Motion — Harriman v. Northern Securities Co.

FILE Copy, |“ ‘res

MAR.17 1905

JAMES H. MeKENNEY,

SUPREME COURT OF THE UNITED STATES.

Octroper Tro, 1904. -

EDWARD H. HARRIMAN, WINSLOW 8S. PIERCE,

OREGON SHORT LINE RAILROAD COMPANY,

anp THE EQUITABLE TRUST COMPANY OF NEW

YORK, Peririongers AND CoMPLAINANTS,

versus

NORTHERN SECURITIES COMPANY, Impieapep with

NORTHERN PACIFIC RAILWAY COMPANY.

ON WRIT OF CERTIORARI TO THE CIRCUIT COURT OF

APPEALS FOR THE THIRD CIRCUIT.

MOTION FOR IMMEDIATE ISSUANCE OF

MANDATE.

The defendant, The Northern Securities Company, re-

spectfully suggests that, notwithstanding the decision and

decree of the United States circuit court of appeals for the

third judicial circuit, reversing the interlocutory decree of

the cireuit court of the United States for the district of New

Jersey, granting the special injunction in said suit, and

2

notwithstanding the decision and order of this court affirm”

ing the said decree of the said circuit court of appeals, the

writ of injunction, a copy whereof, together with a copy of

return of service, appears in the Transcript of Record, on

pp. 349-350, will, as this defendant is advised by counsel, re-

main in force until the same has been finally vacated by the

issuance and filing of the proper mandates of this court and

of the said circuit court of appeals, so that, until the issuance

and filing of such mandates, the distribution by this defend-

ant among its stockholders of the stocks of the Northern

Pacific and Great Northern Railway Companies held by it

will be impossible.

Wherefore this defendant prays that the immediate issu-

ance of the mandate of this court in said suit be directed,

and for such other order in the premises as the court may

deem just.

Joun G. JOHNSON,

Einav Roor,

Francis Lynpe Sretson,

Joun W. Griaes,

W. P. CLovuau,

Of Counsel for Defendant, Northern Securities Company.

- Marcu 16, 1905.

[Endorsed :] Supreme Court United States, Oct. term,

1904. No. 512. Edward H. Harriman and others vs. North-

ern Securities Company. On writ of certiorari to the circuit

court of appeals for third circuit. Motion for immediate is-

suauce of mandate. John G. Johnson, Elihu Root, Francis

Lynde Stetson, John W. Griggs, W. P. Clough, counsel for

Northern Securities Company.

[15230]

=”

SUPREME COURT OF THE UNITED STATES.

OcroBer Term, 1904.

E. H. HARRIMAN ET AL.

Us.

JAMES J. HILL ET AL.

PETITION TO FILE INTERVENING BRIEF ON BEHALF OF

CONTINENTAL SECURITIES COMPANY.

To the Honorable Supreme Court of the United States :

Your petitioner, The Continental Securities Company, by

James Hamilton Lewis, its solicitor, respectfully shows and

presents to the court:

I.

That it is a corporation organized and existing under

the laws of the State of Massachusetts and a stockholder of

the Northern Securities Company to an amount in excess

of $50,000 and as spokesman for an amount in excess of

$500,000; that in this petition it speaks for itself and all

other stock holders holding stock of the said Northern Secur-

ities Company to any and all extent wherein the same may

be situated or affected as your petitioner.

Il.

Your petitioner represents that in the controversy before

the court it is sought to obtain a ruling, and the issues are

so limited as to only obtain a ruling, as will affect and con-

trol the private interests of the persons to the litigation at

2

bar; that the interests of the several stockholders of the

' Northern Securities Company will necessarily be passed

upon by the court in the hearing, consideration, and decision

of the cause now before the court, but, as your petitioner

avers, without any contentions or rights of the said individual

stockholders being duly or fully presented to the court.

III.

Your petitioner avers and presents to the court that there

are many questions of law necessarily included and compre-

hended in the case at bar which, if determined, would settle

the rights, limitations, and liabilities, as well as establish

the privileges and benefits, of the individual stockholders of

the Northern Securities Company ; that if the said rights of

the said individual stockholders and the contentions neces-

sary to the justice of their position be omitted in the hear-

ing now before the court, rulings of the court may be made

touching the question which inadvertently would wrong-

fully limit the rights of the stockholders to the legal quan-

tity of property or value which in law and equity would

otherwise be ordered and decreed to them by the court upon

a hearing of such necessarily legal questions and legal con-

tentions as enter in the said cause now at bar in the consid-

eration of the rights of the stockholders as compared to the

situation before the court and as related to the Northern

Securities Company and to the complainant and respondent

in their official and representative capacity as officers and

trustees of the said Northern Securities Company.

