Opinion · Supreme Court of the United States
Farmers' Loan & Trust Co. v. Lake Street Elevated Railroad
177 U.S. 51
- Type
- Opinion
- Court
- Supreme Court of the United States
- Jurisdiction
- Federal
- Date
- 1900-03-26
- Topic
- general
How later courts describe this case
- recognizing that a proceeding is in rem where the court has possession of the res
- “The possession of the res vests the court which has first acquired jurisdiction with the power to hear and determine all controversies relating thereto, and for the time being disables other courts of co-ordinate jurisdiction from exercising a like power.”
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UpLaw has not yet analyzed Farmers' Loan & Trust Co. v. Lake Street Elevated Railroad. The absence of a flag is not a finding that it is good law.
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FARMERS' LOAN c., CO.v. LAKE ST. RD. CO.,177 U.S. 51(1900)
20 S.Ct. 564
FARMERS' LOAN AND TRUST COMPANYv. LAKE STREET ELEVATED RAILROAD CO.
ERROR TO THE SUPREME COURT OF THE STATE OF ILLINOIS.
No. 108.
Argued January 19, 1900.
Decided March 26, 1900.
THE Lake Street Elevated Railroad Company was incorporated
under the laws of the State of Illinois in the month of August,
1892, with a capital stock of five million dollars, which was
increased in the month of April, 1893, to ten millions of
dollars,
Page 52
consisting of one hundred thousand shares of the par value of one
hundred dollars each.
On April 7, 1893, the company made and delivered a certain
mortgage or trust deed to the American Trust and Savings Bank, a
corporation of the State of Illinois, and to the Farmers' Loan
and Trust Company, a corporation of the State of New York, as
trustees, to secure the payment of bonds in the aggregate amount
of six million five hundred thousand dollars. The said trust
companies duly accepted said trust, and the mortgage was
afterwards, on May 6, 1893, recorded in the recorder's office of
Cook County, Illinois. The amount and number of said bonds was
afterwards, in pursuance of provisions contained in the mortgage,
increased to 7574 bonds of the par value of $1000 each, making
the total mortgage indebtedness $7,574,000. The mortgage
contained the usual provisions authorizing the trustees, in case
of default in payment of the interest coupons for a period of six
months, to declare the entire principal debt to have become due
and payable, and to proceed by foreclosure or otherwise to
enforce the terms of the mortgage.
On January 30, 1896, at ten o'clock and thirty-five minutes
A.M., the Farmers' Loan and Trust Company, as a corporation of
the State of New York, filed in the Circuit Court of the United
States for the Northern District of Illinois a bill of complaint
against the Lake Street Elevated Railroad Company, the Union
Elevated Railroad Company, the Northwestern Elevated Railroad
Company, the West Chicago Street Railroad Company and the
American Trust and Savings Bank, all corporations organized under
the laws of the State of Illinois.
The bill alleged that default had been made by the Lake Street
Elevated Company in the payment of all interest coupons payable
on the 1st day of July, 1895, and on the 1st day of January,
1896; that the Lake Street Elevated Railroad Company had become
insolvent, and was unable to pay its debts and obligations; that
a foreclosure suit was necessary, and pending the proceeding that
it was expedient and necessary to have a receiver appointed. The
bill further alleged
Page 53
that the Union Elevated Railroad Company, the West Chicago Street
Railroad Company and the Northwestern Elevated Railroad Company
claimed to have acquired some interest, by lease or otherwise, in
the mortgaged property, and that the American Trust and Savings
Bank, named as co-trustee in the mortgage, had been requested to
join with it as complainant in the bill of foreclosure, but had
declined and refused so to do or to take any action in the
premises, and was therefore made a party defendant. A subpoena
was thereupon issued directed to the several defendants,
commanding them to appear and answer on the first Monday of March
next thereafter.
On the same day, January 30, 1896, shortly after the said bill
had been filed and process had issued, the Lake Street Elevated
Railroad Company filed in the Superior Court of Cook County,
State of Illinois, a bill of complaint against the Farmers' Loan
and Trust Company, the American Trust and Savings Bank and the
Northern Trust Company.
