Brief for the Respondent in Opposition — Tilney v. Chicago

A EPR ESE MEE PP AOI LE

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“ 1943

EL oHARLES ELE Geary

—

IN THE

Supreme Court of the Bnited States

Ooroser Tzrm, A. D, 1943.

No. 259

S. D, TILNEY, W. C. HAM, et al.,

Petitioners,

vs,

CITY OF CHICAGO, a voluntary Municipal Corporation,

and Others, Individually and’ ‘as tees,

& Peers:

Ow Ware ‘or Canincaiiae oy site Tieian Sadie Gace

Courr or APPEALS FOR THE Bevete: eeundsia

BRIEF IN OPPOSITION TO PETITION FOR

CERTIORARI.

BARNET HODES,

Corporation Counsel of the City of Chicago,

511 City Hall, Chicago, Illinois,

Attorney for Respondents.

Josspx F. Grossman, ae

Ft ee ee

J. Herz, Seaar, (ae

Assistant Corporation Counsel,

511 City Hall, aera ae

INDEX.

EE Srkitensices csbu cok epeaud spas eeeseneee sen

i Ce 6 2ks sab neko tpensedton nee

SuMMaARY OF ARGUMENT.

A.

THE PLAINTIFFS HAVE NO INTEREST IN THE TRACTION

FUND OF THE City or CHICAGO BECAUSE THEY HAVE

NOT CONTRIBUTED THERETO, NOR WAS IT ESTABLISHED

FOR THEIR BENEFIT BY THE CONTRACTING PARTIES.

The traction fund is composed of 55 per cent of the

net receipts of the companies operating street rail-

ways in the City of Chicago paid to the city pur-

suant to the traction ordinances of 1907. The car

riders did not contribute directly or indirectly to

the traction fund. They merely paid the lawfully

established fares to the street railway companies.

The street railway companies paid the 55 per cent

of the net receipts as compensation for the use of

the streets of the city. The ear riders have no in-

terest in the compensation so paid.

The only theory upon which the ear riders can claim

any interest in the traction fund is the third party

beneficiary doctrine. This doctrine applies only

where the contract to which the plaintiff is not a

party affirmatively discloses an intention that the

plaintiff is a direct and primary beneficiary. In the

case at bar the plaintiffs are not even incidentally

benefited.

If plaintiffs feel that the rate of fare which they are

called upon to pay is excessive and illegal, their

sole remedy is to institute proper proceedings be-

fore the Illinois Commerce Commission requesting

a reduction in the rate of fare ...................

5-29

ii

B.

THE CASES CITED BY PLAINTIFFS TO ESTABLISH THEIR

RIGHT TO MAINTAIN A CLASS SUIT DEAL WITH SITUA-

TIONS WHERE THE PLAINTIFFS OWNED A TRUST FUND

IN COMMON WITH OTHERS AND THEREFORE ARE NOT

APPLICABLE TO THE CASE AT BAR.

All of the cases cited by plaintiffs involve situations

where trust funds were unquestionably involved

and where the plaintiffs were unquestionably mem-

bers of the class of beneficiaries. The holdings in

these cases are not disputed, but are considered

inapplicable unless plaintiffs can prove that they

are beneficiaries of a trust fund held by the de-

WE so 05 kde hen ven EX RAEASASAEOE DN EIS LARD

c.

THE MOTION OF THE PLAINTIFFS FOR RELIEF PENDENTE

LITE WAS PREMATURE, PARTICULARLY WITH RESPECT TO

AN ALLOWANCE FOR ATTORNEYS’ FEES.

In so far as the blanket motion for relief pendente

lite seeks discovery, it is premature and improper.

After the defendant has filed an answer, the Fed-

eral Rules of Civil Procedure provide for appro-

priate and specific motions to discover matter not

disclosed by the answer: to-wit, Interrogatories to

Parties; Discovery and Production of Documents;

and Requests for Admission.

In so far as the motion relates to an allowance of at-

torneys’ fees and expenses of conducting litigation,

it is also premature because the allowance of such

fees and expenses cannot be made until successful

termination of the litigation and the bringing of a

fund into the custody of the court...... ga uh come

EES EIN TN CRRA ORO tO Rutter erent cieuay te ape soht9

iii

D.

ALL OF THE EXPENDITURES MADE OR PROPOSED TO BE

MADE WHICH ARE SPECIFICALLY DESCRIBED IN THE COM-

PLAINT ARE WITHIN THE PURPOSES PRESCRIBED BY THE

FRANCHISE ORDINANCES.

A considerable portion of the complaint is devoted to

general allegations which are not proper bases for

sustaining this action. The expenditures made or

proposed to be made which are specifically de-

scribed in the complaint are for purposes falling

within the terms of the franchise ordinances limit-

ing the use of the traction fund for the purchase

and construction of street railways. The Supreme

Court of Illinois has held that these purposes em-

brace the purchase and construction of surface,

elevated and underground street railways and pre-

liminary and incidental work in connection with

actual or proposed purchase and construction. The

expenditures specifically complained of fall within

the scope of permissible expenditures ............

CoNncLUSION.

The named plaintiffs do not possess a bona fide in-

terest in the traction fund of the City of Chicago.

The suit was undoubtedly conceived and brought

by the attorney for the plaintiffs for the purpose

of manufacturing a basis for a claim for attorneys’

fees in the remote contingency of success in prov-

ing alleged misappropriations ..................

iv

AvutuHoritizs CITep.

Statutes:

Subway Act, Section 4, Ill. Rev. Stats. 1941, chap.

4 BR ia Fede 7

Federal Rules of Civil Procedure, Rules 33, 34,

RM EAN Mee ana Varad pukbee a Ws aidacerd dxeky oo oo: 4

List of Cases:

Altschuler v. Chicago City Bank & Trust Co., 380

Ill. 137, 43 N. E. (2) 673 (distinguished)........ 17

Attorney General v. Corporation of Dublin, 1 Bligh,

New Reports, House of Lords, 312, 339, 348-349

SIE oak wr puieycedavhac God ccdecket. 16

Barsaloux v. City of Chicago, 245 Ill. 598 ......... 6, 27

Becht v. Miller, 279 Mich. 629, 273 N. W. 297...... 25

Blacker v. Kitchen Brothers Hotel Company, 133

BO: SO is UD in on bind ow dod saveces 26

Board of Commissioners of Vanderburgh County

v. Sanders, 30 N. E. (2) 713 (distinguished). .... 22

Buell v. Kanawha Lumber Corp., 201 Fed. 762, 769. 24-25

Carbon Steel Co. v. Slayback, 31 Fed. (2) 702 (C.

ie Mis NE IID 5 os idle shina dias eeweideame

Carson Pirie Scott & Co. v. Parrett, 346 Ill. 252,

oe ren renee en tees 8-9

Chicago Railways Co. v. City of Chicago, 292 TIl.

