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to an understanding of the several errors of be brought on behalf, not only of the plainlaw now insisted upon.

tiff, but of *all persons similarly situated, it (3,4) First. The Southern Pacific contends is not essential that each such person should that plaintiffs are barred by laches. The re- intervene in the suit brought in order that he organization agreement is dated December be deemed thereafter free from the laches 20, 1887; the decree of foreclosure and sale which bars those who sleep on their rights. was entered May 4, 1888; the sale was held Cox v. Stokes, 156 N. Y. 491, 511, 51 N. E. September 8, 1888; and the stock in the new 316. Nor does failure, long continued, to discompany was delivered to the Southern Pa- cover the appropriate remedy, though well cific on February 10, 1891. This suit was not known, establish laches where there has been begun until July 26, 1913; and not until due diligence, and, as the lower courts have that time was there a proper attempt to as- here found, the defendant was not prejudiced sert the specific equity here enforced, name- by the delay. ly, that the Southern Pacific received the [5, 6] Second. The Southern Pacific constock in the new Houston Company as trus-tends that adverse decisions in the earlier tee for the stockholders of the old. More litigation are a bar either as an estoppel or than 22 years had thus elapsed since the by way of election of remedies; since the wrong complained of was committed. But prosecution of some, if not all, of the earlier the essence of laches is not merely lapse of suits also was actively supported by the mi. time. It is essential that there be also ac- nority stockholders' committee, and the plainquiescence in the *alleged wrong or lack of tiffs are bound as privies to the full extent diligence in seeking a remedy. Here plain- | to which the decrees therein constitute res tiffs, or others representing them, protested judicata. But in none of these suits was the as soon as the terms of the reorganization question here in issue decided. Except in so agreements were announced; and ever since far as those cases were disposed of on obthey have with rare pertinacity and undaunt- jections to jurisdiction, they decided merely ed by failure persisted in the diligent pur that the foreclosure could not be set aside as suit of a remedy as the schedule of the earli-fraudulent; that the minority stockholders er litigation referred to in the margin dem- could not have the reorganization agreement onstrates.3 Where the cause of action is of declared fraudulent; and that they could such a nature that a suit to enforce it would not compel a reduction of the assessment

made under it or enjoin distribution of the * The earlier litigation is summarized thus in stock according to its terms. The minority the opinion of the District Court: Carey v. H. stockholders sought, when presenting the & T. C. Ry. Co. (C. C.) 45 Fed. 438 (1891), and 52 Fed. 671 (1892), C. C., E. D., Tex.; stockholders beld case in the Court of Appeals of New York not entitled to decree enjoining carrying out plan (MacArdell v. Olcott, 189 N. Y. 368, 372, 373, of reorganization or to have foreclosure set aside 82 N. E. 161), to have declared the trust as fraudulent. Carey v. H. & T. C. Ry. Co., 150 U. S. 170, 14 Sup. Ct. 63, 37 L. Ed. 104 (1893); ap

which was later decreed in this suit; but peal to Supreme Court from decree of Circuit Court that court refused to consider the contention, dismissed. Carey v. H. & T. C. Ry. Co., 9 C. C. A. for the reason that this claim to relief was 687, 13 U. S. App. 729 (1894); decree of Circuit based upon a theory "widely at variance" Court affirmed by Circuit Court of Appeals for the Fifth Circuit. Carey v. H. & T. C. Ry. Co., 161 U. with that upon which that action was com8. 115, 16 Sup. Ct. 537, 40 L. Ed. 638 (1896); Appeal menced and tried. Because of such wide di. to Supreme Court from decree of Circuit Court

vergence the earlier decrees do not operate of Appeals dismissed. Gernsheim v. Olcott (Sup.) 7 N. Y. Supp. 872 (1889), and 56 Hun, 644, 10 N. Y.

