Petition for Writ of Certiorari — Rubin v. Chicago, South Shore & South Bend Railroad

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FEB 23 1955

HAROLD B. WILLEY, Clerk

IN THE

Supreme Court of the United States

Octroser TERM, 1954.

No. 615

WILLIAM HENNING RUBIN, MORTON H. BERN-

STEIN, JOHN E. KELLY, SR., anv LILLIAN M.

KELLY, His Wre; JOHN E. KELLY, JR., anv

CHARLES TURNER,

Petitioners,

vs.

CHICAGO SOUTH SHORE & SOUTH BEND RAIL-

ROAD, an Inpiana Corporation; JAY SAMUEL

HARTT, Presment; EDWARD H. BROSS, Secretary;

W. A. KISSEL anp WILLIAM A. QUAIL, pore sust-

NEss as THE KISSEL ORGANIZATION, a PARTNERSHIP .

or New York City, New York,

Respondents.

PETITION FOR WRIT OF CERTIORARI.

WruumM Hennine Rvusin,

33 South Clark Street,

Chicago 3, Illinois,

Attorney for Petitioners.

INDEX.

PAGE

Summary of the Matter Involved.................... 2

Ere Bra ee ree ee 2

Pe NE ea ee A a ah 3

NN I 269 o's Sb cee tho No a 4-5 ca one Ske 4

NON SieNieiew sce hehe cuss oekaki Gan ¢ Chad ns tabecee +

Reasons for Granting the Writ...................... 10

I 2ae aw aaa subindWhba vive o0 Ae ds kuna sansa 33

Appendix A—Application to Issue Securities Under

Sec. 20a of Interstate Commerce Act............... 35

Appendix B—Opinion Below....................... 44

TABLE oF CasEs.

Anderson v. Abbott, 23 Fed. Supp. 265.............. 29

Baker v. Farnsworth, 221 N. W. 71.................. 30

Brown v. Dupuy, 4 Fed. 2d 467..................0005 31

Candler v. Rose, 80 Fed. 2d 407.................000. 24

Chicago, South Shore & South Bend R. R. Co. v. Flem-

ing, 109 Fed. 2 419...... 2, 3, 9, 10, 14, 18, 19, 22, 23, 24, 26

Claude Neon Lights v. E. Machlett & Son, 31 Fed. 2d

EN PEEL PEL COE EE OT DPR SH MI EO i 24

Committee of Long Island Lighting Co. v. Securities

and Exchange Commission, 183 Fed. 2d 45......... 23

Comstedt v. Gilmore, 96 Fed. 2d 766................ 29

Florida v. United States, 292 U. S. 1, 54S. Ct. 603..... 26

Francis Mohawk Mining & Leasing Co. v. McKay, 141

Great Western Telegraph Co. v. Burnham, 162 Ill. 339 24

Gordon v. Bowles, 153 Fed. 2d 614........--+++++-++: 32

Guaranty Trust Co. of New York v. Williamsport Wire

Rope Co., 20 Fed. Supp. 634........----+- +++ +e: 29

Harvey v. Harvey, 231 N. W. 580......-.-+-+++++ 005: 30

Holly Hill Citrus Growers Association v. Holly Hill

Fruit Products, 75 Fed. 2d 13.......-----+-e+eee+> 29

Hovel v. Minneapolis & St. Louis Railroad Co., 206

2 & 3eiieiean rrr rest rer tk 30

In Re Chicago North Shore & Milwaukee R. R. Co., 131

caro céaeevascavenqacescncendn 16, 25

In Re Williams, 50 Pac. 729. .......--++- eee eee eeeee 30

Insurance Group Committee v. Denver, R. G. W. R. Co.,

67 Sup. Ct 583.......... cece cece eee e eee eer eees 23

Interstate Commerce Commission Proceedings:

I. C. C. Electric Docket No. 7, 234 I. C. C. 34 ..8, 18, 27

I. C. C. Finance Docket No. 14551 .......9, 18, 27, 29

L. GC. C. Railway Labor Act Docket No. 8, 214 1.

US at eee eee 8, 18, 26, 29

ee 2 Se ee er. 8, 29

8 ee Se rr eee re ee oe. 8

i cacaccoscaaes coussonenss 8

Interstate Commerce Commission v. Delaware, L. &

W. R. RB. Co., 220 U. S. 235 ... 6. ee eee eee ee eee 26

Interstate Commerce Commission v. Louisville & Nash-

ville R. R. Co., 227 U. S. 88, 33 S. Ct. 185 ........-- 26

Jorgenson v. Swope, 114 Fed. 2d 988 ......------+-+: 24

King v. State of West Virginia, 216 8S Peer 24

Messenger v. Anderson, 225 U. S. 436 .......-.--++: 24

Papani v. United States, 84 Fed. 2d 160 ......-----. 24

Sawyer v. Dollar, 190 Fed. 2d 623 ........-..-..++5. 24

Shields v. Utah-Idaho C. P. Railway Co., 305 U. S.

pi ee RR seeps OP rE PME ry eer ig f 23, 25

Sinclair v. Hyatt, 86 Fed. Supp. 828 ..........------ 23

Skinner & Eddy Corporation v. United States, 249

me | ee | Serr ere rr ee eer reer ee 26

Sprague v. Woll, 122 Fed. 24 128 .......-....--++-s 10, 26

Tabor v. Hoffman, 118 N. Y. 30, 23 N. BH. 12 ........ 31

Texas Electric Railroad Co. v. Eastus, 25 Fed. Supp.

825, affirmed without opinion, 308 U.S. 512 ...... 14, 25

Todd Seattle Dry Docks v. O’Leary, 87 Fed. Supp. 907 23

Toolson v. New York Yankees, 101 Fed. Supp. 93,

affirmed in 200 Fed. 2d 198 ..........-.eeeeeeeees 26

United States v. Chicago North Shore & Milwaukee

ee ee ie eeecreverer str sere 10, 13, 17, 21

United States v. Inter Island Steam Navigation Com-

pany, 87 Fed. Supp. 1010 .............- eee ee eee 23

United Office and Professional Workers of America v.

Monumental Life Insurance Co., 88 Fed. Supp. 602 23

Western Paper Makers’ Chemical Co. v. United States,

Ee nas eras ei boar iKeuas 9 26

Wichita Royalty Co. v. City National Bank of Wichita

ee Se re er errr 24

' Statutes.

Section 77B(m) of Bankruptcy Act, 11 U. S. C. A,

ES Sa) cc vigs sh vee news 8, 13, 17, 18, 21, 28, 33

Section 1254 of Judiciary Act of 1948 (28 U.S. C. A.,

Section 1(a), Carriers Taxing Act............... 8, 27, 33

Section 1(a), Railroad Retirement Act of 1937... .8, 27, 33

Railway Labor Act, 45 U. 8. C. A., see. 151...... 9, 23, 33

Section 20a of Interstate Commerce Act, 49 U.S. C. A.,

re ate a SE aia ag de a ween eae 8 10, 21, 28

ae i i Rs inne Boek Oe Rae} sn aN 17

Act for the incorporation of street railroad companies ;

Act of June 4, 1861 (Indiana Statutes).......... 6, 11

Indiana ‘‘General Corporation Act’’, approved March

16, 1929, Ch. 215 of Acts of Indiana General Assem-

ER ey Pee ad gree eee 6, 11, 12, 13

Section 54-501, 502, 503, 504, 505, 506 of Ch. 5 of Indi-

ana Public Service Commission Act (Burns 54-501,

i A, Wy Sa hes ies Sa dae cine eeely 19

Section 5, Ch. 1 of Indiana Public Service Commission

PE SE PDD enh inriccdi lagacstdewnadeiaews 21

Text Authorities.

