Amicus Curiae Brief — St. Louis & San Francisco R. Co. v. Spiller

Boi ks & 2

APR 11 1927

E COPY

WM. f. STANSBBRY

@LERK

IN THE

SUPREME COURT OF THE UNITED STATES.

OCTOBER TERM, 1926.

—————— eee

ST, LOUIS-SAN FRANCISCO :

RAILROAD COMPANY and the ST.

LOUIS-SAN FRANCISCO RAILWAY

COMPANY

: Petitioners, | No. 577,

VS.

E, B, SPILLER et al.,

Respondents. |

——————————

On Writ of Certiorari to the United States Circuit Court of

Appeals for the Eighth Circuit.

\

BRIEF OF AMICUS CURIAE, CLIFFORD B. ALLEN,

Boatmen’s Bank Building,

St. Louis, Missouri.

ROS ARAL: SLAC D STOO RE REDST N AES. ERI SERINE

Sr. Lovis Law Patntine Co., 415 North Eighth Street. CE ntral 4477.

—

IN THE

SUPREME COURT OF THE UNITED STATES.

OCTOBER TERM, 1926.

————————oo OOOO"

ST, LOUIS-SAN FRANCISCO ,

RAILROAD COMPANY and the ST.

LOUIS-SAN FRANCISCO RAILWAY

COMPANY ,

Petitioners, > No. 577,

VS.

E, B. SPILLER et al.,

Respondents. |

—-— ~~ —

ee — —

On Writ of Certiorari to the United States Circuit Court of

Appeals for the Eighth Circuit.

MOTION OF CLIFFORD B. ALLEN FOR LEAVE TO

FILE BRIEFS AS AMICUS CURIAE.

I. Now comes Clifford B. Allen and respectfully repre-

sents to the Court that he is one of the solicitors of Mis-

souri shippers, from whom excess charges were exacted by

the Missouri Pacific-Iron Mountain Railroads pending

their Equitable Rate Contesting Cases instituted in the

—_—_—_e

ii

Cireuit Court of the Western District of Missouri in 1905

against the shippers and officers of the state. The ship-

pers have intervened as overcharge claimants in the Mis.

souri Pacific and Iron Mountain receiverships and the

claims are still there pending. He is interested in the de-

cision in this case.

Il. That this Honorable Court has heretofore granted

the privilege to the Missouri Pacific Railroad Company,

which is a reorganization of the St. Louis, Iron Mountain

& Southern Railroad and the Missouri Pacifie Railway

Company, to participate herein and file briefs as amicus

curiae.

III. That the petitioners and respondents herein have

consented to the undersigned filing a brief as amicus

curiae therein, a pe Missouri Pacific Railroad

ys s On Ciwelihicww

Company, amicus curiae, as appears om letters and con-

sent signed below.

Wherefore, the undersigned prays that an order be en-

tered permitting him to file the brief hereto attached,

as amicus curiae.

esereee eee ee ee ett eet eases esens

iii

NOTICE OF MOTION.

The petitioners and respondent in this case are hereby

notified that the undersigned will, on the .... day of

se cueagevedeneeseeuess , 1927, on the convening of the

Supreme Court of the United States on that date, or as

soon thereafter as hearing may be had, submit for the

hearing of said Court the foregoing motion.

Service of the foregoing notice, motion and brief is

hereby acknowledged, and we consent that the brief may

be filed.

Pe ee ee ee

Attorneys for Missouri Pacific.

wa,

SUBJECT INDEX.

T Prelac® cc cccccccccccccccccescccevescescorsses 1-5

II. Injunction did not destroy shippers’ cause of

action for overcharges, nor make them lawful. .5-13

IIL The collection and withholding of unlawful

freight charges result in equity in a trust in

fe cocccccccoceerceereooneoeecoseress 13-17

IV. The remedy of reparation is based upon the

theory that the collection of overcharges was

eee ccccccecrcccsescceeetserseceesenus 17-24

V. The tracing of the overcharges into the treasury

of the railroad unit is a sufficient identification

£2 PPPPPPrTTrTITiTr rire et 24-29

List of Authorities Cited.

Allen vy. St. L. I. M. & So. Ry (Ark. Rate Case), 230 U.

DED ccnctcccveseecéderensecdtervonepetantseve i

Angle v. C. M. & S. P. M. & O. Ry. Co., 151 U.S.1.... 25

Arkadelphia Milling Co. v. R. R. Co., 249 U. S. 134...7,17

Arkansas Fuel Co. v. R. R., 16 I. C. Rep. 97.......... 18

Baer Bros. Mercantile Co. v. Denver R. G. Co., 233

DT ee ccececvdens cedivuscccgevecenewtseseduss 20

Barker v. C. & A. R. R. Co., 265 Mo. 682 ........... 7,17

Bellamy v. St. L. L. M. & S. R. R. Co., 220 Fed. 876.6, 14, 17

Chesapeake & Ohio R. R. Co. v. Conley (W. Va. Rate

se fie | . errr rrrrrirrrriirr ere 3

Chieago B. & O. R. Co. v. Merriam Millard Co., 297

DL BEE Ae ceeceeseaercersndeneseddkedavdssetaree 20

Chicago, Rock Island & Pacifie Ry. Co. v. Howard,

Oe Bie Oe GD wccdccedeceenceveds sévweks ceeeees yes 26

- —_—

vi

Christopher v. Mungen, 61 Fla, 513 ................ 12

Carnet Feats, Vel OG: Ore wiki cah ea asics scceseivins 12

ak: Wak. Be ie BE na Secepeacckensnee sarees enddivs 22

Darnell v. Southern Pacifie R. R., 221 Fed. 890 ...... 19

Duel v. Holland, 241 U.S. 523 ...... cece ccescneees 4

Erie Rubber Co. v. Dial, 140 Fed. 691 ............... 24

Fleming v. Reddick, 5 Grat. (Va.) 272 .............. 14

Gorman v. Littlefield, 229 U.S. 19 ........cceeeeeees 4

Guaranty Tr. Co. v. Mo. Pac. R. R. Co., 238 Fed. 815.. 25

Kansas City Southern Ry. Co. v. Guardian Tr. Co., 240

OR Se ae ee ee ee ee ee er ee ey 26

Knott v. Burlington (Mo. Rate Case), 280 U.S. 472... 3

Little Rock v. Little Rock, 76 Ark. 48 ............... 14

Louisville & Nashville R. R. Co. v. Schloss-Sheffield

iE A ae a odae sys oes dedeuee eeacaee 19

Louisville Tr. Oo. v. B. B., 174 U. BS. G74 2. ccccecess 26

Love v. North American Co., 229 Fed. 103 ......... 4,8,17

McCollum v. MeConaughy, 141 Ia. 172 .............. 12

Mereantile Trust Co. v. St. L.-San Franeisco Ry. Co.,

rs EE taut cebovad bake anneseweteesceebeates 4

a aes Se ere 18

Missouri Rate Case, 230 U.S. 474, et seq............ 3, 9

reek Ve A Cs Bre Us i Pe ecw ecentcansvevass 1)

