuit court under
protest for the sole purpose of denying jurisdiction do not waive
the condition in § 8 of the Act of March 3, 1875, 18 Stat.
470, that any judgment of the court shall affect only property
within the district.
This suit in equity was brought in the Circuit Court of the
United States for the Eastern District of Illinois against the
Illinois Central Railroad Company, the Belleville & Southern
Illinois Railroad Company, the St. Louis, Alton & Terre
Page 205 U. S. 47
Haute Railroad Company, all Illinois corporations (to be
hereafter called, respectively, the Illinois, the Belleville, and
Terre Haute companies), and the United States Trust Company, a New
York corporation. The last-named corporation was never served with
process, and did not appear in the suit. The case presents a
question as to the jurisdiction of the court below.
The plaintiff, an Ohio corporation, is the holder of 400 shares
of the common stock of the Belleville company, and sues as well in
its own as on behalf of all other stockholders of that company, or
beneficiaries, who may choose to come in and bear their proportion
of the cost and expenses of the proceedings. Assuming the
allegations of the bill to be true, the suit is not a collusive
one, and could be properly brought by a stockholder of the
Belleville company, making that company a defendant.
The bill refers to various instruments, deeds, and leases, as
follows: a deed of October first, 1895, between the Terre Haute
company, the Illinois company, and the Belleville company whereby
the railroad and properties of the Belleville company, then held by
the Terre Haute under a lease executed in 1866 were transferred to
the Illinois company for a period of ninety-nine years; a deed of
September 10th, 1897, to which the Belleville and Terre Haute
companies were parties and which purported to transfer the title to
all the railroad properties of the former to the latter company; a
lease of September fifteenth, 1897, by the Terre Haute company to
the Illinois Central Railroad Company, confirming the above lease
of October first, 1895, and covering, among other properties, the
Belleville railroad, extending from Belleville, in St. Clair
County, Illinois, to Duquoin, Perry County, in the same state, and
a deed of February seventeenth, 1904, between the Terre Haute
company and the Illinois company, purporting to convey to the
latter company all the railroad properties, corporate rights, and
franchises of the former company.
Page 205 U. S. 48
The plaintiff prayed that these leases and deeds, so far as they
affect, or purport to affect, the properties, franchises, rights,
or liabilities of the Belleville company, be cancelled and declared
void, and that that company be required to return and account for
whatever consideration it may have received under such leases and
deeds to the party or parties from whom the consideration may have
moved.
The bill charges, in substance, that said deeds were illegally
and fraudulently procured by the Illinois Central Railroad Company,
and by means of those instruments, and by various improper schemes,
it has acquired not only complete control over and possession of
the Belleville company and all its properties, but has manages, and
is continuing to manage, those properties in its own interest and
in total disregard of the rights of holders of the common stock of
the Belleville company. Indeed, it is charged that what the
Illinois Central Railroad Company has done, is doing (and, unless
restrained, will continue to do), has practically destroyed the
value of such stock.
The plaintiff also prayed for a decree ordering the defendant,
the Illinois Central Railroad Company, to account for and pay over
to the Belleville company, or to a receiver to be appointed for
that company such proportion of the yearly gross earnings as the
Belleville company is entitled to under the lease executed by and
between the Belleville company and the Terre Haute Railroad
Company, bearing date October first, 1866, such accounting to cover
each fiscal year, or part thereof, from the time when the Illinois
Central Railroad Company first acquired the railroad properties of
the Belleville company as lessee or sublessee under the lease
executed on or about the first of April, 1896, up to the time of
such accounting; further, for
"an order appointing a receiver for the Belleville &
Southern Illinois Railroad Company, with the usual powers of such
receivers, and that the Illinois Central Railroad Company, through
its officers and agents, be ordered to surrender and deliver to
said receiver all the
Page 205 U. S. 49
corporate assets, books, papers, and everything that rightfully
belongs to the Belleville & Southern Illinois Railroad Company,
and that the Illinois Central Railroad, Company be ordered to
account to such receiver, as is hereinbefore prayed. That the
defendant, the Illinois Central Railroad Company, its officers and
agents, be restrained from further violating the rights of your
orator, and be ordered, directed, and restrained in particular from
interfering in any way with said receiver, or with the operation of
said Belleville company as an independent and separate railroad
company, and for such other and further relief as the equity of the
case may require."