9 GC. dB abe: SF Pee Bhi. Sise ee es 11

me Gye. Os Be, POS Ee i a a i eS 25

IN THE

Supreme Court of the United States

Ocroser Term, 1954.

Rea %

WILLIAM HENNING RUBIN, MORTON H. BERN-

STEIN, JOHN E. KELLY, SR., ann LILLIAN M.

KELLY, His Wire; JOHN E. KELLY, JR., anv

CHARLES TURNER,

Petitioners,

vs.

CHICAGO SOUTH SHORE & SOUTH BEND RAIL-

ROAD, an Inpirana Corporation; JAY SAMUEL

HARTT, Presment; EDWARD H. BROSS, Secrerary;

W. A. KISSEL anp WILLIAM A. QUAIL, pore susi-

NESs aS THE KISSEL ORGANIZATION, a ParTNERSHIP

oF New York Crry, New York,

Respondents.

PETITION FOR WRIT OF CERTIORARI.

To the Honorable Chief Justice and Associate Justices of

the United States:

Petitioner, William Henning Rubin, et al., petition this

Court for the issuance of.a Writ of Certiorari to the United

States Court of Appeals for the 7th Circuit to review its

judgment of November 24, 1954, affirming the judgment

of the District Court of the United States for the North-

ern District of Illinois, Eastern Division, to the end that

its judgment be reversed with directions to reverse the

judgment of the court below.

SUMMARY OF THE MATTER INVOLVED.

Petitioners, shareholders of in excess of 5 per cent of

the issued and outstanding common stock of respondent

railroad, an Indiana corporation, filed a Complaint for a

temporary injunction restraining the corporation from

proceeding with its annual meeting to be held on March

25, 1954, until the further Order of the Court, that the

court decree that a by-law of the corporation requiring a

majority of the directors to be residents of the State of

Indiana is illegal and void, that a permanent mandatory

injunction issue causing the directors to remove said by-law

from the minute books, that the officers and directors of the

corporation be permanently restrained from using certain

proxies secured for said meeting until said by-law has been

rescinded by the Board of Directors, and from paying for

the solicitation of said proxies, that the Court appoint a

Master in Chancery to conduct the meeting, and for general

relief.

On March 23, 1954, on motion of petitioners, the Court

authorized the contemplated meeting to be called and or-

ganized and directed that it be continued to March 29, 1954.

Thereafter, respondents filed a Motion to Dismiss the Com-

plaint, which Motion was sustained, and the Court of Ap-

peals affirmed the decision. This petitioner seeks to re-

view the decision.

QUESTIONS PRESENTED.

1. Whether the decision of the Court of Appeals in the

case of Chicago South Shore and South Bend Railroad v.

Fleming, 199 Fed. 2d 419, which found that respondent

was a railroad engaged in interstate commerce, and not a

street car or interurban line, which is a determination of a

question of fact, can be relitigated or whether respondents

are bound by such former determination.

r 3

2. Whether the findings of the Interstate Commerce

Commission that respondent railroad is engaged in inter-

state commerce and is not an interurban line or street car

line, is binding upon respondents.

3. Whether directors of a corporation can restrict the

voting rights of its shareholders by a by-law where such

restriction is not founded upon a statute.

4. Whether respondent, by applying to the Interstate

Commerce Commission for consent and approval of all its

acts and doings which it normally would be exempt from

doing if it were an interurban or street railway, has

brought itself within the definition of a full-fledged rail-

road and is estopped to deny a similar classification with

reference to other corporate matters.

5. Whether proxies obtained through the use of confi-

dential and privileged information by an agent formerly

employed by petitioners should be prohibited.

6. Whether the decision in Chicago South Shore and

South Bend Railroad v. Fleming, 109 Fed. (2d) 419, and

the judgment entered pursuant to the mandate was bind-

ing upon the Trial Court and the Court of Appeals, so

that petitioner was entitled to have the by-law of respond-

ent corporation declared null and void or in the alternative

a trial on the merits of the case with the right to introduce

evidence.

JURISDICTION INVOKED.

The jurisdiction of this court is invoked under Sec. 1254

of the Judiciary Act of 1948 (28 U. S. C. A. Sec. 1254).

The judgment was entered November 24, 1954, and the

time to file the Petition was extended here to February 23,

1955, pursuant to Sec. 2101 (c) (28 U. S. C. A. See. 2101).

OPINION BELOW.

The opinion in the instant appeal appears as Appendix

B of this Petition and is published in 217 Fed. (2d) 177.

STATEMENT.

Appellants are shareholders of record of 16,677 shares

of common stock of appellee railroad, which is in excess

of five per cent of all the issued and outstanding common

stock of said railroad. A Complaint for mandatory in-

junction was filed on the 22nd day of March, 1954, to re-

strain appellee railroad from proceeding with its annual

meeting; that the court determine and decree that the by-

law of appellee corporation requiring a majority of the

directors to be residents of the State of Indiana illegal and

void; that the officers and directors of appellee corpora-

tion be restrained from using proxies secured for the

annual meeting’; and that the Court appoint a master in

chancery to conduct the annual meeting of shareholders

scheduled to be held on March 25, 1954, and other relief.

On the 22nd day of March, 1954, appellants filed a com-

plaint (Tr., p. 4) against the appellee Chicago South

Shore & South Bend Railroad, an Indiana corporation;

Jay Samuel Hartt, President; Edward H. Bross, Secre-

tary; W. A. Kissel and William A. Quail, doing business

as the Kissel Organization, a partnership of New York

City, New York, to restrain the holding of the annual meet-

ing scheduled to be held on March 25, 1954. The purpose

of the postponement of the meeting was to enable the

appellants to contact the shareholders of railroad and to

secure their proxies for the election of directors and the

establishment of cumulative voting. Appellants contended

that they were restricted in their solicitation of proxies

and their ability to elect a board of directors, as appellee

railroad had enacted a by-law on its books making it man-

datory that a majority of the appellee’s board of directors

be residents of the State of Indiana (Tr. pp. 12-13) ;

The appellants and the management of appellee rail-

road became involved in a great deal of correspondence

with the Securities and Exchange Commission over the

question of including certain statements regarding the ille-

gal by-law; the appellants did not secure final approval

of their proxy letter from the Securities and Exchange

Commission until the 22nd day of March, 1954, and the

annual meeting of shareholders was scheduled to be held

on the 25th day of March, 1954. (Tr. p. 18.)

Appellant Rubin, on February 19, 1954, filed with the

Securities and Exchange Commission a copy of the proxy

statement which he intended to use in connection with the

solicitation of proxies for the annual meeting scheduled

to be held on the 25th day of March, 1954, but approval

was not obtained till March 22nd, 1954, just 3 days before

the meeting. (Tr. p. 13.)

Appellant’s proxy letter solicited proxies for only three

directors since appellant intended to nominate certain in-

cumbent members of the board of directors. Appellant was

then advised by the Securities and Exchange Commission

that under Rule X-14 A-4d, no proxy could confer author-

ity to vote for election of any person to office for which a

bona fide nominee was not named in the proxy statement.

