Raphael v. Trask
194 U.S. 272 (1904)

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U.S. Supreme Court

Raphael v. Trask, 194 U.S. 272 (1904)

Raphael v. Trask

No. 229

Argued April 18-19, 1904

Decided May 2, 1904

194 U.S. 272

Syllabus

Diverse citizenship does not exist, giving a circuit court of the United States jurisdiction of an action affecting the disposition of a fund held by a copartnership doing business in a state other than that of complainant if any of the partners are citizens of complainant's state; nor can the jurisdiction of such an action be maintained, either for the purpose of enforcing additional security or to stay waste, as ancillary to a foreclosure suit pending in another circuit court of the United States, where there is no privity of contract or trust relations between complainant and defendants and the record does not show that the defendant in the foreclosure suit could not respond to any judgment that might be recovered therein.

This suit was begun by filing a bill in the circuit court of the United States for the Southern District of New York, seeking an injunction restraining the defendants, Spencer Trask & Company, from selling certain shares of capital stock of the Rio Grande & Western Railway Company to the Denver & Rio Grande Railway Company unless a sufficient sum of money was deposited to indemnify the complainant upon the demand hereinafter set forth.

It appears from the allegations of the bill that Nathaniel W. Raphael, since deceased, now represented by Martha Raphael as administratrix, on January 7, 1901, filed a bill in the United States Circuit Court for the District of Utah against the Wasatch & Jordan Valley Railroad Company and the Rio Grande & Western Railway Company and the Union Trust Company of New York, the object being to foreclose a mortgage given by the Wasatch & Jordan Valley Railroad Company and to redeem from two independent mortgages certain branch railroads in the possession of, and claimed to be owned by, the Rio Grande & Western Railway Company.

Page 194 U. S. 273

While that suit was pending, the present action was begun. The bill averred that the defendants, composing the firm of Spencer Trask & Company, had undertaken to obtain stock of the Rio Grande & Western Railway Company and to sell the same to the representatives of the Denver & Rio Grande Railway Company, which company was proceeding to acquire the railroad of the Rio Grande & Western Railway Company by acquiring the common and preferred stock of that company.

It is averred that Spencer Trask & Company, while negotiating the sale of said stock, learning of the foreclosure proceedings commenced by Raphael in the Utah court, made the following public advertisement:

"Since the commencement of the negotiations, one Raphael has instituted in the United States Circuit Court of Utah a suit against the title of the Western Company to the Bingham and Alta spurs of its railroad, and in making the contract for the vendors, our firm gave its personal guarantee against any liability of the company in that suit. Although the company's solicitors are confident of success, it is proper that our guarantee be ratably shared by all who avail themselves of the contract made by us for the vendors. From the $80 per share and interest mentioned above, we shall therefore deduct such amount per share as counsel shall advise us will amply protect us upon such guarantee. Such amount will be held in a special trust."

The bill further avers:

"That the members of said firm of Spencer Trask & Company are not parties to the suit pending in Utah, and that there is no agreement existing between complainant and the other holders of the outstanding bonds similar to complainant's bonds and Spencer Trask & Company by which the said proposed 'fund' shall be applied toward the satisfaction of complainant's bonds and the other outstanding bonds."

There are further allegations that the complainant --

"Is informed and believes that, if said consolidation, as set forth in the scheme contemplated by the advertisements referred

Page 194 U. S. 274

to is allowed to be carried out without some stipulation between your orator and the members of the said firm of Spencer Trask & Company as to the custody of the said fund, proposed to be created as aforesaid, the rights of remote purchasers of the mortgage premises, upon which complainant claims a lien, will have intervened pending complainant's suit in Utah, so that, if complainant succeeds at the final hearing of his suit in Utah, it will require the bringing into the suit, as defendants, such remote purchasers as the Denver & Rio Grande Western Railway Company and their proposed successors."

The prayer for relief is:

"That a preliminary injunction be issued restraining the said members of the firm of Spencer Trask & Company from selling the said shares of the capital stock of the Rio Grande Western Railway Company to the Denver & Rio Grande Western Railway Company as set forth in the said advertisements of Spencer Trask & Company, and which injunction your orator prays may be made perpetual upon the final hearing of this suit unless the firm of Spencer Trask & Company shall agree to turn over to some trust company in the City of New York at and before the completing of said sale of said shares a sum of money which may be determined by this Court, out of the proceeds of said sale, as will be sufficient to satisfy complainant's claim and the other outstanding bondholders, similar to his own, upon the final hearing of complainant's suit in Utah."

The bill also refers to the affidavit of one of the defendants, George Foster Peabody, filed in the Utah suit. This affidavit is annexed to the bill of complaint, and is in part as follows:

"One stipulation of the agreement for the sale of common stock of the Rio Grande Western Railway Company, made by my banking firm of Spencer Trask & Company, is that my said firm shall guarantee the purchaser against any claim of the complainant in this suit. The statement in that respect contained in the circular letter of my firm to the holders of the

Page 194 U. S. 275

common stock of that company, of which one of such cuttings is a copy, is as follows:"

" Since the commencement of the negotiation, one Raphael has instituted in the United States Circuit Court for Utah a suit against the title of the Western Company to the Bingham and Alta spurs of its railroad, and in making the contract for the vendors, our firm gave its personal guarantee against any liability of the company in that suit. Although the company's solicitors are confident of success, it is proper that our guaranty be ratably shared by all who avail themselves of the contract made by us for the vendors. From the $80 per share and interest mentioned above, we shall therefore deduct such amount per share as counsel shall advise us will amply protect us upon such guarantee. Such amount will be held in a special trust."

"The result of this provision is that, if the complainant have any just claim, its payment is secured not only by the great excess of the assets of the Rio Grande Western Company itself over its debts, but also by a special amount to be held in trust. I am advised by the counsel of the Western Company that such provision is a fact against, and not in favor of, the complainant's motion, as it gives a greater assurance that, if the complainant's claim shall be established, it will be paid."

"The statement of the said Raphael in his affidavit that the retention of a fund to indemnify my said firm for their proposed guaranty against complainant's claim is an attempt on the part of the Western Company to hinder and delay the complainant is unqualifiedly false. The Western Company is in no way a party to the agreement or provision for such indemnity or such guaranty. The Western Company, if the purchase of its common stock shall be completed, will be itself indemnified against any claim of complainant."

To the bill of complaint the defendant filed a plea to the jurisdiction of the court, appearing for that purpose and no other, setting forth that the plaintiff, at the time of the commencement of the suit, was, and continues to be, a citizen of the State of New Jersey; that two of the defendants, Charles J.

Page 194 U. S. 276

Peabody and Edwin M. Bulkley, were at the time of the filing of the bill and the beginning of the suit, citizens of the State of New Jersey, and were not and had not been for over eight years either citizens or residents of the State of New York.

The cause being brought on for hearing upon the plea, the bill of complaint was dismissed for want of jurisdiction.

Subsequently an application was made for leave to amend the bill and file a supplementary bill, which application was denied.

Upon dismissing the bill for want of jurisdiction, the trial court certified the question of jurisdiction, and the cause came here by direct appeal.

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