DOE apd aren ind ante bh cka'd hades MWe be Rhee ie 12

Chicago Railways Co. v. I. C. C., 277 Fed. 970,979 14

Dudick v. Baumann, 349 Ill. 46, 49 ............... 10-12

Electric Supply Co. v. City of Muskogee, 171 Okla.

PO re OE WikuA des twee kdbsondnaovane 8, 10

Hall v. State of Wisconsin, 103 U. S. 105 (dis-

NE 08 ois ea vibkeGh ab aundskeneceuwens 17

Harris Trust & Savings Bank v. Chicago Railways

te rn i eee ee

In Re A. C. Becken Co., 75 Fed. (2) 681, 685......

In Re Gubelman, 13 Fed. (2) 730, 731.............

v

In Re Lear’s Estate, 204 Ia. 346, 312 N. W. 244.... 25

In Re United Cigar Stores Co., 70 Fed. (2) 318. -.. 9

New Orleans v. Warner, 175 U. S. 120 (distin-

soni ae eo eT Re Pe Ee 16

People v. City of Chicago, 349 Ill. 304............. tae

People v. Holten, 304 Ill. 394, 399................. 23-24

Price v. City of Mattoon, 364 Ill. 512, 515......... 12-13

Root v. City of Saratoga Springs, 218 N. Y. S. 204,

SE RI cla oh on ac Ab ap cneu cs oa chwkden 8,9

Styles v. Long Co., 70 N. J. L. 301, 57 Atl. 448..... 8,9

Venner v. Chicago City Railway Co., 236 II. 349,

Ge le Oe ED. ca eins cn csbuccdeicens,. 14

Wall v. Chicago Park District, 378 Ill. 81 (distin-

NN ak Sires Parable rains nadebieaw kway 17

Warner v. New Orleans, 167 U. S. 467 (distin-

EE Lc a ues Vevdal balan Zdpee isws Urabe, 16

Warren v. Palmer, 310 U. 8. 132 (distinguished).. 22

Psa yt nema y

IN THE

Supreme Court of the Anited States

Octoser Term, A. D. 1943.

No. 259

S. D. TILNEY, W. C. HAM, et al.,

Petitioners

,

Vs.

CITY OF CHICAGO, a voluntary Municipal Corporation,

and Others, Individually and as Trustees,

Respondents.

On Wait or Certiorari To THE Unrrep SratEs Crrcuitr

Courr or APPEALS FOR THE SEVENTH CIRCUIT.

BRIEF IN OPPOSITION TO PETITION FOR

CERTIORARI.

May Ir PLease THE Court:

The respondents, City of Chicago, et al., oppose the peti-

tion for certiorari on the following grounds:

THE CONTESTED ISSUES.

The contested issues in this case are:

(1) Whether plaintiffs herein, named, or unnamed, have

any interest in the traction fund of the City of Chicago to

maintain an action at law or in equity.

ging pi — ae _— ” ‘ eae 4x RIA RRS oN " hy ig TEEN ARG AS tee py Alan REL ee aes

PERO oe LEE ENON LE MT PREIS OS A AME NE ERD PONS 8

2

(2) Whether the expenditures specifically charged in

the complaint constitute a misapplication of moneys in the

traction fund.

(3) Whether plaintiffs’ motion for relief pendente lite

is proper in any event.

(4) Whether the Federal Courts should entertain this

suit which presents issues of purely local concern that only

the State courts can definitely decide.

PROPOSITIONS OF LAW RELIED ON AND CITATION

OF CASES.

A.

The plaintiffs have no interest in the traction fund of the

City of Chicago because they have not contributed

thereto nor was it established for their benefit by the

contracting parties.

Price v. City of Mattoon, 364 Ill. 512, 515.

Carson Pirie Scott & Co. v. Parrett, 346 Ill. 252,

257, 258, 178 N. E. 478.

Venner v. Chicago City Railway Co., 236 Ill. 349,

363, 86 N. E. 266, 271.

Barsaloux v. City of Chicago, 245 Ill. 598.

People v. City of Chicago, 349 Ill. 304, 348.

Root v. City of Saratoga Springs, 218 N. Y. 8.

204, 206; 218 A. D. 237.

Electric Supply Co. v. City of Muskogee, 171 Okla.

130, 42 P. (2) 140.

Styles v. Long Co., 70 N. J. L. 301; 57 Atl. 448.

In Re A. C. Becken Co., 75 Fed. (2) 681, 685.

3

In Re United Cigar Stores Co., 70 Fed. (2) 313.

In Re Gubelman, 13 Fed. (2) 730, 731.

Dudick v. Baumann, 349 Ill. 46, 49.

Chicago Railways Co. v. City of Chicago, 292 Ill.

190.

Chicago Railways Co. v. I. C. C., 277 Fed. 970, 979.

Harris Trust & Savings Bank v. Chicago Rail-

ways Co., 39 Fed. (2) 958.

Warner v. New Orleans, 167 U. S. 467; (distin-

guished).

New Orleans v. Warner, 175 U. S. 120; (distin-

guished).

Attorney General v. Corporation of Dublin, 1

Bligh, New Reports, House of Lords, 312, 339,

348-349 ; (distinguished).

Altschuler v. Chicago City Bank & Trust Co., 380

Ill. 137, 43 N. E. (2) 673; (distinguished).

Hall vy. State of Wisconsin, 103 U. S. 105; (dis-

tinguished).

Wall v. Chicago Park District, 378 Ill. 81; (dis-

tinguished).

The cases cited by plaintiffs to establish their right to

maintain a class suit deal with situations where the

plaintiffs owned a trust fund in common with others and

therefore are not applicable to the case at bar.

(See argument. )

Cc.

The motion of the plaintiffs for relief pendente lite was

premature particularly with respect to an allowance for

attorneys’ fees.

