Texas & Pacific Ry. Co. v. Johnson
151 U.S. 81 (1894)

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U.S. Supreme Court

Texas & Pacific Ry. Co. v. Johnson, 151 U.S. 81 (1894)

Texas and Pacific Railway Company v. Johnson

No. 138

Argued December 15, 1893

Decided January 3, 1894

151 U.S. 81

Syllabus

A circuit court of the United States having appointed a receiver of a railroad in 1885, and the receiver having, during his possession of the property, used a very large amount of the net earnings in improving it, whereby it had been made much more valuable, the court, on the expiration of the receivership, ordered, on the 26th October, 1888, the receiver to transfer

Page 151 U. S. 82

the property with its improvements to the company, and that it should be received by the company, charged with operation liabilities and subject to judgments rendered or to be rendered in favor of intervenors, and that all claims against the receiver up to October 31, 1888, be presented and prosecuted by intervention prior to February 1, 1889, or be barred and be no charge upon the property. On the 14th of September, 1888, J. brought suit against the receiver in a state court to recover for personal injuries suffered by reason of defects in the road. On the 17th of December, 1888, the complaint was amended by making the railway company a party defendant. The receiver set up his receivership and discharge. The company denied liability for any injury inflicted during the receivership, and among other grounds of defense set up that the plaintiff below was subject to the order of October 26, and must resort to the court which entered it for the collection of his claim; that he could not recover a judgment in personam, and that the claim was barred by the terms of the order. The case was dismissed in the trial court as to the receiver, and judgment was given against the company, which judgment was sustained by the highest court of the state on appeal. The latter court held in its opinion that the company, having received the property under the circumstances described, was bound by the acts of the receiver and held the property charged with any claim which he ought to have paid out of earnings; that the receiver having been discharged, the property in the hands of the company was released from the custody of the circuit court and subject to any claim that might rest against it; that the order of the circuit court was not binding on the plaintiff as affecting his right to enforce his claim by suit; that the time in which such action should be commenced was fixed by law and could not be altered by order of court; that, under the Act of March 3, 1888, 24 Stat. 552, c. 373, as amended by the Act of August 13, 1888, 25 Stat. 433, c. 866, the state court had jurisdiction of the case, and the prosecution of the claim in that court could not be prevented, and that, under the circumstances, the suit could be maintained against the company. A writ of error was sued out to this Court.

Held:

(1) That the overruling of the defense set up by the company amounted to a decision against the validity of the order of the circuit court, or against a claim of right or immunity thereunder, which gave this Court jurisdiction under the writ of error.

(2) That the state court had jurisdiction under the acts of Congress above cited to proceed to final judgment in the case, and that it was not necessary to submit that judgment to the circuit court.

(3) That after February 1, 1889, those who had not intervened in the suit in the circuit court were remitted to such other remedies as were within their reach.

(4) That as the highest court of the state had held, on other than federal grounds, that the company was directly liable to the plaintiff below, its judgment should be affirmed.

Page 151 U. S. 83

This was an action commenced by T. R. Johnson in the District Court of Marion County, Texas, September 14, 1888, against John C. Brown, and amended December 17, 1888, by making the Texas and Pacific Railway Company a party defendant. On January 14, 1889, plaintiff filed his first original amended petition against said defendants, wherein it was alleged that the defendant Brown was on December 15, 1885, duly appointed by the Circuit Court of the United States for the Eastern District of Louisiana receiver of the Texas and Pacific Railway Company and all of its property in the States of Texas and Louisiana; that he qualified as such receiver December 16, 1885, and entered upon and exercised and performed his duties as such from that date until October 31, 1888, inclusive, and that during that time, he operated and managed the property of the defendant corporation in all its parts in said states as a common carrier of freight and passengers, and into and through certain enumerated counties of the State of Texas. The petition, after stating the circumstances of the accident and the ground of liability in that respect, further averred that the receiver was discharged by the court appointing him October 31, 1888, under an order of October 26, 1888, and that he delivered to the railway company all of its property, consisting of the corpus of said railway and all the earnings and income then in his hands as receiver unexpended, and all the lands belonging thereto, and all improvements and betterments which had been added to the property by him.