(Tr. p. 12)

Appellant Rubin then.contacted six incumbent directors,

who advised appellant Rubin that they would not act as

nominees since they were nominees of management. Ap-

pellants contended that incumbent directors’ refusal to act

if nominated by appellants, was a conspiracy to prevent

appellants from securing five Indiana residents to act as

directors in order to comply with the illegal by-law. (Tr.

p. 14.)

Appellees had hired a proxy soliciting firm, W. A. Kissel

and William A. Quail, doing business as the Kissel Organi-

zation, a partnership of New York City, New York, to

solicit proxies on their behalf.

Appellants contended that the Kissel Organization hav-

ing been employed by appellant Rubin to solicit proxies for

the annual meeting of March 26, 1953, obtained certain

information in trust and in confidence from appellant

Rubin and said proxy firm was now using said information

in favor of management and against appellant Rubin. (Tr.

p. 16.)

Appellee railroad operates an electric railroad between

Chicago, Illinois and South Bend, Indiana, approximately

90 miles in length. Appellee parallels and competes with

lines of the New York Central System. Approximately

6.39 miles of its line between the Indiana-Illinois State

Line and Kensington, Illinois, is leased from the Kensing-

ton and Eastern Railroad Company, a subsidiary of the

Illinois Central Railroad Company, and appellee has track-

age rights over the Illinois Central’s electrified suburban

line between Kensington and Randolph Street in Chicago,

14.2 miles.

Although the appellee originally incorporated in 1925

under the Act of June 4, 1861, entitled ‘‘An Act for the

incorporation of street railroad companies,’’ the appel-

lee, by virtue of the Articles of Reorganization which it

filed on the 18th day of September, 1929, dropped its

status as a ‘‘street railway company’’ and became a com-

mon carrier, upon filing said Articles of Reorganization

which specifically provided on page 1, paragraph 5 of said

Articles of Incorporation, ‘‘This Corporation hereby ac-

cepts all of the terms and conditions of the Indiana ‘Gen-

eral Corporation Act’, approved March 16, 1929, Chapter

215, of the Acts of the Indiana General Assembly, 1929.”’

Appellee is a common carrier engaged in the transporta-

tion of freight and passengers in Interstate Commerce be-

tween the cities of South Bend, Indiana and Chicago, Illi-

nois, and operates a bus line through a subsidiary from

Michigan City, Indiana to Benton Harbor, Michigan.

In excess of 50 per cent of the revenue of the railroad

is derived from freight moving in Interstate Commerce,

90 per cent of which originates off the line of the appellee

company and is delivered to the appellee by other rail-

roads.

The commodity handled in largest volume is coal, which

is received from lines on the east and delivered to other

lines on the west.

The appellee railroad is a party to a large number of

tariffs publishing joint rates to and from points through-

out the country and has arrangements with all other rail-

roads for the division of inter-line freight revenues.

The appellee railroad maintains traffic solicitation offices

in the City of Chicago, Illinois; Milwaukee, Wisconsin;

Washington, D. C.; South Bend, Indiana; New York, New

York; Philadelphia and Pittsburgh, Pennsylvania; Minne-

apolis, Minnesota; Cedar Rapids, Iowa; Kansas City, Mis-

souri; Seattle, Washington; Portland, Oregon and San

Francisco, California.

Employees of appellee railroad who operate over the

Illinois Central tracks are required to take the same ex-

amination that the latter carrier gives to its own employees.

The tracks of appellee railroad are of standard gauge,

generally with 100-pound rails, and the line used to Chicago

in spots is elevated as are the other railroads in the same

vicinity.

Steara locomotives could operate over this line and were

used over it for construction purposes when the overhead

system was rebuilt in 1925 and 1926.

CPT Poe PEE ERLE RN RRM SE: thy MERIT G8 PEM ULES SEC. the PERE fake tendon

On September 30, 1933, appellee railroad filed a petition

in bankruptcy under Section 77B(m) of the Bankruptcy

Act, 11 U.S. C. A., section 205, sub. m. of the United States

of America, in the United States District Court for the

reorganization of appellee railroad, claiming it was a com-

mon carrier engaged in the transportation of persons and

property in Interstate Commerce, and that more than

50% of its operating revenues were from the transporta-

tion of freight in standard steam railroad freight equip-

ment.

That pursuant to the plan of reorganization in the 77B

bankruptcy case, $1,341,000.00 of bonds and $212,800.00 of

five-year notes and two classes of preferred and common

stock were issued.

The plan of reorganization for the issuance of new se-

curities by appellee railroad under the 77B reorganization

in the United States District Court could not be consum-

mated until authority was granted by Division 4 of the

Interstate Commerce Commission in Chicago South Shore

and South Bend reorganization. 212 I. C. C. 547, 217

I. C. C. 423, 221 I. C. C. 605.

The Interstate Commerce Commission, in a number of

cases, determined that the appellee railroad was a com-

mon carrier and not exempt from the Railway Labor Act

as amended June 21, 1934, as an interurban railway, Rail-

way Labor Act docket No. 8, 214 I. C. C. 167. (Tr. p. 7.)

The appellee railroad sought a determination from the

Interstate Commerce Commission as to whether it was ex-

empt from Sec 1(a) of the Carriers Taxing Act, Sec. 1(a)

of the Railroad Retirement Act of 1937. (Tr. p. 8.)

The Interstate Commerce Commission, in Electric docket

No. 7, 234 I. C. C. 34, found that the appellee railroad was

part of the general steam railroad system of transportation

and not a street, suburban or interurban electric railway.

(Tr. pp. 8-9.)

In 1934, appellee railroad instituted a suit in the United

States District Court for the Northern District of Indiana

against James R. Fleming, the district attorney for the

United States for the Northern District of Indiana, from

instituting a proceeding against appellee railroad for vio-

lation of the Railway Labor Act, 45 U. S. C. A. See. 151,

wherein the Interstate Commerce Commission intervened.

(Tr. p. 10.)

The United States District Court for the Northern Dis-

trict of Indiana, found that appellee railroad was not

within the scope of the Railway Labor Act.

An appeal was taken, and the United States Court of

Appeals for the Seventh Circuit in 109 F. 2d 419, reversed

the district court and found that the Interstate Commerce

Commission was correct in its interpretation of the Rail-

way Labor Act and that the appellee railroad was uot an

interurban or street railway but a common carrier engaged

in interstate commerce. (Tr. p. 10.)

The appellee railroad has pursued its policy as a com-

mon carrier and has been operating subject to the rules

and regulations of the Interstate Commerce Commission as

evidenced by its filing on May 29, 1944, Finance Docket

14551, of an application for authority to issue securities

under Sec. 20(a) of the Interstate Commerce Act, whereas

said Act exempts interurban railroads. (Tr. p. 11.)

The majority of the meetings of the board of directors to

amend the Articles of Incorporation of appellee railroad

from 1930 to 1944 were held in the City of Chicago and

State of Illinois instead of in the State of Indiana. On

the 23rd day of March, 1954, plaintiff filed a motion for

temporary injunction to restrain the meeting scheduled

to be held on the 25th day of March, 1954, until the further

order of the court. (Tr. pp. 22-23.)

