Appeal from the District Court of the United States for the Eastern Division of the Northern District of Illinois; James H. Wilkerson, Judge.
Before EVANS and SPARKS, Circuit Judges, and GEIGER, District Judge.
The three appeals, which were consolidated by order of the court, present identical questions. As holders of Certificates Series One, appellants, individually and for others similarly situated, intervened in the pending suit, which was brought to liquidate the property of the Chicago Railways Company. The original suit was instituted by a creditor. Following closely was a foreclosure suit begun by a trustee of one of the outstanding mortgages executed by said railways company. Receivers were appointed, the two suits were consolidated, and the status of the various securities was fixed. The contest has narrowed to one between the certificate holders and the bondholders, and is restricted to the net earnings of the railways company subsequent to 1917.
The trial court made complete and detailed findings of fact which are not assailed. The appeals challenge the soundness of the conclusions of law, which the trial court made, and which were dependent for their support upon certain documents executed on the occasion of the reorganization of the street railway system in 1907, the details of which have been so fully stated in cases which have arisen [In re Babcock (C.C.A.) 26 F.2d 153; Thatcher v. Chicago Railways Co. (D.C.) 297 F. 466; Id. (C.C.A.) 4 F.2d 63; Babcock v. Chicago Railways Co., 325 Ill. 16, 155 N.E. 773; City of Chicago v. Harris Trust & Savings Bank (C.C.A.) 40 F.2d 612] that reference is made to these cases to avoid extended repetition of the essential facts. The situation which existed in 1907, when the companies were in receivership and the franchises had expired, may in part be gathered from a reading of Guaranty Trust Co. of N.Y. v. North Chicago St. R. Co. (C.C.A.) 130 F. 801; Blair v. City of Chicago, 201 U.S. 400, 26 S. Ct. 427, 50 L. Ed. 801; North Chicago St. R. Co. v. Chicago Union Traction Co. (C.C.) 150 F. 612; Guaranty Trust Co. of N.Y. v. Chicago Union Traction Co. (C.C.) 158 F. 913; Id. (C.C.A.) 158 F. 923.
It is perhaps sufficient to say that the plan entered into by the stockholders of the different street railway companies then operating in Chicago, bondholders of such companies, and the city of Chicago, approved by Judge Grosscup and Professor Gray, and the agreements, supply the sole basis for determining the status and the rights of the parties to this present controversy. In the reorganization, which followed the plan approved by the said city of Chicago, the creditors, and the railways company, provisions were made for the execution of mortgages, the payment of a percentage of the company's net earnings to the city, and the issuance of stock, interests in which were evidenced by participating certificates classified into series 1, 2, 3, and 4. The status of these classes of certificates was specifically defined and provision made for the control of the management of the company through an election by the certificate holders. For some ten years after the plan went into effect, net earnings were distributed to the certificate holders. After 1917, such earnings were not distributed.It is to establish the contested right of these certificate holders to these net earnings of the company since 1917 that the present legal battle is waged.
Set forth below are excerpts taken from the ordinance, agreements, the certificates, and the mortgages, executed pursuant to the plan:
Chicago Railways Company Ordinance (1907):
"Section 2. The Company shall proceed at once to reconstruct portions of the track and roadbed constituting said system of street railways now maintained and operated by the Receivers * * * and put said entire street railway system, plant and equipment in first-class condition, in full compliance with * * * this ordinance and * * * 'Exhibit B,' * * * and to operate and maintain said system in accordance with the provisions of this ordinance and of said 'Exhibit B.' * * * "
"Section 7. * * * The cost of such construction, * * * not exceeding the amount so certified, * * * may be represented by bonds or obligations to be held, negotiated or sold by the Company, bearing interest at a rate not exceeding five per cent per annum, payable semiannually, * * * maturing not earlier than twenty years after the passage of this ordinance * * *. Such bonds * * * may be secured by a mortgage or deed of trust, which shall comply with all the provisions of this ordinance and the form of which shall be * * * subject to the approval of a Trust Company qualified to act as depositary under the terms of this ordinance, * * * as containing * * * no provision unusual or unreasonable in character. The Company shall not at any time create any lien or encumbrance upon the property or rights conveyed by said mortgage or deed of trust or any part thereof superior to that securing said bonds and obligations."
"Section 20. * * * As against the City and any licensee of the City and any and all other persons having or claiming to have any interest or benefit under this ordinance, the lien securing said bonds and obligations shall at all times be deemed and recognized to be a first lien upon the entire street railway system hereby authorized, including all rights granted to the Company by this ordinance. * * *"
Agreement of Reorganization and Adjustment:
"The Committee shall have full power, subject to the control of the Board of Directors of the Railways Company: * * * (d) To prescribe the form and terms of the new securities to be issued by the Railways Company; * * *
(i) To construe this Agreement including the Plan. Any such construction by the Committee or any action under any such construction made or taken in good faith shall be final and conclusive. Also to supply any defect or ommission of or in the Plan or to reconcile inconsistencies in it in such manner and to such extent as shall be necessary or expedient to carry out the same properly and effectively. * * *
"The acceptance by any Depositor of the securities of the Railways Company shall estop such Depositor from questioning the conformity of said securities, in any particular, to the Plan or this Agreement, or the propriety or expediency of any act done or arrangement made by or on behalf of the Committee, or the Railways Company, in carrying the Plan into effect."
