1. The judgment of the state supreme court was reviewable in
this case by certiorari, and not by writ of error. P.
254 U. S.
518.
2. Where a judgment of a state supreme court prohibiting
proceedings in a lower court was essentially based on the denial of
a substantive right claimed by a party, this Court is not precluded
from reviewing, on a constitutional ground, by the fact that the
judgment was in terms based on a denial of the prohibited court's
jurisdiction. P.
254 U. S.
520.
Page 254 U. S. 514
3. Apart from statute or express contract, those who invest in a
railroad, though built under a charter and the eminent domain power
received from the state, are not bound to go on operating at a loss
if there is no reasonable prospect of future profit, and their
right to stop does not depend upon the consent of the state. P.
254 U. S.
520.
4. Where a state supreme court prohibited a lower court, in
foreclosing a railroad, from authorizing and confirming a sale with
liberty to the purchaser to dismantle the railroad, basing its
decision upon the ground that the state was not a party and that
the dismantling could not be so authorized without the state's
consent,
held that the prohibition could not affect the
constitutional rights of the mortgagor, since the right to
dismantle, as against the state, could not be conferred by a
foreclosure decree in the state's absence, and would pass to the
purchaser, if it existed, whether the decree so provided or not. P.
254 U. S.
521.
5. Whether a state is bound by a foreclosure proceeding to which
it voluntarily makes itself a party before final decree is a local
question the decision of which this Court will not review in a case
from a state court. P.
254 U. S. 522.
82 So. 866 affirmed.
The case is stated in the opinion.
Page 254 U. S. 518
MR. JUSTICE HOLMES delivered the opinion of the Court.
This is a proceeding by the relators seeking a prohibition
forbidding a state judge of a lower court to confirm a sale of a
railroad "for the purpose of and with the privilege on the part of
the purchaser of dismantling the same" as authorized by a
foreclosure decree. The trustee of the mortgage under foreclosure
was made a party to the proceeding and demurred upon the ground
that the prohibition would deprive him of his property without due
process of law contrary to the Fourteenth Amendment of the
Constitution of the United States. The Supreme Court of Florida
granted the prohibition,
State v. Bullock, 82 So. 866, 83
So. 701, and thereupon this defendant sued out a writ of error and
filed a petition for a writ of certiorari from this Court. Action
upon the latter was postponed to the hearing on the writ of error.
Certiorari being the only remedy, the petition is granted, as the
case is deemed a proper one to be reviewed.
The road concerned is that of the Ocklawaha Valley Railroad
Company. It succeeded by foreclosure of a
Page 254 U. S. 519
previous mortgage to a logging road, and gave the present
mortgage to Hood, one of the plaintiffs in error, in trust for the
bondholders. The bonds are held by the Assets Realization Company.
Before the present bill for foreclosure was filed, the Railroad
Company had applied to the Railroad Commission for leave to cease
operations, had been refused, and the state, by the Railroad
Commission, had obtained an injunction forbidding the dismantling
of the road and requiring it to go on. It ceased operations,
however, on December 7, 1917. On December 10, 1917, the bill to
foreclose was filed. On the same day, the state filed a bill in the
same court, ancillary to its other bill, asking for a receiver to
operate the road until further order, and, a few days later, sought
to have its bill consolidated with the foreclosure suit. This was
denied, and the state's bill was dismissed. The decree of
foreclosure complained of was entered on December 24, 1917, but, on
January 22, 1918, in deference to the state's contention that the
road could be run at a profit, although the state had not been
admitted formally as a party, H. S. Cummings was appointed a
receiver, he being the most available man and being able by his
connections to give the road a good deal of business in the way of
carrying lumber. After nearly a year's trial, the court was
satisfied that the road could not go on, and thereupon ordered a
sale which was made on February 3, 1919. On March 27, 1919, the
court admitted the state as a party and informed counsel that, if
it turned out as the Receiver and state insisted, "that the road
was operating so as to pay expenses of operation and the taxes and
had some reasonable show for business, the sale would not be
confirmed." On May 5, 1919, the court entered an order finding that
the road was hopelessly insolvent and could not be operated so as
to have any net income whatever, but postponing confirmation of the
sale until May 12, before which time the proceedings for
prohibition were begun.
