Supplemental Brief for Respondent — Phoenix Finance Corp. v. Iowa-Wisconsin Bridge Co.

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Office - Sumsems Court, U, 8,

PILED

OCT 6 194]

Supreme Court of the Brritep BERR ARS cere

OCTOBER TERM, 1940.

PHOENIX FINANCE CORPORATION, A CORPORATION

OF THE STATE OF DELAWARE, PETITIONER,

VS.

IOWA-WISCONSIN BRIDGE COMPANY. A CORPORA-

TION OF THE STATE OF DELAWARE,

RESPONDENT.

RESPONDENT'S SUPPLEMENTAL BRIEF.

‘ Frep A. ONTuEs,

¥ Wm. C. Green,

Counsel for Respondent.

INDEX

Preface is eee

Summary of Argument

Argument

Lord’s Redesdale’s Rule Has No = aan to the

Present Case

Further Answer to Petitioner’s Point Nine

Further Answer tc Petitioner’s Point Three.

The injunction granted here was within the well

recognized powers of a court of equity and under

the facts and situation was proper and neces-

sary to afford adequate relief to respondent

Further Answer to Petitioner’s Point Four _

The granting of the injunction involved in this case

did not violate Section 265 of the Judicial Code

(Act of March 2, 1793, C. 22, Sec. 5, 1 Stat. L.

334, R. S., Sec. 720, 28 U.S. C. 379), but was in

accord with the spirit of that section and the

consistent construction of it by this court

Conclusion

Appendix

TABLE OF CASES

Abel vs. Partello, 202 Iowa 1236, 2i1 N. W. 868 : 27, 28

Alabama Power Co. vs. Ickes et al., 302 U. S. 464,

59 S. Ct. 300 BRD

American Radium Co. vs. . Hipp, 279 Fed. 601.

American Surety Company vs. Baldwin, 287 U. S. 156

Brainard vs. Buck, 184 U. S. 99, 22 S. Ct. 458 0.

Campbell vs. Golden Cycle Mining Co., (8 C. C. A.)

, Eu Se BO | Cece

Chicago, R. I. & P. ees Co: vs. Calcotte, nest c. A. dlins

267 Fed. 799. seeds

II INDEX

Delaware Hudson Co. vs. Albany and en

et al., 213 U.S. 435

Di Giovanni vs. Camden Fire Ins. Ass'r n, 296 U. Ss. 64

Dunn vs. Lumbermen’s Credit Ass’n, 209 U. S. 20.

28 S. Ct. 335 cat

Embry, Adm’r, etc., vs. Palmer et al., 107 U. S. 3, 2

Sup. Ct. Rep. 25 .

Equitable Life Assur. Soc. vs. Wert, 102 F. 2d 10

Erie R. Co. vs. Tompkins, 304 U. S. 64

Essanay Film Mfg. Co. vs. Kane, 258 U. S. 358

Federal Land Bank of Omaha vs. Jefferson et al.,

295 N. W. 855

Gay vs. Parpart, 106 U. S. 679

Graves vs. Graves, 132 Iowa 199, at 204

Guardian Trust Company vs. Kansas City Southern

Ry. Co., (8 C. C. A.) 171 Fed. 43

Gunter vs. Atlantic Coast Line Railroad snsteadanied

200 U. S. 273, 50 L. Ed. 477

Hale vs. Rimco Trading, Inc., 306 U. S. 375.

Hickey vs. Johnson, (8 C. C. A.) 9 F. 2d 498, 501.

Hultberg vs. Anderson, 252 Ill. 607, 97 N. E. 216, 220,

writ of error dismissed 238 U. S. 605

Julian vs. Central Trust Company, 193 U.S. 93 2

Kessler vs. Eldred, 206 U.S. 285 _. nak = *

Last Chance Mining Co. vs. Tyler ee § Co., 157

U. S. 683, 690-691 eas

Lewers & Cooke vs. Atcherly, 222 U. S. 285 .

Local Loan Company vs. Hunt, 292 U. S. 234 oes 37,

Mason Lumber Co. vs. Bechtel, 101 U. S. 638, 11 Otto

638

Oates vs. Morningside College, (1934). 217, lowa 1059,

252 N. W. 783, 786 saececios 35,

O'Brien vs. Wheelock, 184 U. S. 450 os

O’Haire vs. Burns, 25 Colo. 453, 100 Pac. 755, 157

Oklahoma Packing Company et al. vs. Oklahoma Gas

& Electric Co. et al., 309 U.S. 4 _...

Pittsburgh Reduction Co. vs. Cowles Elec. Ss. & A.

Co., (C. C. N. D.) Ohio) 64 Fed. 125,127. _.... it

Riverdale Cotton Mills vs. Alabama- seheseoint saitiadlh Co.,

(1905) 198 U. S. 188, 195...

INDEX II

Riverdale Cotton Mills vs. Alabama 7 Co., 198

U. S. 188 2 sas saaeae 38

Root vs. Woolworth, 150 U.S. 401 21, 24. 36

St. Louis-San Francisco Railway Co. vs. M’Elvain,

"Bee oR fo 5 Smee een ease emer: 43

Slaughter vs. Slaughter, 48 F. 2d 210 40

Steelman vs. All-Continent Corporation, 301 U. S. 278 44

Stewart vs. Dunham, 115 U.S. 61... 18

Southern Pacific R. R. Co. et al. vs. U.S., 168 U. Ss. 1 27

Sovereign Camp W. O. W. vs. O'Neill et al., 266 U. S.

292 34

— Sand and Gavel Werke : VS. hein Trust

, (4C.C. A.) 20 F. 2d 333, 336 26

Spencer vs. Watkins, (8 C. C. A.) 169 Fed. 378, Cert.

Den. 215 U. S. 605 ; 24

Supreme Tribe of Ben Hur vs. Couble et kaa: 255 U. s.

356 18

Toledo Scales Co. vs. Computing Scales Co., 261 U. S.

399, 43 Sup. Ct. Rep. 458 28, 29

Utah Power & Light Co. vs. U. S., (Court of Claims)

42 F. 2d 304, at 308 _. ie a nemacacel: aa

U.S. vs. American Trucking ‘nisl n, Inc., 310 U. S. 534,

542 44

U. S. vs. Throckmorton, 8 Otto 61- 71, 98 U. S. 61. ~- we

U. S. vs. Union Pacific R. Co., 226 U. S. 61_................. 7

Wadhams vs. Gay, 73 Ill. 415. sea caecsncas aa

Wells Fargo & Co. vs. Taylor, 254 U. S. 175. oe

Wilson vs. Alexander, (5th C. C. A.) 276 Fed. 875 _. 41

CopE

Judicial Code, Section 24 (U. S. C., Sec. 41) 45, 46

Judicial Code, Section 262 (U. S. C. A., Section 377)

; Pico 13, 20, 35

Judi at Code, ‘fle 265 "13, 20, 37, 39, 44, 46

Judicial Code, Section 266 (28 U. S. C., Sec. 380) 45, 46

as Ce ee

IV INDEX

TEXTBOOKS

Pomeroy, Equitable Remedies (2d Ed.), Sec. 367...

Pomeroy, Equity Jurisprudence (4th Ed.), Vol. I, Sec.

Pomeroy, Equity Jurisprudence (4th Ed.), Vol. y, ‘Sec.

253 .....

Story on Equity Jurisprudence (14th Ed.), ‘Sec. 1226

Acts

Act of May 14, 1933, Ch. 283, Sec. 1, 48 Stat. 775

Act of May 14, 1933, Sec. 2. __...

Act of June 18, 1910, Ch. 309, Sec. 17, 36 Stat. 557.

Act of August 21, 1937, Ch. 276, Sec. 1, 50 Stat. 738.

Act of August 21, 1937, Sec. 2.

Federal Judiciary Act of September 24, “1789, e. 20,

28 U.S. C., Sec. 725, 28 U.S.C. A., Sec. 725 _

Supreme Court of the United States

OCTOBER TERM, 1940.

No. 624.

PHOENIX FINANCE CORPORATION, A CORPORATION

OF THE STATE OF DELAWARE, PETITIONER,

VS.

IOWA-WISCONSIN BRIDGE COMPANY, A CORPORA-

TION OF THE STATE OF DELAWARE,

RESPONDENT.

RESPONDENT'S SUPPLEMENTAL BRIEF.

PREFACE.

In view of the fact that the Court has assigned this

case for further argument respondent desires to submit

the following supplemental brief.

On page 93 line 6 of respondent’s brief there is a

clerical error in the quotation from the master’s report.

The words “Phoenix Finance” should be changed to the

words “prima facie.”

Petitioner in its reply brief undertakes to avoid the

force of the facts stated in respondent’s brief by general

assertions that they are not supported by the record. The

statements in respondent's brief are fully substantiated

by record references. The record is written and there

should be no dispute about what it contains. The peti-

tioner is unwilling to meet that record as it is and is

undertaking to avoid it by a series of statements not sup-

ported by it and containing unjustifiable implications

with respect to it. We feel that certain statements in

petitioner’s reply brief reflecting upyn the Master, the

trial court and the Circuit Court of Appeals, and upon

the veracity of the statements contained in respondent’s

brief require a brief answer.

The petitioner assumes throughout its argument that

Lord Redesdale’s rule is applicable to this case. That it

is wholly inapplicable is pointed out at the proper point

in this argument infra.

Petitioner on page seven of its reply brief states:

“With the striking of the major portion of the petitioner’s

answer and counterclaim there remains practically no

material issue of fact.’ This statement is inaccurate.

The issues tendered by the ancillary complaint are ac-

curately set forth on pages 4 to 13 of respondent’s brief.

The designated “first defense” of petitioner’s answer and

counterclaim was not stricken. The remainder of the

answer which was not responsive to the issues tendered

by the ancillary complaint was stricken. The court in its

ruling states: “The court being of the opinion that the

remaining matter, including admissions and denials set

forth in the first defense of said answer, designated as

‘first defense’ are sufficient for the proper consideration

and determination of all issues presented by the supple-

mental and ancillary complaint” (R. 171-172).

The ancillary complaint and the first defense vf

Phoenix’ answer presented the fact questions of whether

all the items and matters involved in the Delaware actions

and in the mortgage were previously adjudicated in this

foreclosure action. This involved the iderit.ty of the sub-

jects presented in the Delaware actions and the mortgage

described in the ancillary compiaint with the matters

considered and determined in this cause. On hearing

the respondent bridge company asked the court to take

judicial notice of the pleadings, evidence and records in

this cause without exception, including the opinion and

mandate of the Circuit Court of Appeals and offered them

in evidence. Petitioner’s counsel conceded that such ju-

dicial notice thereof should be taken. The respondent

also offered in evidence certified, exemplified copies of the

summonses, bill of complaint and declarations in the Del-

aware cases and a certified copy of the mortgage wrong-

fully recorded in Allamakee County, Iowa, and a certified,

exemplified copy of the same mortgage recorded in Craw-

ford County, Wisconsin (R. 260-272; 294-384).

The trial court who originally heard this case involv-

ing this voluminous record made findings of fact as to

each of the Delaware actions and as to the mortgage, find-

ing that the items and matters involved therein were

involved in, considered, determined and adjudicated in

this cause and made conclusions of law and entered final

decree of injunction (R. 700-722). The Phoenix appealed

therefrom to the Eighth Circuit Court of Appeals and

that c urt reviewed and affirmed the trial court’s findings

of fact, conclusions of law and decree (R. 767-788). This

presents the concurrent decision of the two courts, find-

ing as facts that the matters involved in the Delaware

actions and in the mortgage were involved in, determined

and adjudicated in this cause.