On the 23rd day of March, 1954, an order was entered

by the Honorable Michael L. Igoe, Judge of the United

States District Court, that the annual meeting scheduled

for Thursday, March 25, 1954, be called, organized and

continued until March 29, 1954, to enable appellants to

solicit proxies. (Tr. p. 24.)

That on the 12th day of April, 1954, defendant railroad

filed a motion to dismiss the complaint. (Tr. p. 25.)

That on the 4th day of June, 1954, a hearing was had on

the motion of appellee to dismiss and an order was entered

dismissing the cause with prejudice.

REASONS FOR GRANTING THE WRIT.

This Writ of Certiorari is sought because the issues

presented herein raise important questions of Federal law.

At the present time there is a conflict in the decisions of

the United States Court of Appeals and the Supreme Court

of the United States. In Chicago South Shore & South

Bend Railway v. Fleming, 109 Fed. (2d) 419 the Court held

that the carrier is a railroad and obligated to comply with

the terms of the Railway Retirement Act. In United States

v. Chicago North Shore & Milwaukee Railroad, 228 U. S.

1, 53 S. Ct. 235, the Court held that the North Shore Rail-

road was not a common carrier within the meaning of See-

tion 20-a of the Interstate Commerce Act, 49 U. S. C. A,

Sec. 20-a and that the carrier was exempt as an interurban

line. In Sprague v. Woll, 122 Fed. (2d) 128, the Court of

appeals held that the Chicago North Shore & Milwaukee

Railroad Company was obligated to comply with the pro-

visions of the Railway Labor Act, 45 U. S. C. A., See. 151

and found the carrier to be a railroad. Both the Chicago

South Shore & South Bend and the North Shore Railway

were incorporated as interurban lines.

Appellee railroad contends that, even though it has as-

sumed the status of a carrier engaged in interstate com-

merce for all intents and purposes and complies with all of

the Statutes of the United States and that of the Inter-

state Commerce Commission relating to carriers engaged

in interstate commerce, it has the right to conduct the cor-

porate operations of the railroad as an interurban line by

virtue of its original Articles of Incorporation.

The effect on appellants is that appellee railroad, al-

though incorporated in 1925, did not adopt a by-law until

1930, which curtails the voting rights of appellants and

other shareholders of the corporation by adding qualifica-

tions of Indiana residence to candidates for the office of

director, and that said by-law is not based on a statute.

There is no provision in the General Corporation Act

of the State of Indiana that a majority of directors of any

Indiana corporation are required to be residents of the

State of Indiana. Nor is there any requirement in the

Corporation Act of the State of Indiana that the majority

of directors of any railroad be residents of the State of

Indiana. (See 19 C. J. S., Sec. 937, Page 371 on inability

of directors to restrict stockholders’ rights.)

Appellee relies mainly on the original Articles of In-

corporation filed by appellee railroad which described its

activities as a street and interurban railway.

The Act of June 4, 1861 entitled ‘‘An Act for the Incor-

poration of Street Railroad Companies Act’’, which is the

Act under which the original charter was issued to the ap-

pellee railroad, was repealed by the General Corporation

Act approved March 16, 1929, Chapter 215, of the Acts of

the Indiana General Assembly, 1929. The General Cor-

poration Act of the State of Indiana further provides,

Section 25-245 (4856-11) :

Acceprance or Act—Any corporation heretofore

organized under the laws of this state for any purpose

‘Sa ———. a =

REINS CRS Ka Roe PEER NI IER E MIME AL TREN DD WINE A OER ER TE IE OG RCSA OTT

or purposes for which a corporation might be organized

under this act, and existing on March 16, 1929, may

accept the provisions of this act, and thereafter avail

itself of the rights, privileges, immunities and fran-

chises provided by this act, by complying with the pro-

visions of this article, without limitation of the fore-

going, such right to accept the provisions of this act

shall extend to any corporation formed under this or

any other general law of this state, for any purpose or

purposes for which a corporation might be organized

under this act, which corporation existed on or after

March 16, 1929, and ‘whose articles of incorporation fix a

time of corporate existence which has terminated or

shall hereafter terminate, provided such corporation

shall file its articles of acceptance within two (2) years

after such termination. Such acceptance of this act may

be effected by the officers, directors and stockholders of

such corporation or by the persons acting as such.

Upon such acceptance and compliance with the re-

quirements of this act such corporation shall be deemed

to have existed since such termination and its acts

during such time shall have the same validity as if per-

formed prior to such termination. This section shall

not apply to any corporation whose corporate fran-

chise shall have been forfeited, pursuant to the provi-

sions of section 51 (b) (§ 25-250) of the Indiana Gen-

eral Corporation Act approved March 16, 1929, or

pursuant to the provisions of an act concerning cor-

porations, approved February 26, 1907, or of any other

act of this state. (Acts 1929, ch. 215, § 46, p. 723;

1941, ch. 226, § 3, p. 729; 1943, ch. 94, § 1, p. 294; 1947,

ch. 57, § 6, p. 160.)

The 1929 Act makes no reference to any interurban lines.

It is the contention of appellants that the Act of June 4,

1861, entitled ‘‘An Act for the Incorporation of Street

Railroad Companies’’ having been repealed and appellee

railroad having filed Articles of Reorganization pursuant

to the General Corporation Act of March 16, 1929, Chap-

ter 215, the railroad is no longer a street railway or inter-

urban line merely because it received its original charter

pursuant to said Act.

Appellants are entitled to their day in court to prove

that the acceptance of the General Corporation Act of the

State of Indiana, Section 25-245 (4856-11) Burns, takes

them out of the Public Utility class and that appellants

are not complying with the Public Utility sections.

The acts and activities of appellee railroad indicate

that defendant, itself, acknowledged its existence as a rail-

road in lieu of an interurban line when it sought the pro-

tection of the Bankruptcy Laws of the United States and

filed a petition for reorganization under Section 77 B (m)

of the Bankruptcy Act of the United States.

Chapter VIII, Sec. 77, sub. m, defines a railroad corpora-

tion, to which that section is applicable, as

‘‘Any common carrier by railroad engaged in the

transportation of persons or property in interstate

commerce, except a street, a suburban or interurban

electric railway which is not operated as a part of a

general railroad system of transportation or which

does not derive more than 50% of its operating reve-

nue from the transportation of freight in standard,

steam railroad freight equipment.’’

11 U.S. C. A., See. 205, sub. m.

The Court of Appeals in the Seventh Circuit, in the case

of In Re Chicago North Shore and Milwaukee Railroad

Company, 131 Federal (2d) 458, determined that the North

Shore was not a railroad but an interurban line and, there-

fore, was not entitled to reorganization under Section 77

B (m) of the Bankruptcy Act and was relegated to re-

organization under Chapter X of the Bankruptcy Act.

Appellee railroad sought a determination from the

United States District Court as to whether or not it was

obligated to comply with the provisions of the Railway

Labor Act. If defendant was a railroad it was obligated

to comply. If it was an interurban line it was exempt.

Texas Electric Railroad Company v. Eastus, D. C., 25 Fed.

Supp. 825, affirmed without opinion, 308 U. S. 512, 60 S. Ct.