Process in the case against the Illinois company was served upon
its ticket agent at Fast St. Louis, "there being no president,
vice-president, secretary, or treasurer of that company found" in
the district, and against the Belleville and Terre Haute companies,
upon a director of each company at Pinkneyville, Illinois, there
being no president, vice-president, secretary, or treasurer of
either of those companies found in the district.
The Belleville company pleaded -- especially appearing, under
protest, for the purposes of its plea, and no other -- that the
court below was without jurisdiction to proceed against it, in that
the defendant was an inhabitant of the Northern Division of the
Northern District of Illinois, having its residence in that
division and district at Chicago, where its corporate meetings were
held and its corporate business transacted.
Similar pleas were filed by the Terre Haute company and the
Illinois Central Railroad Company, each specially appearing under
protest for the purpose only of denying the jurisdiction of the
court below, and each company claiming to be an inhabitant and
resident of the Northern District of Illinois.
By its final order the court sustained the pleas to the
jurisdiction, and dismissed the suit.
Page 205 U. S. 53
MR. JUSTICE HARLAN delivered the opinion of the Court.
This case is here upon a certificate as to the jurisdiction of
the circuit court.
The Eastern District of Illinois was created by the Act of
Congress approved March 3d 1905, c. 1427. 33 Stat. 992, 995. The
present suit in equity was, as we have stated, instituted in the
circuit court for that district, but its jurisdiction was denied by
the judgment below upon the ground solely that each defendant
railroad corporation was shown to be an inhabitant of the Northern
District of Illinois, not of the Eastern District, and therefore
this suit was not local to the latter district.
By the eighth section of the Act of March 3d 1875, determining
the jurisdiction of the circuit courts of the United States, it was
provided:
"That when, in any suit commenced in any circuit court of the
United States, to enforce any legal or equitable lien upon, or
claim to, or to
remove any encumbrance or lien or cloud upon
the title to, real or personal property within the district where
such suit is brought, one or more of the defendants therein
shall not be an inhabitant of, or found within, the said district,
or shall not voluntarily appear thereto, it shall be lawful for the
court to make an order directing such absent defendant or
defendants to appear, plead, answer, or demur, by a day certain to
be designated, which order shall be served on such absent defendant
or defendants, if practicable, wherever found, and also upon the
person or persons in possession or charge of said property, if any
there be; or, where such personal service upon such absent
defendant or defendants is not practicable, such order shall be
published in such manner as the court may direct, not less than
once a week for six consecutive weeks, and in case such absent
defendant shall not appear, plead, answer, or demur within the time
so limited, or within some further time, to be allowed by the
court, in its discretion,
Page 205 U. S. 54
and upon proof of the service or publication of said order, and
of the performance of the directions contained in the same, it
shall be lawful for the court to entertain jurisdiction, and
proceed to the hearing and adjudication of such suit in the same
manner as if such absent defendant had been served with process
within the said district; but said adjudication shall, as regards
said absent defendant or defendants without appearance, affect only
the property which shall have been the subject of the suit and
under the jurisdiction of the court therein, within such
district,"
etc. 18 Stat. 470, 472, c. 137.
These provisions were substantially those embodied in § 738
of the Revised Statutes, except that the act of 1875 embraced (as
§ 738 did not) suits in equity "to remove any encumbrance or
lien or cloud upon the title to real or personal property." Both
§ 738 and the act of 1875 related to legal and equitable liens
or claims on real and personal property
within the district
where the suit was brought.
The repealing clause of the Judiciary Act of 1887, 1888 did not
reach the eighth section of the act of 1875. That section is still
in force, as was expressly held in
Jellenik v. Huron Copper
Mining Co., 177 U. S. 1,
177 U. S. 10.
We are then to inquire as to the scope of the eighth section of
the above act of 1875. And that inquiry involves the question
whether this suit is one "to enforce any legal or equitable lien
upon, or claim to, or to remove any encumbrance or lien or cloud
upon the title to, real or personal property" within the Eastern
District of Illinois where the suit was brought.
In
Mellen v. Moline Malleable Iron Works, 131 U.
S. 352, we had occasion to examine the provisions of the
act of 1875. A question there arose as to the jurisdiction of a
circuit court of the United States to render a decree annulling a
trust deed and chattel mortgage covering property within the
district where the suit was brought, in which suit the defendants
did not appear, but were proceeded against in the mode authorized
by the above act of 1875. This Court said:
"The
Page 205 U. S. 55
previous statute gave the above remedy only in suits 'to enforce
any legal or equitable lien or claim against real or personal
property within the district where the suit is brought,' while the
act of 1875 gives it also in suits brought 'to remove any
encumbrance or lien or cloud upon the title to' such property.