In Brainard v. Buck, 184 U. S. 99, 22 S. Ct. 458, this

Court said:

“Upon the merits of the case, the two courts be-

low have come to the same conclusion. The general

finding of the trial court in favor of the complainants

was a finding in their favor of all the material facts

alleged in the amended bill, and those facts have been

repeated and affirmed in the court of appeals, and

we are now asked to review and reverse those findings

upon the testimony contained in the record. It ought

not to be done in this case. It is the settled doctrine

of this court that the concurrent decisions of two

courts upon a question of fact will be followed, un-

less shown to be clearly erroneous.’’*’

The petitioner’s assertions are directed almost wholly

agiuinst the original record and not to the court’s findings

on hearing on ancillary complaint and petitioner’s answer

thereto, designated ‘first defense.”” As to the repeated

statement that Phoenix did not participate in the trial

and did not request and instigate the foreclosure action,

the facts stated in respondent’s brief as to the institution

of the action are fully borne out by the references in

respondent's brief pages 25 to 26 and substantially ad-

mitted in petitioner's original brief pages 5 and 6. As

to its participation in the trial, see references in respond-

ent’s brief pages 37, 44-51, 56, 58, 60-66, 70.

*IIn Dunn v. Lumbermen’s Credit Ass’n, 209 U. S. 20, 28 S.

Ct. 335, this cout said:

“We cannot, as we are asked to do by the appellants,

reverse the findings of fact made by the Circuit Court

and the Circuit Court of Appeals. Successively consider-

ing the same evidence, the two courts agree in the findings.

In such a case in a suit in equity the findings will not

be disturbed by this court, unless they are shown to be

clearly erroneous. Towson v. Moore, 173 U.S. 17, 43 L. Ed.

597, 19 S. Ct. 332; Brainard v. Buck, 184 U. S. 99, 46 L. Ed.

449, 22 S. Ct. 458; Shappirio v. Goldberg, 192 U. S. 232, 48

L. Ed. 419, 24 S. Ct. 259. An examination of the voluminous

testimony shows that it tended to sustain the findings, and

that, to say the least, there is no ground for saying that the

conclusions drawn from the evidence were clearly erroneous.”

In Alabame Power Co. v. Ickes et al., 302 U. S. 464, 59

S. Ct. 300, this court said:

“These findings were made, after hearing, by the

district judge upon undisputed or conflicting evidence. The

findings were not questioned by the court below; and since

they are not without substantial support in the evidence, we

accept them here as unassailable.”

Petitioner on page 7 of its reply brief with reference

to the Helmer N. Anderson bonds asserts: ‘Anderson

was not a party to the foreclosure cause in any classifi-

cation and did not participate in the cause directly or

indirectly.” This is a misstatement of the record. He

was represented by the trustees and his bonds were in

part allowed (Trustees’ exceptions to master’s report F.

R. Supp. 7-9; F. R. 182-204; F. R. 1694).

As to the statement on pages 9-10 of the reply brief

that the trustees did not act under section 10 of the

trust indenture (F. R. 41) but under Section 3(c) (F. R.

37-38), petitioner is clearly attempting to avoid the ef-

fect of section 10 because it so thoroughly disposes of the

contention that Phoenix was not represented by the

trustees.

As to the intimation that there may be a question

whether a power of attorney was granted under that sec-

tion by the bondholders to the trustees, we need only

look to the habendum clause of the trust indenture (F. R.

21 and 22) and the bonds (F. R. 14-16), to find that the

bonds were issued under and in pursuance of the trust

indenture, and that the indenture provided that the bonds

should be issued, delivered, received and negotiated sub-

ject to its conditions.

Sections 3(c) and 10 are not alternative. Section 3(c)

merely gives bondholders the right to compel the trustees

“to protect and enforce their rights and the rights of the

bondholders under this indenture by a suit or suits in

equity or at law, whether for the specific performance

of any covenant or agreement contained herein, or in

aid of the execution of any power herein granted, or for

any foreclosure hereunder, or for the enforcement of any

other appropriate legal or equitable remedy,” etc. (Em-

phasis supplied).

Section 10 contains the covenants of the company as

to the action which may be taken by the trustees on de-

fault, and makes clear the rights of the trustees to re-

cover a money judgment either in connection with or

without foreclosure.

The sections are complimentary and by the prayer of

the bill (F. R. 10-11) it is clear that the trustees, acting

at the request of Phoenix under section 3(c), proceeded

to “protect and enforce * * * the rights of the bond-

holders,” and were entitled, if they prevailed, among other

things, to a deficiency judgment in addition to foreclosure.

As a matter of fact, section 3(c) confers upon the trustees

ill the rights of representation of the bondholders here

claimed to have existed, and section 10 simply makes the

extent of those rights more specific insofar as the re-

covery of a money judgment either originally or by way

of deficiency is concerned.

Petitioner devotes a great deal of space at pages 11,

27-43, in its reply brief disputing the master’s and the

court’s original findings as to the cuntrol of the Iowa-

Wisconsin Bridge Company. by John A. Thompson, and

his associates, officers and directors of the Phoenix Fi-

nance Corporation and of its predecessors Phoenix Finance

System, Inc. The petition of intervention charged such

control (F. R. pp. 74, 78 to 82) and that matter was di-

rectly an issue on the original trial. Th ~etitioner on

page 31 of its reply brief quotes from ° iaster’s re-

port and then asserts in italics ‘‘there ‘ { a single

record reference thus given by the master .ch supports

those findings.’”’ The report of the master (F. R. 128)

shows that the references given by the master refer to

the pages of the original depositions, transcripts, books

and exhibits in evidence and not to the pages of the

printed record since that had not been printed at that

time; the testimony being later reduced to narrative form

and thereafter the record printed and petitioner’s asser-

tion is without record citation or foundation. Trustees

and petitioner in their exceptions to the master’s report

assailed the master’s findings of fact and conclusions of

law as to control (Trustees’ exception No. 2-c, F. R. Supp.

7, Phoenix’ exceptions Nos. 1 and 2, F. R. Supp. 17-20).

The trial court reviewed the master’s report and evidently

found that the master’s citations to the original record

supported his findings and the court overruled the ex-

ceptions (F. R. Court’s opinion 161-162 and 166-179;

couit’s findings of fact 179, 180, 181, 182, 183, 184, 188

to 202, decree pages 202-204). )

The petitioner’s assertions with respect to control are

the same as made in its petition for re-hearing in slightly

modified language. The same claim of percentages to stock

ownership appear in its petition for rehearing and the

citations made by petitioner for its present assertions

nearly all refer to its petition for rehearing (F. R. 219,

254, 264, 267, 282, 284, 290, 292, 311, 312, 339, 340, 355

to 357, 375, particularly page 311). The assertions con-

tained in the petition for rehearing were controverted by

defendants’ and interveners’ answer thereto (F. R. 394-

399). The petition for rehearing was overruled and this

ruling affirmed by the Circuit Court of Appeals (F. R.

411-413 and 1707).

To hold and exercise contro] of a corporation, it is

not necessary that the person exercising such control own

and control a majority of the stock. It has been held

that where there are a large number of stockholders, as

in the instant case, that such control may exist though

the party exercising it and those associated with him

hoid a percentage of the stock much less than a majority

and exercise such control through their own holdings and

by proxies which they are able to procure through their

control of the management of the corporation.

U. S. v. Union Pacific R. Co., 226 U. S. 61.

Delaware Hudson Co. v. Albany and Susquehanna

et al., 213 U. S. 435.

The question of control has been fully adjudicated.

In addition to the facts stated and references given in

respondent’s brief pages 68 and 69 we have attached hereto

as an appendix a statement of the facts relating to such

control with record citations fully supporting the find-

ings of the court for use if this court is interested therein.

On page 12 of the reply drief counsel for petitioner

asserts that no record references are given to support

the statements on page 35 of respondent’s original brief

as to the $20,100 of bonds delivered as collaterai to cer-

tain claimed indebtedness. In view of the fact that all

the findings had been reviewed by the Circuit Court of

Appeals upon the first appea)] and full record references

in support of them given in the brief on that appeal,

it seemed unnecessary to burden this Court with such

references. Counsel, however, overlooks the discussion

of these bonds and appropriate references appearing at

pages 46-48, 91-99, 100, 101-103 of respondent’s original

brief.

Only because of the statement of counsel in the reply

brief do we give the following further record citations:

Frauduient bond interest items, F. R. 1571; 1563-5-7, 534;

1567, 1569; Offsets, Court's finding 24, F. R. 181-191; find-

ings 27, F. R. 192, 28, F. R. 193, 29, F. R. 19, 30, F. R. 194.

Evidence: Wilder $3,000 F.. R. 582, 601, 627-629, 633,

819, 821, 1401, 1403, 1531; $14,000 “guaranty contract,”

Exhibit 3, F. R. 1393, 1395, 598, 640-641, 880-883, Exhibit

Johns B, r. R. 1682, 1684, 1020, 117, 876, 880; commission

on Thompson stock, F. R. 601, 602, 1529; Thompson notes,

F. R. 604-605, 1131, 1535.

Petitioner on page 13 of its reply brief asserts ““There

is no evidence of any character to indicate any connec-

tion with any conspiracy or wrong-doing by Phoenix Fi-

nance Corporation.” This is a misstatement of the record

and contrary to the court’s finding (No. 41 F. R. 202)

“That the Phoenix Finance Corporation at the time of

its organization was officered and controlled by the same

officers as Phoenix Finance System, Inc., and took over

the succession of both assets and liabilities with full no-

tice of the facts and circumstances surrounding the bond

issue in controversy in this case, and assumed the entire

fruits and activities of its predecessor, as far as concerns

this case, and proceeded to carry on with the same notice

and purpose, adopting the plans and results of its pred-

ecessor."’ The court's finding is fully supported by the

record (See respondent’s brief 34-36 and citations there

given and see F. R. 549-550, 635-637, 673-675; 540-542,

545, 546).

Petitioner on page 15 of its brief contends that it

should not be referred to as a complainant. When it was

made an ancillary party it was niade a co-complainant

and therefore reference to trustees and petitioner as com-

plainants as made in respondent’s brief are appropriate

and accurate. It is designated as a complainant in the

narrative staternent. John A. Thompson president of

Phoenix was called as a witness and testified on the side

of complainants in the main case (F. R. 531, 538).

Petitioner on page 16 of its reply brief states ‘“‘re-

spondent states (without record references): ‘That said

John A. Thompson, as shown by the evidence, moved said

records to Florida.’ This is a most unfair insinuation and

is contrary to the fact.” The citation for respondent’s

statement precedes the statement on page 53 of its brief

(Verified answer to petition for rehearing, F. R. 394-398).

Petitioner’s statement is without record citation and with-

out foundation.

Emory H. English, vice-president of the Phoenix Fi-

nance Corporation, testified the books were in Florida;

were not in Des-Moines during 1934 to his knowledge un-

less Mr. Thompson may have had some of the books with

him on some trip and carried it back; that he never saw it.

The order for production was made April 24, 1934, and

directed production within ten days. English testified he

couldn’t produce the books. They were under Thompson’s

(Phoenix’ president) control (F. R. 613-615 and 97-98).

The court’s finding in its rulinys on petition for re-

hearing that the books were not produced is fully sus-

tained by the record, as shown in respondent's brief note

“6

8, pages 60-62, and record citations there given, and note

14, page 79.

Petitioner asserts on page 18 of its reply brief that it

did nct have notice of nor opportunity to answer the

charge in respondent’s and interveners’ answer to peti-

tion for rehearing and modification of decree that the

books were not produced and that it orally resisted the

charge is not supported by the record nor is any record

citation given for it. Respondent and interveners’ an-

swer to petition for rehearing supported by affidavit was

filed of record February 18, 1937 (F. R. 394-410, filing

date 410).

Petitioner Phoenix could have filed a denial of any

matter contained in respondent’s answer at that time if

it had thought there was any basis for it or could have

dictated such denial into the record, or asked the court

for additional time to file it. The record shows that

Phoenix did neither. The hearing was had on the 1%th

day of February, 1937, and the matter submitted and

taken under advisement and on the 4th day of March,

1937, the court rendered its opinion and ruling (F. R. 411-

413).

Petitioner’s president John A. Thompson was present

at the trial and a witness for complainants. He knew thai

the books of the Phoenix Finance Corporation and its

predecessor Phoenix Finance System, Inc., were called

for in the taking of the depositions and at the trial and

that he could have produced them in evidence. English

had testified that the books of Phoenix Finance Corpora-

tion were not available and Phoenix officers obviously

knew at the time of the hearing on the petition for re-

hearing that it could not deny the nonproduction without

running the risk of subjecting one of its officers to the

charge of perjury.