Wherefore petitioner prays the right to file a brief in be-

half of itself and such other stockholders as may be similarly

situated and affected, insisting upon and concerning the

rights of the stockholders of the Northern Securities Com-

pany, so far as may be pertinent in the consideration of the

case at bar.

Respectfully submitted.

Jas. Hamitton Lewis,

Solicitor for Petitioner, Continental Securities Co.

IN THE

Supreme Court of the United States.

Ocroser Term, A. D. 1904.

EDWARD H. HARRIMAN, WINSLOW 5.

PIERCE, OREGON SHORT LINE RAIL-

ROAD COMPANY and THE EQUITABLE

TRUST COMPANY OF NEW YORE,

v8. UPON

CERTIORARI.

NORTHERN SECURITIES COMPANY Inm-

pleaded with NORTHERN TYACIFIO

RAILWAY OOMPANY,

Appellant.

BRIEF ON BEHALF OF INTERVENOR, CONTI-

NENTAL SECURITY COMPANY.

To THE HonoraBLeE SuPREME Court:

Your petitioner, by consent, intervening for the pur-

pose cf making suggestion concerning the rights of

the stockholders of the Northern Securities Company,

present as suggestions of law pertinent to the consider-

ation of the main cause at bar the following:

(1) The Continental Securities Company of New

Jersey (improperly stated in the record as from

Massachusetts) is at present waging a cause of action

in the courts of New Jersey against defendant, North-

2

ern Securities Company, to establish certain rights as

stockholders which would be seriously affected by the

ruling in the above named cause should the said ruling

touch the rights of the stockholders without a hearing

of the rights of such stockholder from the standpoint

of the stockholders’ contention. Your petitioner there-

fore suggests the following considerations of law:

(a) The main suit at bar has for its purpose the

settlement of what proportion of the properties of the

Northern Securities shali be accorded to the contest-

ants. The contestants claiming to be stockholders.

The appellant Harriman et al. insisting upon certain

special stocks of the Union and Southern Pacific and O.

R. & N. Railway, the respondent insisting on a pro

rata division of general stocks instead of specific ones.

In the main litigation nothing is being urged looking

to the protection or the assertion of the rights of the

stockholders of the Northern Securities Company, that

is, the holder of the stock of the Northern Securities

Company, where said stock is neither that of the Great

Northern Railroad, Northern Pacific, or of the South-

ern or Union Pacific lines.

(b) Your petitioner as stockholder therefore as-

serts :

(1) That when the Northern Securities Company

was held to be illegal as an institution to the extent of

attempting to hold and control the stock of the Great

Northern and Northern Pacific Railroads, together

with that of the Union Pacific an: its branches, the

said Northern Securities was therefore decreed to be

without legal power to hold the said stocks. There-

fore coula not legally hold the said stocks, nor be

legally possessed of them for any purpose whatsoever.

3

(2) When the conduct was ultra vires; when the

conduct was itself illegal and the institution, in so far

as attempting to conduct these particular properties

or hold the same, violated a public statute,—the law

of public policy,—and acted contrary to good morals

and in direct violation of the laws of the government,

then such institution was in the position of a criminal.

The properties in its apparent possesson was in no

wise in its legal possesson for any purpose or object.

See decision Northern Securities case, 193 U.

S., 197.

Particularly is this true where the manner of hold-

ing was contrary to the statutes of the United States.

Such holding was a void one in all respects.

Central Trust Co. v. Indiana & Lake Mich.

R. R. Co., 39 C. C. A., 220, 98 Fed., 666.

Central Transp. Co. v. Pullman Car Co., 139

U.S., 224.

(3) No court can authorize by any form of decree

the Northern Securities Company to exercise any dis-

tribution, or power, or control, or allotment of either

of the stocks of the Great Northern, Northern Pacific,

or Southern or Union Pacifie. To do such would be to

recognize some legal dominion by the Northern Se-

curities Company of a thing which in law it could

neither legally or morally hold for any -purpose.