134,

Appellee railroad instituted a suit against the District

Attorney for the Northern District of Indiana, and in that

case entitled Chicago South Shore and South Bend Rail-

road v. Fleming, 109 Fed. 2d 419, the Court of Appeals for

the 7th Circuit in that case said:

‘‘(4) An additional element appears in the case at

bar which does not appear to have been present in the

other cases. Section 77 B (m) of the Bankruptcy Act,

11 U.S. C. A., Sec. 205, sub. m, which was not changed

by the Chandler Act, defines ‘railroad corporation’ as

used in that section as any common carrier by railroad

engaged in the transportation of persons or property

in interstate commerce, except a street, a suburban, or

interurban electric railway which is not operated as a

part of a general railroad system of transportation

or which does not derive more than fifty per cent of

its operating revenues from the transportation of

freight in standard steam railroad freight equipment.

Appellee has undergone reorganization under the pro-

visions of section 77 which was designed to provide a

means for the reorganization of railroads engaged in

interstate commerce. This was permitted at appellee’s

request, and upon its disclosure that it was an inter-

state carrier, and that more than fifty per cent of its

operating revenues was derived from the transporta-

tion of freight in standard steam railroad freight

equipment. Having brought itself within the definition

of railroad for that purpose, we think it cannot now

deny similar classification for purposes of the Rail-

way Labor Act. This, we think, constitutes substan-

tial evidence in support of the Board’s determination,

and we are not permitted to disturb it.’’

From this decision it is apparent that the determining fac-

tor of whether or not defendant was an interurban railroad

or a ‘‘full-fledged’’ railroad is whether or not in excess of

50% of the revenue of the railroad is derived from the

transportation of freight in standard steam railroad freight

equipment. This is the basis of determination used by the

Interstate Commerce Commission, as set forth in its opin-

ion in 214 I. C. C. 167. A copy of said decision is attached

as Exhibit ‘‘A’’ to the Complaint. The finding and deci-

sion of the Commission is as follows:

‘‘Briefly summarizing, the South Shore derives the

largest portion of its revenue from freight traffic,

over 90 percent of which is interchanged with other

railroads and moves in interstate commerce, includ-

ing a considerable amount of through traffic handled

as an intermediate carrier, and all of such traffic is

generally handled in standard equipment under joint

rates maintained with the steam railroads to and from

points throughout the country. The South Shore was

found not to be an interurban within a similar exem-

ption provision in Rules for Testing Other Than

Steam Power Locomotives, Supra, and it has the char-

acteristics of a commercial railroad operated with

electric power within the rule laid down in Texas

Electric Ry., supra.

We find that the line of the Chicago South Shore

and South Bend Railroad is not a street, interurban,

or suburban electric railroad within the meaning of

the exemption proviso in the first paragraph of sec-

tion 1 of the Railway Labor Act, as amended June 21,

1934, and it is therefore subject to the provisions of

that Act.’’

In fact, it has become a ‘‘rule of thumb”’ that if a rail-

road derives in excess of 50 percent of its revenue from

the transportation of freight in standard steam railroad

freight equipment, it is a railroad and not an interurban

or streetcar line for all intents and purposes. This is cor-

roborated by the decision In re Chicago, North Shore and

Milwaukee Railroad Company, 131 Fed. (2d) 458. In that

case the Court had to make a determination as to whether

or not the North Shore was an interurban line or a rail-

road. If it was an interurban line it was entitled to re-

organization under Section 77 (B) (m). Otherwise, it

could only reorganize under Chapter 10 of the Bankruptcy

Act. It is interesting to note that this same Court rendered

the decision in the North Shore case, supra, as the case at

bar, that the North Shore Railroad was not a common

carrier engaged in Interstate Commerce, but an interur-

ban line, since over 50 percent of its revenue was not

derived from freight. The Court said:

‘*We note that one important new element appeared

in the section 77 definition of a carrier for purposes

of the Bankruptcy statute. We refer to the statutory

alternate exception of the street, suburban or inter-

urban electric railway, ‘which does not derive more

than 50 per centum of its operating revenues from

the transportation of freight in standard steam rail-

road freight equipment.’ We consider this of con-

siderable significance in the light of the emphasis

placed by the Commission on the carriage of freight

in its classification of the various roads.

The Commission has formulated a definition in har-

mony with its various decisions, and which it seems

to have followed generally, ‘* * * an electric railway

which is engaged in the general transportation of

freight, whether the revenue therefrom is greater or

less than its passenger revenue, which handles the

bulk of such freight in standard equipment similar to

that used by the steam railroads, which freely inter-

changes the same with the steam railroads for trans-

portation to or from points on their lines, a consid-

erable portion thereof being handled in interstate or

foreign commerce, and which participates in joint rates

with the steam railroads for interstate transporta-

tion, has more of the characteristics of a commercial

railroad operated by electric power than of an inter-

i ee

urban as that term is used in the-exemption provision

under consideration.’ (Our italics.) Texas Electric

Railway, 208 I. C. C. 193; upheld, Texas Electric Ry.

Co. v. Eastus, D. C., 25 F. Supp. 825, affirmed without

opinion, 308 U. S. 519, 60 S. Ct. 134, 84 L. Ed. 437.

It is in the light of this definition, with its primary

emphasis placed on the revenues from the transporta-

tion of freight, whether such revenues are greater or

less than those from the passenger traffic, that we con-

sider the introduction by Congress of the alternate

requirement of 50% of revenues from freight to pre-

vent operation of the exemption provided in Section

77, significant. We think there can be no question but

that this Road is not ‘operating as a part of a general

steam-railroad system of transportation.”’

The same Judge which rendered the decision in Chicago,

North Shore and Milwaukee Railroad (supra) and deter-

mined that the latter railroad was an interurban electric

railway, since it did not derive more than 50 percent of

its operating revenues from transportation of freight in

standard steam railroad freight equipment, and hence was

not eligible for reorganization under Section 77 of the

Bankruptcy Act, rendered the decision in the case at bar,

dismissing plaintiff’s Complaint on the ground that it was

an interurban railroad, has reversed himself. It is the

contention of plaintiff that once a determination was made

that defendant railroad is a common carrier and not an

interurban railroad, its status could not be changed.

Appellee railroad, by seeking the advantages of Section

77 (B) (m) of the Bankruptcy Act, acknowledged its

status as a railroad and urged upon the District Court for

the Northern District of Indiana that the latter had juris-

diction and that its petition was filed in good faith. 11

U. 8. OC. A, Sec. 531. The petition for reorganization

could not have been found to have been filed in good faith

if defendant railroad did not come within the purview of

the Act.

This Court is faced with a determination as to whether

or not the appellee railroad whose status has been deter-

mined ‘‘by a Court of competent jurisdiction’’ can change

its corporate status to meet every situation when it finds it

advantageous, irrespective of the fact that its status has

already been determined. Certainly, appellee railroad

should be estopped from denying its existence as a common

carrier in lieu of an interurban line.

The decree of the United States District Court in ap-

proving the plan of reorganization under Section 77 (B)

(m) of the Bankruptey Act was an adjudication of the

corporate status of the railroad as a common carrier, espe-

cially since the Court was obligated to point out that it was

not exempt under the provisions of the Act as an inter-

urban line. 11 U. S. C. A., Section 205, sub (m). The

Chicago South Shore and South Bend Railroad v. Fleming,

109 Fed. (2d) 419, was a further adjudication as to the

corporate status of appellee as a railroad and not as an

interurban line.

