1. An injunction may not extend to persons who merely acquire
notice of it but who are neither parties to the suit nor
confederates or associates of the defendant. P.
291 U. S.
436.
2. A decree against a mortgagor with respect to property does
not bind a mortgagee whose interest was acquired before the
commencement of the suit and who was not a party to it. P.
291 U. S.
438.
3. In
quo warranto brought by the state at the request
of a city, but to which, under the state law, the city could not be
made a party, there was a judgment of ouster against an electric
power company using the city streets, upon the ground that its
franchise, which it claimed to be perpetual, had in truth
expired.
Held:
(1) That the trustee under an antecedent mortgage claiming a
valid subsisting lien on the company's property, including the
franchise which it claimed to be perpetual, and who was not a party
to the
quo warranto proceeding, was entitled to come into
the federal court in a suit against the city alone, on the ground
of diversity of citizenship, to protect its alleged property rights
and to have its claims there adjudicated. P.
291 U. S.
437.
(2) That a decree in the suit enjoining the city, its attorneys,
agents and confederates (a) from removing the poles and wires
without state warrant, and (b) from attempting to induce the state
to enforce the judgment of ouster would not be an injunction
staying the proceedings in the state court within the meaning of §
265 of the Judicial Code. P.
291 U. S.
439.
4. Though one seeking an injunction against a judgment on the
ground of fraud or mistake should show that he had no opportunity
to correct the judgment in the original proceeding and was not
lacking in diligence, such a showing is unnecessary where,
because
Page 291 U. S. 432
he was neither party nor privy, the judgment was inoperative as
to him. P.
291 U. S.
440.
5. Where the Circuit Court of Appeals has erroneously directed
the dismissal of a suit without passing on the merits, the cause
will be remanded to that court for further proceedings. P.
291 U. S.
441.
63 F.2d 911 reversed.
Certiorari, 290 U.S. 614, to review a decree reversing a final
decree of injunction in a suit brought by the bank, as trustee of
bondholders of an electric power company, to prevent the city from
removing its poles and wires from the streets and from seeking to
enforce a decree of ouster secured by the state against the
mortgagor company.
MR. JUSTICE BRANDEIS delivered the opinion of the Court.
This case is here on certiorari to the United states Circuit
Court of Appeals for the Sixth Circuit. Whether the injunction
granted in this cause by the federal court for northern Ohio stays
a judgment of ouster rendered by the Court of Appeals of the state
in violation of Judicial Code § 265 is the main question requiring
decision. [
Footnote 1]
In May, 1925, the Ohio Electric Power Company acquired the
electric light and heating system then serving
Page 291 U. S. 433
a part of the residents of the City of Norwalk, Ohio, and by a
duly recorded mortgage deed of trust, transferred the property to a
trustee to secure an issue of bonds. In March, 1926, the city
council passed a resolution in terms requiring the Power Company to
remove from the streets, alleys and other public places within 30
days, its poles, wires and other electric equipment. These had been
erected and were being maintained pursuant to an ordinance of the
city, dated October 7, 1890. The city claimed that the Power
Company had no right so to occupy the streets, alleys, and public
places, because the franchise granted by the ordinance was for a
limited term, and that term had expired without extension or
renewal. The Power Company refused to comply with the city's
demand, claiming that it had, under legislation of the state,
acquired a perpetual franchise.
In May, 1926, the state brought, in the Court of Appeals of Ohio
at the relation of the prosecuting attorney for Huron county, an
action in
quo warranto against the Power Company to oust
it from such use of the streets, alleys, and public places. That
court, holding that the franchise granted had expired, entered a
judgment of ouster.
State ex rel. Martin v. Ohio Electric Power
Co., 35 Ohio App. 481, 172 N.E. 615, and the judgment was
affirmed by the supreme court of the state.
Ohio Electric Power
Co. v. State ex rel. Martin, 121 Ohio St. 235, 167 N.E. 877.