Newton v. Porter, 60.0.0 F. 288 occ ccwivccewsvcnees 93

New York Gas Co. v. Newton, 269 Fed. 288 .......... 10

Northern Pacifie R. R. Co. v. Boyd, 228 U.S. 482 .... 26

Peoples v. Houhtling, 7 Calif. 348 ............eeeeee 16

Philios v. Tiimes, 3B Biine. 163... cc vicccvessnvccscsces 16

Philips v. Grand Trunk Co., 236 U.S. G62 ........... 19

Pee a eas BE i Oe 6 ck nb cheb as cdceedécadans 12

Poultney v. Warren, 6 Von. 73 ..6.cecsccerscsccesas 14

Railroad Co. v. Barker, 210 Fed. 916 .............06 10

Railroad Co. v. Minnesota, 134 U.S. 418 ............ 10

Vii

St. Louis Iron Mt. & So. R. R. Co. v. MeKnight, 244

SD SA a ee ee he mere 6, 14, 17

St. Louis Iron Mt. & So. R. R. Co. v. Bellamy, 211

Ee a ease 60s Cane ns anes een 5

Simpson v. Shepard (Minn. Rate Case), 230 U.S. 352. 3

Smith v. Tp. of Au Gres, Mich., 150 Fed. 257 ....... 24

Solum v. Northern Pacific R. R. Co., 133 Minn. 95... 13

Southern Oil Co. v. Elliotte, 218 Fed. 569 .......... 24

Southern Pacifie Co. v. Campbell (Ore. Rate Case),

i oe. Cadaver suoe en cbnaadwecaueaas 3

Southern Pacifie Co. v. Darnell, 245 U. S. 531 ...... 18

State ex rel. C. & A. R. R. Co., 265 Mo., 1. ¢. 682 ..... 7.17

Story’s Equity Jurisprudence, 13th Ed. 604 .......... 22

Thompson v. Kentucky, 209 U.S. 346 ............... 11

White v. Delano, Receiver of the Wabash, 270

NS CUS N Se Cece Duane Kon cee b ub Se tooeeaneees 12,17

IN THE

SUPREME COURT OF THE UNITED STATES.

OCTOBER TERM, 1926.

5

ST. LOUIS-SAN FRANCISCO

RAILROAD COMPANY and the ST.

LOUIS-SAN FRANCISCO RAILWAY

COMPANY

Petitioners, > No. 577,

VS.

E. B, SPILLER et al.,

Respondents. |

On Writ of Certiorari to the United States Circuit Court of

Appeals for the Eighth Circuit.

BRIEF OF AMICUS CURIAE, CLIFFORD B. ALLEN,

I,

PREFACE.

We quote from page 2 of brief of amicus curiae, Mis-

souri Pacifie Railroad Company:

**We are particularly concerned, because of the fact

that over $1,000,000 of overcharge claims alleged to

ay

9

have been collected UNDER THE PROTECTION OF

AN INJUNCTION DECREE during the Missouri rate

litigation and predicated upon the so-called trust fund

theory are still pending before the Special Master in

the Missouri Pacific-Iron Mountain Receivership cases,

and the attorneys for these claimants are attempting

to construe the decision in the Cireuit Court of Ap-

peals in this case as an authority, to the effect that

charges in excess of the statutory rates, although col-

lected UNDER AND PURSUANT TO A DECREE

OF COURT OF COMPETENT JURISDICTION are

trust funds, and that they need only to be traced into

the general cash account as distinguished from check-

ing accounts in particular banks of deposit.’ (Black

caps ours.)

These attorneys there referred to have asked the privi-

lege of filing this brief, because it seemed only fair to the

shippers of the State of Missouri and to this Court that

their view upon this situation should be before the Court,

as well as that of the Missouri Pacifie Railroad Company.

In 1905 the Legislature of the State of Missouri passed

what was known as the ‘‘Maximum Freight Rate Act.”

Fighteen railroads in Missouri applied to the federal

court at Kansas City (in eases of St. Louis-San Francisco

and seventeen other roads v. Hadley, Attorney-General,

155 Fed. 220, 161 Fed. 419, 168 Fed. 317) to restrain the

institution of suits by shippers and state officials based

upon the failure of the carriers to comply with said stat-

utes, alleging that the application of said statutes to each

of them would be unconstitutional, because (a) it would

ee ae

result in confiscation, and (b) in discrimination against

interstate commerce. A restraining order, followed by a

temporary and then a permanent injunction, without either

attempting to fix the rates to be charged by the carriers,

was entered.

In 1907 that Legislature passed a second Maximum

Freight Rate Act, and by supplemental bill the railroads

secured temporary injunctions as against shippers and

officers of the state from bringing suits based upon their

failure to comply with said act,

In 1909 the District Court at Kansas City entered a

final decree finding that (a) the application of the rates

to the carriers would not result in discrimination, and (b)

that it would result in confiscation, and enjoined the offi-

cers of the state and the shippers from instituting suits

based upon their failure to comply with said acts until

further order of the Court.

Thereupon cross appeals were taken to this Court. This

Court, in June, 1913, decided all these eases, holding in

the case of thirteen of the major roads that the applica-

tion of the Maximum Freight Rate Acts of 1905 and 1907

would not result in either confiscation or discrimination,

and that in the ease of five minor roads it would result

in confiscation, and reversed, in part, the decree of the

court below and ordered the injunction dissolved and the

carriers’ bill dismissed. These cases appear as the Mis-

souri Rate Cases in 230 U. S. 474. Minnesota, Oregon,

West Virginia, Arkansas Rate Cases were decided at the

same time, 230 U. S. 352, 513, 525, 555.

wae ye

The shippers of Missouri, overcharge claimants in the

Missouri Pacific-Iron Mountain Receivership cases, con-

tentended, first, that the overcharges exacted by those

carriers during their Equitable Rate Contesting Injune-

tion were not collected under and pursuant to a decree of

a court, for no decree or order fixed the rates to be

charged, but were collected and retained in violation of a

statute which stamped the collection and retention of such

overcharges as unlawful, and which this Court held was

constitutionally applied to them; and second, that such

overcharges exacted in violation of a valid law, were en-

titled to a preferential payment, because there was always

on hand in the treasury of the company cash, largely in ex-

cess of the aggregate sum of the excessive exactions, be-

cause from current income there had been diverted large

sums of money to pay for additions and betterments to

roadway and equipment, ete.; and third, because of the

public duty that the carriers owed to the State of Missouri

to return to the shippers these illegal exactions (Love v.

North American, 229 Fed. 103; Mereantile Trust Co. v.

Frisco, 69 Fed. 1931).

The fallacy of the Missouri Pacific argument is the con-

tention (a) that the erroneously and subsequently dis-

solved injunction obtained by it restraining shippers from

instituting suit against it for its failure to comply with a

valid state statute (until the further orders of the Court)

made the collection of such overcharges lawful, which a

valid statute declared unlawful; (b) that the carrier, by

a

publishing an unjust and unreasonable rate, prohibited by

statute, can make such rate a lawful one for it to collect;

(c) that the withholding of excessive charges which, in

equity and good conscience, belong to the shipper, does

not result in a trust in invitum; (d) that is, the trust fund

must be traced into a specific checking account of the

trustee.

These contentions have been presented to and rejected

by the courts in the cases infra.

IL.

The Injunction Did Not Destroy Shippers’ Cause of Action

for Overcharges, Nor Make Them Lawful.

In the Arkansas Rate case, injunction bonds to a large

amount had been required as a condition precedent to the

injunction. After the reversal of that case and its remand-

ing to the District Court to proceed in accordance with

the opinion, a Master was appointed to hear claims for

overcharges arising pending the injunction. Gallop, a

shipper, instituted suit in the Chancery Court of Baxter

County for an accounting and discovery of overcharges

illegally exacted pending the injunction. The carrier ap-

plied to the Federal District Court in the Arkansas Rate

case for an injunction restraining Gallop from so pro-

ceeding, and Judge Trieber issued the injunction (St.

Louis I. M. and S. Railway Co. v. Bellamy, 211 Fed.