People v. Holten, 304 Ill. 394, 399.

Buell v. Kanawha Lumber Corp., 201 Fed. 762,

769.

Blacker v. Kitchen Brothers Hotel Company, 133

Neb. 66, 273 N. W. 838.

Federal Rules of Civil Procedure, Rules 33, 34,

36, 37.

Carbon Steel Co. v. Slayback, 31 Fed. (2) 702

(C. C. A. Fourth Circuit).

Becht v. Miller, 279 Mich. 629, 637, 273 N. W. 297.

In re Lear’s Estate, 204 Ia. 346; 312 N. W. 244.

Warren v. Palmer, 310 U. S. 132 (distinguished).

Board of Commissioners of Vanderburgh County

v. Sanders, 30 N. EK. (2) 713 (distinguished).

D.

All of the expenditures made or proposed to be made which

are specifically described in the complaint are within the

purposes prescribed by the franchise ordinances.

Barsaloux v. City of Chicago, 245 Ill. 598.

People v. City of Chicago, 349 Ill. 304.

qo

ARGUMENT FOR APPELLEES.

A.

The plaintiffs have no interest in the traction fund of the

City of Chicago because they have not contributed

thereto nor was it established for their benefit by the

contracting parties.

The entire case rests upon the construction and effect of

two paragraphs of the traction ordinances of 1907 which

admittedly constitute contracts between the City of Chi-

cago and the various traction companies operating as the

Chicago Surface Lines. These paragraphs appear at page

8 of the transcript and are quoted at page 9 of the Petition

for Writ of Certiorari. For the convenience of the Court

and for a ready understanding of the argument to follow,

we repeat these two paragraphs at this point:

‘Division of Remaining Net Receipts.

After the deduction from the gross receipts of the

items hereinbefore in this section provided, the

amount remaining shall be considered as the net re-

ceipts for such year arising from the operation of the

street railway system hereby authorized, and shall be

divided between the Company and the said City in the

following proportions: forty-five (45) per cent to be

retained by the Company and fifty-five (55) per cent

to be paid forthwith by the Company to the said City,

crediting thereon all amounts paid out during the pre-

ceeding year by the Company for license fees, if any,

exacted from the Company and employes.

6

‘It is further provided that, subject to the action

of the City Council of said City, the said City shall

deposit the amount so paid to the said City to the

credit of a separate fund to be kept and used for the

purchase and construction of street railways by said

City; but any failure to comply with this provision

shall in no way affect the rights or obligations of the

Company under this ordinance.”’

It is to be observed that under these provisions of the

ordinances the fifty-five per cent of the net receipts from

the operation of the street railway system is agreed to be

paid by the traction companies. The car riders are not obli-

gated to pay these moneys and it is undisputed that they

did not pay the same. The only contention which is made

by the plaintiffs is that indirectly and remotely part of the

fares paid by the plaintiffs to the companies found their

way into the traction fund.

It is further to be observed that the only conditions at-

tached to the creation of this fund are that it is to be kept

in a separate fund and used for the purchase and construc-

tion of street railways by the city. The car riders who

compose the class on behalf of whom the complaint in this

case is filed are not named or described in the ordinances

nor are the provisions of the ordinances relating to the

traction fund expressly or impliedly made for the benefit

of the car riders.

The nature of the traction fund and the scope of the

purposes for which it may be used may be gathered from

decisions of the Supreme Court of Illinois construing the

provisions of the ordinances and from pertinent statutory

provisions. In Barsaloux v. City of Chicago, 245 Ill. 598

the court in construing the words ‘‘ purchase and construc-

tion of street railways’’ as used in the franchise ordi-

7

nances held that ‘‘street railways’? properly construed

mean elevated, surface or underground railways and that

accordingly there was no valid objection to using the trac-

tion fund for the purpose of acquiring or constructing

subways in the streets of the city. It was further held

that the power to construct necessarily includes the power

to take the preliminary steps looking toward a construc-

tion of the subway. In that case expenditures for investi-

gations into the desirability of constructing subways was

under attack.

In People v. City of Chicago, 349 Ill. 304, the Supreme

Court of Illinois again had occasion to consider the pro-

visions of the franchise ordinances relating to the traction

fund. In that case the validity of the comprehensive trac-

tion ordinance passed in 1930 was attacked. Section 9 of

the ordinance permitted the use of the traction fund for

the construction of the contemplated subways. (See page

343.) The court held that this use of the traction fund was

proper, not only upon the strength of the decision in

Barsaloux v. City of Chicago, 245 Ill. 598, but also by

virtue of section 4 of the Subway Act (Ill. Rev. Stats.

1941, chap. 24, see. 70-4) which expressly authorizes the

use for subway purposes of special funds accumulated

from money received by the municipality from street rail-

road companies.

The claim of ownership of the moneys in the traction

fund forms the basis of the entire argument of the peti-

tioners. This premise, however, is nowhere proved by the

facts or by citation of authority construing similar provi-

sions in ordinances or other agreements. It appears

clearly, however, from a reading of the provisions of the

ordinances that this premise is utterly without foundation.

8

The assertion of ownership by the car riders in this fund

appears to be in defiance of fundamental principles relat-

ing to third party beneficiaries under contracts.

It is undisputed that the plaintiffs are not direct parties

to the franchise ordinances establishing the traction fund.

Plaintiffs necessarily must and do rely upon the third

party beneficiary doctrine to assert an interest in the per-

formance of the pertinent provisions of the ordinances

(see Petition for Writ of Certiorari, page 38 under Point

A-4).

An examination of the cases delineating the scope of this

principle reveals that the plaintiffs, if they have any in-

terest at all, are benefited so remotely that they do not

fall within the doctrine permitting suit by a stranger to

the contract.

To begin with, it is axiomatic that strangers to a con-

tract cannot sue for a breach thereof where the contract

is not made for their express benefit.

Root v. City of Saratoga Springs, 218 N. Y. S$.

204, 206; 218 A. D. 237.

Electric Supply Co. v. City of Muskogee, 171 Okla.

130, 42 P. (2) 140.

Styles v. Long Co., 70 N. J. L. 301; 57 Atl 448.