as res judicata. And there is no basis for Supp. 438 (1890), and Gernsheim v. Central Trust the claim of estoppel by election; nor any Co., 16 N. Y. Supp. 127, 61 Hun, 625 (1891); stockhold- reason why the minority, who failed in the, ers held not entitled to reduction of assessment or

attempt to recover on one theory because unto injunction against distribution of stock of new company under reorganization. MacArdell v. 01- supported by the facts, should *not be percott, 104 App. Div. 263, 93 N. Y. Supp. 799 (1905), mitted to recover on another for which the and 189 N. Y. 368, 82 N. E. 161 (1907); action by facts afford ample basis. Wm. W. Bierce, stockholders to set aside foreclosure sale and annul reorganization agreement on ground of fraud Ltd., v. Hutchins, 205 U. S. 340, 347, 27 Sup. dismissed. MacArdell v. Olcott, 62 App. Div. 127, Ct. 524, 51 L. Ed. 828; Barnsdall v. Walte70 N. Y. Supp. 930 (1901); application of stockholder meyer, 142 Fed. 415, 420, 73 C. C. A. 515; for leave to intervene denied for laches. Lawrence Standard Oil Co. v. Hawkins, 74 Fed. 395, v. Southern Pacific Co. (C. C.) 165 Fed. 241 (1908), 177 Fed. 547 (1910), and 180 Fed. 822 (1910), C. C., E. 20 C. C. A. 468, 33 L. R. A. 739; Henry v. D., N. Y.; action by stockholder for accounting and Herrington, 193 N. Y. 218, 86 N. E. 29, 20 other relief; motions to remand denied and suit L. R. A. (N. S.) 249. dismissed. Bogart v. Southern Pacific Co., 228 U.

[7] Third. The Southern Pacific challenges S. 137, 33 Sup. Ct. 497, 57 L. Ed. 768 (1913); appeal to Supreme Court from decree of Circuit Court in the claim for relief on the ground that it Lawrence v. Southern Pacific Co., supra, dismissed. took the new Houston Company stock, not MacArdell v. Olcott, N. Y. Court of Appeals, Octo

as majority stockholder, but as underwriter ber 29, 1907, 189 N. Y. 368, 82 N. E. 161, affirming 104 App. Div., supra, with statements of limitations in

or banker under the reorganization agree the complaint. In the last-named case the court ment. The essential facts are these: While (two judges dissenting) did not attempt to consider dominating the old company through control the merits of this transaction, but expressly stated that the present form of action was not presented of a majority of its stock, the Southern by that complaint.

Pacific entered into its reorganization, un

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(39 Sup.Ct.) der an agreement by which the minority , tiffs individually of the property which it has stockholders of the old company could ob-received, the old Houston Company is in no tain stock in the new only upon payment way interested and would not be even a propin cash of a prohibitive assessment of $71.40 er party. per share (said to be required to satisfy the [11] Seventh. The Southern Pacific also floating debt and reorganization expenses contends that the decree is erroneous because and charges), while the Southern Pacific was the effect is to give to the minority their pro enabled to acquire all the stock in the new rata share in the new Houston Company company upon paying an assessment of $26 without their having made any contribution per share (said to be the amount required towards satisfying the Boating indebtedness

satisfy reorganization expenses and of the old; whereas the floating debt credicharges). The Southern Pacific asserts that, tors had a claim against the property *prior unlike the minority stockholders, it assumed in interest to that of the old company's an underwriter's obligation to take the new stockholders. Kansas City Southern Ry. Co. company's stock not subscribed for by the v. Guardian Trust Co., 240 U. S. 166, 36 Sup. minority, and also guaranteed part of the Ct. 334, 60 L. Ed. 579; Northern Pacific Ry. principal and all the interest on the new Co. v. Boyd, 228 U. S. 482, 33 Sup. Ct. 554, 57 company's bonds, which were given in ex- L. Ed. 931. The fact that no provision was change for those of the old company. But made for the floating indebtedness is not a the purpose of the Southern Pacific in as bar to the minority obtaining relief. They suming these obligations was in no sense to did not come into court with unclean hands perform the function of banker. It was to because there were floating debt creditors unsecure the incorporation of the Houston Rail. paid. If any floating debts creditors have road into its own transcontinental system. been illegally deprived of rights, it was not And it was never called upon to pay any. by the minority's acts. Whether the terms thing under its guaranty.