175). Gallop and the Publie Service Commission of Ar-

——a

— a

kansas appealed from such decree to the United States

Circuit Court of Appeals and that Court in (Bellamy y,

Railway, 220 Fed. 878) decided:

‘‘Parties from whom excessive rates have been ex-

acted were not confined to suing on the bond. They

also had the right, given them by law, to recover the

overcharges. That right was not destroyed by the

injunction, but was simply suspended. As soon as the

injunction was out of the way, the right and remedy

for its enforcement stood the same as if the injunction

had never been issued.’’

The railroad appealed to this court, which affirmed the

decision of the Court of Appeals in that case under title

of Railroad v. McKnight, 244 U. S, 368, and said:

‘‘But Gallop makes no claim under the bond. He

snes on cause of action to recover overcharges arising

under the Arkansas statute. His right to sue, sus-

pended by the injunction, improvidently granted, re-

vived as soon as the permanent injunction was dis.

solved by the decree dismissing the bill. Although the

injunction enjoined all shippers and travelers and,

therefore, him, from instituting suits on account of

alleged overcharges, Gallop did not, in fact, become

a party to the suit in the District Court; and he could

not, after the mandate directed dismissal of the bill,

be compelled to submit to that court the adjudication

of his claim.’’

None of the Missouri shippers represented in this case

was eo nomine parties to the Missouri Rate case.

—

—_ (—_—

In the Arkansas Rate case there was left to the shipper,

who intervened therein, two remedies only. One for dam-

ages on the injunction bond for overcharges collected

pending the temporary injunction, and the other by way

of restitution for overcharges exacted pending the appeal.

This Court did not, in the Arkadelphia case, decide that

the collection by the carrier of charges in excess of the

Arkansas rate was a lawful or legal collection. On the

contrary, it was held (249 U. S. 134) that

‘“‘the damages were complete when the overcharges

were made, and as they were wrongfully made, and

without the consent of the shipper, interest ran from

that date on general principles.’’

The Missouri Supreme Court, in State v. C. & A., 265

Mo. 682, held that claims for excess freight and passenger

rates were collected in violation of a valid law. In Judge

Bond’s dissenting opinion in that case (page 706) appears

the following, which was consistent with the majority

opinion:

‘‘What was the effect of the injunction in the fed-

eral court? Simply to prevent the enforcement against

the defendant of the state statutes regulating its

charges. It could not and did not go further. * * *

Pending the final word of that great tribunal, the de-

fendant in this ease took the chance of violating the

Missouri statute and compelled this plaintiff to pay

$50,000 contrary to the terms of the Missouri statute.

This was a violation of the law by defendant, who

|

=

did it with imputed knowledge that the ultimate de.

cision of the constitutionality of the statute it was

disobeying was the sole prerogative of the Supreme

Court of the United States, and that in the event that

court should sustain the statute a constitutione]

exercise of the lawmaking power of this state, every

dollar which it had taken from the state while the

question of its right to enact these laws was in issue,

would be an illegal and wrongful appropriation of

the property of the state.’’

In Love v. North American Co., 229 Fed. 103, the Cir.

cuit Court of Appeals of the Eighth Cireuit, said:

‘The shippers not only paid the lawful charge, but

they did more. They paid an excessive charge. That

payment was an illegal exaction and as against the

railroad company and volunteers like the Receiver,

the money belonged to the shippers after the pay-

ment, the same as before. It will be presumed that it

was a part of the money in the treasury of the com-

pany which passed to the Receiver. The money came

into the hands of a court of equity. What ought such

court have done with it? Surely it could do nothing

but direct that it be returned to the shippers to whom

it belonged. It having been paid to the bondholders,

or for permanent betterments of the property for their

benefit, through the agency of a court of equity, that

court, as a court of conscience, can do no less than

direct its restoration.

=

“Second. There is another aspect in which peti-

tioners’ equity appears equally strong. The railroad

company got this money into its treasury by super-

seding rates that were fixed by authority of a state.

When those rates were sustained, the carrier was

bound to restore the excessive exactions. This was a

duty not only to the shipper, it was a public duty

owing to the state, whose orders had been superseded.

It is a duty which this Court, and the Supreme Court,

have always been scrupulously careful to safeguard.

When superseding rates pending judicial inquiry as

to their validity. It is a duty which a court of equity

that has taken over the business of a public carrier

by means of receivership, ought to be equally careful

to enforce.’’

In the Missouri Rate case the railroads were not en-

joined from putting in force the statutory rates. They

themselves enjoined the institution of suits for the en-

forcement of those rates. They did not, however, secure

from the Court the authority to collect, pending the in-

junction, the excessive rates on freight which they col-

lected.

That the State had power to and did establish such

rates is now put beyond question, by the decisions of this

Court. That the statutory rates so established have been

the only lawful rates from the time the statutes, by their

terms, went into effect is also clearly established by the

decisions of this Court and the Supreme Court of Mis-

souri (cases supra). The fact that the carrier erroneously

enjoined the shippers from instituting suit against it for

a

— 10 —

failure to comply with the statutes during its Rate Contest,

did not make the statutory rates unlawful, nor legalize

the collection of the excess above the lawful rates, nor de.

stroy the shippers’ right to recover the alleged overcharyes

in any action or forum which they had before the injune-

tion was issued.

In Newton v. Gas Co., 258 U. S. 165, this Court said:

‘‘Rate making is no function of the courts, and

should not be attempted, either directly or indi-

rectly.”’

In N. Y. v. Gas Co., 269 Fed. 288, the Court said:

‘*At the outset, however, it is desirable to make

clear that this Court is not a rate-making body. The

basie question is the constitutionality of the statute

prescribing the rate.’’

“It is elementary that courts cannot make rates.

** *” (Lighting Co. v. Nixon, 268 Fed. 149).

In entering the deeree upon the mandate in the Missouri

Rate case, in Railroad v, Barker, 210 Fed., |. ¢. 916, that

Court said:

‘“‘Commencing 24 years ago, in the ease of Mil-

waukee R. R. Co. v. Minnesota, 134 U. S. 418, 33 L.

Ed. 970, and continuing to the present time, there has

been a uniform line of holdings that the fixing of a

rete is a legislative act * * *.”’

=

The decree in the Missouri Rate case will demonstrate

that no freight rates were fixed or authorized to be col-

lected pending the injunction.

In addition, however, the dissolution of the injunction

rendered enforceable another obligation assumed by the

carrier when it procured the injunction, to do equity to

the shipper by restoring the status quo, i. e., the right of

the shipper to enforce restitution in the injunction suit.

This was concurrent, consistent and cumulative to and

with the rights of the shipper which existed before the

injunction suit was brought, and which were restrained

thereby. This right of restitution was the one enforced

in the Arkadelphia case. .

The Missouri Pacific Railroad Company in their argu-

ment overlooks entirely the fact that it was the prohibi-

tion of a valid statute, constitutionally applied to them,

that stamped their collections and retention of over-

charges, pending the injunction, as illegal. That the in-

junctions in the rate case simply enjoined the shippers

from instituting suits based upon the carriers’ failure to

comply with a statute.

The railroads knew, as was said by the Supreme Court

in Thompson v, Kentucky, 209 U. S. 346:

“That at any rate, it is the province of the courts

to interpret the laws of the state, and he who acts

under them must take his chances of being in accord

| on

with the final decision, and this is a hazard under

every law and from which, or the consequences of

which, we know of no security.’’

An injunction of a nisi prius court is no security against

the consequences of violating a state statute by it errone-

ously interpreted.

In Vol, XII, Corpus Juris, Title, Constitutional Law, p.

801, it is said:

“Tf the decision that a statute is unconstitutional

is subsequently reversed or overruled, the statute will

be treated as valid and effective from the date of its

enactment.’’