The Interstate Commerce Commission has determined

in the following proceedings that appellee railroad is a

railroad:

Commission’s Railway Labor Act, Docket No. 8, 214

I. C. C. 167; A copy of the Commission’s report together

with the findings in the proceeding is attached as Exhibit

‘¢A?? to Plaintiff’s Complaint.

Interstate Commerce Commission Electric Railway Dock-

et No. 7, 234 I. C. C. 34; A copy of the report and decision

of the Commission is attached as Exhibit ‘‘B’’ to Plain-

tiff’s Complaint.

Application of Chicago, South Shore and South Bend

Railroad for Authority to Issue Securities Under Section

20a of the Interstate Commerce Act, filed May 29, 1944,

Finance Docket #14551; A copy of said application is

attached as Exhibit ‘‘C’’ to Plaintiff’s Complaint; A

copy of the report of the Commission is attached as Ex-

hibit ‘‘D’’ to Plaintiff’s Complaint; A copy of the order

approving the report of the Commission entered on the

29th day of May, 1944 is attached as Exhibit ‘‘E’’ to

Plaintiff’s Complaint.

The Courts have held that determinations of the Com-

merce Commission are binding if supported by substantial

evidence and the Court of Appeals in the Seventh Circuit

in Chicago South Shore and South Bend Railroad v. Flem-

ing, 109 Fed. (2d) 419, bid, upheld the findings of the Com-

mission that respondent was a railroad and not an inter-

urban line.

There is nothing to the contention of defendant railroad

that ence it incorporated as an interurban line it had to

remain such, since the Act of June 4, 1861 entitled ‘‘An

Act for the Incorporation of Street Railway Companies’’

was repealed; the defendant filed Articles of Reorganiza-

tion on the 17th day of December, 1929, dropping its status

as ‘‘street railway’’ and the corporation’s mode of conduct

by filing a petition for reorganization under Chapter 77

(B) (m) of the Bankruptcy Act and its institution of legal

proceedings in the case entitled Chicago South Shore and

South Bend Railroad v. Fleming, ibid, which determined

defendant railroad to be a railroad and common carrier

and not an interurban line. Record 5. Furthermore, the

railroad’s mode of conduct in filing a petition with the

Interstate Commerce Commission under Section 20a of

the Interstate Commerce Act for the issuance of new secu-

rities, as set forth in its application dated May 29, 1944,

Finance Docket #14551, plaintiff’s Exhibit ‘‘C’’, is fur-

ther evidence that defendant railroad has adopted and ac-

quiesced to its status as a common carrier. Section 54-

501, 502, 503, 504, 505 and 506 of Chapter 5 of the Indiana

Public Service Commission Act (Burns 54-501, 502, 503,

504, 505 and 506) sets forth the procedure to be followed

in connection with the issuance of stock by any Public

Utility in the State of Indiana. /n examination of plain-

tiff’s Exhibit ‘‘C’’ which is attached hereto as Appendix

‘¢A?? indicates that no petition was filed with the Public

Utility Commission of the State of Indiana, and that it was

not contemplated to file any petition with the Public Util-

ity Commission for the State of Indiana. Attention is

called to the last paragraph on page 4 and which extends

over to page 5 of Exhibit ‘‘C’’, which is included as Ap-

pendix ‘‘A’’,

‘‘Upon obtaining authorization of this Commission

to issue said Common Capital Stock of the par value

of $12.50 per share in accordance with the proposed

plan for recapitalization, the directors of Applicant

having adopted a resolution pursuant to the provi-

sions of Section 23 of The Indiana General Corpora-

tion Act (25-222 Burns Ind. St. Anno.) setting forth

the proposed amendment, directing that it be sub-

mitted to a vote of the shareholders entitled to vote

in respect thereof at a meeting of such shareholders

called for that purpose, notice thereof having been

mailed to each shareholder, the shareholders will vote

on said amendment to the Articles of Incorporation

and upon the said amendment being adopted by the

affirmative vote of at least a majority of the outstand-

ing shares, the Articles of Amendment (in the form

of Exhibit No. 11 hereto attached) will be completed,

signed in triplicate, and filed with the Secretary of

State by the officers of Applicant, and thereafter filed

for record with the County Recorder of La Porte

County, Indiana, as required by Section 29 of The

Indiana General Corporation Act (25-228 Burns Ind.

St. Anno.) and will thereupon become effective and

the said securities authorized by this Commission

herein will then be issued.’’

The situation in the case at bar is quite different from

that of the Chicago, North Shore & Milwaukee Railroad

Company, 131 Fed. (2d) 458, where the Court held that

the North Shore was an interurban line and could not re-

organize under Chapter VIII, Sec. 77, sub. m, 11 U.S. C. A.,

Sec. 205, sub. m. The Court of Appeals in the North Shore

ease had for its support the decision of the Supreme Court

of the United States in the case of United States v. Chicago,

North Shore & Milwaukee Railroad, 288 U. S. 1, 53 S. Ct.

245, where that Court held that the North Shore Railroad

was exempt from complying with Sec. 20a of the Interstate

Commerce Act, 49 U.S. C. A., Sec. 20a, in connection with

the issuance of its securities, because the road was an

independently operated electric interurban railway ex-

pressly excepted from the requirements of the section.

Furthermore, when all of the cases in connection with

the determination by the courts that the various railroads

were determined to be either an interurban line or railroad

are analyzed, it is found that in each case the Interstate

Commerce Commission in the first instance made a de-

termination, after hearing all the evidence introduced by

both the railroad and the moving parties, that either the

railroad was a railroad or was an interurban line and ex-

empt from complying with various statutes passed by

Congress in connection with the moving of both passengers

and freight in interstate commerce and certain rules and

regulations applicable to the employees of the railroad

and the general public.

In the case at bar, the District Court erroneously dis-

missed the complaint of plaintiffs-appellants on a motion

to dismiss based on the fact that the original charter pro-

vided for the incorporation of appellee as an interurban

line, and further erroneously reached the conclusion that

if it was so incorporated as an interurban line, it must

necessarily follow that it is a public utility under Sec. 5,

Chapter I, of the Indiana Public Service Commission Act

(Burns, 54-105).

It is quite evident that whether or not appellee railroad

is a utility and subject to the rules and regulations as

such, of the Indiana Public Service Commission Act, is a

question of fact. In all of the cases hereinabove referred

to, where the determination was made that a railroad was

a railroad or a railroad was an interurban line, the courts

had before them the findings of the Interstate Commerce

Commission, and the only function of the courts in those

cases was to determine whether such findings were legally

made and supported by substantial evidence.

In the case at bar, the Interstate Commerce Commission

has ruled in each and every instant that the railroad has

before it, and the Court of Appeals for the Seventh Circuit

in Chicago, South Shore & South Bend Railroad v. Fleming,

ibid, concurred that appellee railroad was a railroad and

not an interurban line. There is nothing indicated in the

record to show why either the District Court or the Court

of Appeals should permit a determination to be made as

to the status of appellee railroad in contradiction to the

rulings of the Interstate Commerce Commission and the

Court of Appeals for the same Circuit by the recent ruling

of the Court of Appeals in the case at bar. It is, therefore,

urged that certiorari should issue to enable the litigants

to have their day in court and prove their case. The only

facts that the District Court Judge had before him were

the statements of counsel de hors the record that appellee

railroad was complying with the rules and regulations

of the Public Service Commission of the State of Indiana,

since it was originally incorporated as an interurban line,

which was denied by counsel for plaintiff-appellants.