The action had been instituted at the request, and had been
prosecuted with the aid, of the city; but it was not a party
thereto. The mortgage given by the Power Company and the bonds
thereby secured were then (and still are) outstanding. But the
state did not make the trustee a party respondent, and the trustee
did not intervene, or seek to intervene, in the action. Neither the
state nor the Power Company made mention of the existence of the
mortgage either in its pleadings
Page 291 U. S. 434
or otherwise. Whether the state, the relator, or the city knew
of the mortgage, and whether the trustee knew of the action in
quo warranto, does not appear.
Before any step had been taken by the state to enforce the
judgment of ouster, the then trustee under the mortgage deed of
trust, a citizen and resident of New York, brought this suit in the
federal district court for northern Ohio. The Chase National Bank,
likewise a citizen and resident of New York, has since been
substituted as trustee and plaintiff. The City of Norwalk alone was
made defendant. The bill set forth, in addition to the facts stated
above, that the plaintiff, as such trustee, is entitled to the
continued use of the poles, wires, and electrical equipment by the
Power Company; that the judgment of ouster has not yet been
executed; that the Power Company is still serving the Norwalk
public; that the city is threatening to destroy, or forcibly
remove, the poles, wires, and equipment from the streets, alleys,
and public places and to prevent the operation of the system or to
seek to have enforced the judgment of ouster, and that such acts
would result in irreparable injury to the plaintiff.
The District Court held that the plaintiff has, as mortgagee, a
good and valid lien upon the poles, wires, and electrical
equipment, and the rights and franchises to use the streets,
alleys, and public places therefor; that, "for the purpose of
protecting, preserving, and enforcing the lien of the mortgage,"
the Power Company "is and was at the time of the filing of the bill
of complaint herein the owner;" that these rights were granted "in
perpetuity as against any right or power of the City of Norwalk
with reference thereto . . . ;" and that the "franchises, rights
and physical properties will be destroyed and rendered worthless"
unless a permanent injunction issues. The decree enjoined the city,
its officers, agents, and employees, "and all persons whomsoever to
whom notice of this order shall come," from destroying, or
interfering with the continued
Page 291 U. S. 435
operation by the Power Company of the plant and distribution
system;
"from taking any steps or action of any kind whatever to cause
the enforcement or carrying out by the Sheriff of Huron County,
Ohio, . . . of the judgment of ouster,"
and
"from applying to any of the courts of the Ohio for any writ,
process, or order of any kind whatever for the purpose of enforcing
and carrying out said judgment of ouster."
The injunction was granted to continue only as long as the
plaintiff or its successor, or holders of bonds under the mortgage,
should have any interest in or lien upon the properties and
franchises of the Power Company in the City of Norwalk.
The Circuit Court of Appeals did not pass upon the question
whether the plaintiff has, as mortgagee, an interest in or lien
upon the alleged property and rights, nor upon the question whether
the Power Company retains for the protection of the mortgagee an
existing right to use the streets, alleys, and public places as
claimed, nor specifically upon the question whether the franchises
granted had expired. It held, one judge dissenting, that, although
the District Court had jurisdiction of the parties and of the
subject matter, that court was not justified in granting an
injunction, and it reversed the decree with directions to dismiss
the bill, 63 F.2d 911, for the following reasons:
(a) That the proceedings in the District Court came within the
inhibitions of Judicial Code § 265 in that the effect of the decree
was to stay the
quo warranto proceeding in the state
courts.
(b) That the case does not fall within the exceptions which
permit a federal court to interfere with the judgment of a state
court because there was no showing that the judgment in the action
in
quo warranto was void for lack of jurisdiction or was
based upon fraud or upon such accident or mistake as made its
enforcement unconscionable.
Page 291 U. S. 436
(c) That, because the plaintiff has not shown that it lacked
knowledge of the action in
quo warranto or that it could
not have intervened therein as mortgagee and have asserted therein
the claim which it presents now as the basis of the relief sought,
it has failed to make the necessary showing of diligence.