The determination of whether the contract is made for

the benefit of a third party so as to entitle him to bring

suit is made in conformity with the following principles

accepted by both Illinois and Federal Courts:

In Carson Pirie Scott & Co. v. Parrett, 346 Ill. 252, 178

N. E. 478, the Supreme Court of Illinois said (p. 257):

‘‘The test is whether the benefit to the third person

is direct to him or is but an incidental benefit to him

9

arising from the contract; if incidental he has no right

of recovery thereon. * * *

“‘The rule is, that the right of a third party bene-

fited by a contract to sue thereon rests upon the liabil-

ity of the promisor, and this liability must affirma-

tively appear from the language of the instrument

when properly interpreted and construed.’’ (p. 258.)

The foregoing principles were approved in In re A. C.

Becken Co., 75 Fed. (2) 681, 685. See also to the same

effect, In re United Cigar Stores Co., 70 Fed. (2) 313 and

In re Gubelman, 13 Fed. (2) 730.

In the last cited case the court said (p. 731):

‘oe & €

it must appear that the parties intended to

recognize the third person as the primary party in

interest. It is insufficient if the third person is a mere

beneficiary, having no direct interest in the perform-

ance of the stipulations of the parties.’’

Illustrative cases involving contracts between municipal-

ities and a second party where incidental third party bene-

ficiaries were denied the right to sue are:

Root v. City of Saratoga Springs, 218 N. Y. S.

204, 206; 218 A. D. 237.

The court held that a pedestrian injured by failure of

the city to perform its contract with a property owner to

care for sidewalks could not sue as a third party bene-

ficiary.

Styles v. R. Long Co., 70 N. J. L. 301; 57 Atl. 448,

It was held that where the defendant contracted with the

county authorities to provide and maintain a bridge, a

member of the public using the bridge was only inei-

dentally benefited by the contract and could not sue the

nerraaupaenirenemrencns

—_— aa M8 SAYA HN STIR LIAN RI GER LLY LA ERT MMM SORE AIS

10

defendant for alleged negligence amounting to a breach

of contract.

Electric Supply Co. v. City of Muskogee, 171 Okla.

130; 42 P. (2) 140.

The defendant municipality had an agreement with a

building contractor whereby the city agreed to pay the

contractor for material used and work done. It was held

that a subeontractor had no right under the third party

beneficiary doctrine to sue the city for materials furnished.

In the foregoing discussion it is assumed for the purpose

of argument that the provisions of the ordinances creating

the traction fund are for the incidental benefit of the plain-

tiffs. Actually such is far from the case, and the real objec-

tion to the present suit is that the plaintiffs do not have

any interest whatsoever in the traction fund and are not

even incidental beneficiaries. Under the terms of the ordi-

nance the traction fund is to be ‘‘kept and used for the

purchase and construction of street railways by said city.”

This provision is clearly for the mutual benefit of the con-

tracting parties. The only interest of the riding public in

the street railway system whether owned by private com-

panies or by the city is to secure adequate service at rea-

sonable rates.

Since the case at bar purports to be a representative

suit seeking relief based upon alleged misappropriation of

funds, taxpayers’ suits to enjoin a misappropriation of

funds or to compel an accounting of public funds are analo-

gous and the principles obtaining in such suit are ap-

plicable here. A very instructive case is Dudick v. Bau-

mann, 349 Ill. 46. In that case a general taxpayer of the

Village of Niles filed a suit seeking, among other relief, an

accounting by the Village Collector of certain fees he had

iil NN

11

deducted from assessments collected pursuant to proceed-

ings under the Local Improvement Act. No showing was

made that the plaintiff was the owner of property assessed

in any of the proceedings. A decree dismissing the com-

plaint on the ground that the plaintiff could not show any

interest in these funds was affirmed by the Supreme Court

of Illinois.

In its opinion the court enunciated the following prin-

ciples which are equally applicable to the case at bar

(p. 49):

‘The right of a tax-payer to prevent misappropri-

ation of public funds has always been recognized by

this court on the grounds that in equity tax-payers

are considered the owners of the property of the mu-

nicipality, and whenever public officials threaten to

pay out general public funds for a purpose unauthor-

ized by law, or misappropriate such funds, and there-

by cause taxes to be levied to make good the misap-

propriation, equity will assume jurisdiction to prevent

such unauthorized act, as the tax-payers’ right in such

case is not recognized by courts of law. (Fergus v.

Russel, 270 Ill. 304; Jones v. O’Connell, 266 id. 443;

Burke v. Snively, 208 id. 328; Beauchamp v. Kankakee

County, 45 id. 274; Colton v. Hanchett, 13 id. 615.) The

interest of the general tax-payer, however, must be

based upon the right of the municipality in and to the

funds. Special assessment funds are raised for the

purpose of paying for the local improvement. The

only interest which the city or village has in such

funds, other than the right to be reimbursed therefrom

for costs advanced, is to see that they are properly

collected and used to pay for the improvement or

bonds issued therefor. After the discharge of the ex-

pense of the improvement and the cost of collection,

the balance, if any, belongs to the property owners

against whose property it was assessed and should

be returned to them. Donahue v. Village of LaGrange,

263 Ill. 607.

“* * * The general rule is that a bill of complaint

must show that the complainant has an interest in the

12

subject matter of the suit. A mere contingent or

possible interest, or probability of future interest, is

insufficient. (Green v. Grant, 143 Ill. 61; I Puter-

baugh’s Ch. Pl. (7th ed.) p. 75; 10 R. C. L. see. 173.)

No facts showing such an interest have been alleged

in the bill. Appellant is not one of those whose prop-

erty has been assessed and is therefore not interested

in the disposition of the assessments collected, unless

a situation arises which would lead to a misappropria-

tion of public funds and necessity for levying taxes

to meet obligations of the village because of such mis-

appropriation. He makes no such showing.”’

So it is here. Plaintiffs, as car riders, have no interest

in the fund. They are not contributors to that fund. All

that they have done is to pay fares established by law

through the instrumentality of the Illinois Commerce Com-

mission. (Chicago Railways Co. v. City of Chicago, 292

Ill. 190.) They are in no position to question the expenses

ef operation of those companies, one of the items being

the payment of fifty-five per cent of the net receipts to the

city. The traction fund was not created for the benefit

of the plaintiffs. The disbursements of the monies in that

fund could not possibly affect the plaintiffs. It could not

affect the rate of fare which they would be required to

pay in the remote contingency that they might return to

the city in the future and have occasion to use the street

cars.