Christopher v. Mungen, 61 Fla. 518, 534, 55 So,

273;

Pierce v. Pierce, 46 Ind, 86;

McCollum v. MeConaughy, 141 Towa 172, 119

N. W. 539,

In White v. Delano, Receiver of the Wabash Railroad,

270 Mo. 16, 34, 38, another one of the Missouri Rate Cases,

the Supreme Court of Missouri said:

‘“We, therefore, hold that the act under considera-

tion was not suspended during the pendency of the

injunction mentioned. * * *

‘*The rate statutes here under consideration are

valid, as held by the Supreme Court of the United

States, and, therefore, the excessive charges collected

from the plaintiff were unlawfully collected. * * *”

In the ease of Solumn v. Northern Pac. Ry. Co., 133

Minn. 93, 157 N. W. 996, the same contention came before

the Minnesota Supreme Court, and in passing upon the

question the Court said:

‘“‘The injunction case went to the United States

Supreme Court and that court held that the state

statutes and the rates prescribed thereby were valid

and dissolved the injunction. That the state had the

power to and did establish such rates is now beyond

question. As the state statute was a valid exercise

of the legislative power, it necessarily follows that the

rates prescribed therein have been the lawful rates

from the time that the statute declared they should go

into effect.* * * The fact that defendant was legally,

but erroneously, restrained, for a time, from putting

such rate into effect, did not operate to make the rate

unlawful or invalid during such period nor entitle the

defendant to retain the excess above the lawful rate

which it had collected by virtue of the erroneous in-

junction.”’

The overcharges were exacted in violation of a valid

statute, and consequently must have been collected with-

out any legal right or authority to receive them. The

collection of an excessive rate is ipso facto unlawful un-

der the Missouri statutes.

IIl.

The Collection and Withholding of Unlawful Freight

Charges Results in Equity in a Trust In Invitum.

The Missouri Pacific Railroad contends that there is no

difference in the rights and remedies of an intervener in

en a

the original rate case and of a shipper who had not inter.

vened in that case. An intervener in the original rate

case, Who sought to recover overcharges as damages after

the f al injunction, was exclusively confined to his rem-

edy o: restitution. But a shipper, who had not so inter.

vened, had all the rights and remedies that existed ({or

the recovery of such overcharges) before and independent

of the injunction (Fleming v. Reddick, 5 Grat. [Va.] 272;

Little Rock v. Little Rock, 76 Ark. 48; Poultney v. War-

ren, 6 Ves. 73; Bellamy v. Rd., 220 Fed. 876; Rd. v. Me.

Knight, 244 U. S. 369).

Such shipper had the right to go to any such forum and

there predicate his recovery on the assumption that the

collection and retention of such charges were entirely un-

lawful, and that he might do, whether his suit was for

money had and received, or for the enforcement of a con-

structive trust, or for overcharges exacted in violation of

the statute.

Judge Seddon, in the quotation appearing on page 10 of

the brief of the Missouri Pacifie Railroad, is in error in

his conclusion, ‘‘it is not, as supposed by the learned

counsel for the interveners, a case of a choice of two

remedies for the seme cause of action. The causes of

action are distinctly antagonistie.’’ The learned Special

Master was led into this erroneous statement by his con-

clusion that the shippers were, eo nomine, parties to the

Missouri Rate case, and they, therefore, lost their right

to proceed to recover their overcharges in other forums

— |)

and in other causes of action. In that same report he

said:

“Of course, all which the Master has said with

reference to the legality of the act of the defendant

in collecting the freight charges and in reference to

restitution, is predicated upon the assumption of two

facts. First, that the intervener and other shippers

were parties to the Missouri Rate case. Second, that

the defendant was cuthorized by the decree of. in-

junction in that case to collect freight charges. If

they were not parties to that case, or if the act of the

defendant in collecting the charges was not so au-

thorized, the intervener has an unobstructed action

for relief from an illegal act,” ete.

That the Missouri shippers, represented by this attor-

ney, were not parties, eo nomine, to the Missouri Rate

case and that the injunctive orders in that case did not

fix any freight rate to be .< lected pending that injune-

tion cannot be successfully disputed.

On page 11 of the Railroad’s brief there is a quotation

from Judge Sanborn’s opinioy affirming the Special Mas-

ter’s said conclusion. The same infirmity appears therein.

Judge Sanborn decided that the final decree was binding,

“so far as the parties to the suit were concerned.’’ But

the interveners there contesting were not eo nomine par-

ties to the Missouri Rate case and could not be compelled

to be parties thereto after the Supreme Court reversed

the Missouri Rate case and ordered the injunction dis-

oa

solved. (See McKnight case, supra.) Nor was there any

es eee

order, or decree, in the Missouri Rate case authorizing the

carrier, pending that injunction, to collect any fixed rate

of freight, whatsoever.

Judge Sanborn fell into another error in failing to ap-

preciate that it was not the dissolution of the injunction

which rendered the overcharges collected during its pend-

ency wrongful and unlawful, but it was the state statute

which stamped their receipt and retention as_ illegal,

which statute had been held by this Court as constitution-

ally applied to those roads.

It may be that the facts upon which the carrier bases

his argument upon restitution and reparation ‘‘entitle the

plaintiff to a judgment at law or an action for money had

and received, but it is also true that the defendants, hav-

ing obtained possession of property belonging to another,

may be treated as a trustee and a court of equity be in-

voked to coerce the execution of the trust’? (People v.

Houhtaling, 7 Calif. 348).

In Philips v. Hines, 33 Misc. 163, the Court said:

‘*The adoption by the courts of law of a remedy

especially belonging to chancery jurisdiction, cer-

tainly cannot take away the jurisdiction from a court

of chancery.’’

It is respectfully submitted that the shippers have a

cause of action for these overcharges, and the same facts

may justify the accounting by the carrier for such over-

eR jem

charges by way of restitution, reparation or restoration,

or any other appropriate remedy to recover from another

that which, in equity and good conscience, belongs to the

plaintiff.

We respectfully contend that the decisions of the Spe-

cial Master in the M. K. & T. Receivership and of Judge

Sanborn are in conflict with the controlling decisions of

the Court of Appeals and the Supreme Court hereinabove

referred to (Bellamy v. Rd., 220 Fed. 878; Love v. North

American, 229 Fed. 133-6-7; Rd. v. McKnight, 244 U. S.

368; Arkadelphia v. Rd., 249 U, S. 134). And with the de-

cisions of the State of Missouri (Barker v. Rd., 265 Mo.

646; White v. Delano, 270 Mo. 634-8).

IV.

The Remedy of Reparation Is Based Upon the Theory

That the Collection of Overcharges Was Unlawful.

Section 1 of the Act to Regulate Commerce provides

sets shall be reasonable and just

that, ‘‘all charges

and every unjust and unreasonable charge for such serv-

ice is prohibited and declared to be unlawful.’’ It is,

therefore, the duty of the carrier to publish only lawful

rates. If the carrier sees fit to publish an unlawful rate

he takes a chance of being in accord with the final de-

cision of the Interstate Commerce Commission, and ‘that

is a hazard under every law, and from which, and the

consequences of which, we know of no security”’ (Thomp-

Le

son v. Kentucky, supra). The carrier publishes such

rate at his peril and the fact that the shipper is com.

pelled to pay such unlawful rate by the dominating posi-

tion of the carrier over the shipper does not mitigate the

cearrier’s offense; it aggravates it. The fact that by so

posting the carrier may be compelled to continually collect

the unlawful charges and be guilty of a series of tres.

passes upon the rights of the shipper is the chance that it

takes.