Therefore, when these companies desire to obtain

through their proper agencies their specific stocks,

they do not take them from the Northern Securities,

they take them from the place where they are—they

take their own, and not a thing that any time was the

4

special or general property of a person which could

not hold any special or general property in the par-

ticular stocks.

Pullman Car Co. v. Central Transportation

Co., 171 U.S., 138.

McMullen v. Hoffman, 174 U.S., 639.

Particularly, therefore, no claim can be made by any

person to these stocks upon the theory that they are

the property of the Northern Securities Company,

either as a dissolved corporation or as an existing in-

stitution.

East St. Louis Connecting Kailway Company

v. Jarvis, 34 C. C. A., 639, 92 Fed., 735.

Coax v. Terre Haute € 1. R. Co. (C. C. A.), 133

Fed. (No. 5, p. 374).

Titiecat Contracts—UNbLawFvut Property.

‘“‘The subject of the effect of illegal contracts of

corporations, either ultra vires in the proper sense or

contrary to the statute or public policy, has been fre-

quently considered by the Supreme Court of the United

States. The settled rule in that court is that such a

contract is wholly void and of no effect for any pur-

poses. That the objection is not merely that the cor-

poration ought not to have made it, but that it could

not make it. That the contract cannot be ratified or

confirmed by the stockholders, because it could not

have been authorized by them, and that no perform-

ance can give the unlawful contract any validity by

way of estoppel or otherwise, nor be the foundation of

any right. Such have been the unvarying rulings of

the court from 1879 to the present. time.’’

Thomas v. Railroad Co., 101 U.S., 71, 86.

Penn. Co. v. St. Louis, Alton, etc., Railroad

Co., 118 U. S., 290, 310.

. <a

Oregon Railway Co. Vv. Oregonian Ry. Co., 130

U.S., 188.

Central Transportation Co. v. Pullman’s Car

Co., 139 U.S., 24, 60.

McCormick v. Market Bank, 165 U. S., 538,

590.

California Bank v. Kennedy, 167 U. S., 362,

368.

Pullman Co. v. Transportation Co., 171 U.S.,

138.

‘Tt is also the settled doctrine of the Supreme Court

that any contract made in violation of a statute is

void (Gibbs v. Baltimore Gas. Co., 130 U. 8., 396, 410;

Miller v. Ammon, 145 U. S., 421, 426), and that ‘it is

vain to contend that any right can be acquired under

such a contract.’ (Montgomery V. United States, 15

Wall., 395, 399.) To same effect see Desmare v. United

States, 93 U. S., 605, 612; Sprott v. United States, 20

Wall., 459, 461; United States v. Lapene, 17 Wall., 601,

602, 603; United States v. Grossmayer, Q Wall., 72, 76;

The Ouchita Cotton, 6 Wall., 521, Sa3..”"

Speaking of a contract merely ultra vires but not in

direct violation of a statute, Mr. Justice Miller, in the

Pennsylvania Co. case, supra, used the following lan-

guage (118 U. S., 317):

‘‘But we understand the rule in such cases to stand

upon the broad ground that the contract itself is void,

and that neither what has been done under it, nor the

action of the court, can infuse any vitality into it.”’

‘«And this language has been repeatedly cited with

approval, e. g., in Central Transportation Co. v. Pull-

man’s Car Co., 139 U. S., 24, at p. 61. See also Jack-

sonville, etc., Railway v. Hooper, 160 U. S., 514, at p.

524. In the Central Transportation Co.’s case the

court said (139 U. S.. 59, 60):

«© ¢A eontract of a corporation, which is ultra vires

in the proper sense, that is to say, outside the object

of its creation as defined in the law of its organization,

and therefore beyond the powers conferred upon it by

the legislature, is not voidable only, but wholly void,

and of no legal effect. The objection to the contract is,

not merely that the corporation ought not to have made

it, but that it could not make it. The contract cannot

be ratified by either party, because it could not have

been authorized by either. No performance on either

side can give the unlawful contract any validity, or be

the foundation of any right of action upon it.’