Closely analogous to the case at bar is Price v. City of

Mattoon, 364 Ill. 512. In that case a taxpayers’ suit was

filed to restrain the City of Mattoon and others from finane-

ing and constructing a water works purchase-and-improve-

ment program instituted by the municipality. The cost of

the water works was to be paid solely out of revenue from

the sale of water. The plaintiffs were users of water and

the money they paid would therefore automatically be used

RTS SSR OES rey OS OTe Baa Ae:

Pao ewe ESL EERE IY TE RNR eB ae a .

CORP IOS RASA RS SECT ARIS DRIES RARER NOS GAN EMEAY ae

13

to pay the bonds. This is similar to the instant situation

where the fares paid by the car riders indirectly find their

way into the traction fund to be used for the purchase

and construction of street railways. The court held that

under these circumstances plaintiffs failed to show an

interest entitling them to question the accounts of the

municipality (p. 515):

‘“‘Aside from the fact that plaintiffs, as taxpayers,

have failed to make out a case cognizable in a court

of equity, they have also failed to show by their

amended complaint any other ground for equitable

interference. Should plaintiffs as water users, aside

from their status as tax-payers, fail to pay the estab-

lished water rates fixed by the city from time to time

and be deprived of water service, no especial injury

or interest is established at this time due to any ap-

prehension or anticipation that such an event will

occur. Their amended complaint fails to contain any

allegations of water rates determined by the city. No

failure to pay any existing rate is asserted. The city is

not shown to have shut off or threatened to shut off

the water from their property. As their rights as

water users are purely contractual, they can avail

themselves of adequate remedies at law if and when

their conjectured injuries materialize.”’

This decision supports the assertion which we have here-

tofore made that the present situation resolves itself into

two distinct contractual relations—one between the trac-

tion companies and the city in which the plaintiffs have

no concern and the second between the traction companies

and the plaintiffs relating to the payment of the fare and

the contract of carriage. If plaintiffs feel themselves ag-

grieved concerning the rate of fare which they are called

upon to pay, their sole remedy is to institute proper pro-

ceedings before the Illinois Commerce Commission re-

questing a reduction in the rate of fare. They have no

more right to seek relief from the city on the ground that

14

they have allegedly been overcharged in the matter of

paying fares than they have to demand an accounting

from the federal government because of income taxes paid

by the traction companies or to demand an accounting

from the County of Cook because of property taxes paid

or to demand an accounting from other creditors of the

traction companies because of monies received by them

from the traction companies.

In the final analysis, the fifty-five per cent net receipts

is simply compensation paid to the City of Chicago for the

use of its streets by the traction companies. The Supreme

Court of Illinois has squarely so held in Venner v. Chi-

cago City Railway Co., 236 Ill. 349, 363; 86 N. E. 266, 271.

A special federal court in this circuit consisting of Evans

and Page, Cireuit Judges and Carpenter, District Judge,

has also so held. (Chicago Railways Co. v. I. C. C., 277 Fed.

970, 979.) It has also heen so held by the District Court for

the Northern District of Illinois, Eastern Division, in

Harris Trust & Savings Bank v. Chicago Railways Co., 39

Fed. (2) 958. These authorities completely refute the

assertion made by petitioners on page 14 of their petition

that the city as a municipality gave no consideration for

the fifty-five per cent fund because of the various deduc-

tions provided for before determination of the ‘‘net re-

ceipts.’? We do not quite understand the purpose of the

petitioners in making this assertion, but in any event it is

unfounded.

It is difficult to understand the theory upon which a

patron of a public utility can claim an interest in com-

pensation paid by the utility to a municipality as com-

pensation for the use of its streets. Certainly if the

compensation went into the general funds of the city,

plaintiffs could claim no interest. An interest is not created

Sy rcee

15

merely because the city agreed to a limited use of that

compensation unless it can be shown, which cannot be done

here, that a direct benefit to the patrons of the traction

companies was intended.

There are no authorities cited in petitioners’ brief to

support the essential propositions of law asserted by them

or which refute the principles laid down by the authorities

hereinabove cited by us. Thus, the first main point made

by petitioners at page 40 of their brief is that the defend-

ants have received and hold trust funds for the use of the

plaintiffs who are beneficial owners of these funds. No

authorities are cited to support this assertion which goes

to the very heart of the action. As we have already

pointed out the plaintiffs herein, named or unnamed, have

made no contribution to the traction fund and are not

parties to any contract directly or indirectly making them

beneficiaries of the monies in that fund.

A second point made by petitioners at page 37 of their

brief is that the defendants voluntarily became trustees

to collect the funds in question with the power and duty

to invest only in street railways at Chicago. We may

concede for the purpose of argument, that the traction

fund is a trust fund in the sense that the monies are to

be used only for the purposes prescribed by the franchise

ordinances. This concession does not, however, establish

the plaintiffs as beneficiaries of the trust fund nor does

it establish the right of the plaintiffs to enforce the per-

formance of whatever duties the city may have assumed

with respect to that fund. The cases cited by the peti-

tioners in support of this point (brief, pp. 37-38) present

situations where the plaintiffs therein were clearly bene-

ficiaries by virtue of express agreement or statute.

16

Warner v. New Orleans, 167 U. S. 467 and the same

case upon a second appeal, New Orleans v. Warner, 175

U. S. 120, presents the ordinary case of a suit by a holder

of warrants issued to anticipate the collection of and pay-

able out of assessments levied against property to cover

the cost of a drainage project. It is fundamental that in

such cases the municipality is a trustee of the assessments

when collected for the purpose of satisfying to the limits

of the fund the direct contractual obligations to the holders

of the warrants issued by the municipality. In the case

at bar there exists no contractual obligation direct or

otherwise between the City of Chicago and the plaintiffs,

The case upon which petitioners relied very heavily

below and discussed and cited repeatedly in their petition

and brief here is Attorney General v. Corporation of

Dublin, 1 Bligh, New Reports, House of Lords, 312. This

ease is clearly of no value in determining the issues in-

volved herein. It appears from the lengthy report of this

case that pursuant to statute the Corporation of Dublin

was given the right to charge land owners fixed annual

water rates or rents. The corporation was empowered to

borrow money and to pledge the rents for repayment of

the money. Provision was made in a subsequent statute for

further borrowings and for the setting up of a sinking fund

to pay off all loans. Apparently when all monies were

repaid the levy of water rates was to cease (see pp. 339,

348-349). Upon this state of facts it is not surprising that

the court held that the land owners who paid the water

rates were entitled to an accounting upon a specific show-

ing in their complaint that the officials of Dublin were not

applying the funds in liquidation of the debt as they were

bound by law to do. Unlike the plaintiffs in this case the

property owners were direct contributors to the fund and

17

were vitally interested in the disbursements made because

upon extinction of the debt the water rates would cease.