In fac-*of this record and the record cited in respond-

ent’s brief note 8, pages 60-62, and note 14, page 79, the

petitioner has the temerity to make the unfounded state-

ment that respondent’s statement “the fact is neither the

buoks nor entries therefrom were produced”’ is false. But

petitioner has wholly faiied to give anv record citation to

the original record supporting its unwarranted assertion.

The claim that the books and entries therefrom were pro-

duced was made for the first time in this ancillary proceed-

ing in paragraph 43 of petitioner’s unverified answer and

counterclaim filed November 27, 1939, which was stricken

as in contravention of the record (R. 166, filing date R.

167).

On page 19 of petitioner’s brief it refers to paragraph

40 of its answer and counterclaim which was stricken and

then avails itself, in violation ef the rules of this court, to

go outside of the record on the pretended ground that re-

spondent’s counsel asked the court without exception to

take judicial notice of all the records, papers and files in

this cause. This request was made and the records judi-

cially noticed, as well as offered in evidence, but petition-

er’s counsel must be presumed to know the requirement

of rule 75 of the rules of civil procedure requiring parties

to file their respective designations as to what is to be in-

cluded in the printed record, and that the appellant first

files its.designation and that then the appellee can desig-

nate stich Kitionai portions of the record as appellee —

deems material in view of appellants’ designations. Peti-

tioner had full opportunity to designate any part of the

record that it deemed material and it did not designate

any part thereof for its present outside of the record asser-

tions, obviously knowing that respondent could also make

designations and that the record would not bear the con-

struction petitioner seeks to place upon it.

At page 23 of its reply brief petitioner asserts that

the finding that the $50,000 mortgage was fraudulent and

without consideration was based on ‘“‘successful legerde-

main by counsel for respondent * * * without supporting

evidence.”’

Must it again be stated that the matter of this mort-

gage was considered by the master, by the trial court, both

prior to the original findings and upon petition for rehear-

ing and by the Circuit Court of Appeals and that each

found it to be wholly without consideration, fraudufent

and void?

To say that in each case counsel for respondent se-

cured a favorable decision without evidence and by sleight

of hand is certainly impertinent and verges on contempt.

If this assertion deserves notice by this Court, we cite

the following record references: Master’s finding adopted

by the court, F. R. 131; court’s opinion, F. R. 171-173:

Court’s finding 26, F. R. 191-192; Evidence, F. R. 568-586,

585-586, 607-610, 611, 612, 616-617, 642, 677, 678-684,

Exhibit B-17 (H. E. B.), F. R. 813, Exhibit B-18 (H. E.

B.), F. R. 815, F. R. 902-904; 823-825; 551-554; 627-633;

1531, 1539; 1517; 682-683).

In connection with this testimony there must be kept

in mind the testimony which showed that the bridge com-

pany had paid $320,006 in stock and $10,900 in cash for the

completion of the bridge (F. R. 569, 798-799, 877, 883, 903-

904); that the stock had been sold to Thompson & Com-

pany and Shaffer & Company held Thompson & Com-

pany’s note for it, on which there was a balance unpaid of

over $92,000.at the time the mortgage was executed (F. R.

662). ‘

Petitioner on page 26 of its reply brief asserts: ‘‘At

page 105 the respondent's statement that Phoenix in any

manner ‘took issue’ with interveners’ charges with respect

to the 517 shares of ‘‘A’’ stock is wholly untrue and no

record reference being cited therefor, should be ignored.”

Petitioner in that statement overlooks or ignores that the

paragraphs of respondent’s brief immediately following ~

the statement pages 105 to 110 state in detail the manner

in which petitioner took issue with those charges, giving

full record citations (See respondent’s brief pages 105 to

110 both inclusive, and citations there given).

The statements on page 26 of petitioner’s reply brief

are fully answered in respondent’s original brief pages

31-36 and 113-116) (Also see F. R. 640-641; 1684; 598;

1527; 545; 681; Ex. Shaffer I F. R. 817; 570-574; 576-577;

817-818; 592-593).

SUMMARY OF ARGUMENT..

Petitioner has failed to show that the findings of the

trial court ‘on hearing for permanent injunction, af-

firmed by the Circuit Court of Appeals, are not fully sus-

tained by the record. Petitioner was represented by the

trustees and was an ancillary party in the original pro-

ceeding and all the matters involved in the Delaware ac-

tions and the mortgage were adjudicated in this case.

Lord Redesdale’s rule has no application to the pres-

ent case. Injunction was properly issued as a writ of as-

sistance under Judicial Code, Section 262. The respond-

ent by the supplemental bill was not seeking to piece-out

an incomplete decree and then to enforce it. It sought the

benefit of the fruits of the decree affirmed by the Circuit

Court of Appeals. The cases cited by petitioner are all

cases of consent, pro confesso, unexecuted or incomplete

decrees. In the case at bar no modification of the decree

was sought and the case is not one in which a new trial of

the former action can be had.

There was no pleading or proffered evidence of fraud

which would justify a re-opening of the decree. Peti-

tioner was not in any manner prevented by respondent

from fully presenting its case in the first instance.

The injunction granted is within the weil recognized

powers of a court of equity and under the facts was proper

and necessary to afford adequate relief to respondent and

was properly granted to avoid a multiplicity of vexatious

and harassing suits and to remove the cloud on respond-

ent’s title.

The granting of the injunction did not violate Sec-

tion 265 of the Judicial Code, but was in harmony with

the decisions of the lowa Supreme Court and of this Court

and in accordance with the construction placed on that

section by this Court.

Congress has concurred in the construction placed on

Section 265 by this Court. While it has had knowledge of

such construction and has amended other sections of the

Judicial Code, it has not amended this Section.

ARGUMENT.

Petitioner in its original brief and in its reply brief

directs its argument against the original findings of fact

of the master and of the trial court as though it -were

arguing this case before the Circuit Court of Appeals on

petitioner's first appeal there, wholly unmindful of the

fact that it at that time argued all questions with respect

to said findings and that that court affirmed the trial

court’s decision, and that petitioner filed a petition for

rehearing before the Circuit Court of Appeals which was

denied; and that it then filed a petition for writ of certi-

orari with this Court which was denied. Petitioner

‘makes the bald assertions in its briefs that the findings

and rulings of the trial court on the original hearing are

not supported by the record, and then in support thereof

merely makes references to its original petition for re-

hearing before the trial court, and to the portions of its

answer and counterclaim re-stating the contents of the

original petition for rehearing in slight!y modified lan-

guage, but which were stricken as contravening the

record.

The trial court on the hearing on the ancillary bill

and petiticffer’s answer’ thereto designated “first defense”

made findings of fact on the evidence judicially noted

and offered at such hearing that all of the matters and

items involved in the Delaware actions and in the mort-

gage were involved in, fully litigated and determined

in the original trial of this cause; and that unless peti-

tioner was” restrained by the court the respondent (de-

fendant) would be deprived of the fruits and advantages

of the judgment decree and orders of the court in this

cause and that petitioner (complainant) would continue

with vexaticus suits in utter disregard thereof, and that

the acts of petitioner would cast a cloud over defendant’s

title and franchises because of a multiplicity of vexatious

suits brought and to be brought against the respondent

(defendant) and that it would be damaged in a way

that could not be repaired or estimated at common law

and that from these threatened wrongs the defendants had

no adequate remedy at law, and that the only remedy was

in equity (R. 700-722). The petitioner has wholly failed

to show that any of such findings of the trial court are

not supported by the record nor that the fact statements

contained in the opinion oi the Circuit Court of Appeals

affirming the decree of permanent injunction are not

fully supported by the record (See respondent’s brief

88-127; petitioner’s brief 24-41; petitioner’s reply brief

23-26).

The petitioner has cited the decision of the Delaware

Court as a matter of argument and we have replied to

it as such. The question before the Court is the correct-

ness cf the decree of the trial court on permanent in-

junction, which is controlled by the decisions of the Iowa

Supreme Court and of this Court, and the respondent

has cited such decisions in its original brief pages 128-

200.

The argument of petitioner in the original brief, ze-

peated in its reply brief (pages 44-49), that the adjudica-

tions of Phoenix’ claims against the bridge company and

the bridge company’s claims against Phoenix were not

within the issues of the original bill and that there was

no prayer as to Phoenix entirely disregards the actual

pleadings. There was a prayer by complainants that

brought into issue all the questions of consideration. Not

only did the trustees ask for an adjudication of the

amount due on the bonds and for a deficiency judgment

in case the proceeds of a sale be not sufficient to satisfy

the decree to be rendered (F. R. 10), as they had the right

to ask, but they alleged that all of the bonds secured by

i the deed of trust had been issued for a good and valuable

q consideraticn and were outstanding in the hands of divers

aes

persons and corporations who were the owners and holders

thereof for value (F. R. 6). And Phoenix in its answer

to the petition of intervention aileged that it was the

owner and holder for value of a large amount of bonds

issued in accordance with the mortgage declared on in

the bill of foreclosure, asked that its rights as a holder

of bonds Le fully protected, and prayed for general relief

(F. R. 91-92).

These allegations were all put in issue by the answer

of the defendant and by the petition of intervention as

has been pointed out in respondent’s original brief at

pages 25-33.

Before the trustees could have been entitled to a

decree, the issues as to consideration must necessarily,

under the pleadings, have been litigated and determined

favorably to them and to the bondholders they represented

and particularly Phoenix, which concededly owned 90% of

the bonds and was an ancillary party. Had those and the

other issues been determined favorably to the trustees

and to Phoenix not only would a decree of foreclosure

have been entered, but if after sale there had been a

deficiency the trustees would have been entitled to collect

the deficiency on execution for the benefit of Phoenix

and the- minor bondholders. Certainly petitioner will

not claim that if the determination had been favorable

to the trustecs and to Phoenix and a sale of the property

had been had with a resultant large deficiency respondent

could have come in and resisted collection of the defi-

ciency on the ground that the action was purely an action

in rem, such as Federal Land Bank of Omaha v. Jeffer-

son et al., 295 N. W. 855, cited in petitioner’s reply brief

(page 45), where the prayer was that ‘“‘the judgment be

in rem only” and that therefore it was not proper for the

court to enter a judgment for the deficiency. While in

the instant case the prayer-of complainants was for a

deficiency judgment and for general equitable relief and

the Phoenix’ answer to the petition of intervention also

contained a prayer that its rights as a holder of bonds be

fully protected and fcr general equitable relief. Certainly

it cannot be said that a determination in favor of one

party is without the issues if it is obvious that a contrary

determination would have been within the issues.

Petioner’s assertion on page 47 of its reply brief that

interveners’ pleadings related only to Phoenix Finance

System, Inc., and not to it, is inaccurate. All the plead-

ings filed in this action applied to it; it was the holder of

90‘% of the bonds when the action was instituted and the

pleadings applied to it as fully and completely as though

the petition of intervention had been amended, inserting

its name therein in lieu of that of Phoenix Finance System,

Inc. (See respondent’s brief pages 33 and 34 note 5 page

34, and authorities cited pages 131-144).

All the claimed underlying considerations of Phoenix

for bonds held by it (now involved in the Delaware actions

and in the mortgage) were put forward by the petitioner

as claimed considerations for such bonds, placed in issue

and investigated and litigated to the minutest detail and

to the fullest extent and determined and cannot now be

re-litigated (See references in respondent’s original brief

pages 37-40, and 88-125; see also Phoenix’ exceptions

to report of special master F. R. Supp. 23-58).

Petitioner's assertion on page 49 of its reply brief

that the matter in regard to the 517 shares of preferred

stock litigated in this cause concerned the internal affairs

of the Delaware corporation and was not within the juris-

diction of the Federal Court is erroneous and petitioner’s

statement referring to its brief pages 80-83 “‘the respond-

ent has made no attempt to answer this section of peti-

tioner’s brief’’ is inaccurate. Petitioner overlooks or ig-

nores pages 169-179 of respondent's brief which answers

petitioner’s contentions.

Petitioner on page 49 of its reply brief asserts ‘“‘Under

the doctrine of the Thomas case, petitioner contends, how-

ever, that it is entitled to recover in courts of competent

jurisdiction its entire advances to the bridge compa..y of

$98,346 plus interest.” This repetition of pages 43-44 of

petitioner’s brief is answered at page 52 of respondent’s

brief. The Themas case cited in respondent’s brief at

pages 142 and 155 does not support petitionér’s conten-

tions.