There was error in the decree entered by the District Court, but
the Circuit Court of Appeals was not justified in ordering that the
bill be dismissed.
First. Independently of the prohibition of Judicial
Code, § 265, the decree entered by the District Court was clearly
erroneous insofar as it enjoined
"all persons to whom notice of the order of injunction should
come from taking any steps or action of any kind to cause the
enforcement of the ouster in the state court."
The city alone was named as defendant. No person other than the
city was served with process. None came otherwise before the court.
The prayer of the bill sought relief solely against the city and
"its officers, officials, agents, employees and representatives."
[
Footnote 2] It is true that
persons not technically agents or employees may be specifically
enjoined from knowingly aiding a defendant in performing a
prohibited act if their relation is that of associate or
confederate. Since such persons are legally identified with the
defendant and privy to his contempt, the provision
Page 291 U. S. 437
merely makes explicit as to them that which the law already
implies.
See Ex parte Lennon, 166 U.
S. 548. But, by extending the injunction to "all persons
to whom notice of the injunction should come," the District Court
assumed to make punishable as a contempt the conduct of persons who
act independently and whose rights have not been adjudged according
to law. [
Footnote 3]
See
Alemite Mfg. Co. v. Staff, 42 F.2d 832. Under the clause
inserted in the decree, officials of the State of Ohio might be
proceeded against for contempt if they should apply to the state
court to enforce its judgment, although acting solely in the
performance of their official duty. To subject them to such peril
violates established principles of equity jurisdiction and
procedure.
Scott v. Donald, 165 U.
S. 107,
165 U. S. 117;
Hitchman Coal & Coke Co. v. Mitchell, 245 U.
S. 229,
245 U. S. 234.
[
Footnote 4] Those principles
require that the clause be limited to confederates or associates of
the defendant.
Second. On the other hand, the decree of the Circuit
Court of Appeals was clearly erroneous insofar as it refused to
enjoin the "city and its agents from forcibly removing the wires
and poles without state warrant." The trustee claimed that it had a
valid mortgage lien upon the poles, wires, and electrical
equipment, and upon the right and franchise in perpetuity to use
them on the streets, alleys, and public places, and the bill
alleged that removal by the city of the poles and wires would
result in irreparable injury to the trustee. Neither the trustee
nor the city had been a party, or privy, to the litigation in the
state courts. These courts did not purport to pass
Page 291 U. S. 438
upon the validity of the trustee's claim, and in no state court
was that claim in litigation. However broad the scope of the
prohibition prescribed by Judicial Code § 265, it could not
preclude the federal court from protecting the trustee's alleged
property from wanton destruction by one not a party or privy to the
judgment of ouster.
The contention is that, in essence, this
"is a suit by a mortgagee to obtain a readjudication of the law
and facts adjudicated by a state court of competent jurisdiction in
a proceeding to which the mortgagor was a party,"
and that, since the controlling question is one of the
construction and application of statutes of Ohio, a federal court
would, in any event, follow the decision of the highest court of
the state. It is true that, in the absence of special
circumstances, federal courts consider themselves bound by the
construction theretofore given by the highest court of a state to
its statutes. But, under well settled principles of jurisdiction
governing all courts, a decree against a mortgagor with respect to
property does not bind a mortgagee whose interest was acquired
before the commencement of the suit unless he was made a party to
the proceedings.
Old Colony Trust Co. v. Omaha,
230 U. S. 100,
230 U. S. 122.
[
Footnote 5] For, in every case
where a mortgage was given before the litigation against the
mortgagor was instituted, the mortgagee is entitled to have a
decision determining his rights rendered on the basis of the facts
and considerations adduced by him. Obviously, the facts and
considerations affecting the trustee's rights may be different
Page 291 U. S. 439
from those presented to the state court on behalf of the Power
Company. Because there is diversity of citizenship, the trustee
under the mortgage is entitled to have the adjudication of his
alleged rights made in the federal court.
Compare Atchison, T.