The provisions of this order requiring that the property should be so delivered subject to the liabilities of the receiver were specifically alleged, and their legal effect, and that of the acceptance of the property averred, and it was further stated that under the laws of the state, plaintiff was entitled to a lien on the property for the satisfaction of his claim. Reference was also made to an order of May 31, 1888, relating to the termination of the receivership June 1, 1888, and averring that after that date the road was continuously operated by the company.

The plaintiff further alleged that the receiver was originally

Page 151 U. S. 84

appointed at the instigation and by the consent of the railway company and for its benefit, and that the property in his hands from December 16, 1885, to June 1, 1888, inclusive, was operated and managed by him for the benefit of the defendant company and its property as originally intended, and that the property on June 1, 1888, was redelivered to the defendant corporation, greatly improved in value, without any sale or foreclosure and without any third parties' acquiring any title thereto or interest therein of any kind. It was finally averred that

"the said Brown, as receiver and under orders and direction of said court and by consent of all parties interested, including defendant company, during the time above mentioned applied all the receipts, earnings, and income of said railway under said receivership, after the payment of current expenses, to the permanent improvement of said property to the betterment thereof, and to the purchase of large and valuable additional property for the use and operation of said road, amounting in the aggregate to the sum of three million dollars, all of which money and property is now in the possession of the defendant company as its own and under the conditions heretofore set out. Wherefore the plaintiff brings this suit and prays for citation to defendants according to law, and on final trial for judgment against the defendant John C. Brown, simply establishing the claim of plaintiff against the receivership under his management, and against the Texas and Pacific Railway Company for his damages, fifty thousand dollars, and to fix upon the said property of the said defendant company in the State of Texas a lien to satisfy the judgment rendered herein, for costs, and such other relief as plaintiff may be entitled in law or in equity."

The answer of the defendant Brown set up that at the time the plaintiff was injured, he was in the exclusive possession of the railway company as receiver, appointed by the Circuit Court of the United States for the Eastern District of Louisiana in the suit of the Missouri Pacific Railway Company against the Texas and Pacific Railway Company, operating said road under and in conformity to the orders of said court, and he was so in possession and operating said road in September,

Page 151 U. S. 85

1888 at the date this suit was commenced; that on October 26, 1888, the judge of the Circuit Court of the United States for the Eastern District of Louisiana made an order in the cause of Missouri Pacific Railway Co. v. The Texas and Pacific Railway Co. discharging defendant as receiver, and said discharge was to take effect, and did take effect, on October 31, 1888, and the receiver was ordered to deliver, and did deliver, all the property in his hands as receiver to the railway company, October 31, 1888, in strict compliance with the order of the court; that the railway company took and received the property subject to and charged with all traffic liabilities due to connecting lines, and all contracts for which the receiver might be held liable, and also subject to any and all judgments which had been theretofore rendered in favor of interveners in said cause, as well as such judgments as might thereafter be rendered by the court in favor of interveners who should file interventions therein prior to February 1, 1889; that he had complied fully with the order of the court, and delivered the property to the railway company, and had been fully and finally discharged, and he prayed to be dismissed, with his costs.

The railway company demurred on the ground that the petition showed no cause of action against it, and also answered, stating that at the time the plaintiff was injured, he was not in the employment of this defendant, but of the receiver; that the receiver was discharged October 31, 1888, by an order entered and filed on the 26th of that month in said cause; that on October 31 and November 1, 1888, the receiver delivered to this defendant all the property held by him as receiver, and fully complied with the order of court discharging him, and the railway company received and accepted the property charged with all traffic liabilities due to connecting lines, with all contracts by which the receiver might be held liable, and with the payment of any and all judgments which had theretofore been rendered in favor of interveners in the case of Missouri Pacific Railway Co. v. The Texas and Pacific Railway Co., in the United States court for the Eastern District of Louisiana, as well as such judgments as

Page 151 U. S. 86

might be rendered in favor of interveners who might intervene in said cause prior to February 1, 1889, and free from any and all other demands or claims. The answer also contained a general denial.