‘*This general rule has been applied or recognized in

analogous cases arising out of illegal contracts and

particularly in cases affecting illegal combinations or

trusts. Thus, in Langdon v. Branch, 37 Fed. Rep., 449,

463, District Judge Speer, discussing the attempt of a

railroad corporation to acquire stock in another com-

pany in violation of a state constitution, said:

**Contracts in violation of this clause are not per-

mitted. When attempted they are utterly void. They

have no binding force. They are nullities, and are to

be disregarded and ignored whenever it concerns a

party at interest to do so. Such a contract would be

absolutely void, and, being void, and an absolute nul-

lity, no title would pass under it.’’

These positions are most amply and ably sustained

by the briefs in this cause and the general law upon

this subject often recognized and asserted by this

court. I beg to acknowledge indebtedness to the briefs

of able counsel for complainants on foregoing propo-

sitions.

a.

SrocKHoLpEers’ Riguts In DistrRiBuTIoN.

THE ONLY PROPERTY WHICH LEGALLY CAN BE RESORTED

TO OR CAN BE APPORTIONED IN BEHALF OF THE STOCKHOLD-

ERS OF THE NORTHERN SECURITIES COMPANY IS $7,500,000

OF STOCK—CASH OR PROPERTY RETURNS FROM THE LEGALLY

HELD STOCK.

Now, therefore, since the stocks of these several rail-

road companies heretofore referred to cannot be in

any respect property of the Northern Securities Com-

pany, nor can stock issued upon the basis of these dif-

ferent railroad stocks be regarded as stock of the

Northern Securities Company; to the contrary, as a

stockholer, and in behalf of all stockholders similarly

situated, we most respectfully contend :—

That as the Northern Securities Company has $7,-

500,000 of stock issued from its said company irre-

spective and apart from any estate derived from the

stocks of the said railroads heretofore mentioned, this

$7,500,000 of stock of the Northern Securities Com-

pany is the only legal stock of that company. All

other stock based upon the alleged estate of the stocks

‘of the railroads heretofore mentioned is at once an

illegal stock, represented by no legal property, and

the stocks of those railroads can in no wise be treated

as property of the Northern Securities Company for

the purpose of liquidation to the holders of the stock

of the Northern Securities Company.

The stockholders of the Northern Securities Com-

pany, therefore, should have their apportionment in

proportion to the stock they hold from out of and only

of the $7,500,000 legitimately issued by the Company,

as that is the only amount outstanding and issued in

excess and to the exclusion of that issued upon the

illegal, false and void basis of property, to-wit: stock

in the railroads heretofore designated and named.

See paragraph 6 of the bill of complainant, and an-

swer of respondent conceding the same, as appears

in the record.

_ The outstanding capital stock of the Northern Se-

curities is $395,400,000, divided into 3,954,000 shares of

one hundred dollars each.

In the plan of distribution suggested in paragraph

14 of the complaint of the complainant, it is proposed

to reduce the stock to $3,954,000, or 39,540 shares of a

hundred dollars each. This is but one per cent of the

outstanding capital. The ninety-nine per cent so re-

tired would consist of and include 3,914,460 shares of

an aggregate par value of $391.446,000.

Therefore, it is apparent for each share of one hun-

dred dollars par value of Northern Securities sur-

rendered for retirement, this plan of distribution pro-

poses to give $39.27 of Northern Pacific stock and

$30.17 of Great Northern stock.

It will be recalled that the Northern Securities is-

sued $176,822,900 of stock in exchange for approxi-

mately $153,759,400 of the stock of the Northern Pa-

cific Railroad. It also issued ahout $211,057,600 in ex-

change for about $118,124.200 of Great Northern stock.

Then, or incidental therewith. the Northern Secu-

rities issued and sold for cash—with which to purchase

other properties—and for corporate purposes acquired

$7,522,000 distinct of any property or issues arising

from the stocks of the railroads heretofore named.

See record in main litigation, particularly paragraph

six.

It is therefore clearly apparent that 75,000 shares of

the Northern Securities stock were issued for cash or

other properties received for legitimate corporate pur-

poses.

DistTRIBUTION Proposep INEQUITABLE STOCKHOLDERS.

The plan of distribution proposed is illegal, im-

proper, unjust and inequitable in this: that to reduce

the capital stock to 39,540 shares, or one per cent of

the capital, would be to compel the surrender for

Northern Pacific and Great Northern stocks of 35,460

shares (Northern Securities Company) of an aggre-

gate par value of $3,456,0000—more than one-half of

the whole and all of the legitimate assets, to-wit: the

$7,500,000, of the stock legitimately issued—exclusive

of the Northern Pacific and Great Northern stocks ac-

quired.