The Interstate Commerce Commission in Arkansas Fuel

Co. v. R. R., 16 I. C. C. Reports, p. 97, said:

‘“‘While it may be, and indeed is, the legal rate,

the rate that must be paid by the shipper and col-

lected by the carrier, because it is the published rate,

the mere publication cannot make a rate lawful that

is unreasonable and excessive.’’

In the ease of Southern Pacific v. Darnell, 245 U. S. 531,

which was a reparation case, Justice Holmes, speaking

for the Court (p. 534), said:

‘“‘The plaintiff suffered losses to the amount of the

verdict when he paid. That claim accrued at once, in

the theory of the law, and it does not inquire into

later events. * * * The earrier ought not to be

allowed to retain his illegal profit. * * *”

In Mills v. Lehigh, 238 U. S. 473, a reparation ease,

Justice Hughes (p. 481) said:

—_ on

‘‘What the Commission decided was that the ship-

pers were entitled to reparation. That is, to be made

whole. To be compensated for losses because of an

illegal and unreasonable exaction.’’

In Philips v. Grand Trunk, 236 U. S. 662, Justice Lamar

said:

‘‘When the overcharge was collected, a cause of

action at once arose, and the shipper at once had the

right to file a complaint, or to intervene in proceed-

ings instituted by others.’’

The Cireuit Court of Appeals, in Darnell v. Southern

Pacific, 221 Fed., 1. ¢. 894, said:

‘‘Qn the other hand, the charging of an excessive

and unreasonable rate is ipso facto unlawful.’’

In L. & N. R. R. Co. v. Schloss-Sheffield Steel & Iron Co.,

269 U. S. 222, 70 L, Ed. 245, in a reparation case under

the Interstate Commerce Act, this Court, through Judge

Brandeis, said:

“The wrong for which the statute renders the ear-

rier liable is the exaction of payment pursuant to an

unlawful rate, not the withholding of the exeess un-

lawfully exacted, * * * On the findings made we

cannot say that the conclusion of the Commission that

interest should be paid from the date of the illegal

exaction was unwarranted.’’

—

In Baer Bros. Mercantile Co. v. Denver & R. G. R. Co,

233 U. 8. 477, 58 L. Ed. 1055, this Court, speaking through

Justice Lamar, said:

“This situation was dealt with by the Hepburn

Act which, in addition to existing powers to make

reparation, conferred upon the Commission the new

power to make rates for the future. But the two mat-

ters were treated as different subjects and were dealt

*with in separate sections. Section 4 conferred the

power of making rates. Section 5 gave the Commis-

mission power to make reparation orders, * * *

Not only were the two functions separately treated,

but an analysis of the act shows that there is no

such necessary connection between them as to make

the quasi-judicial order for reparation depend for

its validity upon being joined with the quasi-legisla-

tive order fixing rates. Persons entitled to one may

have no interest in the other. Persons interested in

both may be entitled to reparation and not to the

new rate or to the new rate and not reparation. * * *”’

The order for reparation in the Spiller case was abso-

lutely valid. The case cited by the railroads, C. B. & Q.

R. R. Co. v. Merriam and Millard, 297 Fed. 1-3, has no

application to the facts in the instant case because the

claim was not on an order of the Commission.

The very theory of the reparation provisions of the In-

terstate Commerce Commission Act is that the overcharges

were unlawfully collected, and a cause of action accrued

at the time of their collection and the award of reparation

is simply the ascertainment by the Commission of the

_ ia

amount of such unlawful exactions and the provision in

the act that such award may ke enforced by proceedings

in the federal court elsewhere, or judgment thereon, bears,

on its face, the stamp that such amount had been unlaw-

fully exacted, and in case such judgment must be filed in

a receivership reorganization proceeding, it should there

be treated as a conclusive adjudication that the over-

charges there evidenced were unlawfully exacted, and

there that judgment would be entitled to a preferential

payment.

The amicus curiae, the Missouri Pacific Railroad Com-

pany, attempts to make a distinction between ‘‘restitu-

tion,’’ ‘‘reparation’’ and what it sees fit to eall ‘‘the trust

fund theory.’”’ In Bouvier’s Law Dictionary, ‘‘repara-

tion” is defined to be ‘‘the redress of an injury, amends

for a tort inflicted.’’ The same authority defines ‘‘resti-

tution”’ as ‘‘the return of something to the owner of it, or

to the person entitled to it.’’

Both these remedies are enforced in the proceeding in

which the judgment or decree is entéred. In neither pro-

ceeding, in the case of a rate statute, does the reversal

of the decree or the award of the Commission make un-

lawful the rates actually collected, but in each case, the

valid statute, state or federal, makes their collection ipso

facto unlawful.

It seems to be conceded by the Missouri Pacific Rail-

road Company that restitution and reparation are both

based upon the theory that the shipper is truly and

equitably entitled to the overcharge, and the carrier

cannot conscientiously withhold such excess charges from

the person who is entitled to it. But, in addition to that,

in such cases, a violation of the state statutes is a further

fact that such statutes stamp the receipt and retention of

such excessive charges as illegal.

Justice Story (See. 1255, 2 Story Equity Jurisprudence,

13th Ed. 604) says:

‘One of the common eases in which a court of

equity acts upon the grounds of implied trust in

invitum is where a party has received money which

he cannot conscientiously withhold from another

party. It has been well remarked that the receiver

of money which consistently with conscience cannot

be retained is in equity sufficient to raise a trust in

favor of the party for whom or on whose account it

was received. This is the governing principle in all

such cases. And therefore, whenever any interest

arises, the true question is, not whether money has

been received by a party of which he could not have

compelled the payment, but whether he can now, with

a safe conscience, ex aequo et bono, retain it.’’

In 39 Cye 179 the rule is stated in the following lan-

guage:

“One who acquires land or other property by

fraud, misrepresentation, imposition, concealment, or

under any other such circumstances as rendered it

inequitable for him to retain it, is in equity regarded

as the trustee of the party who suffers by reason of

the fraud or other wrong, and who is equitably en-

titled to the property.’’

That the carrier is not in equity and good conscience

entitled to retain the overcharges is the crux of his argu-

ment upon restitution and reparation and he demonstrates

that in equity a trust in invitum may be therefore de-

creed,

In Newton v. Porter, 69 N. Y. 133, the Court said:

‘The law in such a case will raise a trust in invitum

out of the transaction, for the very purpose of sub-

jecting the substituted property to the purpose of in-

demnity and recompense. ‘One of the most common

cases,’ remarked Judge Story, ‘in which a court of

equity acts upon the ground of an implied trust in

invitum, is when a party receives money. which

he cannot conscientiously withhold from another

party.’ ”’

In Angle v. C. 8. P. M. Co., 151 U.S. 1, this Court said:

“If one party obtains the legal title * * * in any

other unconscientious manner, so that he cannot equi-

tably retain the property which really belongs to an-

other, equity carries out its theory of double owner-

ship, equitable and legal, by impressing a constructive

trust upon the property in favor of the one who 1s in

good conscience entitled to it and who is considered

in equity as the beneficial owner. * * *”?

a aa

¥s

TRACING TRUST FUNDS.

Whether either the exaction of the overcharge or the

retention from the shipper, or both, were unlawful, the

result in equity would be a trust in invitum. The inequi-

table act created the trust. It is the existence of a

trust, and not the manner of its creation which gives rise

to the presumption of identity, and the rule of confusion

does not prevent such following of chattels and money

of chattels and money (Southern Oil Co. v. Elliot, 218 Fed,

569; Erie Rubber Co. v. Dial, 140 Fed. 169; Smith v. Tp.

of Au Gres, Mich., 150 Fed. 257; Gorman v. Littlefield, 229

U. S. 19; Duel v. Holland, 241 U. S. 523.

The stock and bondholders of the Frisco Railroad, oper-

ating that ‘‘railroad unit,’’ desired to reorganize that

company in accordance with a plan of reorganization

agreed to by them, without any participation on the part

of the unsecured creditors. In accordance with said plan,

the stock and bondholders of the old company instituted

the equitable reorganization receivership. The very pur-

pose of such plan of reorganization was to prevent a sale

of said railroad unit (and a distribution of its proceeds _

among its creditors) and to preserve that ‘‘railroad unit”

for the stock and bondholders of the old company (Tr.

p. 312, et seq.).