Rev.Stat. § 738; 18 Stat. 472, c. 137, § 8. We are of
opinion that the suit instituted by the furnace company against the
iron works and others belonged to the class of suits last
described.
The trust deed and chattel mortgage in question
embraced specific property within the district in which the suit
was brought. The furnace company, in behalf of itself and
other creditors of the iron works, claimed an interest in such
property as constituting a trust fund for the payment of the debts
of the latter, and the right to have it subjected to the payment of
their demands. In
Graham v. Railroad Company, 102 U. S.
148,
102 U. S. 161, this Court said
that"
"when a corporation became insolvent, it is so far civilly dead
that its property may be administered as a trust fund for the
benefit of the stockholders and creditors. A court of equity at the
instance of the proper parties, will then make those funds trust
funds which, in other circumstances, are as much the absolute
property of the corporation as any man's property is his."
"
See also Mumma v. Potomac Company, 8
Pet. 281,
33 U. S. 286;
Morgan
County v. Allen, 103 U. S. 498,
103 U. S.
509;
Wabash &c. Railway v. Ham,
114 U. S.
587,
114 U. S. 594; 2 Story,
Eq.Jur. § 1252; 1 Perry on Trusts § 242. The trust deed
and chattel mortgage executed by the iron works created a lien upon
the property in favor of Wheeler, Carson, Hill, and the Keator
Lumber Company superior to all other creditors. The furnace
company, in behalf of itself and other unsecured creditors, as well
as Wheelock, denied the validity of Hill's lien as against them.
That lien was therefore an encumbrance or cloud upon the title, to
their prejudice. Until such lien or encumbrance was removed, they
could not know the extent of their interest in the property or in
the proceeds of its sale. The case made by the original, as
well
Page 205 U. S. 56
as cross-suit, seems to be within both the letter and the spirit
of the act of 1875."
A recent case is that of
Jellenik v. Huron Copper Mining
Co., supra. That was a suit by stockholders of a Michigan
corporation. Its object, as the bill disclosed, was to remove the
cloud that had come upon their title to the shares of stock held by
them. The issues in the case made it necessary to determine the
scope of the above act of 1875, c. 137. This Court said:
"Prior to the passage of the above Act of March 3, 1875, the
authority of a circuit court of the United States to make an order
directing a defendant -- who was not an inhabitant of nor found
within the district, and who did not voluntarily appear -- to
appear, plead, answer, or demur, was restricted to suits in equity
brought to enforce legal or equitable liens or claims against real
or personal property within the district. Rev.Stat. § 738. But
that act extended the authority of the court to a suit brought 'to
remove any encumbrance or lien or cloud upon the title to real or
personal property within the district where such suit is brought.'
One of the objects of the present suit was to remove an encumbrance
or cloud upon the title to certain shares of the stock of a
Michigan corporation. No question is made as to the jurisdiction of
the court so far as it rests upon the diverse citizenship of the
parties. The plaintiffs alleged that they were the equitable owners
of that stock, although the legal title was in certain of the
defendants. The relief asked was a decree establishing their
rightful title and ownership, and, in order that such a decree
might be obtained, the defendants referred to were ordered to
appear, plead, answer, or demur; but, as they refused to do so, the
circuit court decided that it could not proceed further. That court
was of opinion that"
"the shares of stock in question are not personal property
within the district within the purview of the statute of the United
States authorizing the bringing in by publication of notice to
nonresident defendants who assert some right or claim to the
property which is the subject of suit."
"82 F.
Page 205 U. S. 57
778-779. The proper forum, the court said, for the litigation of
the question involved would be in the state of which the defendants
were citizens. The question to be determined on this appeal is
whether the stock in question is personal property within the
district in which the suit was brought. If it is, then the case is
embraced by the act of 1875, c. 137, and the circuit court erred in
dismissing the bill."
Again:
"It is sufficient for this case to say that the state under
whose laws the company came into existence has declared, as it
lawfully might, that such stock is to be deemed personal property.