on which relief should be granted the minori[8] Fourth. The Southern Pacific contends ty should be affected by the fact that the that the doctrine under which majority Southern Pacific had, through a subsidiary, stockholders exercising control are deemed a large interest in the unpaid floating debt, trustees for the minority should not be ap- presents a more serious question, which will plied here, because it did not itself own di- be considered later. rectly any *stock in the old Houston Compa- [12] Eighth. Objection is made by the ny; its control being exerted through a sub- Southern Pacific to the terms of the decree sidiary, Morgan's Louisiana & Texas Rail- also on the ground that, in requiring distriroad & Steamship Company, which was the bution of stock in the old Houston Company majority stockholder in the old Houston to the minority stockholders instead of pro, Company. But the doctrine by which the viding merely for an accounting and comholders of a majority of the stock of a cor- pensation in damages, the decree imposes upporation who dominate its affairs are held to on it a heavy and unnecessary hardship. act as trustee for the minority does not rest This, it is said, will result from the fact upon such technical distinctions. It is the that all the stock of the new Houston Comfact of control of the common property held pany (except 17 shares to qualify directors) and exercised, not the particular means by has been pledged by the Southern Pacific as which or manner in which the control is part collateral for an issue of 35-year 4 per exercised, that creates the fiduciary obliga- cent. bonds to the amount of 250,000,000 tion.

francs, and that by reason of a clause in the [9] Fifth. Equally unfounded is the con- collateral agreement by which the Southern tention that the Southern Pacific cannot be Pacific covenants that it is the lawful ownheld liable because it was not guilty of fraud er of the securities, and that they “are not or mismanagement. The essential of the lia- | subject to any prior pledge, charge, or bility to account sought to be enforced in equity," a decree requiring distribution of this suit lies, not in fraud or mismanage stock to the minority stockholders may conment, but in the fact that, having become ceivably entitle the trustee for these bonds a fiduciary through taking control of the old to declare them due, that such default might Houston Company, the Southern Pacific has preclude it from withdrawal of the stock secured fruits which it has not shared with and from substituting other collateral, and the minority. The wrong lay, not in acquir-that, in any event, if substitution of collatering the stock, but in refusing to make a pro al is permissible, additional securities will rata distribution on equal terms among the have to be deposited, because the agreement old Houston Company shareholders.

provides that in case of withdrawal of any [10] Sixth. The Southern Pacific also urges *securities upon request made after Septemthat the suit must fail because the old Hous- ber, 1911, those "offered in substitution and ton Company is an indispensable party and those remaining on deposit (in each instance) has not been joined. The contention pro shall be equal in value, as appraised or receeds upon a misconception of the nature of appraised, at the time of such proposed subthe suit. Since its purpose is merely to hold stitution, to one hundred and twenty per the Southern Pacific as trustee for the plain-centum (120%) of the amount of bonds then

outstanding hereunder,” and that there had ; vided pro rata among such of the floating . been a heavy depreciation in such other se- debt creditors as should provide the cash recurities since the time of their deposit. The quired to pay the floating indebtedness and alleged hardship involved in requiring a de- reorganization expenses and charges; but no livery to plaintiffs of new Houston Company | floating debt creditor took advantage of this stock in specie was made by the interlocu- provision, and all were thus wiped out in tory decree a subject of investigation by the the reorganization. special master; and his report that the re The Southern Pacific asserts that the Mor. quirement would not impose undue hardship gan Company was and still is its subsidiary; appears to have been carefully considered that it owned and now owns a large part of before entry of the final decree; but neither the stock of that corporation; and that of the lower courts set forth the reasons through such stock ownership it is, in effect, which led to the rejection of the Southern a large floating debt creditor of the old HousPacific's contention. The final decree was ton Company. It suggests also that it has entered in the District Court on October 5, paid out moneys to protect the property of 1916. Since then the World War and the the new company from other floating indebt. participation in it of the United States have edness. If the Southern Pacific had been greatly affected financial conditions and secu- allowed to retain all the stock in the new rity values, especially those involving trans- Houston Company, it would obviously lose portation properties. It may be that the nothing by the wiping out of its interest in, clause in the collateral agreement requiring the floating indebtedness of the old company: reappraisal of all securities upon the with- and any *money expended by it in protecting drawal of any might now prove very burden- the property of the new company would be some. The pledge was made in 1911; and, as fully reflected in the increased value of the the Southern Pacific contends, it was justi- stock therein, if it owned all. But, if part fied then in depositing this stock as collater- of the new company stock is taken from it al, because up to that time the minority and distributed among the minority stockstockholders had not made any claim to holders, the Southern Pacific will lose and stock in specie. For reasons hereinafter the minority stockholders will gain the pro stated, the case must be remanded to the rata increase in value of the new company District Court for further proceedings with stock, due to wiping out of the Southern Paa view to modifying the terms of the decree cific's share in the floating debt and to its in other respects. It seems to us proper that expenditures made for wiping out other inthe Southern Pacific should also have liberty debtedness. to present to that court reasons, if any, for The Circuit Court of Appeals recognized believing that the decree as framed will un- that there was great force in this contention der then existing conditions impose undue of the Southern Pacific, but overruled it behardship upon it.

