Pearsall v. Great Northern Railway Company
[Syllabus from pages 646-648 intentionally omitted]
This was a bill in equity filed by Pearsall, a stockholder in the Great Northern Railway, against the company, which is a corporation created and existing under the laws of the territory and state of Minnesota, and a citizen of that state, to enjoin it from entering into and carrying out a certain agreement between that company and the holders of bonds secured by the second and third general mortgages and the consolidated mortgage of the Northern Pacific Railroad Company, under which, upon a sale and foreclosure of the mortgages given to secure such bonds, the holders were to purchase, or cause to be purchased, the property and franchises of the Northern Pacific Railroad Company.
Plaintiff set up that he was the holder of 500 shares, of $100 each, of the preferred, paid-up stock of the defendant corporation; that such stock is of the value of more than $125 per share, but that the proposed arrangement, if consummated, would decrease the value of his stock, and damage him to an amount exceeding $5,000. The suit was brought for the benefit of the plaintiff and all stockholders similarly situated. The facts as they appear in the bill and answer, upon which the case was heard, are substantially as follows:
The defendant, the Great Northern Railway, is a corporation organized and existing under an act of the legislature of the territory of Minnesota passed in 1856, to incorporate the Minneapolis & St. Cloud Railroad Company, and a number of amendatory acts, not necessary to be noticed in detail. By the original act the territory granted to the railroad company (section 1) the right to be a corporation; the right to acquire, by purchase, gift, grant, devise, or otherwise, and to hold and to convey, all such property, real and personal, which should be necessary or convenient to carry into effect the objects and purposes of the corporation; the right (section 2) to construct and operate a railroad from Minneapolis to St. Cloud (about 75 miles), and also to a point at or near the mouth of the St. Louis river (about 180 miles), with the further power (section 6) to connect its road, by branches, with any other road in the territory, or to become part owner or lessee of any railroad in said territory, and also (section 12) 'to connect with any railroad running in the same direction with this road, and where there may be any portion of another road which may be used by this company.'
By section 17 'this act is hereby declared to be a public act, and may be amended by any subsequent legislative assembly, in any manner not destroying or impairing the vested rights of said corporation.'
By an amendatory act passed by the legislature of the state February 28, 1865, such corporation (section 3, amendatory of original section 12) was authorized 'to connect with or adopt as its own * * * any other railroad running in the same general direction with either of its main lines or any branch roads, and which said corporation is authorized to construct'; (section 8) 'to consolidate the whole or any portion of its capital stock with the capital stock or any portion thereof of any other road * * * having the same general direction or location, or to become merged therein by way of substitution'; the further right (section 9) to consolidate any portion of its road and property with the franchise of any other railroad company or any portion thereof; and (section 12) to consolidate the whole or any portion of its main line or branches with the rights, powers, franchises, grants, and effects of any other railroad.
It is alleged in the bill, and admitted by the answer, that these several acts, with their rights, privileges, and franchises, were duly accepted, and that the same have ever since remained in full force and effect; that prior to 1880 the company constructed and put into operation that portion of its line which extended from St. Cloud eastwardly to the town of Hinckley, in the state of Minnesota, and that in 1889 it changed its name to the Great Northern Railway Company, which name it has ever since borne and now bears; that by various purchases, consolidations, and leases, it now operates and controls all the lines of the Great Northern Railway Company, extending from St. Paul and Duluth, in the state of Minnesota, and from Superior, in the state of Wisconsin, across the states of Minnesota, North Dakota, Montana, and Idaho, to the towns of Everett and Seattle, in the state of Washington, with many branch and connecting lines, none of which, however, reach Tacoma, in the state of Washington, Portland, in the state of Oregon, or Winnipeg, in the dominion of Canada. All of these different lines comprise an aggregate mileage of nearly 4,500 miles, and are operated as a combined railway system, under the name of the Great Northern Railway.
The Northern Pacific Railroad Company is a corporation organized and existing under certain acts and resolutions of congress, and owns some, and, through its receivers, controls and operates all the lines of the Northern Pacific Railroad system, extending from St. Paul, in Minnesota, and from Ashland, in Wisconsin, to Tacoma, in the state of Washington and Portland, in the state of Oregon, with many branches and connecting lines, one of which extends to Winnipeg, in Canada. That the aggregate mileage of the Northern Pacific System is nearly 4,500 miles, and some of the lines of each of these systems are parallel to and some competing with the lines of the other system. That the Northern Pacific Railroad Company is insolvent; its road in the hands of receivers appointed by the court at the instance of the bondholders under the second, third, and consolidated mortgages. The trustee for these bondholders has commenced suits to forecose these mortgages, and the receivers are in possession under appointment in these foreclosure suits.