Page 254 U. S. 520
The foreclosure decree of December 24, 1917, provided for a
first offer of the road to be used as a common carrier, but if less
than $200,000 was bid, there was to be a second offer with the
privilege of dismantling. If, however, the bid on the second offer
did not exceed by $100,000 the bid under the first offer, if there
was one, the bid under the first offer was to be accepted. The
trustee for bondholders was authorized to use the indebtedness of
the company in bidding, and to apply his bid, if accepted, to the
same. There was no bid on the first offer, and the Assets
Realization Company bought the property under the second. The
prohibition is against confirming the sale and against so much of
the foreclosure decree as authorized the second offer or
dismantling the road. The ground of decision was that, in the
absence of statute, a railroad company has no right to divert its
property to other uses without the consent of the state, and that
the lower court had no jurisdiction to make the prohibited portion
of the decree in a proceeding to which the state was not a party
until after the decree had been made.
It is not questioned that the lower court had jurisdiction of
the foreclosure, and it is not suggested that any statute forbids
the decree that was made. The decision of the court proceeds upon a
doctrine as to the duty of the railroad company, again a duty not
based upon statute, and although stated in terms of jurisdiction,
depends entirely upon a determination of what the rights of the
company are. If the company had the right to stop its operations
and dismantle its road, we do not understand that it is doubted
that the decree might embody that right in its order of sale. If we
are correct, the word "jurisdiction" must not prevent a further
consideration of the case.
Kenney v. Supreme Lodge of the
World, Loyal Order of Moose, 252 U. S. 411,
252 U. S.
414-415.
Apart from statute or express contract, people who have put
their money into a railroad are not bound to go on
Page 254 U. S. 521
with it at a loss if there is no reasonable prospect of
profitable operation in the future.
Brooks-Scanlon Co. v.
Railroad Commission of Louisiana, 251 U.
S. 396. No implied contract that they will do so can be
elicited from the mere fact that they have accepted a charter from
the state and have been allowed to exercise the power of eminent
domain. Suppose that a railroad company should find that its road
was a failure, it could not make the state a party to a proceeding
for leave to stop, and whether the state would proceed would be for
the state to decide. The only remedy of the company would be to
stop, and that it would have a right to do without the consent of
the state if the facts were as supposed. Purchasers of the road by
foreclosure would have the same right.
But the foreclosure was not a proceeding
in rem, and
could confer no rights except those existing in the mortgagor. A
purchaser at the sale would acquire all such rights as the
mortgagor had to stop operations, whatever words were used in the
decree, and, whatever the words, would get no more. The prohibition
excluding from the decree the words purporting to authorize
dismantling the road did not cut down the future purchaser's rights
any more than did the presence of those words enlarge them.
Therefore, the action of the supreme court is not open to objection
under the Constitution of the United States, although it may be
that it hardly would have been taken if the authority to dismantle
had not sounded more absolute than it could be in fact considering
the nature of the proceeding. Without previous statute or contract,
to compel the company to keep on at a loss would be an
unconstitutional taking of its property. But the prohibition does
not compel the company to keep on; it simply excludes a form of
authority from the decree that gives the illusion of a power to
turn the property to other uses that cannot be settled in that
case.
Page 254 U. S. 522
As the state voluntarily made itself a party to the foreclosure
suit before the decree went into effect, as indeed the decree never
has, it might seem that the state ought to be bound in a way that
otherwise it would not be. But if, in a revisory proceeding, the
higher state court says that the state should not be bound and that
the decree was wrong in this particular, that is a local question
with which we have nothing to do. The result is that, although the
state court may have acted on questionable or erroneous postulates,
there is nothing in its action that calls for a reversal of its
judgment.
Writ of error dismissed.
Writ of certiorari granted.
Judgment affirmed.