Petitioner on page 50 of its reply brief refers to its

contenticns in point 6 of its brief pages 90-95. Those

contentions have been fully answered in respondent’s

brief pages 197-200. Also see Stewart v. Dunham, 115 U.

S. 61, where it is held:

“After a United States Court has assumed juris-

diction by reason of the litigants being residents of

different states, the admission of new parties, as co-

complainants, who are residents of the sar state

as the defendants, does not cust the United States

Court of jurisdiction.”

And see Supreme Tribe of Ben Hur v. Cauble et al.,

255 U. S. 356. The latter case involved a class suit which

was commenced by citizens of Kentucky and other states

outside of Indiana in the Federal Court of Indiana against

a fraternal society, a resident of the latter state. There-

after ::rtain residents of Indiana, members of the class,

commenced actions in the state courts in which they

sought to re-litigate questions which had been determined

in favor of the defendant in the suit in the Federal Court.

An ancillary bill was filed in the Federal Court seeking

to enjoin the maintenance and prosecution of the actions

in the state courts. The lower court dismissed the bill

on the ground that members of the society residing in

Indiana <vuld not be bound by representation in a class

suit if their presence would have ousted the jurisdiction

of the Federal Court in the main case, and therefore that

the decree was not res judicata as to them, which is iden-

tical “ith the claim of Phoenix here. This court held,

following Stewart v. Dunham, supra, that since Indiana

citizens were of the class represented and diversity of

citizenship having given the court jurisdiction in the first

instance the intervention of such Indiana citizens would

not have defeated the jurisdiction already acquired and

that the members of the class to which the Indiana citizens

belonged were concluded by the decree of the district

court and an ancillary bill might be prosecuted in the

same court to protect that decree by injunction.

Petitioner in its reply brief at pages 50-51 pretends

to state what is stated in respondent’s brief: ‘In re-

spondent’s brief (pages 197-200) the petitioner’s author-

ities are attempted to be distinguished because, says re-

spondent (page 199):

(a) It appeared in those cases that there was

a substantial and indispensable interest held by a

party not a party to the record, or

(b) The cases appeared to be those in which

the introduction of an indispensable party, holding

an interest in the lawsuit, ousted jurisdiction.

Both (a) and (b) are exactly the case sub judice.”

But that is not what respondent stated in its brief.

.t stated the following (199), the italicized portions of

which are conveniently umitted by petitioner, to-wit:

“The cases cited by petitioner are all cases in which

(a) It appeared from the complaint or answer

filed that there was a substantial and indispensable

interest in the lawsuit owned and held by a party

not a party to the record and that adjudication could

not be made of the controversy presented without the

presence of such party unrepresented in the pending

litigation; or

(b) Cases in which the introduction of an in-

dispensable party holding an interest in the lawsuit,

wholly unrepresented, ousted the jurisdiction of the

court.”

Petitioner evidently recognizes the force of the fact

that it was represented by the trustees and was also made

an ancillary party.

LORD REDESDALE’S RULE HAS NO APPLICATION

TO THE PRESENT CASE.

This matter is we believe suff:ciently covered by the

original brief pages 200-204, but in view of the insistence

of petitioner and his repeated assertions with respect to

it we submit in addition the following:

The petitioner on page 7 of its reply brief states:

“The obvicus purpose of the stricken portions of peti-

tioner’s answer and counterclaim was to challenge the

foreclosure decree as ‘wrong’ under Lord Redesdale’s

rule.” With reference to the stricken portions of the

answer the trial court in its order striking the same stated

that the petitioner ‘is clearly endeavoring to re-litigate

questions of law and fact which were litigated and op-

portunity given to litigate on the trial of the principal

case, in which trial and decison all accounts, indebted-

ness and matters entered into the consideration of the

issue of each and all of the bonds secured by the mortgage

sought to be foreclosed were in question, and were con-

sidered and determined” (R. 171-172). Petitioner assumes

throughout its reply argument that it is entitled to re-

litigate what has been previously determined. If peti-

tioner’s position were correct, then all a litigant would

need to do with respect to final adverse decisions rendered

by the court would be not to perform them and to pay

no attenjfion to them and then if an ancillary proceeding

be brought to compel obedience merely ciaim the right

to try the whole case over again, and if that might he

done once of course it might be carried on ad infinitum,

and the decisions of the trial court rendered ineffectual

and:appellate procedure rendered wholly superfluous.

Judicial Code, Section 262, U. S. C. A., Section 377,

provides:

“Power to Issue Writs. The Supreme Court and

the District Court shall have power to issue writs of

scire facias: The Supreme Court, the circuit courts

of appeals, and the district courts shall have power

to issue all writs not specifically provided for by

statute, which may be necessary for the exercise of

their respective jurisdictions, and agreeable to the

usages and principies of law.”

The trial court exercising its power under this section

entered the permanent decree of injunction to enforce

its decree and to preserve the fruits thereof to the re-

spondent.

In Root v. Woolworth, 150 U. S. 401, this court said:

“It is well settled that a court of equity has

jurisdiction to carry into effect its own orders, de-

crees and judgments which remain unreversed, when

the subject matter and parties are the same in both

proceedings. * * *

“The jurisdiction of courts of equity to interfere

and effectuate their own decrees by injunction or

writs of assistance in order to avoid the re-litigation

of questions once settled between the same parties

is well settled. * * * |

“The power of the court to igsue the judicial

writ or to make the order and enforce the same by

a writ of assistance, rests upon the obvious principle

that the power of the court to afford a remedy must

be co-extensive with its jurisdiction over the subject

matter. Where the court possesses jurisdiction to

make a decree it possesses the power to enforce its

execution.”

An ancillary bill is but the continuation in a court

of equity of the original suit, to the end that justice may

be accomplished thereby.

Campbell v. Golden Cycle Mining Co., (8 C. C.

A.) 73 C. C. A. 260, 141 Fed. 610, 612.

‘Tne ancillary proceedings in the instant case is not

a new case, but a continuation of the original case to

enforce the decree of the court and preserve the fruits

of that decree.

The above quoted statute provides for writs of as-

sistance and it cannot well be said that whenever such

a writ of assistance is asked the whole case is to be tried

over again at the suggestion of the party against whom

the decrec is rendered. If such were the case the sug-

gestion might as well be made the morning after the

rendition of the decree as later. Respondent is seeking

to enforce the decree rendered. As stated in the opinion

of the Circuit Court of Appeals: ‘The bridge company

is not seeking to piece out an incomplete decree and then

to enforce it. All that is sought here is the benefit of the

fruits of a decree affirmed by this court. That decree is

conclusively presumed to be correct. If it were otherwise

there could be no end to litigation, the rule of the fi-

nality of judgments would have no efficacy, and the doc-

trine of res judicata would be annulled” (R. 784). The

ancillary bill discloses that the statement of the Circuit

Court of Appeals is fully sustained by the record (R. 3

to 100).

O’Brien v. Wheelock, 184 U. S. 450, cited by peti-

tioner, bears no similarity to the instant case. Relief

was denied on the ground of laches. The supplemental

bill brought in parties who were not parties to the orig-

inal bill. The court said “It was an original bill as to

these new parties and they were entitled to all of the

defenses which existed when it was filed.”’

Lewers & Cooke v. Atcherly, 222 U. S. 285, cited by

petitioner. involved an unexecuted decree, and the case

had not passed to final decree.

As to the case of Gay v. Parpart, 106 U. S. 679, cited

by petitioner, this court said in Harding v. Harding, 198

U. S. 317, 335, that it ‘dealt merely with the right of a

court of equity to refuse to lend its aid to enforce an

incomplete and ineffective decree in partition proceed-

ings because to do so would be inequitable.”

Petitior 2r refers to Wadhams v. Gay, 73 Ill. 415, in

its brief, but the Illinois Court in the later case of Hultberg

v. Anderson, 252 Ill. 607, 97 N. E. 216, 220, writ of error

dismissed 238 U. S. 605, said:

“But this rule has no application to decrees that

are complete and perfect and free from any inherent

defect which prevents their execution.”

In American Radium Co. v. Hipp, 279 Fed. 601, cited

by petitioner, a consent decree in a prior case had been

entered. The court said:

“But now a different plaintiff appeals to a court

of equity to piece out the decree and give to it a

valuable right; i. e, an accounting, which was not

accorded to Junghams nor reserved by him for his

assigns.”

The rule for which petitioner contends has no appli-

cation. No modification of the decree was sought. Utah

Power & Light Co. v. U. S., (Court of Claims) 42 F. 2d

304, at 308.

Petitioner’s contention that the respondent sought to

“piece out” and enlarge an incomplete decree and then

to enforce it is not supported by the record. When the

court made its decree dismissing the bill of plaintiffs as

to the Phoenix Finance Corporation and denying the

prayer of the bill, it adjudicated every question involved

in the litigation adversely to petitioner and its represent-

atives, the trustees. Hickey v. Johnson, (8 C. C. A.)

9 F. 2d 498, 501. Th‘s included, as has been pointed out,

all of the matters and items involved in the Delaware

cases and in the mortgage which was held fraudulent

and without consideration and void.

The findings of fact, having gone into the decree,

are conclusive as to the facts found. Every defense re-

quiring the negation of any of such facts is met and over-

thrown by the adjudication. The opinion is part of the

record and may be iooked to as to what was in issue and

24 x

determined by the decree. Lust Chance Mining Co. v.

Tyler Mining Co., 157 U. S. 683, 690-691; Mason Lumber

Co. v. Bechtel, 101 U. S. 638, 11 Otto 638.

The record shows that the opinion and findings of

fact (F. R. 156-202) were filed with the decree. The de-

cree says (F. R. 202):

“The above entitled cause came before the Court

on the first day of December, 1936, it being the first

day of the December, 1936, term of this Court, for the

filing of Opinion ruling upon exceptions to the Mas-

ter’s Report, taking final submission of the cause

upon the Master’s Report and his advisory findings

and the evidence in the cause, and the entry of a final

decree.”

Petitioner, in its petition for rehearing and modifica-

tion of decree, asked in the alternative that there be with-

held from the adjudication the mortgage, reserving to the

petitioner the right to litigate such mortgage in another

case if it desired, that it be reinvested with the stock, and

that the decree be modified to withhold from adjudica-

tion the right of petitioner to institute actions at law

against the bridge company if it so desired for money had

and received (F. R. 223). ,. This was overruled (F. R.

411 to 413). This constituted a further adjudication.

Spencer v. Watkins, (8 C. C. A.) 169 Fed. 378, Cert. Den.

215 U. S. 605; American Surety Company v. Baldwin, 287

U. S. 156. The Circuit Court of Appeals had also ren-

dered its decision determining the matters herein in-

volved.

In Root v. Woolworth, 150 U. S. 401, this court said:

‘“‘When the court adjudges a title to either real or

personal property to be in one as against another, it

enforces its judgment by giving the enjoyment of the

right to the party in whose favor it has been decided.”

That is what the Court did in the instant case.

FURTHER ANSWER TO PETITIONER’S POINT

NINE.

There was nothing in the stricken portions of peti-

tioner’s answer and counter claim nor in offer of proof

justifying a reopening or a re-examination of the case.

The decree was not by consent or pro confesso but

one entered after every issue had been fully litigated and

the decree was in no way incomplete or defective. An

analysis of the answer and counter claim and of the offer

of proof made by petitioner makes it very clear that they

furnished no justification for a reopening or a reexamina-

tion of the case.

After the order of the court striking certain matter

from the answer and counter claim (R. 171) there was

left the first defense except a small part, and by the ad-

missions and denials of that defense, all the issues ten-

dered by the supplemental and anciliary bill and the

amendment thereto were either admitted or put in issue

(R. 147-151) (See original brief 18-25).

The alleged defenses 2 to 7, being paragraphs 13-45 of

petitioner’s answer and counter claim (R. 151-167), were

properly stricken. Petitioner at page 7 of its reply brief

admits that those portions of the answer were for the ob-

vious purpose of challenging the foreclosure decree as

“wrong.”