The defendant and the holders of a majority of the outstanding bonds of these mortgages of the Northern Pacific Railroad Company have entered into an arrangement or agreement by which the property shall be sold to a committee of the bondholders, who are to organize a new corporation, subject to the prior mortgages, which shall issue its bonds to the aggregate amount of $100,000,000 or more, payment of which is to be guarantied by the Great Northern, and capital stock to the further amount of $100,000,000, one-half of which is to be transferred to the shareholders of the Great Northern, and shall enter into a traffic contract with it whereby, in substnance, the two companies shall thereafter exchange traffic at all intersecuting and connecting points, and divide the common earnings from such exchanged traffic on the basis of miles hauled on the systems, respectively. This arrangement is fully set forth in the answer, a copy of which, in that particular, is printed in the margin. 
Plaintiff claims that this agreement is unlawful, and in violation of chapter 29 of the Laws of Minnesota for 1874, which provides that 'no railroad corporation, or the lessees, purchasers or managers of any railroad corporation, shall consolidate the stock, property or franchises of such corporation with, or lease or purchase the works or franchises of, or in any way control any other railroad corporation owning or having under its control a parallel or competing line; nor shall any officer of such railroad corporation act as an officer of any other railroad corporation owning or having the control of a parallel or competing line; and the question whether railroads are parallel or competing lines shall, when demanded by the party complainant, be decided by a jury as in other civil issues'; and also because it is a violation of section 3, c. 94, of the Laws of Minnesota for 1 81, which enacts that 'no railroad corporation shall consolidate with, lease or purchase, or in any way become owner of, or control any other railroad corporation, or any stock, franchise, rights of property thereof, which owns or controls a parallel or competing line.'
Defendant answered that it had ample power to make and perform its agreement under its charter; that the true construction of the provisions of the acts of 1874 and 1881, just cited, is that they do not amend or affect its charter; and that, if the opposite construction be adopted, they are void, in so far as they prohibit or affect its rights to make and perform this agreement, because they are in violation of the contract clause of the constitution.
Upon the other hand, plaintiff insisted that the right to so amend the charter of the defendant as to prohibit the performance of this contract was reserved to the state by section 17 of the act of 1856, providing that the act might be amended by any subsequent legislation in any manner not destroying or impairing the vested rights of said corporation.
The case was first submitted to the court upon motion for injunction, which was denied, and again upon a final hearing upon bill and answer; and the court, for the reasons stated in the opinion upon the motion for injunction, entered a decree dismissing the bill. Whereupon the plaintiff appealed to this court.
Mr. Justice Field and Mr. Justice Brewer dissenting.
^1 (1) The holders of the said several classes of bonds shall obtain a decree of foreclosure in said actions, and for the sale of the railroad properties and franchises of the Northern Pacific Railroad Company, including its franchises to be a corporation, subject to the said divisional and general first mortgages mentioned in paragraph 10 of the bill, and shall cause the same to bid in and be purchased by a committee of bondholders, or their agents, for the benefit of all the holders of said coutstanding bonds secured by the mortgages so foreclosed, and shall cause a reorganization of the said railway franchises and property as a new corporation, either under the said acts and joint resolutions of congress relating to the Northern Pacific Railroad Company, or under some other proper and sufficient legislation of the United States, or of some one or more states.
(2) Upon such foreclosure sale and reorganization the reorganized company may issue its bonds to an amount in the aggregate of $100,000,000 or over, and its full-paid capital stock of $100,000,000; this defendant to guaranty, for the benefit of the holders of such bonds, the payment of the principal thereof, together with interest thereon to an amount in the aggregate of such interest guaranty, not to exceed $6,200,000 per year, which guar-
anty shall, if required by said reorganization company, be written and executed upon the back of each of said bonds.
(3) Among other good and valuable considerations of such guaranty, and as a compensation for the risk to the stockholders of the defendant company which may result by reason of said guaranty in the way of a possible diversion of a portion of the earnings of the defendant to make good its guaranty, the said reorganized company shall transfer, or cause or procure to be transferred by its stockholders, to the shareholders of the defendant company, or to some person or corporation as trustee for their use, one-half part of the capital stock of said reorganized company.
(4) The Northern Pacific Company shall join with the defendant in providing reasonable and adequate facilities or an interchange of cars and traffic between their respective lines, and shall interchange traffic with defendant and operate its trains to that end, upon reasonable, fair, and lawful terms, under joint tariffs or otherwise.
(5) The defendant shall have the right to bill and route its traffic, passengers, and freight from points on its line by way of such connections as now exist, or may hereafter be constructed, between said line and the Northern Pacific Company to Winnipeg, Tacoma, Portland, and all points in the different states through which the line of the Northern Pacific Railroad extends, and not reached by the line of this defendant.
(6) The defendant shall have the right to make use of the depot and terminal facilities of the Northern Pacific Company at Spokane Falls and other points where such use shall be found to be convenient and economical, jointly with that company, and upon reasonable, fair, and lawful terms, which shall insure to the defendant a large saving on the cost and expense which it must otherwise necessarily incur in constructing and operating depots and terminals of its own.