The cause was tried January 18, 1889, and resulted in a judgment of dismissal as to defendant Brown, and a verdict against the defendant railway company in the sum of $15,000, upon which judgment was entered in the following language:

"It is further ordered and adjudged by the court that the plaintiff, T. R. Johnson, do have and recover of and from the defendant the Texas and Pacific Railway Company the sum of fifteen thousand ($15,000) dollars, with 8 percent interest thereon from date, together with all costs in this behalf expended as between plaintiff and said defendant, for which let execution issue."

A motion by the railway company for a new trial was made and denied, and it moved to reform the judgment so that it should be entered up as against the company, to

"be paid in due course of the administration of the property of the Texas and Pacific Railway Company in the United States Circuit Court for the Eastern District of Louisiana at New Orleans, and that no execution issue from this Court to collect said judgment."

This motion was overruled, and the company excepted, and thereupon appealed to the Supreme Court of Texas, by which the judgment was affirmed. The opinion of that court will be found reported in 76 Tex. 421. The company applied for a writ of error, which was allowed, and the case duly docketed in this Court.

Upon the trial of the cause, there was read in evidence on behalf of the plaintiff the petition of Brown, receiver, filed May 31, 1888, in the receivership case, for discharge as receiver, and the order of the court made on said petition, and filed May 31, 1888. By this petition, the receiver represented that the objects contemplated by the different bills filed in the causes named in the title had been accomplished, and all parties had agreed that "after the settlement with the receiver, and the payment of costs and other liabilities, or provision for such payment fully made," the receiver should be discharged

Page 151 U. S. 87

and the causes dismissed, and that his accounts were in condition for final settlement up to the first of May. Petitioner asked the court to have an accounting with him as receiver, and, when final settlement was made, and petitioner fully indemnified against matters unsettled growing out of the receivership, that the property now in his hands "be turned over to the proper officer of the Texas and Pacific Railway Company." He further represented

"that a large number of suits are pending in the courts of Texas and Louisiana against him as receiver for alleged torts connected with the conduct of the railway in its operation, and there are also judgments for small amounts before justices of the peace, aggregating about $12,000, for damages to stock, and for property burned by sparks from engines. There are also a considerable number of claims pending in this court by proceedings in intervention which have not been finally settled. A statement of these claims will be filed. Petitioner prays that he be fully protected against these claims, and for such other and proper relief as may seem necessary and proper."

The order thereon directed that an accounting be made by the receiver to the first day of June,

"and at the coming in of which report, and it being found satisfactory and accepted, the remaining prayers of the petition will be granted by the court. In the meantime, the receiver will continue to hold the property under the orders of the court until the first of June, 1888 at which time, if this order is not vacated, the railway and its property may be operated by the corporation under such orders as may be made by the court from time to time, and under the supervision and control of the receiver, to the end that the property shall not pass beyond the control of the orders of the court nor of the receiver until the accounting takes place with the receiver, and until he is fully protected by the corporation for causes of action originating against him and against the property pending the receivership."

Then follows a direction in relation to stating the account.

The plaintiff also read in evidence a petition of the receiver of October 26, 1888, and the order of the Circuit Court of the

Page 151 U. S. 88

United States for the Eastern District of Texas on that petition, bearing the same date.