If the ‘‘railroad unit’? with and into which these over-

charges were commingled and converted was to be re

a

tained for the stockholders and bondholders of the old

company, through their reorganization, there would be no

necessity for tracing the overcharges into any specific bank

account or chattel, because no specific piece of property

was going to be sold, and no distribution of the proceeds

of any such property or bank account was to be distributed

in this equitable reorganization receivership to the eredit-

ors and claimants of the old company. The unsecured

creditors were to be paid by stock of the reorganized com-

pany and there was ‘no occasion to marshall assets. This

entire railroad unit, with bank account, franchises, etc.,

was to be preserved for the benefit of the mortgagor and

mortgagee, the stockholders and bondholders of the old

company.

In Guaranty Trust Co. v. Mo. Pac, Ry. Co., 238 Fed.

815, Judge Hook, administrative Judge in the Missouri

Pacifie Receivership, said:

“After all that can be said from the standpoint of

theory and strict right, the fact remains that many

railroad receiverships, and the one here is typical of

them, are but instruments for consummating plans

of reorganization, and courts have come to realize that

such use of their jurisdiction and processes entail a

correlative duty to those affected by the result. Gen-

erally, in such cases, the principal parties to the suit

are adversary only in name, and the existence of a

collateral agreement, or understanding, sought to be

consummated is suggested by the face of the plead-

ings. The relation between the receivership which

as ee

ensues and the plan of reorganization agreed upon is

close and intimate. So far as properly can be done.

the judicial proceedings are conducted in harmony

with the plan, and the success of the agreed readjust.

ment is promoted by the orders of the Court and the

acts of the Receivers.”’

The correlative duty which is recognized as due from

the Court to the shippers and the creditors affected by

such reorganization is further illuminated by the follow-

ing decisions of this Court: Chicago Ry. Co. v. Howard, 7

74 U. S. 409, Louisville Trust Co. v. Rd., 174 U. S. 674;

Northern Pacific v. Boyd, 228 U. S. 482; Kansas City &

Southern Ry. Co, v. Guardian Trust Co., 240 U. S. 166.

In Louisville Trust Co. v. L. N. A. & C. Ry. Co., 174

U. S. 674, this Court said:

“Can it be that when in a court of law the right

of an unsecured creditor is judicially determined and

that judicial determination carries with it a right su-

perior to that of the mortgagor, the mortgagor and

the mortgagee can enter into an agreement by which,

through the form of equitable proceeding, all the

right of these unsecured creditors may be wiped out,

and the interest of both mortgagor and mortgagee in

the property preserved and continued? The question

carries its own answer. Nothing of the kind ean be

tolerated. * * * It involves an offer, a temptation

to the mortgagor, the purchase price thereof to be

paid, not by the mortgagee, but, in fact, by the unse-

cured creditor.’’

The equitable reorganization receivership was a mere

form of proceedings conducted in aceordance with the

plan of reorganization. There was to be no actual sale

thereunder, but the railroad unit was to be transferred to

the reorganized stock and bondholders of the old com-

pany. The prearranged sale took place in the City of St.

Louis on July 19, 1916 (Tr., p. 638).

Elmer and Phillips, the purchasing committee of the

reorganization, bid in the property and duly assigned that

bid to the St. Louis-San Francisco Railway Company, 4

corporation organized to operate same (Tr., pp. 640-47).

Property embraced in collateral trust agreement of July

1, 1911, was sold as an entirety for $10.00; property em-

braced in trust agreement of September 3, 1912, was sold

as an entirety for $10.00; securities pledged to secure the

promissory note of the railroad company held by the

North American Company, was sold as an entirety for

$600,000.00; all the remaining property of every kind and

description of the railroad company was sold as an en-

tirety for $45,700,000.00, to be paid for in bonds of the

old company, to be credited or canceled. Master’s report

to this effect was duly filed July 19, 1916 (Tr., pp. 640-647),

and $45,600,000.00 of stock of the uew company was issued

to stockholders of the old company without compensation,

as held by the Court of Appeals in this case and the

Master (Tr., p. 147).

Just how the bondholders of the old company can be

said to be innocent purchasers of a railroad unit, with-

a

_

out notice and knowledge of their agreement in the plan

of reorganization with the stockholders, and just how they

can be said to be purchasers for value, when this Court

has said above it would not be the bondholders in a sale

of that kind, but the unsecured creditors who paid the

consideration, is incomprehensible (Mo. Pac. Argument,

p. 19).

This railroad unit into which the overcharges went, and

into additions and betterments thereto, and the payment

of taxes thereon and interest on the bond secured thereby,

after this form of equitable proceeding, is still owned by

the stock and bondholders of the original and reorganized

company, and is still burdened with the same equities to

account therefor to the shippers, from whom overcharges

were exacted, just the same as before the receivership.

The Receiver, the purchasers at the so-called sale and

the reorganized company are mere volunteers, and the

creditors who have liquidated their claims by accepting

stock in the new company can in nowise be prejudiced by

the payment under the Spiller decree as the Court of Ap-

peals held,

The brief of the Missouri Pacifie Railroad Company con-

cludes with a strong and, we submit, a wholly unjustifiable

condemnation of Judge Kenyon’s opinion. This opinion

speaks for itself, and we venture to assert it will go down

in the history of jurisprudence as one of the great opin-

ions in cases involving the rights of shippers against

— en

carriers which have extorted an unjust and unreasonable

rate.

It is respectfully submitted that the decree of the Court

of Appeals in this case should be affirmed.

CLIFFORD B. ALLEN,

Amicus Curiae.

OPINION

SUPREME COURT OF THE UNITED STATES.

No. 577.—Octoser Term, 1926.

St. Louis and San Francisco _— On Certiorari to the United

Company et al., Petitioners, States Circuit Court of

vs. { Appeals for the Eighth

E. B. Spiller et al. | Cireuit.

[May 16, 1927.]

Mr. Justice Branvets delivered the opinion of the Court.

In 1913, the federal court for eastern Missouri appointed re-

ceivers for the St. Louis and San Francisco Railroad. In 1916,

the system was sold on foreclosure, was purchased for the Reor-

ganization Committee and was conveyed to the St. Louis-San

Francisco Railway Company which has operated it since. In 1920,

Spiller recovered in the federal court for western Missouri a judg-

ment against the old company in personam for $30,212.31 and for

counsel fees taxed as costs pursuant to § 16 of the Act to Regulate

Commerce.! Thereupon, he filed in the receivership suit,? upon

leave granted, an intervening petition praying that the judgment

be satisfied out of the property so acquired by the new company.

The Master recommended that the prayers of the petition be

granted. The District Court denied Spiller any relief and dis-

missed the intervening petition without costs to either party.

288 Fed. 612. The Court of Appeals reversed the decree; re-

manded the case to the lower court with directions to enter a decree

for Spiller in the amount of the judgment with interest but with-

out counsel fees; declared that the judgment was prior in lien and

superior in equity to the mortgages of the old company; and di-

rected that it be enforced against the property conveyed to the new

1The intervening petition and the deeree cover also another judgment for

$3,652.97 in favor of Spiller and others.