The offers of proof made by petitioner on the trial of

the injunction proceeding merely amount to elaborations

of the matters set out in those portions of the answer

which were stricken and. which have been commented

upon and amount to nothing more than an attempted re-

litigation of the issues determined in the main case (see

original brief 77-88 and notes on said pages).

The claims of petitioner of alleged fraud and of its as-

serted right to relitigate the question of considerations

are concisely stated in the opinion of the Circuit Court of

Appeals, R. 784-787.

Petitioner, in its original brief (pages 104-105), sum-

marizes these claims as follows: ‘‘(1) because of under-

standing, following approved Federal practice, with re-

spect to the two-stage theory, by reason whereof Phoenix

was prevented from offering its evidence, (2) because it

was denied relief on petition for modification of the Fore-

closure decree because of false representations of oppos-

ing counsel accepted by the Court with respect to its al-

leged failure to produce books as ordered, and (3) because

of the circumstances of extrinsic fraud stated in stricken

paragraph 44 of its Answer and Counterclaim.”

As to petitioner’s claim of some understanding with

reference to so-called ‘‘two-stage theory,” there was no

such understanding or misunderstanding (Spears Sand

and Gravel Works v. American Trust Co (4C.C. A.) 20

F. 2d 333, 336). The cause, by agreemeri. of parties, was

referred to the Master in its entirety (fF. R. 107-108). At

the conclusion of the evidence, the Master fixed time for

filing of briefs and stated: ‘I would like to have the

theory of all parties definitely in reference to the con-

sideration” (F. R. 693). The entire matter was sub-

mitted to the Master for decision at one time (F. R. 694-

695).

- Petitioner filed exceptions to the Master’s report

which were adopted by the trustees (F. R. Supp. 14-58 and

Page 7). Petitioner then filed petition for rehearing

adopted by trustees, in which the same so-called ‘“two-

stage”’ theory and alieged understanding was asserted (F.

R, 216-233 and 214). An answer thereto was filed by re-

spondent bridge company and interveners denying that

there was any misunderstanding (F. R. 394 to 398). The

petition for rehearing and modification of decree were

overruled (F. R. 411-415). This ruling was affirmed (F.

R. 1707). It had been previously adjudicated that there

was no misunderstanding. See respondent’s brief pages

40-42, 49-59, 179, 180. This claim of petitioner furnished

no basis for setting aside the decree and re-opening the

case.

Pittsburgh Reduction Co. v. Cowles Elec. S. & A.

Co., (C. C. N. D. Ohio) 64 Fed. 125, 127.

As to the claims of false misrepresentations of op-

posing counsel with respect to the failure of petitioner

to produce books as ordered on hearing of petition for

rehearing and modification of decree, the facts with ref-

erence to the non-proauction of such books have been

fully discussed and record citations given in petitioner’s

original brief pages 59-60 and Note 8 pages 60-62 and supra

of. this suppiemental brief, pages 9 to 11. , Peti-

tioner had full opportunity to present anything it

wanted to with respect to this pretended claim on the

original hearing. This claim, made for the first time

in this ancillary proceeding in contravention of the record,

furnished no basis for setting aside the decree and re-

opening the case.

As to the allegations of Paragraph 44 of petitioner’s

Answer (R. 166-167), these are fully discussed in the note

relating to that paragraph appearing at pages 20-21 in

respondent’s brief, and the facts attempted to be pleaded

do not constitute fraud, and are wholly insufficient to

furnish any basis for setting aside the decree and opening

the case.

Southern Pacific R. R. Co. et al. v. U. S., 168

uv. & &.

Abel v, Partello, 202 Iowa 1236, 211 N. W. 868.

\ Graves v. Graves, 132 Iowa 199, at 204.

There is nothing in the opinion in the case of U. S.

v. Throckmorton, 8 Otto 61-71, 98 U. S. 61, which justifies

petitioner’s statement that it is only’ where a party is

seeking to have affirmatively a judgment or decree set

aside on the grounds of fraud, that the alleged fraud must

be extrinsic to the issues, and that that rule does not apply

where a party is defending against the enforcement of a

judgment or. decree.

The case of Chicago, R. I. & P. Ry. Co. v. Calcotte,

(C. C. A. 8) 267 Fed. 799, cited by petitioner is no au-

thority for the contention of petitioner, but on the con-

trary re-affirms the holding of the Throckmorton case

that fraud to be available must be extrinsic to the issues

which were determined, and that even erroneous and

perjured testimony which relates simply to the issue

directly contested does not constitute extrinsic fraud.

The rule stated in the Throckmorton case is also the

ruJe in Iowa.

In Abell v. Partello, 202 Iowa 1236, 211 N. W. 868, the

court said:

“The rule is settled under our previous cases that

the fraud of which a court will take cognizance in an

equitable proceeding to vacate judgment or decree

after the expiration of one year must be such as was

collateral to the proceeding and issues in the original

case. The fraud charged cannot be predicated upon

a conflict of evidence in the trial, nor even upon per-

jury committed therein. The relative weight of evi-

dence and all charges and countercharges of perjury

are deemed as necessarily adjudicated in the original

proceeding” (Citing cases including the Throckmor-

ton case).

Also see:

Toledo Scales Co. v. Computing Scales Co., 261

U. S. 399, 43 Sup. Ct. Rep. 458.

The propriety of the rule in the Throckmorton case

is apparent. If it were not for that rule, any unscrupu-

lous litigant, after being unsuccessful in the litigation,

could make false statements as to what occurred before

the court and present those as a basis for setting aside

the court’s decree, although the court would know that

the matters thus stated did not occur in the trial. It

would open the door for fabrication and falsehood.

Petitioner, on page 104 of its brief, quotes from the

Throckmorton case the words: ‘‘Where the unsuccess-

ful party has been prevented from exhibiting fully his

case by fraud or decepticn on him by his opponent,” and

then claims that it falls within that language. Petitioner

ridiculously assumes in its assertions that the Master,

Hon. J. W. Kindig, a former Justice of the Supreme Court

of Iowa (Iowa Supreme Court reports, of which this Court

takes judicial notice), and Hon. Geo. C. Scott, Judge of the

Federal! Court for the Northern District of Iowa, could be

induced to make findings of fact and decree and rulings

by mere misrepresentations of the evidence in the case

although the record shows that they spent months in re-

viewing the case und the Master’s report and the court’s

opinion, findings and rulings show on their fave the care

and thought that they devoted to the determination of the

case, and are a complete refutation of the unwarranted

statements of the respondent. Petitioner also seems

wholly oblivious to the fact that this record was fully

reviewed by the Circuit Court of Appeals.

It must be noted that petitioner’s claims as to mis-

representation first made their appearance over two years

later in this ancillary proceeding when petitioner was

called upon to obey the decrees of the court. Petitioner

and trustees were represented by able counsel, both in

the trial court and in the Circuit Court of Appeals, and

the petitioner availed itself of every opportunity to fully

present its side of-the case as shown by the record. The

record shows that intervener’s counsel stated very pvint-

edly, and in terms that could not be misunderstood, that

the whole case was being tried and submitted (R. 694-

695). There was nothing to prevent the petitioner from

bringing its books and the books of its predecessor and

placing them in evidence, excepting its own unwilling-

ness to do so. It could subpoena and cali any witnesses

that it wanted to and it exercised its own judgment with

respect thereto. It had a full, fair trial and its assertion

that the respondent or interveners prevented it from ex-

hibiting fully its case is without foundation.

Embry, Adm’r, etc., v. Palmer et al., 107 U. S. 3,

2 Sup. Ct. Rep. 25.

Toledo Scales Co. v. Computing Scales Co., 261

U. S. 399, 43 Sup. Ct. Rep. 458.

FURTHER ANSWER TO PETITIONER’S POINT

THREE.

The injunction granted here was within the well rec-

ognized powers of a court of equity and under the facts

and situation was proper and necessary to afford adequate

relief to respondent.

The jurisdiction of courts of equity to intervene and

eifectuate their own decrees by injunction in order to

avoid the re-litigation of questions once settled by the

same parties and to prevent vexatious suits is unques-

tioned.

The facts and situation in this case make it one calling

for the granting of equitable relief.

The argument on these propositions in the original

brief appears at pages 181-187.

See, also, Pomeroy, Equitable Remedies (2d Ed.),

Sec. 367.

This case was originally started by the filing of a bill

August 28th, 1933, and the court’s opinion, findings of

fact. conclusions of law and final decree were entered on

December Ist, 1936 (F. R. 12, 179, 202, 204). The Circuit

Court of Appeals rendered its opinion on August 8, 1938

(F. R. 1689). After five years of struggle by the parties

this court denied certiorari on December 5, 1938 (305 U.

S. 650).

The language of Mr. Justice Brewer in Riverdale

Cotton Mills v. Alabama-Georgia Mfg. Co., (1905) 198

U. S. 188, 195, might almost be paraphrased in this case.

That suit involved a mortgage foreclosure suit in the fed-

eral court in which a sale had been made and an attempt

was later made by bondholders to institute separate pro-

ceedings in the state court. Quoting from the opinion:

“For over ten years from January 21, 1891, the

date of the filing of the original bill, litigation was

carried on in the Circuit Court of the United States

for the Northern District of Georgia and in Appellate

Courts, in the foreclosure of a trust deed executed by

the Alabama & Georgia Manufacturing Company. In

the course of that litigation decrees were entered and

reviewed, sales were made and set aside, possession

of property was transferred and retransferred, ac-

countings had of the proceeds of property in posses-

sion, and when it seemed that at last litigation was

at an end, the foreclosure consummated and the title

established in the purchaser, we are told that it all

amounted to nothing; that parties, lawyers and courts

have been spending their time and labor in simply

batting the air. The jurisdiction of courts of equity

to intervene and effectuate their own decrees by in-

junction or writs of assistance in order to avoid the

relitigation of questions once settled by the same par-

ties is well settled.”

The facts in this case also pointedly presented the

ground for equitable relief to prevent a multiplicity of

suits and of harassing and vexatious litigation.

The petitioner on September 23, 1938, had petitioned

the Circuit Court of Appeals for a stay of mandate on its

original decision (F. R. 1716), which stay was granted on

October 3, 1938 (F. R. 1717). The petitioner had filed

one action at law in Delaware on September 29, 1938, while

.iS petition for stay of mandate was pending and before

its petition for certiorari had been filed and decided in

this court (Ex. SC-1 R. 294-300) (305 U. S. 650). Peti-

tioner had filed an action in equity in Delaware on Feb-

ruary 18, 1939 (Ex. SC-2 R. 301-306), and it had filed an-

other action at law in Delaware with summons return-

able September 18, 1939 (Ex. SC-3 R. 307-319), and had

filed a fourth action at law in Delaware with summons

returnable September 18, 1939 (Ex. SC-4 R. 320-339), and

had filed a fifth action at law in Delaware with summons

returnable September 18, 1939 (Ex. SC-5 R. 340-378), and

on June 2, 1939, had recorded the mortgage held fraudulent

in the original decree (Exs. SC-6 and SC-7 R. 374-384).

Respondent with leave of court on the 18th day of

September, 1939, filed a supplemental and ancillary bill

for temporary and permanent injunction (R. 2, 12). Pe-

titioner having been served with notice of motion for

leave to file the ancillary bill appeared thereto on Septem-

ber 18, 1939 (R. 2, 101). And on September 18, 1939, an

order was entered fixing September 28, 1939, for hear- |

ing on motion for temporary injunction (R. 101).

Amendment to ancillary bill was filed September 28, 1939

(R. 98-100). On September 28, 1939, petitioner filed re-

sistance to hearing for temporary injunction (R. 112-117).

Temporary injunction was granted October 7, 1939 (R.