Modified Plan of Reorganization and Adjustment (Excerpts from Article III):
"5. The said Consolidated Mortgage shall provide for a Sinking Fund of $250,000 per annum, if earned, commencing with the year ending August 1, 1908, which sum shall be applied, annually, solely to the redemption at par, or to the purchase of bonds of said Series C; and all such bonds thus redeemed or purchased shall be canceled. Said Sinking Fund shall be cumulative. * * * When the full amount of said Sinking Fund payment shall have been made in any year and any accumulated deficiencies in respect of said payment shall have been met, any remainder of such earnings SHALL be applied, next, to the payment of $8 for such year, and of any unpaid accumulation for preceding years, in respect of each equal part represented by Participation Certificates of Series 1. Next, so long as more than 50 per cent., par value, of said Bonds of Series C which may be issued by the Railways Company, are outstanding, the sum of $497,022.16 per annum, if earned, and, when not more than 50 per cent. of said Bonds are outstanding, the sum of $621,277.70, * * * if earned, shall be distributed pro rata for the benefit of the holders of then outstanding Participation Certificates of said Series 2. The respective sums of $497,022.16 and $621,277.70, per annum, above provided in respect of said Participation Certificates of Series 2, shall be non-cumulative. After payment in any year of said $497,022.16, or of said $621,277.70 (as the case may be), for distribution to the holders of said Participation Certificates Series 2, then any remaining surplus earnings shall be used and applied solely as follows: Unless the Board of Directors, with the consent in writing of a majority of the then acting Trustees and Depositaries or of the sole Trustee or Depositary under said Participation Certificate Agreement, shall resolve to apply the same to meet the exigencies and financial requirements of the Railways Company, the said remaining annual surplus earnings shall constitute an additional annual Sinking Fund to be applied in such year to the redemption at par or purchase and cancellation of Bonds of said Series C until the entire issue thereof shall be discharged; and thereafter, if any of the same shall have been issued as above provided, to the redemption at par, or purchase, of the above specified number of Bonds of Series A and Series B. When all of said Bonds of Series C and * * * Series A and Series B * * * shall have been redeemed, * * * and when all unpaid accumulations on Series 1 have been paid, then any unpaid accumulations in respect of said $8 per equal part represented by said Participation Certificates Series 2, for each year then past, commencing with the year ending August 1, 1908, shall be payable out of the earnings of future years."
"4. The stockholders of the Railways Company will make the capital stock of the Railways Company, viz. . . . $100,000 the subject of an issue of Participation Certificates, of which there shall be issued certificates representing in the aggregate . . . 265,100 equal parts as follows:
(a) Series 1, entitled to priority in the distribution of dividends upon the said capital stock or of any dividends or income on or by reason of any other securities which may at any time become subject to the Agreement under which said Participation Certificates are issued, to the extent of $8 for each part represented by said certificates respectively, for each and every year commencing with the year ending August 1, 1908, accumulative until paid."
Deposit Agreement under which Participation Certificates were Issued:
"Whereas, it is provided in the Plan that Participation Certificates entitling the holder thereof to the share and interest therein and herein specified, of, in and to the capital stock of the Railways Company and the dividends which may be declared and paid thereon, * * * shall be issued, on the terms and conditions in the Plan set forth. * * *
Subject to the provisions of this Agreement, the total interest in the capital * * * stock of the Chicago Railways Company, * * * and in the dividends or income from time to time to be paid thereon, shall be divided into Two hundred and sixty-five thousand one hundred (265,100) equal parts * * *.
It is provided in the Plan, and hereby expressly declared that the rights of the holders of said Participation Certificates shall be in all respects subject to the prior rights of the holders of Bonds and Collateral Notes to be at any time issued under the aforesaid First Mortgage, Consolidated Mortgage, and Collateral Note Agreement, in said Plan mentioned and provided for.
Among other things, said Consolidated Mortgage embodies provisions limiting the application of the net earnings of the Railways Company to dividends on its stock and thereby the distribution of such dividends to and among the holders of Participation Certificates issued hereunder * * *.
The Depositaries, from time to time, shall be entitled to receive and to collect all dividends or other income that may be declared or become payable on or by reason of all of the deposited securities. * * *
Until the first day of August, 1912, and, to the full extent thereafter which may be permitted by law, until all the Consolidated Mortgage Bonds of the Railways Company which may be issued pursuant to the provisions of the Plan shall be fully paid and discharged, the Depositaries, or a majority of them, shall be entitled, subject to the provisions hereinafter contained, (1) to vote upon the said capital stock of Chicago Railways Company hereby transferred, and any and all other shares of stock which may at any time be held hereunder * * *.
No plan or any modification thereof shall be operative, unless and until * * * approved by Peter S. ...