We fail to see the remotest analogy to the instant case.

Neither by direct contribution nor by contract have plain-

tiffs established any interest in the fund, nor can they

show how their rights are affected in any way by the dis-

bursement of the monies in the traction fund.

A third point asserted by petitioners at page 39 of

their brief, is a reiteration of the assertion that the de-

fendants are active trustees of an express trust and that

the plaintiffs are beneficiaries of that trust. The cases

cited on pages 39 and 40 appear woefully insufficient to

support this point or strangely irrelevant. Altschuler v.

Chicago City Bank & Trust Co., 380 Ill. 137, 43 N. E. (2)

673, involved an express written trust agreement, the bene-

ficiaries being the holders of beneficial interests and the

trustee being the holder of the title to real estate acquired

by foreclosure for the benefit of the bondholders. We can

have no quarrel with the holding of the court that the

defendant was an active trustee under those circumstances.

Any other holding would have been strange indeed. Any

similarity between that case and the case at bar escapes

our careful attention.

Hall v. State of Wisconsin, 103 U. S. 105, holding that a

contract between officials of the state and private persons

is binding upon the state is clearly not in point. The

same comment applies to Wall v. Chicago Park District,

378 Ill. 81. In the first place no contract exists between

the City of Chicago and the plaintiffs herein and secondly

there is no question of contractual impairment of a con-

tract by reason of any act of the legislature of the state or

of the City Council of the City of Chicago.

a

18

A fourth point made by the plaintiffs, at page 38 of

their brief, is that any beneficiary who is named or de-

seribed in a contract or trust agreement or who makes

contributions to a common fund may sue to enforce the

benefit whether or not he knew at the time about the

transaction upon whose occurrence the language of the

trust agreement vests in him the benefit and that by pay-

ment of two cents or more excess fare for each ride each

party became an original party in privity in this street

railway trust.

The difficulty with this assertion is that it is not based

upon the facts in this case but proceeds upon the un-

founded assumption of legal principles upon the facts

which are present in the case. The first fallacious assump-

tion of fact is that the case involves a beneficiary who is

named or described in a contract or trust agreement. The

plaintiffs cannot point to any place in the two paragraphs

of the franchise ordinances which are involved herein

where the plaintiffs are named or described. The second

fallacious assumption of fact is that the plaintiffs have

made contributions to a common fund. As we have already

pointed out, plaintiffs did not make any contributions to

this fund. They merely paid fares to the traction com-

panies and the traction companies pursuant to their agree-

ment with the City of Chicago paid as compensation for

the use of the streets the monies set aside in the traction

fund. The third fallacious assumption of fact is that the

plaintiffs paid two cents or more excess fare for each

ride. The rate of fare of the Chicago Surface Lines is

legally fixed by order of the Illinois Commerce Commission

and it cannot be argued with any plausibility that any

fare legally established by law is excessive to any extent.

Furthermore there is an inherent fallacy of law in the

19

assertion that by the payment of the alleged excess fare,

plaintiffs acquired a right to follow those fares into the

hands of creditors of the public utility to whom monies

were paid in fulfillment of a contractual obligation. It is

so elementary as to require the citation of no authority

that a patron of a public utility who has paid an illegally

exacted charge is limited to a suit against the utility to

recover the illegal charge.

The cases which the plaintiffs cite presumably in sup-

port of this point, which we have just dissected, and which

is self-destructive, appear on page 38 of the petition-

ers’ brief. All of these cases announce the indisputable

principle that a third party for whose benefit a contract

is made may sue to enforce the contract. None of these

cases presents facts at all similar to the case at bar and

do not in any way support the premise upon which the

plaintiffs’ case rests. The contract ordinance does not

mention the car riders expressly or inferentially and does

not purport to be for their benefit.

A fifth point made by plaintiffs at page 39 of their brief,

asserts constitutional rights of the plaintiffs and the cases

cited in support of the point also consider constitutional

questions. We have carefully read the cases cited and

cannot discover their relevance to the issues at bar.

There is here involved neither an express trust in favor

of plaintiffs nor an impairment by legislation of a con-

tract between the plaintiffs and the defendants, nor a

taking of plaintiffs’ property by exercise of the power of

eminent domain. We believe that any detailed discussion

of these cases would be an imposition upon the court.

20

The cases cited by plaintiffs to establish their right to

maintain a class suit deal with situations where the

plaintiffs owned a trust fund in common with others and

therefore are not applicable to the case at bar.

Plaintiffs cite a number of cases regarding the right of

persons to bring representative suits on behalf of them-

selves and other beneficiaries to a common trust fund

(page 42). We do not dispute the holdings in these cases

wherein trust funds were unquestionably involved and

where the plaintiffs were unquestionably members of the

class of beneficiaries. However, plaintiffs could have more

profitably devoted their energies in an attempt to prove

the essential premise that they are beneficiaries of the

traction fund. It is to be observed that nowhere do they

claim that they are entitled to receive any portion of that

fund. Under no circumstances is the city required to pay

to the car riders or to any other group of persons any

portion of the traction fund. That fund is to be expended

for the purposes specified in the ordinance. That is the

limit of the duties of the city. In all the cases upholding

the right to bring a representative suit the plaintiffs are

suing to recover monies from the trust fund which trust

fund is insufficient to pay all claims against it or to enjoin

the disbursement of monies from a fund where wrongful

disbursement will ultimately result in the imposition of a

liability upon the plaintiffs to replenish that fund or other

funds. The case at bar does not even remotely bear any

resemblance to the usual class suit.

We believe that it is unnecessary to burden the court

with a discussion of the right of the plaintiffs to bring a

“= Ries

21

representative suit because that question cannot possibly

arise unless the plaintiffs have first established an interest

in the fund and a right to bring an action on their own

behalf. This, we submit the plaintiffs have wholly failed

to establish.