120-140, filing date R. 140). Hearing on ancillary bill

for permanent injunction was had March 11, 1940, and

the matter fully submitted (R. 257, 293). And on March

23, 1940, the court entered its findings of fact, conclu-

sions of law, opinion and final decree of permanent in-

junction (R. 700-722). It found that the matters involved

in the Delaware actions and in the mortgage had been

previously determined in this action, and the original de-

cree should have ended the matter. Petitioner not having

been content to leave the matter closed, having com-

menced the series of Delaware suits here involved and

having recorded the mortgage which had been held to be

invalid, without consideration and void, the federal dis-

trict court as a court of equity having jurisdiction of the

parties and of the subject matter was, when asked to is-

sue an injunction to protect its own judgment and decree,

entitled to consider in determining whether there was

equity in the ancillary bill, whether or not a multiplicity

of suits and vexatious and harassing litigation would not

be thus prevented. The court did so find (Finding 13, R.

713).

This case involves the issue whether the matters in-

volved in the Delaware suits and in the mortgage were

determined in this cause. This question arises in each of

the Delaware suits. This case is within the classification

adopted by Pomeroy, which he states as the case where

‘dispute is between two individuals, A and B, and B in-

stitutes or is about to institute a number of actions, either

successively or simultaneously, against A, all depending

upon the same legal questions and similar issues of fact,

and A by a single equitable suit seeks to bring them all

within the scope and effect of one judicial determination.”

Pomeroy, Equity Jurisprudence (4th Ed.), Vol. I, Sec. 245.

The opinion, findings and permanent decree of the

trial court, affirmed by the Circuit Court of Appeals, have

determined this whole matter in one ancillary proceed-

ing, if affirmed by this court.

In addition to the facts of equitable consideration

stated in respondent’s brief pages 182-187, we want to

further call the court’s attention to the inequitable hard-

ship that would be imposed upon respondent to permit

the Delaware actions to be further prosecuted.

The record on the original trial of this cause is very

voluminous, as will be noted from the printed record

which was before the Circuit Court of Appeals on the first

appeal. To present this voluminous record in the Dela-

ware cases by certified, exemplified copies of the deposi-

tions, transcripts and exhibits would involve enormous

expense, yet in view of petitioner’s readiness to dispute

the record it would probably be necessary to do so. It

‘hight also be necessary to prosecute an appeal in each of

the cases to the Delaware Supreme Court which would

require a printing of the record in each case at large ex-

pense and it might involve five petitions for writ of cer-

tiorari to this court, which under the rules of this court

would require the printing and filing of forty copies of

record in each case at great expense. It would involve

trials in Delaware, over 1,000 miles away from where the

bridge company’s business and properties are located, at

great expense as has been pointed out on pages 183-184 of

respondent’s brief. All this we submit would be very in-

equitable to the respondent who has already successfully

defended itself against the fraudulent claims of the pe-

titioner in the federal court where the complainants chose

to bring this action.

As stated by Pomeroy:

“The court will interfere and restrain the de-

fendant’s further prosecution of successive actions at

law, and will thus establish and quiet the plaintiff’s

right, when all the questions of law and fact involved

in these actions have already been fully determined

in the plaintiff’s favor by some former judicial pro-

ceeding between the same pa‘ties.”

Pomeroy, Equity Jurisprudence (4th Ed.), Vol. I,

Sec. 253.

A clear class of cases in which injunction is granted

is composed of those in which such injunction is granted

to suppress undue and vexatious litigation.

See Story on Equity Jurisprudence (14th Ed.),

Sec. 1226.

See respondent’s original brief pp. 182-187.

An inadequacy of !egal remedy exists where one is

bound to litigate a multiplicity of suits having a com-

munity of facts and issues. Avoidance of the burden of

numerous suits at iaw between the same parties where

the issues are substantially the same is a recognized

ground for equitabie relief in the federal courts.

Kessler v. Eldred, 206 U. S. 285.

Di Giovanni v. Camden Fire Ins. Ass’n, 296 U. S.

64. ‘

Sovereign Camp W. O. W. v. O’Neill et al., 266

U. S. 292.

Petitioner’s disdain and want of respect for the courts

is well illustrated in a letter of John A. Thompson of

November 23, 1938, to the stockholders of the bridge com-

pany: “I am not asking you or any other man to help

me or to help Phoenix; Phoenix does not need any help

in its fight to maintain its creditor position. In the end

the facts will all be proved in competent courts. I am

not a bit disturbed about the outcome, etc.” And in a

letter to a stockholder and director of the bridge company

of June 12, 1939: “It makes little difference whether

the bridge company pays the debt by reason of a mortgage

foreclosure or by way of a judgment and execution against

the bridge” (Court’s finding 11, R. 711-12).

FURTHER ANSWER TO PETITIONER’S POINT

FOUR.

The granting of the injunction involved in this case

did not violate Section 265 of the Judicial Code (Act of

March 2, 1793, C. 22, Sec. 5, 1 Stat. L. 334, R. S., Sec. 720,

28 U. S. C. 379), but was in accord with the spirit of

that section and the consistent construction of it by this

court.

In addition to the argument in respondent’s original

brief on this point pages 188-197 respondent respectfully

submits the following:

If this case had been tried originally in the state

court of Iowa and subsequently an ancillary bill filed to

prevent the re-litigation in a foreign jurisdiction of the

matter determined and to enforce the decree and to pre-

serve the fruits thereof the Iowa court would have ren-

dered the injunction decree which the federal court ren-

dered in the instant case in accordance with the holding

of the Jowa Supreme Court in the case of Oates v. Morning-

side Coliege, (1934) 217 Iowa 1059, 252 N. W. 783. Such

is the law of 'owa. We submit that the Oates case is

an exact parallel of this case.

Section 34 of the Federal Judiciary Act of September

24, 1789, c. 20, 28 U. S. C., Sec. 725, 28 U. S. C. A., Sec. 725,

provides:

“The laws of the several States except where

the Constitution, treaties, or statutes of the United

States otherwise require or provide, shall be regarded

as rules of decision in trials at common law, in the

courts of the United States, in cases where they

apply.”

In Erie R. Co. v. Tompkins, 304 U. S. 64, this court

held that the phrase “laws of the several States’’ as used

in the statute just quoted includes not only statutory law

but also the state decisions and that a case tried in the

federal court is to be determined in accordance with the

laws of the state where the case is tried.

The statute contains “shall be regarded as rules of

decision in trials at common law in the courts of the

United States.”” How could a federal court carry that out

if it were shorn of its power to make effectual its decree

and orders to preserve the fruits thereof? Would it not be

rendered impotent to do the very thing that this statute

contemplates that the federal court shall do?

The decision in the Erie R. R. case contemplates that

the same rules of law shall apply and the same relief

be granted whether the case be tried in the state court

or in the federal court. If Section 265 were to be now

construed as prohibiting a federal court to enforce its de-

crees and to preserve the fruits thereof by injunction

the objects intended to be accomplished by the decision

in the Erie case would be frustrated. Immediately a

situation would be presented where parties fraudulently

inclined could commence their actions in the federal court,

try them to final determination, and if defeated treat

the whole thing as nugatory and proceed anew else-

where, and if successful the defendant would be bound.

Such a construction would also render meaningless

the words of this Court in Root v. Woolworth, 150 U. S.

401:

“Where the court possesses jurisdiction to make

a decree it possesses the power to enforce its ex-

ecution.”’

And would involve an overruling of this Court’s de-

cision in the case of Local Loan Company v. Hunt, 292

U. S. 234, which we submit is an exact parailel of the

instant case.

We contend that Judicial Code, Section 265, must be

construed in the light of thé above quoted statute and

in the light of Judicial Code, Section 262 (U. S. C. A.

Sec. 377), and when so construed it is apparent that it

was never intended to prevent the federal court from en-

forcing its decrees and preserving the fruits thereof and

preventing the re-litigation of the same matters between

the same parties once determined by the federal court.

We contend that the prohibition of Section 265 was

intended to apply to cases first commenced in the state

court and not to cases already fullv tried and determined

by a federal court sitting as a court of equity.

In Julian v. Central Trust Company, 193 U. S. 93,

where after suit in the federal court for foreclosure of

mortgage resulting in decree, sale, confirmation and de-

livery of possession to the purchaser, it was attempted

to subject the property to judgments rendered in the state

court agcinst mortgagor on causes of action arising sub-

sequent to confirmation of foreclosure sale, it was held

that the federal court properly on supplemental bill re-

strained enforcement of the state court judgments in or-

der to protect the title it had conveyed by foreclosure

proceedings. The court said:

“In such cases where the federal court acts in

aid of its own jurisdiction and to render its decree

effectual, it may, notwithstanding Section 720, Re-

vised Statutes (Section 265, Judicial Code), restrain

all proceedings in a state court which would have

the effect of defeating or impairing its jurisdiction.”

If Section 265 were to be construed as preventing

federal courts from enforcing their decrees by enjoining

parties from re-litigating in other courts matters deter-

mined in a cause of which the federal court first obtained

jurisdiction of the parties and subject matter, the powers

of the federal courts and the effectiveness of their de-

crees in railway bonds and other foreclosure cases would

be greatly impaired. Federal foreclosure sales would not

be attended. There simply would not be any purchasers

as no one would want to buy anything under a foreclosure

decree, the determination of which might at any time be

litigated in various courts elsewhere.

Also see Riverdale Cotton Mills v. Alabama Mfg. Co.,

198 U. S. 188, argued before this Court by Mr. Louis D.

(later Mr. Justice) Brandeis.

One of the leading cases is that of Gunter v. Atlantic

Coast Line Railroad Company, 206 U. S. 273, 50 L. Ed.

477, opinion by Mr. Justice White. It appears that the

Legislature of South Carolina had exempted the capital

stock and property of the Northeastern Raiizoad Company

from all taxation during its charter existence. Some iime

later a law was passed providing for assessment and taxa-

tion of all property in the state. The Cheraw & Darling-

ton Railroad Company, the successor to the Northeastern

Railroad Conipany, was assessed for taxation under this

law; thereupox a stockholder of the railroad company filed

his bill in the Federal District Court against the railroad

company and the county treasurers of the proper counties,

praying that the treasurers be enjoined from collecting

and the railroad company from paying the taxes. An

injunction was granted. This was the original case and

is known as the Pegues Case. For twenty-five years no

attempt was maae iv tax the property of the railroad

company. Then a new suit was brought against the rail-

road company alleging that it had been mistakenly treated

as having a right to exemption and asking to recover

the sum of taxes, penalties and interest for a period of

ten years. Thereupon the Atlantic Coast Line Railroad

Company, the successor to the Cheraw & Darlington Rail-

road Company, filed a bill entitled and numbered as of

the original cause which had been determined twenty-five

vears before, praying that it be protected in the rights

and privileges adjudged in that case and be accorded the

benefit of the injunction issued, and that the attorney

general of the state be enjoined from further prosecut-

ing the actions commenced in the state court.

After having first found that the parties were privies

to the decree in the first case, the court went into the

question as to whether the decree rendered in the first

cause established the exemption embraced in the issues

of the case at bar. It was claimed by the attorney general

that the original decree in the Pegues case was based

upon the assumption that there was consideration for

the exemption, and that this was an erroneous assump-

tion by the court and that if the truth had been established,

a different decree would have been rendered. The Su-

preme Court says that all defenses existing at the time

of the decree in the Pegues case, whether brought to

the attention of the court or waived, were foreclosed by

the decree. The court then goes on to discuss whether

the lower court erred in granting the relief, and after

referring to the statute which is now Section 265 of the

Judicial Code, says:

“The soundness of the doctrine relied upon is

undoubted. The dif‘iculty is that the doctrine is in-

applicable to this case * * * the right of the court

to administer relief—to make its decree effective—

cannot be measured by constitutional or statutory

provisions relating to original proceedings where juris-

diction over the controversy did not obtain * * * In-

deed the provision that the Eleventh Amendment

or Section 720 of the Revised Statutes (United States

Compiled Statutes, 1901, page 581), control a court

of the United States in administering relief, although

the court was acting in a matter ancillary to a de-

cree rendered in a cause over which it had jurisdic-

tion, is not open for discussion * * * And this rea-

soning disposes of the contention that the court be-

low erred in enforcing its prior decree because there

was adequate remedy at law by 2).'erposing a defense

in the state courts to the actions brought by the at-

torney general. That question was foreclosed bv

the decree in the Pegues Case * * * Having acquired

by that decree a right which the petitioner was en-

titled to enforce * * * that rule could not rightly be

invoked to deprive the court below as a court of

equity of. the power to protect the petitioner in the

enjoyment of rights previously secured under a de-

cree of the court” (emphasis supplied).