& S.F. Ry. Co. v. Wells, 265 U. S. 101. As
a decree enjoining the city "from removing the wires and poles
without state warrant" would not interfere with the proceedings in
the state court, that part of the injunction was not within the
prohibition of Judicial Code § 265.
Louisville Trust Co. v.
Cincinnati, 76 F. 296, 300, 317.
Third. The contention that the decree violates Judicial
Code § 265 is rested mainly upon the clause which enjoins the city,
its officers, and attorneys
"from taking any steps or action of any kind whatever to cause
the enforcement or carrying out by the sheriff of Huron County,
Ohio, or any of his deputies, or by any other officer of any of the
courts in the State of Ohio of the judgment of ouster,"
and
"from applying to any of the courts of the State of Ohio for any
writ or process of any kind whatever for the purpose of enforcing
and carrying out said judgment of ouster."
To enjoin the city from taking steps to enforce the judgment of
ouster obviously does not stay that judgment. The city was not, and
could not have been, a party to the action in
quo
warranto. [
Footnote 6] The
city's argument
Page 291 U. S. 440
is that the decree can have no effect unless it acts directly
upon the Court of Appeals of Huron County itself, and upon the
State of Ohio, which was the moving party in the
quo
warranto proceeding, and that, hence, this action is an
attempt to do so; that
"the incidental effect of the decree upon the possible
unauthorized action of the city officials is too negligible to be
given consideration in determining its character,"
and that the real purpose for which the decree was sought is to
stay the proceeding in the state court. It may be assumed that, in
seeking an injunction from the federal court, the trustee's purpose
-- its hope -- was to induce the officials of the state of Ohio to
refrain from enforcing the judgment of ouster until adjudication of
the trustee's rights should have been had in the federal court.
That purpose or hope is not of legal significance in this
connection. Full control of the ouster proceeding rests with the
law officers of the state, subject to the control of the state
court.
See Thompson v. Watson, 48 Ohio St. 552, 31 N.E.
742. The injunction, when limited as we hold it must be, is
directed only to the city, its attorneys, agents, and confederates.
It prohibits them from attempting to induce the state to enforce
the judgment of ouster. So limited, the decree will leave the state
and the relator free to act, and the injunction will not stay the
operation of the judgment.
Fourth. The contention is also made that the Circuit
Court of Appeals properly ordered the bill dismissed because the
trustee failed to allege, or prove, that it did not have knowledge
of the proceeding in the state court or that it could not have
intervened therein, as mortgagee, and asserted there the claims
that it now makes as the basis of the relief sought. Where
equitable relief is sought on the ground that a judgment entered
upon proper service in a court of competent jurisdiction was
obtained
Page 291 U. S. 441
through fraud or mistake, or is being used fraudulently, such a
showing of diligence is ordinarily required.
Crim v.
Handley, 94 U. S. 652;
Brown v. Buena Vista County, 95 U. S.
157;
Knox County v. Harshman, 133 U.
S. 152;
Marshall v. Holmes, 141 U.
S. 589. [
Footnote 7]
Compare Wells Fargo & Co. v. Taylor, 254 U.
S. 175. But here, the injunction is sought on the ground
that the judgment is inoperative as against the plaintiff because
it was neither party nor privy thereto.
Compare Atchison, T.
& S.F. Ry. Co. v. Wells, 265 U. S. 101;
Simon v. Southern Ry. Co., 236 U.
S. 115;
Old Colony Trust Co. v. Omaha,
230 U. S. 100.
[
Footnote 8] The law does not
impose upon any person absolutely entitled to a hearing the burden
of voluntary intervention in a suit to which he is a stranger.
Whether, under the Ohio practice, it would have been possible for
the trustee to intervene we have no occasion to determine.
[
Footnote 9] Unless duly
summoned to appear in a legal proceeding, a person not a privy may
rest assured that a judgment recovered therein will not affect his
legal rights.
The decree of the Circuit Court of Appeals is reversed. As it
did not pass upon the merits of the trustee's claim, the cause is
remanded to that court for further proceeding in conformity to this
opinion.