cause it “was never raised in the case by [13, 14] Ninth. The Southern Pacific ob- pleading or otherwise until an exception was jects to the terms of the decree also on the taken to the report of the special master" ground that, if the minority stockholders and because “there is nothing in the record *are held entitled to a pro rata share of the to show what, if anything, the Southern Panew company stock, it should be upon pay. cific Company did give up.” The memoranment, not merely of the $26 per share re- dum filed by the district judge on settlement quired to meet reorganization expenses and of the interlocutory decree indicates that charges, but also of the additional sum re- some such contention was made then. At all quired to discharge the floating indebtedness. events it was clearly made before entry of At the time of the reorganization there was the final decree; and it does not appear that outstanding a large floating indebtedness for the minority stockholders were in any way which on May 17, 1889, judgments were re- prejudiced by the failure to make the exact covered: by the Lackawanna Iron & Coal contention earlier. There is no reason to be Company in the sum of $555,914.25; by Mor- lieve that the parties cannot determine now, gan's Louisiana & Texas Railroad & Steam- as easily as they might have done a few ship Company in the sum of $1,795,570.81; years ago, to what extent the floating in. and by the Southern Development Company debtedness due the Morgan Company reprein the sum of $858,133.15. The last two com- sents money in effect expended by the Southpanies held as collateral for their claims ern Pacific for the benefit of the old Hous$880,000 of bonds of the old Houston Com- ton Company and to what extent the wiping pany, for which they later received in ex- out of any indebtedness and any expenditure change bonds of a new company to be ap- made by the Southern Pacific in connection plied at their par value toward payment of therewith will inure to the benefit of such of the debts for which judgment had been re the minority stockholders of the old company covered. The reorganization agreement pro as receive stock in the new. Some adjustvided in substance that the whole $10,000,000 ment should obviously be made so as to comof stock of the new company, if not taken by pensate the Southern Pacific for any contrithe old company's stockholders, should be di- / bution made at its expense to the value of

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(39 Sup.Ct.) the stock in the new company of which the by the Corn Exchange Bank, alleging that minority stock*holders may get the benefit. they were respectively owners of stock in the The purpose of this proceeding is not to pun- old Houston Company and praying leave to ish the Southern Pacific, but to declare and intervene, and that they be permitted to enforce its obligation as trustee. The minor-share in the benefits of the decree, or, in the ity stockholders who seek equity should do alternative, that they be permitted to make equity; and a court of chancery has power in such application to the District Court. ACgranting relief to prevent unjust enrichment tion on these petitions was postponed to the of the minority stockholders at the expense hearing of the case on the merits. As the of the Southern Pacific. To determine the case must be remanded to the District Court amount of such contribution by the Southern for further proceedings as above stated, we Pacific and of such benefit to the minority deny these several petitions without expressstockholders further investigation by the ing any opinion on their merits and without trial court will be necessary; and the judg- prejudice to the right to apply to the District ments on the floating indebtedness entered in Court for leave to intervene and to share in 1889 against the old company should not be the benefits of the decree. held a bar to any inquiry into relevant facts. Decree modified, and cause remanded to Whether this compensation shall be made by the District Court for further proceedings in way of addition to the assessment of $26 conformity with this opinion; the costs in per share provided for in the decree, or this court to be equally divided between the whether it can and should be made by re- parties. quiring the minority stockholders to consent to the creation in favor of the Southern Pa