Slaughter v. Slaughter, 48 F. 2d 2.0, Circuit Court

of Appeals, Fifth Circuit, opinion by Judge Bryan, peti-

tion for writ of certiorari denied 284 U. S. 643, 76 L. Ed.

547. In this case it appears that W. B. Slaughter had

been adjudged a bankrupt in 1918. His trustee in bank-

ruptcy filed the original suit against C. C. Slaughter Com-

pany and G. G. Wright, to whom, before bankruptcy,

he had conveyed all of his property. The trustee’s suit

sought to recover the property for the benef t of the bank-

rupt estate. A compromise settlement was made under

which the defendants kept the property sued for, but

paid $85,000 to the trustee. That settlement was approved

and confirmed by the bankruptcy court in a final judg-

ment. Latcr W. B. Slaughier brought suit against C. C.

Slaughter Company and Wright in the District Court of

Palo Pinto County for damages and to recover the prop-

erty that had been awarded to the defendants by the

compromise settlement in the bankruptcy court. Slaugh-

ter obtained judgment in the state court for the recovery

of the property and for $30,000 damages. This judgment

was appealed and reversed, and to prevent a retrial of the

suit in the state court, the appellees, C. C. Slaughter

Company and G. G. Wright, filed a supplemental bill

in the bankruptcy court to enforce the compromise of

March, 1919, praying for an injunction against Slaughter

restraining him from prosecuting the suit. Thereafter

the bankruptcy court granted a permanent injunction re-

straining the defendant in the supplementary bill from

further prosecuting the suit in the state court. The de-

fendant in the supplemental bill then filed suit in the

federal court, praying, among other things, that the in-

junction entered in the bankruptcy proceedings be vacated.

The lower court refused to vacate the judgment of the

bankruptcy court and the Circuit Court of Appeals af-

firmed the holding of the lower court, saying:

“The court fully had the power to protect its

own previous decree and in doing so to grant the

injunction prayed for in the sunplemental bill” (Em-

phasis supplied).

In Wilsun v. Alexander, (5th C. C. A.) 276 Fed. 875

the court said:

“There can be no doubt of the jurisdiction of the

United States Court to entertain proceedings to con-

strue and give full effect to its decree * * * The right

to plead the decree of the federa! court in defense to

Alexander’s suit in the state court is no reason why

a resort should not bc had to the equitable jurisdic-

tion of the federal court.”

Also to the effect that the fact that a plea of res

judicata has been or may be interposed in a state court

is no defense to the granting of injunctive relief by the

federal court, see:

Local Loan Company v. Hunt, 295 U. S. 234.

Oates v. Morningside College, 217 Iowa 1059, 252

N. W. 783, 786.

O’Haire v. Burns, 25 Colo. 453, 100 Pac. 755, 757.

Kessler v. Eldred, 206 U. S. 285.

In Hale v. Bimco Trading, Inc., 306 U. S. 375, this

Court said:

“Appellants are in effect contending that no pro-

ceedings are here available to bring the constitution-

ality of the Florida statute before this Court, once

the state court directed its enforcement. The Su-

preme Court of Florida itself manifested no .such

strangling conception of Section 265. It did not deem

the proceedings initiated below as a denial of the

right of way of a state court through an obstructive

exercise of authority by a . .ied States court. On

the contrary, in staying ‘all further proceedings and

actions’ until this Court had finally passed upon its

constitutionality, the Supreme Court of Florida rec-

ognized the propriety of the present proceedings as

an orderly mode for invoking the ultimate judicial

voice on constitutional issues. Therefore, Section

265 has no relevance here. That provision is an his-

torical mechanism (Act of March 2, 1793, 1 Stat. 334,

335) for achieving harmony in one phase of our com-

plicated federalism by avoiding needless friction be-

tween two systems of courts having potential juris-

diction over the same subject-matter. Wells Fargo

& Co. v. Taylor, 254 U. S. 175, 183, 41 S. Ct. 93, 96,

65 L. Ed..205. The present record presents no oc-

casion for bringing this safeguard into play.”

In Wells Fargo & Co. v. Taylor, 254 U. S. 175, this

Court in considering the applicability of Section 265 in

that case stated:

“The provision has been in force more than a

century and often has been considered by this court.

As the decisions show, it is intended to give effect to

a familiar rule of comity and Jike that rule is limited

in its field of operation. Within that field it tends

to prevent unseemly interference with the orderly

disposal of litigation in the state courts and is salu-

tary; but tocarry it beyond that field would materially

hamper the federal courts in the discharge of duties

otherwise plainly cast upon them by the Constitution

and the laws of Congress, which of course is not

contemplated. As with many other statutory provi-

sions, ihis one is designed to be in accord with, and

not antagc:rstic tg, cur dual system of courts. In rec-

ognition of this it has come to be settled by repeated

decisions and in actual practice that, where the ele-

ments of federal and equity jurisdiction are present,

the provision does not prevent the federal courts from

enjoining the institution in the state courts of pro-

ceedings to enforce local statutes which are repug-

nant to the Constitution of the United States (citing

authorities) or prevent them from maintaining and

protecting their own jurisdiction, properly acquired

and still subsisting, by enjoining attempts to frustrate,

—

defeat or impair it through proceedings in the state

courts (citing authorities), etc.’

Also see Essanay Film Mfg. Co. v. Kane, 258 U. S.

358.

Petitioner cites Oklahoma Packing Company ct al. v.

Oklahoma Gas & Electric Co. et al., 309 U.S. 4. That was

a case where a state court first obtained jurisdiction and

the facts in that case bear no similarity to the facts in the

instant case.

Petitioner cites Equitable Life Assur, Soc. v. Wert,

102 F. 2d 10. The facts in this case are readily distin-

guishable from the instant case. The decision in that case

was written by Circuit Judge Sanborn, who also heard the

present case and concurred in the opinion rendered in this

case.

Petitioner cites Guardian Trust Cumpany v. Kansas

City Southern Ry. Co., (8 C. C. A.) 171 Fed. 43. When

that part of the opinion is read preceding petitioner’s

quotation it will be noted that it has no application to the

instant case. In the opinion the court said: ‘The suit in

equity is not upon the same cause of action as any of the

actions at law.”

In St. Louis-San Francisco Railway Co. v. M’Elvain,

(8 C. C. A.) 253 Fed. 123, the court in an opinion ren-

dered by Sanborn, Circuit Judge, states:

“A suit in equity, dependent upon an original

suit or action of which the federal court had juris-

diction, may be maintained in that court (1) to aid,

enjoin, or regulate the original suit; (2) tc restraiu,

avoid, explain, or enforce the judgment or decree

therein; (3) to enforce co: adjudicate liens upon or

claims to property in the custody of the court in the

original suit; and (4) to enforce its decree or judg-

ment in the original suit, to prevent the relitigation

in other courts of the issues it has heard and adjudged

in the original suit, and to protect the titles and rights

acquired by purchasers under its decree, or judgment

from attacks by suit or otherwise, based on the theory

that its adjudications in the original suit were illegal

_and ineffective, and to accomplish these ends the

court has the jurisdiction and authority to use its

- writs of injunction and its writs of assistance.”

In Steelman vy. All-Continent Corporation, 301 U. S.

278, in an opinion delivered by Mr. Justice Cardozo this

Court said:

“We are unable to yield assent to the statement

of the court below that ‘The restraint of a party is

legally tantamount to the restraint of the court itself.’

The reality of the distinction has been illustrated in

a host of cases (Citing numerous authorities).”’

As stated by Mr. Justice Reed in U. S. v. American

Trucking Ass'n, Inc., 310 U. S. 534, 542, in speaking of lit-

eral interpretations:

“When that meaning has led to absurd or fatal

results, however, this Court has looked beyond the

words to the purpose of the Act. Frequently, how-

ever, even when the plain meaning did not propose

absurd results but merely an unreasonable one

‘plainly at variance with the policy of the legislation

as a whole,’ this Court has followed that purpose,

rather than the literal words.”

It may well be said’ that Congress has concurred in

the construction placed on Section 265 by this Court in

cases involving anciliary proceedings to effectuate the

decrees of federal courts.

Not only has there been no indication of any public

sentiment for a change in such construction, but Con-

gress has at all times had full knowledge of the construc-

tion of Section 265 by this Court and the other federal

courts and no legislation has been enacted which would

indicate that Congress did not fully concur with the ju-

dicial interpretation of that secticn.

To meet the criticisms of the practice of federal courts

of suspending or sustaining enforcement of state statutes

on the ground of unconstitutionality, by which one judge

on ex parte hearing and affidavits suspended the acts of

legislatures and commissions, the Congress (Act of June

18, 1910, Ch. 309, Sec. 17, 36 Stat. 557, and later amend-

ments) amended Section 266 of the Judicial Code (28

U. S. C., Sec. 380), to require concurrence of at least

three judges, at least one of whom must be a justice of

the Supreme Court or a Circuit Court judge before a tem-

porary injunction can be granted, and requiring that

the application must be heard by a three judge court.

Congress also by the Act of May 14, 1933, Ch. 283, Sec.

1, 48 Stat. 775, amended Section 24, Judicial Code (U. S.

C., Sec. 41), by depriving the district courts of jurisdiction

of any suit to enjoin, suspend or restrain the enforcement,

operation or execution of any crder of an administrative

- board or commission of a state or any rate making body of

any political subdivision thereof, or to enjoin, suspend or

restrain any action in compliance with any such order

where such order has been made after reasonable notice

of hearing, and where a plain, speedy and adequate remedy

may be had at law or in equity by the courts of such

state.

By the Act of August 21, 1937, Ch. 276, Sec. 1, 50 Stat.

738,"amending the same section, the Congress deprived

the district courts of jurisdiction of any suit to enjoin,

suspend or restrain the assessment, levy or coilection of

any tax imposed by or pursuant to the laws of any state

where a plain, speedy and adequate remedy may be had at

law or in equity in the courts of such state.

it will be noted that even by these amendments the

right of the federal courts to interfere where there is no

plain, speedy and adequate remedy at law or in equity in

courts of the state is recognized.

Moreover, in each case a saving clause was adopted

(Sec. 2, Act of May 14, 1934, and Sec. 2, Act of August 21,

1937; U.S. C., Sec. 41, Subd. la), permitting the continu-

ance of any suit commenced in the district courts prior to

the adoption of each amendment.

A reading of these amendments makes it clear that

the Congress has recognized the right of the federal courts

to enjoin parties from proceeding in the state courts and

their construction of the provisions of Section 265, Judi-

cial Code.

Section 266, Judicial Code, as amended, recognizes

the power of a three judge court to restrain the execution

of a statute or order, except in cases where a suit has

been brought in a state court and there has been a stay

of proceedings under the statute involved pending deci-

sion by the state court and the suit in the state court is

prosecuted with diligence and good faith.

Section 24, Judicial Code, as amended, recognizes the

right of federal courts to restrain an action in compliance

with an order of an administrative board or commission of

a state or a rate making body of any political subdivision

thereof for the collection of a tax where there is no ef-

ficient remedy at law or in equity in the courts of the

state.

This recognition by the Congress of the inherent

powers of the federal courts (and it is a recognition and

concurrence in the decisions of the court sustaining such

powers because no specific authority to enjoin is given

as in the Interpicader Act), is further demonstrated by

the saving clauses last hereinbefore referred to, permit-

ting the continuance to completion of suits brought prior

to the amendments in the cases thereafter to be excepted.

The Congress has at no time expressed any dis-

approval of the practice of the federal courts of equity of

prote:ting their own jurisdiction and decrees, and the fact

that other restrictive amendments have been adopted in-

dicates ihe concurrence of the Congress in the decisions of

this Court recognizing the exceptions to Section 265.

CONCLUSION.

We respectfully submit that the decision of the

Eighth Circuit Court of Appeals should and ought to be

affirmed.

Frep A. ONTJES,

Won. C. GREEN,

Counsel for Respondent.

Erratum: All references in this Appendix are to

first record.

APPENDIX.

John A. Thompson, His Associates And Corporate

Connections.

Court’s Finding 19.