Cc.

The motion of the plaintiffs for relief pendente lite was

premature particularly with respect to an allowance for

attorneys’ fees.

Plaintiffs filed a blanket motion for the granting of the

special relief pendente lite asked for by several of the

prayers in the complaint. (Tr. 101.) Prayers for relief

are found at pages 61 to 65 of the transcript. It is not

entirely clear from reading these prayers which are con-

sidered by the plaintiffs as relief pendente lite. We pre-

sume that these embrace the temporary injunction, dis-

covery and ‘‘such advance sums of money as the court

may deem necessary, to enable the plaintiffs and their

counsel, to make adequate searches and investigations and

preparation for trial, and to have the assistance and advice

of auditors, before the hearing of this cause.’’ (Tr. 62, 64.)

The trial court did not specifically deny this motion. The

motion automatically fell when the court sustained the

defendants’ motion to dismiss the complaint. While it is

doubtful whether or not the matter is properly before this

court for review at this time since the trial court did not

pass upon the motion for relief pendente lite, we shall

undertake to discuss this motion for the enlightenment of

the court since the petitioners have raised the point

(page 45).

22

The three cases which plaintiffs cite in support of their

point that the plaintiffs should have relief pendente lite

are not very helpful.

The relevancy of Sprague v. Ticonic National Bank, 307

U. S. 161 on the point of relief pendente lite escapes us.

Warren v. Palmer, 310 U. S. 132 relates to the de-

termination of a lien against property being administered

by the court and does not appear to be relevant upon the

facts. Apparently the case is cited because of the language

of the court that courts having eustody of property have

the power to require that expenses which ‘‘have contri-

buted either to the preservation or creation of the fund in

its custody shall be paid before a general distribution

among those entitled to receive it.’’ There is no disputing

that principle. However, that language does not support

the plaintiffs’ contention that they are entitled to those

expenses pendente lite before they have brought the fund

into the custody of the court. We will shortly demonstrate

that until the fund is brought into court, there is no juris-

diction to award attorneys’ fees or expenses incurred in

creating the fund.

Board of Commissioners of Vanderburgh County v.

Sanders, 30 N. FE. (2) 713 bears upon the question of relief

pendente lite only in so far as it relates to an order upon

the defendants to furnish the clerk of the court a list of

persons who had paid building permit fees and the amount

of fees paid by them, the recovery of those fees being the

object of the suit. We do not question that if plaintiffs

in this ease have the right to maintain the present action,

they will be entitled to discovery under the Federal Rules

of Civil Procedure by appropriate and specific motions.

(Rule 33—Interrogatories to Parties; Rule 34—Discovery

and Production of Documents; Rule 36—Request for Ad-

23

mission; and Rule 37—Refusal to Make Discovery: Conse-

quences.) If it was the intention of plaintiffs to obtain

such relief pendente lite by their blanket motion, we sub-

mit that the motion was both improper and premature.

Reasonably the plaintiffs must await the answer of the

defendants to determine what information the plaintiffs

desire that is not furnished by the answer of the de-

fendants and then proceed by appropriate specific motions

under the above cited rules. These specific motions could

then be intelligently considered by the trial court. A vague

motion for relief pendente lite without specifying what

relief is requested presents nothing upon which the trial

court can pass and cannot be regarded as a proper pro-

cedure under the rules.

In so far as the motion relates to an allowance of at-

torneys’ fees and expenses of conducting litigation, it is

manifestly premature. People vy. Holten, 304 Til. 394

squarely decides that point. In that case a taxpayer’s

suit was brought to recover from the collector of the

town of Kast St. Louis certain taxes collected by him.

The trial court dismissed the complaint. Upon appeal to

the Supreme Court the decree of dismissal was reversed

and the cause remanded. Upon remandment and before

any other proceedings were had the attorney for plaintiffs

filed a petition for allowance of fees and for a lien upon

the fund when collected. The petition for fees was dis-

missed and an appeal was taken to the Supreme Court.

The action of the trial court was affirmed, the Supreme

Court holding that until successful termination of the suit

and the bringing of the fund into the custody of the court

there cannot be an allowance of fees (page 399) :

‘‘Had there been a judgment or decree recovering

this fund there would be much force in counsel’s argu-

ment. A court of equity should do all in its power

24

to reasonably compensate those who seek to protect

the public by compelling the return of public funds,

There is no provision in equity, however, permitting

a court, in the exercise of equitable powers, to declare

an allowance of fees and the payment of them out of a

fund of this character before the fund comes under

the control of the court. There has been no judgment

or decree rendered in the main case finding any

amount due from Holten and his bondsmen. It was

held in the Holten case that a right of recovery existed

by the action of the tax-payers; that on the record

there made Holten and his bondsmen were shown to

-be liable; that the municipalities had no authority to

settle the claims with Holten and his bondsmen as

was attempted to be done, and that therefore it was

error to dismiss the bill. This does not amount to a

judgment or decree finding an amount due. The case

was remanded without directions. This opened the

ease for pleading, if desired. (Green Lumber Co. vy.

Nutriment Co., 224 Ill. 234.) We are unable to say now

that the circuit court should, on remandment, have

entered a judgment or decree finding an amount due.

There is no such fund at this time in the control of the

court from which an allowance of reasonable attor-

ney’s fees could be made.”’

The federal rule is in accord with the foregoing princi-

ples. In Buell v. Kanawha Lumber Corp., 201 Fed. 762

the court considered the question of allowance of attorneys’

fees by courts of equity from a fund brought into court

through the efforts of representatives of a class. While

the decision is that of a district court, it is so painstaking

and scholarly that we have no hesitation in submitting it

to the court as sound authority. In its opinion, the court

said, page 769:

‘‘In America no distinction as between solicitors

and barristers existing, the doctrine has been extended

so as to include all the fees and expenses reasonably

due by the successful litigant to his counsel, and the

rule is established that where one goes into a court of

25

equity, and takes the risk of litigation on himself,

and successfully creates or preserves or protects a

fund to a share in which others are entitled, those

others will not be allowed to lie back and share the

results of these successful labors without contributing

their due share, and a court of equity by an equitable

extension of the English principle has required the

payment out of the fund (before distribution) of the

reasonable costs and expenses, including the reason-

able counsel fees of the complainant whose diligence

created or preserved the fund for distribution. If the

complainant had been unsuccessful, and no fund had

been created, he would have had to undergo the fate

of the unsuccessful litigant in any other proceeding;

that is, to pay the costs and expenses himself. That

is the burden and risk that every litigant takes when

he enters a court of justice. If unsuccessful, he must

pay the costs of the court and also his own counsel

fees. No man will be compelled to pay that which he

did not expressly or impliedly contract under such

circumstances to pay, and, if the complainant be un-

successful, he cannot call upon others who did not

believe in the merit of the claim, or did not care to

undertake the risk of litigation, to pay any part of

these expenses. He must bear them all himself. So, in

any court of equity in the United States, where the

complainant fails in his application, he has to pay all

the costs of court, including the fees of the officers of

the court, and of the masters and examiners as well as

his own counsel fees. If successful, and through his

efforts a fund has been created and protected or pre-

served, the court will under the principle of requiring

equity to be done by those who share in these results

require payment of all proper expenses out of the fund,

if any fund there be within the court applicable to

them.

The foregoing case has been cited with approval and

quoted from by many courts of review. Some of these are:

Carbon Steel Co. v. Slayback, 31 Fed. (2) 702 (C. C. A.

Fourth Cireuit) ; Becht v. Miller, 279 Mich. 629; 273 N. W.

297; In re Lear’s Estate, 204 Ia. 346; 312 N. W. 244; and

26

Blacker v. Kitchen Brothers Hotel Company, 133 Neb. 66;

273 N. W. 838.

In the last cited case the syllabus by the court reads:

‘*3. But allowances for attorneys’ fees and ex-

penses in such cases [representative suits] can only

be made after the services have been rendered and a

determination made that they were of direct and sub-

stantial benefit to other members of the class who are

alleged to have benefited therefrom.’’

The foregoing authorities are so conclusive on the point

that we will not further belabor it. There is no authority

in law or reason for compelling a defendant pendente lite

to finance litigation against him. All that can reasonably

be expected is that after the plaintiffs have successfully

maintained and terminated their action and have estab-

lished the liability of the defendant, they are entitled to

recover the expenses out of the common fund which their

efforts have recovered for the class of plaintiffs repre-

sented.

D.

All of the expenditures made or proposed to be made which

are specifically described in the complaint are within the

purposes prescribed by the franchise ordinances.

While we feel that the principle reason for dismissing

the complaint in this case is that the plaintiffs lack an

interest in the fund, the complaint is also fatally defective

in that it wholly fails to make out a case on the supposed

misuse of the traction fund. The brief of petitioners does

not favor us with an analysis of the allegations charging

the defendants with unlawful diversion of the moneys in

the traction fund to demonstrate why the expenditures

made or contemplated are in violation of the provisions of

the franchise ordinances.

27

An examination of that portion of the complaint alleg-

ing the supposed breaches of trust (Tr. pp. 19-45) discloses

that it is replete with vague conclusions of law and fact

which are clearly improper bases for the complaint. The

specific allegations relating to definite expenditures and

proposed expenditures reveal that those expenditures were

wholly proper under the provisions of the franchise ordi-

nances as construed by the Illinois Supreme Court in Bar-

saloux v. City of Chicago, 245 Ill. 598 and reople v. City of

Chicago, 349 Ill. 304. We have discussed these cases earlier

in the brief and have pointed out that the court in these

cases has held that the traction fund may properly be

used not only for the purchase and construction of

surface, elevated and underground street railways, but

also for preliminary and incidental work in connection

with such purchase and construction. The expenditures

complained of specifically in the complaint clearly fall

within the scope of permissible expenditures, namely,

payment to a title company for a title search for pro-

posed street widening projects to accommodate a sub-

way (Tr. 20), charges in connection with studies and

preparation of plans for construction of subways and

franchise ordinances providing for acquisition of street

railways (Tr. 20-24), expenses incidental to construc-

tion of subways and acquisition of street railways (Tr.

24-25), expenses of submitting to referendum a _ pro-

posed comprehensive traction ordinance (Tr. 25), and pro-

posed use of the traction fund under the provisions of the

comprehensive traction ordinance dated June 19, 1941 (Tr.

26-29). With respect to the last item, People v. City of

Chicago, 349 Ill. 304, has squarely upheld the use of the

traction fund under the comprehensive traction ordinance

of 1930, the provisions of which are practically identical

28

with the comprehensive traction ordinance of 1941 so far

as it relates to the use of the traction fund.

The foregoing are all of the specific charges contained

in the complaint and which are proper to consider in de-

termining the sufficiency of the complaint. The balance of

the charges of supposed violations of the trust (Tr. 30-45)

are composed of general allegations, irrelevant communi-

cations, irrelevant dissertations on political history, alder-

manic statements, a letter to the editor of the Chicago

Daily News from a car rider (Tr. 44), and like incompetent

matters.

Even if the plaintiffs did have an interest in the traction

fund, we submit that the complaint does not state a good

cause of action upon the theory of misuse of the moneys

in that fund.

29

Conclusion.

It seems obvious that the named plaintiffs, residing in

five different states other than Illinois cannot possibly

possess a bona fide interest in the Traction Fund of the

City of Chicago. It is nothing short of preposterous that

these six non-residents spread all over the country should

spontaneously and simultaneously conceive the idea of fil-

ing a suit on behalf of the millions of resident car riders

purporting to protect them from alleged mismanagement

of the Traction Fund. The conclusion is irresistible that

the present suit was conceived and engineered by the at-

torney for the plaintiffs with the purpose in mind of manu-

facturing some basis for a claim for attorneys’ fees in the

remote contingency of success in proving the alleged mis-

appropriation. We believe we are justified in making the

assertion that the complaint was not filed in good faith.

That fact ought to be manifest from the complaint itself.

Aside from having no practical interest, the named

plaintiffs have no legal interest in the Traction Fund, as

we have demonstrated in our brief. The judgment of the

District Court and the affirmance thereof by the Circuit

Court of Appeals were completely warranted. It is respect-

fully submitted that the Petition for Certiorari be denied.

Respectfully submitted,

Barnet Hopes,

Corporation Counsel of the

City of Chicago,

Attorney for Respondents.

JosEPH F’. GRossMAN,

First Assistant Corporation Counsel,

J. Herz SEGAL,

Assistant Corporation Counsel,

Of Counsel.