The petition (omitting titles) and order were as follows:

"To the Honorable the Judges of the said Circuit Court:"

"Your petitioner, John C. Brown, as receiver of the Texas and Pacific Railway and its property in the above entitled and numbered causes, represents that heretofore it has been made to appear to the court that the objects and purposes of all the bills in these causes have been accomplished by settlement and agreement of the parties, and evidence of that fact filed as part of the record; that on its being so made to appear, the court ordered him to render his accounts as receiver up to the first of June, which has been done, and it has been examined and approved, and since that date, petitioner has kept his account as with the company. By the same order, he was directed to hold the property under the orders of the court until the first of June, 1888, at which time, if said order was not vacated, the railway company might operate the road under such orders as the court might make from time to time, and under the supervision and control of the receiver. No formal delivery of the road and property in his hands has been made to said railway company, and petitioner now asks that he be allowed formally to deliver all property and funds in his hands as such receiver to said railway company, and that he be allowed to account to said company according to his account filed up to the first of June, and for all receipts and expenditures by him received and made since the first of June. He has carried over on the present books of the company the cash balance and all other balances of property, and assets as found in his hands by his report to the first of June aforesaid, and he is now the president of said railroad company, and after his discharge will be in possession of all of said company's road, property, and funds as such for the said company. Wherefore he asks that he be discharged from his said receivership, and that his bond as receiver be vacated and annulled on payment of all costs legally taxable; but he prays the court to make such order as will charge the property so turned over in

Page 151 U. S. 89

the hands of said railway company and its assigns with all liability for which he as receiver is or might be held personally liable. Your petitioner further says that the sum of his compensation as receiver has been agreed on by the parties in interest, and is satisfactory to him, and has been settled up to the 31st day of October, 1888 at which time he asks that his discharge take effect."

"[Signed] Jno. C. Brown"

"The Missouri Pacific Railway Company"

"vs. No. 11, 181"

"The Texas and Pacific Railway Company"

"On consideration of the foregoing petition, it is now ordered, adjudged, and decreed that the prayer of the same be granted, and accordingly that John C. Brown, receiver of the property of the Texas and Pacific Railway in the above-entitled cause, be, and he is hereby, directed to make delivery unto said Texas and Pacific Railway Company of all property, funds, and assets in his hands as such receiver, and that he be directed to account to said company according to his account filed and approved up to June 1, 1888, and for all receipts and expenditures by him received and made since the said first June, 1888. Such delivery will be made as of October 31, 1888. It is further ordered that said receiver be finally discharged on said 31st October, 1888, from his receivership on payment of all costs legally taxed, and that thereupon his bond be vacated and cancelled. It is further ordered that said property nevertheless shall be delivered to and received by said Texas and Pacific Railway Company subject to and charged with all traffic liabilities due to connecting lines, and all contracts for which said receiver is or might be held, made, or in any way liable, and subject also to any and all judgments which have heretofore been rendered in favor of interveners in this case, and which have not been paid, as well as to such judgments as may be hereafter rendered by the court in favor of interveners, while it retains the cases for these determinations or interventions now pending and undetermined, of which may be filed prior to February, 1889, together with

Page 151 U. S. 90

needful expenses of defending said claims, and upon the condition that such liabilities and obligations of the receiver, when so recognized and adjudged, may be enforced against said property in the hands of said company or its assigns to the same extent it could have been enforced if said property had not been surrendered into the possession of said company, and was still in the hands of the court, and with the further condition that the court may, if needful for the protection of the receiver's obligations and liabilities so recognized by this Court, resume possession of said property. The bills in these causes will be retained for the purpose of investigating such liabilities and obligations and for such other purpose as may seem needful. It is ordered that all claims against the receiver as such up to said 31st October, 1888, be presented and prosecuted by intervention prior to February 1, 1889, and, if not so presented by that date, that the same be barred, and shall not be a charge on the property of said company. It is further ordered that the said receiver advertise in a daily newspaper in New Orleans and in Dallas the fact of his said discharge, and a notice to said claimants to make claim within the time aforesaid, to-wit, the first of February, 1889, and that he post a notice of similar purport in the stationhouses of said railway."

"New Orleans, October 26, 1888."