John A. Thompson was interested in, and with his

wife, M. K. Thompson, and his associates A. B. Wilder

and Emory H. English, controlled the Phoenix Finance

System, Inc., the Phoenix Finance Corporation, and

Thompson and Company, which was the wholly owned

subsidiary of the Phoenix Finance System, Inc. M. White

was John A. Thompson’s Secretary and an officer of the

Phoenix Finance System, Inc. and of Thompson and Co.

(R. 674, 545, 684, 589; Master’s Finding 4, R. 129; Court’s

Finding 19, R. 188).

John A. Thompson’s Control Of The Bridge Company.

Court’s Finding 20.

In October and November, 1930, through negotiations

with John W. Shaffer and Vernon W. O'Connor, John

A. Thornpson became president of and acquired control

of the Bridge Company. At about the same time the num-

ber of directors of the Bridge Company was increased and

Thompson, together with other directors in the Phoenix

Finance System, Inc., became directors of the Bridge Com-

pany. From that time on Thompson controlled the Bridge

Company. At a directors’ meeting November Ist, 1930,

O’Cunnor resigned as president, Thompson was elected

president and O'Connor became chairman of the Board

(R. 538, 861-862; Master’s Report, R. 123; Master’s Find-

ing 4, R. 129; Court’s Finding 20, R. 188)

On Nevember 11th, 1930, an annual meeting of stock-

holders was held at which J. A. Thompson, President,

presided and his wife, M. K. Thompson, acted as Secre-

‘tary. 1509 shares of stock were represented in person,

1500 of which shares were those held by the Standard

Shares Holding Company, represented by John W. Shaf-

fer, President, and 9 shares by two other stockholders.

Proxies were represented by V. W. O’Connor for 664

shares, the total number of shares represented being

2173. The meeting was controlled by John A. Thompson

and his associates, John W. Shaffer and Vernon W. O’Con-

nor (R. 865-871).

The stock ledger shows that on November 26th, 1930,

1400 shares of Class A stock and 1800 shares of Class B

stock were issued to John W. Shaffer and Company, and

on the same day the same number of shares of stock were

transferred by Shaffer and Company to Thompson and

Company, and Thompscn and Company on that date also

held an additional four shares of Class B stock. (R. 596,

1335). John A. Thompson in November, 1930, had per-

sonally 40 shares of Class A stock and 25 shares of Class

B stock. (R. 1305)

A. B. Wilder, another director of the Phoenix Finance

System, Inc., held 5 shares of Ciass A and 5 shares of

Class B Bridge Company stock in November, 1930 (R.

1311). The Class B voting stock of the Bridge Company

then acquired and he!d by Thompson and Company, John

A. Thompson, and A. B. Wilder, was 1834 shares, more

than one-half of the total 375U shares of Class B voting

stock authorized or outstanding.

On March 10th, 1931, an annual meeting of stock-

holders was held, at which were represented Thompson

and Company by John A. Thompson 1310 shares, and

the total number of shares represented personally and by

proxy being 252€ shares, said John A. Thompson rep-

reseuted more than a majority of the stock represenied

in person and by proxy and controlled the meeting (R.

886-890).

At the stockholders’ meeting of December 22nd, 1931,

when the bonds were purportedly voted, the total stock

voted by John A. Thompson by proxy and in person was

642 shares and by Mr. Thorscn by proxy 101i shares and

in person eighteen shares, by Mrs. John A. Thompson

twenty shares, and by M. White, John A. Thompson's

Secretary, eighteen shares. The total vote for the resolu-

tion at the meeting as shown by the record was 2273

shares, with 365 shares voting against :t. Of the votes

cast for the resolution, Thompson, Thorson, Mrs. John

A. Thompson (M. K. Thompson) and M. White voted

1709 shares, as shown by the record more than one-half

of the stock represented in person and by proxy (R. 591,

955-958) Thorson was a Thompson director in the Bridge

Company. Eighteen shares of Class B stock of the Bridge

Company had been transferred to him from Thompson

and Company by John A. Thompson. He paid nothing

for them, and later transferred them to the Phoenix Fi-

nance Corporation. On the same day there was one share

of stock transferred to him by John A. Thompson for

which he paid nothing (R. 595, 609). He was employed

by Thompson in the work of the Bridge Company, (R.

641), and elected a director at Thompson’s suggestion

(R. 642). He always acted with Thompson and never

took issue with him (R. 642, 667). The proxies voted by

Thorson at the December 22nd, 1931, meeting read to

Oscar R. Thorson, John H. Thompson, Emory H. English

(R. 947-949). Emory H. English was another director

cf the Phoenix Finance System, Inc., and also a director

of the Bridge Company (R. 546). One share of Class B

Bridge Company stock was transferred to Emory H. Eng-

lish from Thompson and Company. There was no further

Bridge Company stock issued or transferred to him (R.

594). He never took issue with John A. Thompson (R.

668). The proxies running to the three persons named

were voted by Oscar R. Thorson (R. 955-958, 591).

John A. Thompson, at the stockholders’ meeting of

December 22nd, 1931, when the bonds were voted, domi-

nated and controlled the meeting. He stated:

“It don’t make any difference how many of you

stockholders vote here. I've got the votes to carry it.”

(R. 664)

He stated that he had enough votes to control the

meeting on the bond issue, that the bond issue would

go through, and that the stockholders present would be

allowed to vote by courtesy only. There were stockholders

who attempted to talk and he told them to “sit down”,

and gave them no opportunity to express themselves.

He called some of the stockholders ‘‘peanut stockholders”’

(R. 672, 673, bottom p. 686, top p. 687). That he fully

appreciated the power of his dominant controi in the

Bridge Company, is shown bv the fact that Exhibit 19

G.A.B., the consolidated balance sheet of Phoenix Finance

System, Inc., and subsidiary corporations, as of December

31st, 1931 (R. 1419), in which the Iowa-Wisconsin Bridge

Company is listed as a subsidiary of Phoenix Finance

System, Inc. (R. 675, 1419) was prepared under his in-

structions.

At the annual stockholders’ meeting held on March

8th, 1932, out of 2917 votes cast at the election John A.

Thompscn, Oscar R. Thorson, and H. T. Wagner held 1301

proxies, with others they held 21, and Wagner held 195.

John 44. Thompson cast 264 votes in person. Thus Thomp-

son and his associates cast 1781 votes out of a total of

2917 and controlied the election of the board, at which

a majority of Thompson controlled directors, to-wit: John

A. Thompson, H. T. Wagner, Oscar 2. Thorson, Emory

H. English, M. K. Thompson, and A. B. Wilder, were

elected (R. 986-999). At the directors’ meeting imme-

diately following, the officers elected were John A.

Thompson, President; Emory H. English, Vice President;

Oscar R. Thorson, Secretary and Treasurer; M. K. Thomp-

son, Assistant Secretary and Treasurer (R. 1001, 1002).

A Board of Directors of the Bridge Company was se-

lected by John A. Thompson at a stockholders’ meeting

held on July 8, 1933. There were present in person 964

shares. Oscar R. Thorson held proxies for 435 shares and

John A. Thompson proxies for 848 shares which were

recognized. That proxies of 125 other shares were held

: by Oscar R. Thorson which were not voted. There were

1415 other proxies which through Thompson’s control of

, the meeting were not recognized nor permitted to vote

on the a. eged ground that a by-law provided that proxies

shculd be filed with the secretary more than five days

prior to the meeting, although the by-law provided that

notwithstanding such provision, the stockholders present

or represented at the meeting could by vote waive the

provisions and have all stock voted whether their proxies

were filed before the meeting or not.

A motion was made at the meeting by an independent

stockholder, that all proxies held at the meeting h< voted.

The independent stockholders, present cast $55 votes for

the motion but it was voted down by the votes of the

Phoenix Finance System, inc., and by the proxies held

by Mr. Thorson. There were 1388 shares cast against it

and of these, 1155 were the proxies held by Oscar R.

Thorson and by John A. Thompson of the Phoenix Fi-

nance Corporation. On the final vote for directors, there

were 1878 votes cast and 1440 of these votes were cast for

a Thompson controlled Board of Directors. Of these

1440 votes Phoenix Finance Corporation and Oscar R.

Thorson controlled at least 1155. There were 412 votes of

those present cast for independent nominees for directors

and if the 1415 proxies held by independent stockhold-

ers had been recognized, there then would have been suf-

ficient votes to elect an independent Board of Directors

(R. 1033).

Of the directors of the Iowa-Wisconsin Bridge Com-

pany who served as such from the time Thompson be-

came president of the Bridge Company until after the last

of the bonds in question were issued, the majority were

Thompson controlled and dummy directors.

The relationships of Emory H. English and Oscar R.

Thorson to Thompson have already been set forth.

M. White was John A. Thompson’s secretary. She

owned no stock of the Bridge Company except qualifying

shares transferred to her by John A. Thompson from

Thompson and Company’s holdings, for which she paid

nothing (R. 593-594). She was assistant secretary and

treasurer and a director of the Phoenix Finance System,

Inc., and a director and officer of Thompson and Com-

peny. She never took issue with John A. Thompson (R.

588, 589, 668).

A. B. Wilder owned $100,000.00 of stock in Phoenix

Finance System, Inc. (R. 626), was a director of that cor-

poration, and also of the Phoenix Finance Corporation (R.

546, 550) and a director of the Bridge Company (R. 626).

He never took issue with John A. Thonipson (R. 668).

M. K. Thompson was the wife of John A. Thompson

(R. 638).

N. W. Elsberg never held any stock in the Bridge

Company and took no active part in the affairs of the

Bridge Company (R. 594, 643).

A. N. Nystrom never held any stock in the Bridge

Company (R. 594). He was a stock salesman for Thomp-

son and Company (R. 590).

C. H. Young never held any stock of the Bridge Com-

pany (R. 594). He attended only a few meetings and

_never examined the books of the company nor ‘vent into

any of the details connected with the Company (R. 643).

J. W. Dempsey was one of the criginal promoters of

the bridge project (R. 665). He never took any issue

with Thompson at any meetings except on election of di-

- rector as hereinafter stated, and particularly did not take

issue with him on the bond issue at the December 22nd,

1931, meeting (R. 668).

. Wagner was a stockholder, but a part of his

bscription in the amount of $2,000.00 was can-

about the time the bond issue was voted (R. 595-

596; Journal R. 1515). Such cancellation of subscription

was charged under a heading ‘“Expense-Cost of Bridge”

(R. 1551). The minutes show no authority, by the direc-

tors for such cancellation. The minute records show that

he never voted against Thompson on any issue (R. 865-

1010). He did not take any issue with Thompson at di-

rectors’ meetings, nor on the bond issue (R. 668).

Vernon W. O'Connor, by his own statement, had ab-

solute confidence in Thompson and followed his direc-

tions (R. 640-641).

J. H. Thompson held only three shares of stock in

the Bridge Company (R. 595). He operated the Peoples

Bank at Lansing, with which the Bridge Company car-

ried an account (R. 667). He was a joint proxy holder

with Emory H. English and Oscar R. Thorson at the stock-

holders’ meeting on December 22nd, 1931, at which the

bond issue was voted, and permitted Oscar R. Thorson to

vote the proxies for the bonds (R. 947-950, 965).

Thompson’s control of the Board as it existed when

the bond issue was voted, is also illustrated by the min-

utes of the Board of Director’s meeting held on December

22nd. 1931, immediately following the voting on the bond

issue. C. H. Young, having resigned, H. A. Schremser,

an independent stockholder and one of the witnesses for

interveners in this action, and Mrs. M. K. Thompson, the

wife of John A. Thompson, were nominated to fill the va-

cancy. On the vote, Messrs. Bakewell, Foote, Dempsey

and John H. Thompson voted for Mr. Schremser and

Messrs. English, Thorson, Wagner, Wilder, J. A. Thomp-

son, and Miss White voted in favor of the election of Mrs.

Thompson (R. 965, 966).

When John A. Thompson became president of the

Bridge Company in 1939 he acquired actual knowledge

of all the dealing, contracts, assignments, and transactions

that had previously occurred as above set forth and the

relationship of the parties thereto to the Bridge Company

(R. 679, 680, 581, 638; Court’s Finding 20, R. 188).

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.