Reversed.
[
Footnote 1]
Sec. 265.
"The writ of injunction shall not be granted by any court of the
United states to stay proceedings in any court of a state, except
in cases where such injunction may be authorized by any law
relating to proceedings in bankruptcy."
[
Footnote 2]
The prayer is that "the City of Norwalk, and the officers,
officials, agents, employees and representatives of said defendant"
be enjoined
"from in any manner interfering with or interrupting the
continued operation of the plant and electrical distribution system
of the Ohio Electric Power Company in the streets, alleys, and
other public places of the City of Norwalk and from taking any
steps or doing any act to dismantle, wreck, or remove any part of
said system . . ."
and
"from taking any steps or action of any kind whatever to cause
the enforcement or carrying out by the Sheriff of Huron County,
Ohio, or any of his deputies, or by any other officer of any of the
courts in the State of Ohio, of the judgment of ouster. . . ."
(The later prohibition to apply also to the attorneys of the
City.)
[
Footnote 3]
Harvey v. Bettis, 35 F.2d 349;
Donaldson v.
Roksament Stone Co., 178 F. 103;
Bliss v. Atlantic Handle
Co., 212 F. 190;
Omelian v. American Cap Front Co.,
195 F. 539, 540.
Compare Tosh v. West Kentucky Coal Co.,
252 F. 44, 48.
[
Footnote 4]
Compare United states Playing-Card Co. v. Spalding, 92
F. 368, 369.
[
Footnote 5]
Louisville Trust Co. v. Cincinnati, 76 F. 296;
Old
Colony Trust Co. v. Tacoma, 219 F. 775, 776;
Illinois
Trust & Savings Bank v. Des Moines, 224 F. 620, 624;
Williamson v. Clay Center, 237 F. 329, 335.
Compare
Dull v. Blackman, 169 U. S. 243;
Bigelow v. Old Dominion Copper Mining & Smelting Co.,
225 U. S. 111;
Postal Telegraph Co. v. Newport, 247 U.
S. 464,
247 U. S. 476;
Doctor Jack Pot Mining Co. v. Marsh, 216 F. 261,
[
Footnote 6]
The City states that it was not, and could not have been made, a
party to the
quo warranto proceedings, that the fact that
quo warranto proceedings are brought by the state in its
sovereign capacity is not a mere matter of form, but is of the
essence of the proceeding, and that it is public, not personal, in
nature, regardless of the person who furnishes the information upon
which the action is based. In support of this proposition, the city
cited
State v. Maccabees, 109 Ohio St. 454, 142 N.E. 888;
State v. Conservancy District, 100 Ohio St. 483, 128 N.E.
87;
Hardin-Wyandot Co. v. Upper Sandusky, 93 Ohio St. 428,
113 N.E. 402;
Thompson v. Watson, 48 Ohio St. 552, 31 N.E.
742;
State v. Craig, 21 Ohio C.C. 175.
[
Footnote 7]
Louisville Trust Co. v. Cincinnati, 76 F. 296;
Old
Colony Trust Co. v. Tacoma, 219 F. 775;
Illinois Trust Co.
v. Des Moines, 224 F. 620;
Williamson v. Clay Center,
237 F. 329;
Firestone Tire & Rubber Co. v. Marlboro Cotton
Mills, 282 F. 811;
Seay v. Hawkins, 17 F.2d 710;
but compare Denton v. Baker, 93 F. 46.
[
Footnote 8]
Also compare National Surety Co. v. state Bank, 120 F.
593.
[
Footnote 9]
In
Northern Ohio Traction & Light Co. v. Ohio,
245 U. S. 574, a
proceeding in
quo warranto, in which the Traction Company
alone was named as defendant, it appears from the record in this
Court that the Cleveland Trust Company, trustee under a mortgage,
moved in the Supreme Court of Ohio for leave to be made a party and
to file an answer, that consent thereto was given, that thereafter
motion was allowed, and that the answer was filed and replied
to.