There were in fact four suits; two brought by unsecured creditors and

two by the trustees of mortgages under which the foreclosure was had. All

the suits were consolidated in May, 1914.

—

2 St. Louis-San Francisco R. R. Co. et al. vs. Spiller et al.

company. 14 F. (2d) 284. This Court granted the petition of the

two companies for a writ of certiorari. 272 U. 8. —.

The judgment which Spiller seeks to enforce through the inter.

vening petition was entered by the trial court in 1916, after the

foreclosure sale and before confirmation thereof; was reversed by

the Court of Appeals in 1918; and was reinstated by this Court

in 1920. Spiller v. Atchison, Topeka & Santa Fe Ry. Co., 2%

U. 8. 117. It is for overcharges collected by the old company, in

1906, 1907 and 1908 under a freight tariff which had been in.

creased in 1903 and which was held by the Interstate Commerce

Commission to be unreasonable in 1905, and again in 1908. Cattle

Raisers’ Association v. Missouri, Kansas & Texas R. R. Co. et al,

111. C. C. 296; 13 1. C. C. 418. The action in which the judgment

was recovered was begun in 1914, after the appointment of the re.

ceivers. The reparation order on which the action was based was

entered also after their appointment; but the petition for repara-

tion was filed prior thereto.

The validity of the judgment as against the old company is not

challenged in this proceeding. The question here is whether Spiller

is entitled to have it satisfied out of the property of the new con-

pany. The railroads contend that in nature the claim is one not

entitled to preferential payment; and that, in any event, Spiller

is barred by laches or otherwise from obtaining any relief in this

suit. The Court of Appeals held that the old company became

liable as trustee ex maleficio for overcharges and that this liability

is enforceable, as upon a constructive trust, against the property

acquired by the new company on foreclosure. It held further that

Spiller was not barred by laches or otherwise, because of the pro-

vision of the foreclosure decree, by which the purchaser became

bound to pay, as a part of the purchase price, any unpaid claims

of creditors of the old company which should be adjudged superior

in equity to its mortgages, the court reserving to itself jurisdie-

tion to determine the amount and validity of any such claim. |

First. The contention that the judgment constitutes a lien or

equity upon the property of the new company, as upon a constructive

trust, rests upon the following argument. The freight rates being

unreasonable were unlawful. The shipper was obliged to pay the

charges exacted, although they were unlawful, because they were

the published rates. As the shipper was obliged to pay the m-

St. Louis-San Francisco R. R. Co. et al. vs. Spiller et al. 3

lawful charges the payment was made under duress. One may be

held as trustee ex maleficio of funds obtained by duress as well as

of those procured by fraud. The old company by collecting the un-

lawful charges became trustee ex malejicio of the funds collected.

These can be traced and may be followed. They passed to the re-

ceivers who took the funds with notice and without paying value.

Upon the foreclosure they passed to the new company. It also

took them with notice and is subject to the trust, either because

the shipper’s equitable lien or interest was not cut off by the fore-

closure sale, to one with notice, in a suit to which the shipper was

not a party, or because the new company agreed to pay pursuant

to the foreclosure decree claims prior in lien and superior in equity

to the mortgages of the old company.

We need not consider whether, in the absence of legislation,

charges illegally exacted by a carrier may be recovered under the

doctrine of a constructive trust; or whether the alleged equitable

remedy is applicable to overcharges subject to the Interstate Com-

merce Act, which provides a different remedy ;* or whether the

equitable remedy, if any, has been lost by proceeding to judgment

at law. For, even if the overcharges when collected, were subject

to a constructive trust in favor of the shipper, the contention that

the money exacted by the old company in 1906, 1907 and 1908

ean be traced into the hands of the receivers is unfounded. The

money was not ear-marked. It was mingled when collected with

other money received from operation. And no special account was

kept of it. The latest exaction occurred five years before the ap-

pointment of the receivers. The assertion that the money collected

ean be traced into the receiver’s hands is confessedly without

any support except the stipulated fact that, throughout the ten

years which elapsed between the earliest exaction and the transfer

of the properties to the new company, the old one and the receivers

had, at all times, in the several banks on which checks for current

expenses were drawn, a working balance, in the aggregate. largely

in exeess of Spiller’s claim. Such a showing fails to bring the

present case within the rule by which, when trust funds are mingled

See §§ 8, 16(1), and 16(2) of the Interstate Commerce Act as it stood at the

time of the overcharges in question, Act of Feb. 4, 1887, ¢. 104, 24 Stat. 379,

382, 384, as amended by the Act of June 29, 1906, c. 3591, 34 Stat. 584, 590.

See also Texas & Pacifie Ry. Co. v. Abilene Cotton Oil Co., 204 U. 8. 426.

—

4 St. Louis-San Francisco R. R. Co. et al. vs. Spiller et al.

with others, the cestwi may assert an equitable lien upon the mingled

mass to the extent of his contribution thereto.* | American Can (9,

v. Williams, 178 Fed. 420, 423; In re A. D. Matthews’ Sons, 238

Fed. 785, 787. An illegal exaction does not impress an indelible

trust upon all funds which the wrongdoer and his successors may

thereafter have on deposit in their banks. For aught that appears,

all the money illegally exacted may have been spent for current

operating expenses.

Second. Spiller contends that he was entitled to preferential

payment of his judgment for the excess charges, out of operating

income accruing during the receivership, on the doctrine of Fosdick

v. Schall, 99 U. 8. 235, 251-255. See New York Dock Co. v. 8. 8.

**Poznan’’, No. 229, decided April 11, 1927, pp. 3-4. It is argued

that the test of this equity is the nature of the claim; that a liability

for excess charges unlawfully exacted by the carrier before the re-

eeivership is an expense of operation like a debt incurred for labor,

supplies, equipment or improvements; and that, as such, it is en-

titled to priority over bondholders. We need not determine whether

the noncontractual claim here in suit is in its nature within the class

of debts entitled to preferential payment under the doctrine of

Fosdick ~. Schall. For, by long established practice, the doctrine

has been applied only to unpaid expenses incurred within six

months prior to the appointment of the receivers. See Lackawanna

Coal Co. v. Trust Co., 176 U. 8. 298, 316. Compare Gregg v. Metro-

politan Trust Co., 197 U. 8. 183. The eases in which this time limit

was not observed, are few in number and exceptional in character.

See Burnham v. Bowen, 111 U. 8. 776, 780-783; Union Trust Co.

Vv. Morrison, 125 U. S. 591. In no ease which has come to our

attention has the doctrine been applied to liabilities which, like

those here in question, accrued many years before the receivership

began.

Third. Preferential payment is urged also on the ground of

publie policy. The argument is that the carrier is invested through

its franchise with a part of the sovereign power: that in the exer-

cise of the power conferred the old company exacted illegal rates

4Compare National Bank v. Insurance Co., 104 U. 8. 54, 63-68; Schuyler ¢.

Littlefield, 232 U. S. 707, 710; United States v. Leary, 245 U. 8. 1, 5;

Cunningham v. Brown, 265 U. 8. 1, 11-13; Southern Cotton Oil Co. v. Elliote,

218 Fed. 567, 570-571; In re A. Bolognesi & Co., 254 Fed. 770; Knatchbull

v. Hallett, 13 Ch. Div. 696.

St. Louis-San Francisco R. R. Co. et al. vs. Spiller et al. 5

which the shipper was obliged by law to pay; that when the old

company’s property passed into the hands of the court it was

augmented by the illegal exactions; that it became the court’s

duty to make restitution; and that, having failed to do so while

the property was in its hands, the court may require payment from

the new company. It may be assumed that this claim for over-

charges is meritorious in character; but the fact that it arose many

years before the appointment of the receivers is conclusive against

including it among those entitled to preferential payment.