The bill, after setting forth the facts attending the issue of
the mortgage, alleged that at the time said mortgage was executed
and delivered the Farmers' Loan and Trust Company, being a
corporation under the laws of the State of New York, had not, and
had not since, complied with the laws of the State of Illinois,
which required a deposit with the auditor of public accounts for
the benefit of the creditors of said company of the sum of two
hundred thousand dollars in stocks of the United States or
municipal bonds of the State of Illinois, or in mortgages on
improved and productive real estate of such State, being first
liens thereon, and the real estate being worth at least twice the
amount loaned thereon; that, at the time of the execution and
delivery and acceptance of said trust under said mortgage, the
Lake Street Company, the complainant, did not know that the
Farmers' Loan and Trust Company had not complied with the laws of
the State of Illinois; and that since the acceptance of said
trust the Farmers' Loan and Trust Company had been doing business
in the State of Illinois, and had appointed one William Burry as
its agent to enforce compliance by the Lake Street Elevated
Company with the trusts reposed
Page 54
in the Farmers' Loan and Trust Company, under said mortgage or
deed of trust, and that said Burry, as such agent, had acted and
still was acting by virtue of the authority claimed to be vested
in the Farmers' Loan and Trust Company under said mortgage.
This bill further alleged that the Lake Street Elevated
Railroad Company had been unable to earn sufficient money in
operating its railroad to pay the interest upon the bonded
indebtedness secured by the said mortgage or deed of trust; that,
notwithstanding such fact, one William Ziegler, of New York city,
conspiring and confederating with various persons, and altogether
representing 610 bonds of the total issue of 7574 bonds, made a
demand upon the Farmers' Loan and Trust Company and the American
Trust and Savings Bank that they proceed to foreclose said
mortgage, and take possession under and by virtue of the powers
contained in said mortgage and the authority vested in said
trustees, or to file a bill to foreclose such mortgage; that the
complainant, the Lake Street Elevated Railroad Company, filed on
December 30, 1895, a bill in the Circuit Court of Cook County,
Illinois, against said William Ziegler and others, seeking to
enjoin them, and each of them, and the Farmers' Loan and Trust
Company and the American Trust and Savings Bank, from instituting
any proceedings to foreclose said mortgage, and, for reasons set
forth, an injunction immediately and without notice was prayed
for.
It appears that such an injunction was issued, but that
subsequently said cause was, on petition of Ziegler and other
bondholders, removed into the Circuit Court of the United States
for the Northern District of Illinois.
The bill in the present case proceeded to allege that no other
persons than Ziegler and those associated with him as holders of
the 610 bonds were asking or demanding of the Farmers' Loan and
Trust Company any action or proceeding, but notwithstanding it
proposed and would file a bill to foreclose the said mortgage for
failure to pay the interest upon the bonded indebtedness; that
the holders of 6574 bonds, issued under said mortgage, had
requested the trustees to take no action whatsoever under said
mortgage or trust deed with reference to the
Page 55
failure of said company to provide for or pay the interest due
July 1, 1895, and January 1, 1896; that the American Trust and
Savings Bank, in compliance with said request, declined and
refused on January 28, 1896, to join with the Farmers' Loan and
Trust Company in any proceedings whatsoever to enforce the
provisions or conditions of said mortgage on account of the
failure of the company to pay said interest.
The bill further alleged that it was the wish of the holders
of over 6500 of said bonds that the Farmers' Loan and Trust
Company should be removed from its position as trustee under said
mortgage, first, for failure to comply with the laws of the State
of Illinois, and, second, for assuming to act or take proceedings
under said mortgage, contrary to the request of the holders of a
majority of the bonds issued under said mortgage. Thereupon the
bill proceeded to pray that a new trustee should be appointed by
the court to act, under and by virtue of said mortgage, in place
and stead of the Farmers' Loan and Trust Company; that an
injunctionpendente liteshould be issued, restraining and
enjoining said the Farmers' Loan and Trust Company from taking
any proceedings or bringing or prosecuting any suit or suits, or
acting in any manner whatsoever under and by virtue of the terms,
provisions and conditions of said mortgage or deed of trust, and
that, upon final hearing, said injunction should be made
perpetual; and for other and further relief. A writ of injunction
was forthwith issued and served.