The CHIEF JUSTICE took no part in the cific of some charge against or interest in consideration or the decision of this case. the new company which would have priority - Mr. Justice McREYNOLDS dissenting. over the 100,000 shares of stock outstanding,

It seems to me quite clear that the judg. as, for instance, an income bond or preferred ment below is wholly wrong. Respondents' stock, or whether the compensation should be complaint should be dismissed. made in some other manner, should also be

This suit was brought in 1913, some 25 determined in the first instance by the Dis- years after those who complain came into trict Court where all the relevant facts can possession of all material facts. During be ascertained. The final decree must be set that period they were parties or privies to aside and the interlocutory decree be modi- suit after suit-the first begun in 1889 and fied so as to provide for the necessary in- all unsuccessful—which sought to upset what qulry; and, when all the relevant facts shall petitioner had done because of its actual have been ascertained, a final decree should

fraud. be entered which will embody such terms as

The original bill of complaint in the presshall be found to be appropriate to afford to ent cause alleges: the Southern Pacific appropriate compensa

"As soon as the terms of the said reorganiztion for its contribution. [15] Tenth. The Southern Pacific objects (1888), S. W. Carey, Cornelius MacArdell, Wal

ation agreement were announced and published to the orders permitting Gernsheim and the ter B.' Lawrence, plaintiffs' testator, and other estate of Minzesheimer to intervene after the stockholders of the railway company protested entry of the interlocutory decree, and ob- against the terms of the said agreement, claimjects also to the final decree in so far as it ing that it practically gave the railway comdeclares these interveners entitled to the re- pany to the Southern Pacific Company in fraud lief granted other *minority stockholders. of the individual stockholders." "Immediately The suit was brought on behalf of all stock after the entry of the said consent decree of holders of the old Houston Company, situat. May 4, 1888, the said Carey, MacArdell

, Law

rence, and other stockholders of the said railed similarly to the plaintiffs. The court

way company formed a committee of stockholdfound on competent evidence that these par-ers to protect tmselves from the frauds comties were such. If they could not have in- mitted and proposed to be committed by the tervened as of right, it was at least within Southern Pacific Company under the said rethe discretion of the court to permit them to organization agreement and consent decree, do so; and no reason is shown for question and said committee of stockholders employed ing the exercise of its discretion. It is also as counsel Frederick R. Coudert, Edward M. urged that the earlier litigation by Gerns- Shepard, and A. J. Dittenhoefer, of New York heim bars his claim to relief on the grounds City, Jefferson Chandler, of St. Louis, and lat

er on H. Snowden Marshall, Russell H. Lanof estoppel or of inconsistency of remedy; dale, and David Gerber, and from the combut that contention has already been shown mencement of their first suit [December, 1889] to be unfounded.

hereinafter mentioned, to the present day, the [16] Eleventh. The certiorari and return firm of Dittenhoefer, Gerber & James has been were filed May 3, 1918. On October 8, 1918, their attorneys of record.” separate petitions were filed in this court by Henry J. Chase, by Fergus Reid, by Al- Having long emphatically condemned, atbert M. Polack, by Francis P. O'Reilly, and tacked, and sought without success to aunul

498

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petitioner's action, re*spondents finally come

(250 U. S. 473) before a court of equity saying in effect: BARRETT v. VIRGINIAN RY. CO. Although represented by counsel of great eminence, we have not heretofore known the (Submitted March 21, 1919. Decided June 9,

1919.) law; notwithstanding all solemnly declared to the contrary, we now maintain that peti

No. 275. tioner was really acting for us, our trustee indeed; and we wish to share in the plan 1. COURTS Cw334 – PRACTICE - CONFORMITY which it has carried to success against our