Fourth. In order to establish as against the new company either

the alleged equity or a right to preferential payment, it was more-

over assumed to be necessary that the claim should be one of those

which the purchaser, under the decree of foreclosure, agreed to pay,

as part of the purchase price. The decree provided that the pur-

chaser would not be required to pay any ‘‘elaim or demand which

has not been presented in this cause in accordance with the orders,

heretofore made requiring presentation thereof’’ unless it be ‘‘a

claim or demand which may arise after the entry of this decree.’’

An interloentory decree had ordered that all claims be presented be-

fore February 1, 1916 or be barred of enforcement against the prop-

erty in the hands of the receivers or the proceeds thereof. Due

notice of the order had been given by publication. Spiller did not

file his claim within the time limited. He contends that the time

limit has no application to his claim, because it arose after entry

of the decree.

The argument is that while the claim accrued in 1914, when the

reparation order was entered, or earlier when the overcharges were

legally collected, it did not ‘‘arise’’ until 1920 when this Court,

reversing the Court of Appeals, reinstated the judgment sought to

be enforced by the intervening petition; that, in this connection.

the term ‘‘arise’’ must have been used by the District Court in a

sense different from ‘‘acerues’’. For, knowing through its receiv-

ers, that their counsel were, at the time of the entry of the decree of

foreclosure, hotly contesting Spiller’s claim, and that he was as-

serting that it was superior in equity to the mortgages to be fore-

closed, and knowing also that the claim had not been filed in the

receivership suit, the court must have intended that if Spiller ulti-

mately prevailed, his claim should be satisfied by the new com-

yw: Unless so construed, the provision for claims which may

“arise’’ after the decree would be practically inoperative. The

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6 St. Lowis-San Francisco R. R. Co. et al. vs. Spiller et al,

argument is not persuasive. We are of opinion that the tery

‘‘arise’’ was used in the decree as the equivalent of “accrue”,

that Spiller’s claim arose at least as early as 1914, when the repars.

tion order was entered, not when the judgment was recovered.

and that the new company did not assume to pay it. See Phillips

v. Grand Trunk Ry. Co., 236 U. S. 662, 666. Moreover, while the

barring clause of the final decree excepted claims arising after entry

thereof, the clause stating the liability of the purchaser included

only claims against the old company which should be adjudged prior

in equity to the old company’s mortgages. We have already de

cided that the claims in question are not of such a character,

Fifth. Spiller contends also that he is entitled, under the doe.

trine of Northern Pacific Ry. Co. v. Boyd, 228 U.S. 482, to requir

the new company to satisfy in full his judgment against the old, The

argument is that, under the reorganization plan, stockholders of the

old company were allowed to participate in the new, but that he,

creditor, was not offered an opportunity to do so. There is no evi.

dence in the record which supports the assertion that Spiller was

not afforded an opportunity of participating in the reorganization.

The contrary appears. The order confirming the foreclosure recites

that ‘‘a fair and timely offer of cash . . or participation” was

made to those unsecured creditors who had filed claims. Spiller did

not file his claim. The fact that he did not have actual knowledge

of the order limiting the time for filing claims is not material in

this connection. Notice by publication was legally sufficient. The

mere fact that his claim was contested did not exclude him from

the scope of the order. He might have filed it although he wa

litigating elsewhere. He cannot bring himself within the doctrine

of the Boyd case by showing that no offer was made to him per

sonally. For aught that appears an offer would have been made,

or his rights otherwise preserved, if he had filed his claim. There

is no occasion to consider whether a petition for intervention filed

in the receivership proceedings four years after confirmation o

the foreclosure sale is an appropriate method of enforcing the

claim on this theory.

Sizth. While the Court of Appeals erred in granting the spe

cific relief prayed in the petition for intervention, it does not follo

that Spiller must be denied all remedy. He was guilty of a seriou

inadvertence in not filing his claim in the receivership suit within

the time limited by the interlocutory order. But it is clear thit

<_“

St. Louis-San Francisco R. R. Co. et al. vs. Spiller et al. 7

he has not been guilty of laches. Southern Pacific Co. v. Bogert,

250 U. S. 483, 488-490. And it does not appear that his inadvert-

ence misled in any way the court, the receivers, the Reorganization

Committee or the new company. He had prosecuted his claim

with vigor for years before the receivers were appointed. His dili-

gence does not appear to have slackened either during the receiver-

ship or after the foreclosure sale. Throughout the whole period,

the claim appears to have been resisted with equal vigor. After

the old company ceased to function, counsel for the receivers con-

ducted the defense. After the receivers ceased to function, counsel

for the new company conducted the defense. It is clear that neither

the receivers nor the new company considered the failure to file

the claim in the receivership a bar to the relief.

Before Spiller recovered judgment in the trial court, the sale on

foreclosure was had; but the hearing on the order to confirm the

sale was yet to be held. At that hearing Spiller gave, before the

confirmation of the sale, notice in open court, and otherwise to the

old company, to the receivers, to the Reorganization Committee and

to the new company, that he had recovered judgment fourteen days

before. He notified them that he claimed that the purchaser would

take the property subject to all his rights; and that these included

a charge upon the property in the hands of the purchaser for full

payment of the judgment. With knowledge of Spiller’s claims,

the Reorganization Committee and the new company took over the

property. Later, the new company assumed the further defense

to the action in which the judgment had been recovered. The issue

of the securities of the new company and the distribution of its

stock among stockholders in the old occurred after these notices of

Spiller’s claim had been given. Under such circumstances, neither

the long delay, nor the failure to file claims as required by the inter-

loeutory and final decrees, should operate to prevent the appropri-

ate relief;* and the District Court had jurisdiction to grant it.

Compare Julian v. Central Trust Co., 198 U. 8. 98: Wabash Rail-

road v, Adelbert College, 208 U. S. 38, 54-57.

The new company contends, that since the shipper’s claim was

not filed within the time limited by the interlocutory decree it was

‘See Williams rv, Gibbes, 17 How. 239, 254-257; Park v. New York, L. E.

& W. RR. Co, 140 Fed, 799; Employers’ Assur, Corp, v. Mahogany Co.,

6 F. (2d) 945. Compare Farmers’ Trust Co. r. Chicago, ete. R. R. Co., 118

Fed. 204; Western N. Y., ete, Ry. Co, v. Penn Refining Co., 187 Fed. 343.

ite Tore at

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8 St. Lowis-San Francisco R. R. Co. et al. vs. Spiller et al.

among those declared barred by the terms of the final decree; gnj

that by intervening he estopped himself from obtaining any relief’

No good reason is shown why relief may not be had as well Upon

an intervening petition as upon an original bill. As this may be

done, he should be put, as nearly as may be consistently with the

rights of others, into the position which he would have oceupied

had he filed his claim in the receivership proceedings in the proper

time. It does not appear that it is not possible for the new com.

pany to give him the benefit now of the offer which was made by

the Reorganization Committee to the other unsecured creditors of

the old company; nor that such a course would be inequitable to

others in interest. The ascertainment of the relevant facts and the

precise form of the relief must be left to the District Court. The

decree of the Cireuit Court of Appeals is affirmed in so far as it

reversed the decree of the District Court dismissing the intervening

petition; and is reversed in so far as it directed that the judg.

ment is a prior lien enforceable for the full amount exclusive of

counsel fees against the property of the new company.

Decree affirmed in part, and

reversed in part.

A true copy.

Test:

Clerk, Supreme Court, U. 8.

*Compare Swift v. Black Panther Gas Co., 244 Fed, 20; Commercial Electrical

Supply Co, v. Curtis, 288 Fed, 657.

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