The District Court in the case at bar was bound to fol-

low the decision of the United States Court of Appeals in

Chicago, South Shore and South Bend Railroad v. Flem-

ing, 109 Fed. (2d) 419 (7th Circuit), that defendant rail-

road was a common carrier engaged in interstate commerce

and not an interurban railroad. In the Fleming case the

United States Court of Appeals reversed the District Court

of the State of Indiana which had earlier ruled that it was

an interurban railroad and, therefore, exempt from the

proviso of the Railway Labor Act, 45 U.S. C. A., Section

151. The Cireuit Court of Appeals in the Fleming case

approved the findings of the Interstate Commerce Commis-

sion to that effect and approved the findings of the Com-

mission on the authority of Shields v. Utah-Idaho C. P.

Railway Co., 305 U. 8. 177.

The District Court, in the case at bar, could not review

the findings of the United States Court of Appeals in

Chicago, South Shore and South Bend Railroad v. Fleming

(supra), nor could it make a redetermination. Sinclair v.

Hyatt, 86 Fed. Supp. 828; United States v. Inter-Island

Steam Navigation Company, 87 Fed. Supp. 1010; United

Office and Professional Workers of America v. Monumental

Life Insurance Company, 88 Fed. Supp. 602; Todd Seattle

Dry Docks v. O’ Leary, 87 Fed. Supp. 907.

The decision of the Fleming case that the defendant rail-

road was a common carrier engaged in interstate com-

merece and not an interurban line was conclusive on the

District Court in the case at bar. Committee of Long Island

Lighting Company v. Securities € Exchange Commission,

183 Fed. (2d) 45.

The United States Supreme Court stated the proposition

very clearly in Insurance Group Committee v. Denver,

R. G. W. R. Company, 67 Supreme Court, 583, page 5835,

when it said: ‘‘When matters are decided by an Appellate

Court its rulings, unless reversed by it or a superior court,

bind the lower court. Thus a cause proceeds to final de-

termination. While power rests in a Federal Court that

passes an order or decision to change its position on a

subsequent review in the same case, orderly judicial action,

except in unusual circumstances, requires it to review to

permit the re-litigation of matters or issues previously

determined on a former review.’’ Great Western Tele-

graph Company v. Burnham, 162 U. S. 339; King v. State

of West Virginia, 216 U. S. 92; Messenger v. Anderson,

225 U. S. 486; Wichtta Royalty Company v. City National

Bank of Wichita Falls, 306 U. S. 103.

The Order of the Court of Appeals in Chicago, South

Shore and South Bend Railroad v. Fleming, ibid, was not

appealed from and the Court of Appeals for the same

Circuit in the case at bar was bound by the determination

of the Court of Appeals of the same Circuit in the Chicago,

South Shore and South Bend Railroad v. Fleming case, ibid.

Candler v. Rose, 80 F. 2d 407; Claude Neon Lights v.

E. Machlett & Son, 31 F. 2d 983; Papani v. United States,

84 F. 2d 160; Jorgenson v. Swope, 114 F. 2d 988.

In fact, the Court of Appeals in Sawyer v. Dollar, 190

Fed. (2d) 623, gives a very good resume of the theory

under which District Courts, Courts of Appeal, and the

Supreme Court of the United States respect each other’s

decisions.

‘‘A Supreme Court decision is not necessary to

make an order of a Court binding or finally dispositive

of a controversy. If an order of a District Court is not

appealed it is just as final in this sense as if the Su-

preme Court had itself entered the order. An order

of any court having jurisdiction of the parties and

of the subject matter is binding. It may not be res

judicata as to other parties, but it is conclusive as to

the parties before the court.’’

The Court of Appeals in the case at bar under ‘‘The

Stare Decisis Rule’’ was bound to follow the principle of

law which became settled by the decisions of the Court

of Appeals of the Seventh Circuit in Chicago, South Shore

7S ae, eae eS

and South Bend Railroad v. Fleming, 109 Fed. (2d) 419,

in the case of In re Chicago, North Shore and Milwaukee

Railroad Company, 131 Fed. (2d) 458; Tewas Electric

Railway Company v. Eastus, D. C. 25 Fed. Supp. 825, af-

firmed without opinion, 308 U. 8. 512; Shields v. Utah-Idaho

C. P. Railroad Company, 305 U. 8. 177, that the determin-

ing factor as to whether or not defendant railroad was a

railroad or an interurban line is whether in excess of

50 percent of the railroad’s revenue is derived from the

hauling of freight, the type of equipment such as railroad

cars and rails.

Corpus Juris, in discussing ‘‘The Stare Decisis Rule’’,

21 C. J. S., Section 187, p. 303, says:

‘‘This rule, which has been stated, infra, See. 193,

to be merely an application of the doctrine of estoppel

to court decisions, and which is usually known and

referred to as the rule of stare decisis, is founded

largely on considerations of expediency and sound

principles of public policy, to preserve the harmony

and stability of the law, and to make as steadfast as

possible judicially declared principles affecting the

rights of property, it being indispensable to the due

administration of justice, especially by a court of last

resort, that a question once deliberately examined and

decided should be considered as settled and closed to

further argument.’’

In the railroad cases, the purpose of the Interstate Com-

merce Commission is to regulate common carriers in a

uniform manner on the question of rates, wages, operating

standards and many other problems. Congress has seen

fit to delegate to the Commission the power to make de-

terminations of fact and, thereby, relieve the Courts of

the duty and obligation of referring such matters to special

Masters and others who may be unacquainted with railroad

procedure. To bolster the findings of the Commission, the

Courts have taken the position that findings of the Inter-

state Commerce Commission will not be disturbed unless

they are clearly erroneous and said findings are not based

on the facts.

Sprague v. Woll, 122 F. 2d 128, 131; Chicago, South

Shore and South Bend Railroad Co. v. Fleming, 109 F. 2d

419; Interstate Commerce Commission v. Delaware, L. €

W. R. R. Co., 220 U. 8. 235, 31 S. Ct. 392; Interstate Com-

merce Commission v. Louisville € Nashville R. R. Co., 227

U. 8. 88, 33 S. Ct. 185; Skinner d Eddy Corporation v.

United States, 249 U. 8. 557, 39 S. Ct. 375; Western Paper

Makers’ Chemical Co. v. United States, 271 U. S. 268, 46

S. Ct. 500; Florida v. United States, 292 U.S. 1, 12, 54 S. Ct.

603, 608.

The District Court in the case of Toolson v. New York

Yankees, 101 Fed. Supp. 93, which case was affirmed by

the Court of Appeals in 200 Fed. 2d 198, says:

‘<T rial courts in my opinion should not devote their

efforts to guessing what reviewing courts may do

with prior holdings because of lapse of time or change

of personnel in such courts. We are supposed to be

living in a land of laws. Stability in law requires re-

spect for the decisions of controlling courts or face

chaos.”’

The Interstate Commerce Commission approved the plan

of reorganization of the Chicago, South Shore and South

Bend Railroad in 212 I. C. ©. 547, 217 I. C. C. 423, 221

I. C. C. 605.

In 1935 the Interstate Commerce Commission rendered

a decision in, Railroad Labor Docket, 214 I. C. C. 167, at

the instance of the National Mediation Board, that defend-

ant was a common carrier engaged in interstate commerce.