The plan is inequitable and unjust, because it would

force the holders of legitimate stock of the Northern

Securities issued legitimately to take the railroad

stocks unlawfully held by the Northern Securities, and

which the Northern Securities could not lawfully en-

dorse over or convey, nor to which could it give title.

It forces the stockholders of the Northern Securities

to take stocks of other companies, which they may not

desire, and which, as in the present case, some decline

to accept, and which, if accepted, would still be subject

to an action by the railroads issuing the said stock at

the first instance, upon the ground that the receivers

of the same through the Northern Securities distribu-

10

tion could hold no legal title to that which was in the

first place illegally conceived and unlawfully possessed.

Again, it would give to the stockholders of the North-

ern Securities Company, who received their stock

wholly and exclusively in exchange for Northern Pa-

cific or Great Northern stock, a ninety-nine per cent

interest in legitimate assets, to-wit: the $7,500,000, in

which they have no rightful interest and in which these

latter should not participate, but which, in equity, must

exclusively belong to the original holders of that $7,-

500,000, or their assignees or transferees.

The plan is inequitable and unjust to the further ex-

tent in that it proposes that $391,446,000 of stock shall

be surrendered in exchange for Northern Pacific and

Great Northern. This, it is evident. is $3,565,500 more

than was originally issued by the Northern Securities

in exchange for Northern Pacific and Great Northern

stock. The Northern Securities thus charging a profit

upon its illegal transaction and compensation for this

original illegal exchange of $3,565,500.

THE CoNCLUSIONS FROM PREMISES CONCEDED.

These arguments herein made are gathered from the

bill of complaint and from the answer of the respond-

ents admitting the facts and figures.

It is impossible that this method should prevail with-

out wringing from the legitimate stockholders that

which is theirs, and making them take that which they

do not elect to accept, and taking that which is the

legal assets of the company and making a ‘‘hotchpotch’’

of illegal and legal matter and proportioning the ille-

11

gal matter to those who should only have legal stock,

and giving the legal property to those who can only

have legal property in that which was illegally ac-

quired, to-wit: in taking back that which was their

own—never the property of the Northern Securities.

No Estopret Can Be Uroep.

Neither of the main parties to the main contention

can urge that, being in possession cf the original

stocks, they have property in them sufficient to dis-

tribute, or that, having the money of the stockholders,

put in while the Northern Securities was in possession

of the illegally held property, the stockholder is de-

nied the right forsooth that he was a stockholder in

an enterprise which, to some extent, was had for wholly

illegal purposes—that the stockholder cannot insist up-

on taking back to himself that which only legally the

company would have the right to give as its property

and which he as stockholder legally could alone acquire.

2 Pomeroy’s Equity, sec. 941.

Story’s Equity Jurisprudence, sec. 298.

O’Connor v. Ward, 60 Mississippi, 1025, 1037.

Nor can the defense of illegality in the enterprise in

any wise be urged as against the right of the stock-

holder who insists upon his proportion only of legal

assets held by the company.

Kinsman v. Parkhurst, 18 How., 289, 293.

Brooks v. Martin, 2 Wall., 70.

Planter’s Bank v. Union Bank, 16 Wall., 483.

Block v. Darling, 140 U. S., 234.

12

On-y Leaat Assets Can Be DistrisuTen.

It is an undisputed proposition of law that where a

corporation is dissolved any distribution of its assets,

after paying its debts, must be only with regard to

what could be legally transferred by private or public

sale and what could have been given title to by private

contract.

7 Thomp. on Corps, sec. 8596.

Therefore the intervenor cannot be compelled to ac-

cept stock other than that which he actually subscribed

for, or what that actually represents, in the legal prop-

erty of the corporation.

Railroad Co. v. Knoxville, 98 Tenn., 1; s. ¢.,

37, S. W. Rep., 883.

7 Thomp. on Corps., sec. 8622.

Wherefore, your intervenors move the court that the

rights of the stockholders other than those who are

parties to the main litigation also be determined, and

that a decision be made which shall protect them along

the lines of the suggestions herein made.

Respectfully submitted.

Jas. Hamiton Lewis,

Solicitor for Continental Securities Co.