On January 31, 1896, the Farmers' Loan and Trust Company
filed, in the Superior Court of Cook County, its petition to
remove said cause into the Circuit Court of the United States.
The petition alleged that the Farmers' Loan and Trust Company was
a corporation organized under the laws of the State of New York,
and a citizen thereof; that the Lake Street Elevated Railroad
Company, the American Trust and Savings Bank and the Northern
Trust Company were corporations organized under the laws of the
State of Illinois, and citizens thereof; that in said cause there
were controversies between citizens of different States, which
controversies could be fully determined as between them, and that
said controversies were between the petitioner on the one part,
and the Lake Street Elevated Railroad Company on the other, and
were as follows:
Page 56
1. A controversy concerning the right of the petitioner to act
as trustee under the mortgage. 2. A controversy concerning the
removal of the petitioner as trustee under said mortgage. 3. A
controversy concerning the enjoining of the petitioner from
taking any proceedings or bringing or prosecuting any suits, or
acting under and by virtue of the terms, provisions and
conditions of the mortgage.
The petition further alleged that if the controversy in the
cause was one and inseparable, then such controversy was wholly
between citizens of different States, and could be fully
determined between them, and that said controversy was between
the petitioner on the one part and the Lake Street Elevated
Railroad Company on the other part, and that said other
defendants, the American Trust and Savings Bank and the Northern
Trust Company, were not proper or necessary parties in the cause.
The petition further alleged that on January 30, 1896, it had
exhibited in the Circuit Court of the United States for the
Northern District of Illinois its bill in chancery for a
foreclosure of said mortgage, and in doing so was acting under
and by virtue of the terms, provisions and conditions of said
mortgage; that its said bill of complaint was filed prior to the
commencement of this suit or of any notice thereof to the
petitioner, or of any notice to the petitioner of the temporary
injunction issued in this cause, and that the suit so commenced
by the petitioner is still pending and undetermined; that the
bringing of this suit and the issuing of said injunction tends to
obstruct and impede the administration and jurisdiction of the
said Circuit Court of the United States in the suit so commenced
by the petitioner in said Circuit Court of the United States, and
interferes with the property thereby brought into said Circuit
Court, and that there is therefore involved in this suit a
controversy arising under and by virtue of the laws of the United
States, which controversy affects the jurisdiction of said
Circuit Court of the United States in said cause so commenced
therein by the petitioner.
The petition made profert of a bond in the penal sum of five
hundred dollars, conditional for the entering in the Circuit
Page 57
Court of the United States, on the first day of its next session,
a copy of the record in this suit, and for paying all costs that
might be awarded if said Circuit Court of the United States
should hold that this suit was wrongfully or improperly removed
thereto.
The petitioner thereupon prayed the court to proceed no
further in the cause, except to make an order of removal, as
required by law, and to accept said surety and bond, and to cause
the record therein to be removed to said Circuit Court of the
United States, according to the statute in such case made and
provided.
The Superior Court of Cook County having denied the removal,
thereafter, on February 4, 1896, the Farmers' Loan and Trust
Company procured an order from the Circuit Court of the United
States giving leave to file a transcript of the record of this
suit in the United States court, whereupon, on that day, such
transcript of record was filed and the cause was docketed.
Thereafter motions were severally made by the Lake Street
Elevated Railroad Company, the Northern Trust Company and the
American Trust and Savings Bank, in the Circuit Court of the
United States, for an order remanding the cause to the Superior
Court of Cook County. These motions were accompanied by
statements denying, among other things, that the suit involved
controversies between citizens of different States, and alleging
that the bond filed by the petitioner was insufficient in that
said bond was not signed by the petitioning company, but by
sureties only.
On March 16, 1896, after argument, the Circuit Court of the
United States overruled and denied the motions to remand.