The deposition of John C. Brown was also read in evidence, in which he testified that he was receiver from December 16, 1885, to and including October 31, 1888. That

"all of the earnings and income of the road, after paying operating expenses, in addition to over two millions of dollars voluntarily contributed by the stockholders, were appropriated to the improvement of the road in my hands as receiver."

That the expenditure of the money above alluded to was made under orders of the United States Circuit Court for the Eastern District of Louisiana at New Orleans. That the improvements and betterments were highly necessary to carry on the business of the road and to operate it as a common carrier. That

"debts were created to raise money to make said improvements

Page 151 U. S. 91

to the amount of nearly two millions five hundred thousand dollars, the larger portion of which had been paid, and some of which is in litigation."

That the circumstances under which the improvements were made were, briefly, as follow:

"In the summer or early autumn of 1885, the owners of the property became satisfied that the company could not longer continue paying interest upon the bonded debt without first expending a large amount of money in the renewal of tracks, raising of roadway, widening cuts and embankments, putting in a large amount of new cross-ties, purchasing a large amount of rolling stock and motive power, and the renewal of bridges, etc. A committee was raised by the board of directors to give a personal inspection of the line with the aid of experts, and report to the board the condition of the property, and the amount necessary to place the property in a fair condition. The ultimate result of the report of that committee was to place the road in the hands of a receiver and suspend the payment of interest, it being then believed that it would be necessary to sell the road finally under foreclosure of mortgage. The committee of reorganization afterwards devised the plan which was approved by the parties in interest, which avoided final foreclosure. In the meantime, the improvements aforesaid were made."

Plaintiff further offered to prove the money value of the improvements and betterments put upon the road during the receivership, whereupon it was admitted that

"such betterments placed on said railroad out of the earnings of the road in excess of the operating expenses while in the hands of the receiver were of value sufficient to more than cover the amount claimed by plaintiff in this suit."

The record also contains the evidence as to the circumstances surrounding the accident and the nature of the injuries inflicted.

The Supreme Court of Texas held that a railway company, in the absence of some statute so providing, will not be liable for the acts of its receiver by reason alone of his relation to it, but that if such company and its creditors should by collusion procure a receivership, or if the receiver in fact operated the road under orders of a court without jurisdiction, it would

Page 151 U. S. 92

seem that the railway company would be bound by all acts of such receiver. That a claim for damages caused by injuries inflicted through the negligence of the receiver while he was operating the railway is entitled to payment out of current receipts, and, if the current earnings be invested by the receiver in betterments on the road, which, without sale, is returned to the company at the close of the receivership, then the company must be held to have received the property charged with any claim which the receiver ought to have paid out of the earnings. That when a receiver has been discharged, and the property all returned to the company under order of the court in which the proceedings were had, the control of the court over the property is ended, and the property, when released from the custody of the court, stands subject to any claim that may rest against it. That the order of the United States Circuit Court for the Eastern District of Louisiana in the receivership proceedings affecting the Texas and Pacific Railway, to which the plaintiff was not a party, prescribing that all persons who had claims with which the property might be charged should present them by intervention to that court was without authority of law, and not binding upon the plaintiff as affecting his right to enforce his claim by suit, and that the time within which a claim for damages might be prosecuted against a railway company was fixed by law, and could not be altered by order of court. That under the Act of Congress of March 3, 1887, persons having claims against receivers might sue upon and establish them in any court having jurisdiction, and this right could not be nullified by order of court, and that after discharging the receiver and restoring the property to its owners, the United States court could not maintain such jurisdiction over the matter as to prevent the prosecution of such claim to judgment and execution. That a suit in a state court for damages for personal injuries caused by the negligent operation of the Texas and Pacific Railway while in the hands of a receiver could be maintained against the railway company after its property was restored to it, the current earnings of the road having been used by the receiver in improving it.

Page 151 U. S. 97

Other rulings were made in reference to the merits, upon which the recovery rested.

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