That is a rule which the circuit court of the United States,
sitting in Michigan, should enforce as part of the law of the state
in respect of corporations created by it. The stock held by the
defendants residing outside of Michigan who refused to submit
themselves to the jurisdiction of the circuit court being regarded
as personal property, the act of 1875 must be held to embrace the
present case if the stock in question is 'within the district' in
which the suit was brought. Whether the stock is in Michigan, so as
to authorize that state to subject it to taxation as against
individual shareholders domiciled in another state, is a question
not presented in this case, and we express no opinion upon it. But
we are of opinion that it is within Michigan for the purposes of a
suit brought there against the company -- such shareholders being
made parties to the suit -- to determine whether the stock is
rightfully held by them. The certificates are only evidence of the
ownership of the shares, and the interest represented by the shares
is held by the company for the benefit of the true owner. As the
habitation or domicil of the company is and must be in the state
that created it, the property represented by its certificates of
stock may be deemed to be held by the company within the state
whose creature it is, whenever it is sought by suit to determine
who is its real owner. This principle is not affected by the fact
that the defendant is authorized by the laws of Michigan to have an
office in another state at which a book showing the transfers
Page 205 U. S. 58
of stock may be kept."
See also Dick v. Foraker, 155 U.
S. 404.
These decisions, we think, make it clear that this suit comes
within the act of 1875, as one to remove an encumbrance or cloud
upon the title to real property within the Eastern District of
Illinois. The railroad in question is wholly within that district,
although the defendant corporations, including the Belleville
company, may hold their annual or other meetings in Chicago. The
bill seeks the cancellation of the deeds and leases under and by
authority of which the properties of the Belleville company are
held and managed in the interest, as is alleged, of the Illinois
Central Railroad Company, and to the destruction of the rights of
the stockholders of the Belleville company. The bill also, as we
have seen, prays for the appointment of a receiver of the
Belleville company, and the surrender and delivery to such receiver
of all its corporate assets, books, papers, and everything that
rightfully belongs to it, and account to such receiver, as prayed;
also, that the Illinois Central Railroad Company be restrained from
interfering in any way with the receiver, or with the operation of
the Belleville railroad as an independent, separate company. In
addition, there is a prayer in the bill for general relief. If the
deeds and leases in question are adjudged to be void, the entire
situation, as to the possession and control of the Belleville
railroad properties, will be changed, and the alleged encumbrances
upon the properties of the Belleville company will be removed. We
express no opinion upon the question whether, upon its own showing
or in the event the allegations of the bill are sustained by proof,
the plaintiff is entitled to a decree giving the relief asked by
it. There was no demurrer to the bill as being insufficient in
equity. The only inquiry now is whether, looking at the allegations
of the bill, the suit is of such a nature as to bring it within the
act of 1875 as one to remove encumbrances or clouds upon real or
personal property within the district where the suit was brought,
and therefore one local to such district. The court below held
Page 205 U. S. 59
that the suit was not one which could be brought and maintained
against the defendant corporations found to be inhabitants of
another district, and not voluntarily appearing in the suit, and
this notwithstanding the railroad in question is wholly within the
district where the suit was brought. 18 Stat. 472, c. 137; 25 Stat.
436, c. 866. If the suit was within the terms of the act of 1875,
then the Circuit Court of the Eastern District of Illinois,
although the defendant corporations may be inhabitants of another
district in Illinois, could proceed to such an adjudication as the
facts would justify, subject, of course, to the condition
prescribed by the eighth section of that act, that any adjudication
affecting absent defendants without appearance should affect only
such property within the district as may be the subject of the suit
and under the jurisdiction of the court.
The plaintiff contends that this condition was waived, and the
general appearance of the defendants entered, when their counsel at
the hearing as to the sufficiency of the pleas to the jurisdiction
argued the merits of the case as disclosed by the bill. This is too
harsh an interpretation of what occurred in the court below. There
was no motion for the dismissal of the bill for want of equity. The
discussion of the merits was permitted or invited by the court in
order that it might be informed on that question in the event it
concluded to consider the merits along with the question of the
sufficiency of the pleas to the jurisdiction. We are satisfied that
the defendants did not intend to waive the benefit of their
qualified appearance at the time of filing the pleas to the
jurisdiction.
We adjudge that the suit is of such a nature as to bring it
within the jurisdiction of the Circuit Court for the Eastern
District under the act of 1875. The judgment must therefore be
reversed, and the cause remanded, that the plaintiff may proceed as
it may be advised with the preparation of its case under the act of
1875.
It is so ordered.