In February, 1896, the American Trust and Savings Bank, and on
April 24, 1896, the Lake Street Elevated Railroad Company, filed,
in the Circuit Court of the United States demurrers to the bill
of foreclosure. On April 21, 1896, the Circuit Court, on motion
and after argument, set aside theex parteinjunction that had
been entered by the state court, after the bill of foreclosure
had been filed in the Federal court; and thereupon an appeal was
taken from this order, setting aside the injunction, to the
Circuit Court of Appeals of the Seventh Circuit, which appeal
Page 58
was, on January 9, 1897, overruled and dismissed.
77 F. 769.
On March 18, 1896, a motion was made in the state court to
attach for contempt the attorney of the Farmers' Loan and Trust
Company in disobeying theex parteinjunctional order.
Thereupon the Farmers' Loan and Trust Company entered a special
appearance in the state court, and moved to quash the service in
the case; and on the same day, on a motion by the counsel of the
Lake Street Elevated Company, the court entered an order finding
that it had jurisdiction of the parties and the subject-matter,
and ordering that the special appearance and motion by the
Farmers' Loan and Trust Company should be stricken from the files
as having been improperly and improvidently filed. The Farmers'
Loan and Trust Company then applied for leave to enter a general
appearance and for time to answer. Leave so to do was granted by
the court, on condition that the answer be on or before March 25,
1896. Upon the coming in of the answer on that day the court
appointed May 8, 1896, for a final hearing. The Farmers' Loan and
Trust Company had leave to file an amended answer, in which,
besides denying the several charges made against it in the bill,
it was alleged that the state court did not have jurisdiction;
that the case had been removed to the Circuit Court of the United
States, and that, by reason of the action of that court in
refusing, on motion by the Lake Street Elevated Railroad Company,
to remand, the state court should not proceed with the case.
On May 28, 1896, the state court made its findings in favor of
the Lake Street Elevated Railroad Company, the complainant, and
on June 4, 1896, entered a final decree in the case.
By this decree it was decreed that the Farmers' Loan and Trust
Company should be and was removed from its position as trustee,
and it was further ordered that "the said defendant, the Farmers'
Loan and Trust Company, and its attorneys, solicitors, officers,
agents and servants, and each and every of them, be and they
hereby are perpetually enjoined and restrained from taking any
proceedings, or bringing or prosecuting any suit or suits, to
foreclose said mortgage or trust deed from said complainant to
said American Trust and Savings
Page 59
Bank and said Farmers' Loan and Trust Company, or acting in any
manner whatsoever under and by virtue of the terms, provisions
and conditions of said mortgage or trust deed."
It was further ordered that the American Trust and Savings
Bank should, by an instrument in writing, appoint a trustee in
place of the Farmers' Loan and Trust Company, and that the
Farmers' Loan and Trust Company should execute an instrument of
transfer to vest in such new trustee "all the property,
privileges and rights" of the said Farmers' Loan and Trust
Company under said trust deed.
In October, 1896, an appeal from this decree was taken to the
Appellate Court for the First District of Illinois, and on
February 9, 1897, that court affirmed the decree of the trial
court.68 Ill. App. 666.
On appeal to the Supreme Court of the State the decree of the
Appellate Court was affirmed on June 7, 1898.173 Ill. 439.
It was held by the state courts that the case was not properly
removed to the Circuit Court of the United States for the reason
that the bond filed with the petition for removal was not signed
by the Farmers' Loan and Trust Company, the petitioner, but only
by the sureties. Those courts likewise held that the Farmers'
Loan and Trust Company was properly removed as trustee because of
its non-compliance with the provision of the state statute,
requiring foreign trust companies to make a deposit of securities
with the state auditor.
On July 7, 1898, a writ of error from this court to the
Supreme Court of Illinois was allowed.
Apart from those questions, the principal matters in dispute are the legal competency of the Farmers' Loan and Trust Company to act as trustee under the mortgage, and whether, in view of the controversy between the two sets of bondholders in regard to the right and expediency of a foreclosure proceeding, the Farmers' Loan and Trust Company can proceed to enforce the provisions of the mortgage. And these are matters which are necessarily involved, and can be properly raised and determined in the Circuit Court of the United States whose jurisdiction had attached by the filing of the bill of foreclosure before the commencement of the suit in the state court.