Аст. persistent opposition. Such a claim exhales a Conformity Act June 1, 1872, § 5 (Comp. very bad odor; and I think the parties pre- St. & 1537), was intended to bring about unisenting it should be dismissed, burdened with formity in the law of procedure in the state an appropriate bill of costs, for two very had supplanted the common-law procedure by

and federal courts after many of the states simple reasons:

the Code practice. First. They are barred by laches. Rational men are presumed to know the law; 2. TRIAL Ow139(1)-DIRECTION OF VERDICTknowledge of consequent rights and appro

PROPRIETY. priate means of asserting them is necessa

In the federal courts, whenever in the trial rily implied from full acquaintance with the of a civil case it is clear that the state of the facts. Respondents' attempt to rely upon an evidence is such as not to warrant a verdict alleged belated discovery of a well-known rendered the other party would be entitled to

for a party, and that if such a verdict were remedy after years of litigation conducted in full view of all the circumstances affronts to direct the jury to find according to the

a new trial, it is the right and duty of the judge both established principles and common ex- views of the court. perience. And this is emphasized by the names of distinguished counsel who have 3. Courts Cum 352 – CONFORMITY TO STATE continuously represented the minority stock

PRACTICE-DIRECTION OF VERDICT-PROPRIholders since 1888.

The rule as to the direction of verdicts in "Nothing can call a court of equity into ac- federal courts is not subject to modification by tivity but conscience, good faith, and reasonable state statutes or Constitutions. diligence; and when a party with full knowledge of the facts, acquiesces in a transaction, 4. DISMISSAL AND NONSUIT 5—RIGHT TO and sleeps upon his rights, equity will not aid

NONSUIT-COMMON-LAW PRACTICE. him." Hayward v. Eliot National Bank, 96 U. At common law, as generally understood S. 611, 24 L. Ed. 855.

and applied, a nonsuit could be taken freely

at any time before verdict, if not, indeed, before Due diligence in asserting a constructive

judgment. trust is incompatible with persistent denial 5. COURTS W352—RIGHT TO NONSUIT-Comof such relationship after full knowledge of

MON-LAW PRACTICE. all the circumstances and furious chase The right to take a nonsuit is substantial, for 25 years in the opposite direction by the and when and how it may be asserted are quessoi-uisant beneficiary.

tions relating directly to practice and mode of Second. Certainly the petitioner never con- proceeding, within the intendment of the Con

formity Act. sciously undertook to act as respondents' trustee for years nobody seems to have 6. Courts 352-CONFORMITY ACT-RIGHT thought any such relation existed. When the

TO DISMISSAL. latter obtained full information of the real

While the federal courts may in proper casfacts *(1888), at most, their option was

es direct a verdict, it was improper, in view promptly to treat petitioner as their construc-of Code Va. 1904, § 3387, etc., relating to tive trustee, or to reject that view. And I nonsuits and demurrers to evidence, which are

made applicable by the Conformity Act (Comp. had supposed in such circumstances, under an

St. 8 1537), for a federal District Court for elementary rule, failure affirmatively to rati- Virginia to deny an application for leave to • fy, approve, or adopt the alleged fiduciary's take a nonsuit after the court had announced

action within a reasonable time amounted that it would direct a verdict for defendant, to disapproval. A potential cestui que trust but before verdict had been actually directed; may not indefinitely speculate on the out there having been no demurrer to the evidence

In the present case respondents not or joinder therein. only failed promptly to approve the action whose benefits they now seek; they deliber

On Writ of Certiorari to the United States ately engaged in a long series of actions in- Circuit Court of Appeals for the Fourth Cir. consistent with their present claim; and

cuit. while they did so petitioner, supposing its Act by S. D. Barrett against the Virgintitle absolute and unquestioned, dealt with ian Railway Company. A judgment for dethe stock accordingly and as it probably fendant on a directed verdict was affirmed would not have done if the present claim by the Circuit Court of Appeals (244 Fed. 397, had been asserted.

157 C. C. A. 23), and plaintiff brings certio

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come.

For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexus

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