The contention that the jurisdiction of the state court first attached because, although the suit therein was not commenced till after the commencement of the suit in the Federal court, the summons issued by the state court was served before the service of the writ of subpoena issued by the Federal court, is not well founded.
A suit in equity is commenced by filing a bill of complaint. Story's Equity Pleading, sec. 7, fourth edition.
Such is also the rule by statute in Illinois. Rev. Stats. Illinois, 1874, c. 22;Hodgenv.Guttery,58 Ill. 431.
It is true that in applying the doctrine oflis pendensto the case of a third person who is abona fidepurchaser, notice is held to begin from the date of service of the subpoena and not from the filing of the bill.Millerv.Sherry, 2 Wall. 237, 250; 2 Maddock's Ch. Pr. 325;Haughwoutv.Murphy,22 N.J. Eq. 536,545;Grantv.Bennett,96 Ill. 513.Page 61
But here no question is presented relating to rights acquired by any third person after the commencement of the suit and before the service of process on the defendants. As between the immediate parties, in a proceedingin rem, jurisdiction must be regarded as attaching when the bill is filed and process has issued, and where, as was the case here, the process is subsequently duly served, in accordance with the rules of practice of the court.
The defendants could not defeat jurisdiction thus acquired, and supplant the case, by bringing suit in another court and procuring anex parteinjunction seeking to restrain the service of process already issued.
As, then, the bill of foreclosure had been filed in the Circuit Court of the United States, and the jurisdiction of that court had thus attached before the commencement of the suit in the state court, it follows upon principle and authority that it was not competent for the State court to interfere by injunction or otherwise with the proceedings in the Federal court.
The possession of theresvests the court which has first acquired jurisdiction with the power to hear and determine all controversies relating thereto, and for the time being disables other courts of coordinate jurisdiction from exercising a like power. This rule is essential to the orderly administration of justice, and to prevent unseemly conflicts between courts whose jurisdiction embraces the same subjects and persons.
Nor is this rule restricted in its application to cases where property has been actually seized under judicial process before a second suit is instituted in another court, but it often applies as well where suits are brought to enforce liens against specific property, to marshal assets, administer trusts or liquidate insolvent estates, and in suits of a similar nature where, in the progress of the litigation, the court may be compelled to assume the possession and control of the property to be affected. The rule has been declared to be of especial importance in its application to Federal and state courts.Peckv.Jenness, 7 How. 612;Freemanv.Howe, 24 How. 450;Moranv.Sturges,154 U.S. 256;Central Bankv.Stevens,169 U.S. 432;Harkraderv.Wadley,172 U.S. 148.Page 62
We think that this salutary rule is applicable to the present case. The bill filed in the Federal court looked to the enforcement of the trusts declared in the mortgage, the control of the railroad through a receiver, the sale of the railroad, and the final distribution of the assets of the company. Such a proceeding necessarily involves the right of the complainant trustee to act as such, and the determination of the controversy in respect to the ownership of the bonds and to the power of a majority of the bondholders, by an agreement with the stockholders, to dispense with an enforcement of the provisions of the mortgage by judicial proceedings. These questions are not for our consideration, unless and until they are brought before us on appeal from a final decree of the court whose jurisdiction was first legally invoked to determine them.
Our conclusion is that the Superior Court of Cook County erred in its decree perpetually enjoining and restraining the Farmers' Loan and Trust Company, the plaintiff in error, from proceeding with or prosecuting the said foreclosure suit in the Circuit Court of the United States, and from acting in any manner whatsoever under and by virtue of the terms, provisions and conditions of the said mortgage; that the Appellate Court of the First District of Illinois erred in affirming said decree, and that the Supreme Court of Illinois erred in affirming the judgment of the said Appellate Court.Accordingly, the judgment of the Supreme Court of Illinois isreversed, and the cause is remanded to that court for furtherproceedings not inconsistent with this opinion.Page 63