On June 2, 1938, appellee railroad instituted before the

Interstate Commerce Commission proceedings to deter-

mine whether said railroad fell within the terms of the

proviso of Section 1(a) of the Carriers’ Taxing Act, Sec-

tion 1(a) of the Railroad Retirement Act of 1937. (Tr. p.

8.) A copy of the report and decision of the Interstate

Commerce Commission Electric Railway Docket No. 7,

234 I. C. C. 34 (Plaintiff’s Exhibit B), indicated that appel-

lee railroad was found to be a common carrier. (Tr., pp. 8,

9, abstracts of decision.)

On May 29, 1944, appellee railroad, pursuing its policy

as a common carrier subject to the rules and regulations

of the Interstate Commerce Commission, filed an applica-

tion for authority to issue securities under Section 20(a) of

the Interstate Commerce Act. Finance Docket No. 14451. A

copy of the application was attached to the Complaint as

Plaintiff’s Exhibit C. That on the 29th day of May, 1944,

the Interstate Commerce Commission rendered a report

finding that defendant was a common carrier and that the

exchange of 77,895 shares of common stock of the par value

of $50.00 per share for 311,580 shares of common stock

of the par value of $12.50 a share was a lawful object

within the corporate purposes of the railroad.

The copy of appellee railroad’s application to the In-

terstate Commerce Commission is attached to plaintiff’s

Complaint as Exhibit C. (Tr., p. 11, abstracts of decision.)

appellee’s application under Sec. 20-a of the Interstate

Commerce Act hereinabove referred to in Finance Docket

No. 14551, recites:

‘* Applicant is a corporation duly organized and ex-

isting under the laws of the state of Indiana with its

principal place of business and office in the city of

Michigan City, in La Porte County, Indiana. Appli-

cant was incorporated June 23, 1925, and accepted the

provisions of The Indiana General Corporation Act by

executing Articles of Reorganization dated Septem-

ber 16, 1929, which were filed with and approved by the

Secretary of State of Indiana, September 18, 1929, and

filed for record in the recorder’s office of La Porte

County, Indiana, October 3, 1929. Applicant is duly

admitted as a foreign corporation to do business in

the State of Illinois and has been so authorized and

admitted to do business since July 10, 1925. Applicant

is engaged as a common carrier in the transportation

of passengers and property by electric railroad over a

line approximately 90 miles in length between Ran-

dolph Street in the city of Chicago in the State of Iili-

nois and the city of South Bend in the State of In-

diana, and intermediate points. Applicant carries pas-

sengers, freight,: baggage, express and the United

States mail over its line of railroad and as a common

carrier is open to the public generally.”’

That 49 U.S. C. A., Section 20-a, Paragraph 1, Securities

of carrier; issuance, et al., provides:

‘¢ ‘Carrier’ defined.

(1) As used in this section, the term ‘carrier’ means

a carrier by railroad (except a street, suburban, or

interurban electric railway which is not operated as a

part of a general steam railroad system of transporta-

tion) which is subject to this chapter, or any corpora-

tion organized for the purpose of engaging in trans-

portation by railroad subject to this chapter, or a

sleeping car company which is subject to this chapter.

Since paragraph 1 of Section 49, U. S. C. A., section

20-a provides ‘as used in this section the term “‘car-

rier’? means a common carrier by railroad (excepting

street, suburban or interurban electric railway which

is not operated as a part of a general steam railroad

system of transportation)’ if the defendant railroad

considered itself as an interurban electric railway, no

application to issue the securities hereinabove referred

to would have been needed.’’

Appellee railroad is estopped to deny its existence as a

common carrier by virtue of the fact that, commencing with

the filing of the petition for reorganization under Section

77(b)(m) of the Bankruptcy Act and the subsequent de-

terminations by the Interstate Commerce Commission to

determine the status of appellee railroad, namely, 212

I. C. C. 547, 217 I. C. C. 423, 221 I. C. C. 605, Railway Labor

Act Docket No. A214, I. C. C. 167, 234 I. C. C. 39, Finance

Docket No. 14451, and the decisions of the United States

Court of Appeals in Chicago, South Shore and South Bend

Railroad v. Fleming, 109 Fed. (2d) 419. Appellee rail-

road cannot assume the status of a common carrier on the

one hand, in order to market its securities, and deny its

existence on the other hand in order to enable present

management to perpetuate itself in office by limiting the

number of individuals who would be eligible to office as

Directors in appellee railroad. Chicago, South Shore and

South Bend Radroad v. Fleming, 109 Fed. (2d) 419. This

principle was further sustained in the case of Holly Hill

Citrus Growers Association v. Holly Hill Fruit Products,

75 Fed. (2d) 13, where the Court held that an orchard

development company was precluded from denying market-

ing corporations the right to trade-marks under principle

of evidential estoppel which is raised when persons who

have acted one way under one set of circumstances and

with one objective undertaken under other circumstances

when the objective has changed, testimonially to give dif-

ferent color to their former conduct. See Anderson v.

Abbott, 23 Fed. Supp. 265; Guaranty Trust Company of

New York v. Williamsport Wire Rope Company, 20 Fed.

Supp. 634, affirmed; Comstedt v. Gilmore, 96 Fed. (2d) 766.

Appellants-petitioners were entitled to present evidence

on the question as to whether or not the proxy-soliciting

firm that was once in. the employ of petitioner Rubin was

using confidential information obtained during the course

of their employment. Certainly, there was no basis to pre-

vent petitioners from being heard on this question and to

their day in court.

A proxy soliciting firm with its agents is in the same

category as a lawyer or doctor or salesman in whom the

employer reposes his complete faith and confidence in rep-

resenting him to the general public. In order for the sales-

man to sell his wares and properly represent his employer

or client, it is necessary that all of the facts be disclosed

without any limitations. Courts of law have always recog-

nized this principle and have safeguarded the employer

against the act of the employee in divulging the trade

secrets that the employee acquired during the course of his

employment.

Accordingly, attorneys employed as claim adjusters are

disqualified after severing relations with their employers

to bring action against the employees on behalf of persons

they have investigated. Hovel v. Minneapolis and St. Louis

Railroad Company, 206 N. W. 710. In the case of Harvey

v. Harvey, 231 N. W. 580, the Court held that the conduct

of the attorney for the plaintiff in commencing an action ,

against former clients concerning matters, a matter in

which he appeared as their attorney and confidential ad-

viser was unprofessional.

It has also been held in the case of Baker v. Farnsworth,

221 N. W. 71, that litigants may not secure the fruits of a

decree obtained by an attorney who he knows professionally

represented his adversary over the latter’s objections in

the same subject matter. It has also been held that a

lawyer having once held public office or having been in the

employ of the public should not after his retirement accept

employment in connection with any matter he has investi-

gated or passed upon in office or in his employment.

In re Williams, 50 Pac. 729, Rule X-14(A)-9 of the Securi-

ties and Exchange Commission provides:

‘‘No solicitation subject to this regulation shall be

made by means of any proxy statement, form of proxy,

notice of meeting, or other communication written or

oral containing any statement which at the time and in

the light of the circumstances under which it is made,

is false or misleading with respect to any material

fact, or which omits to state any material fact neces-

sary in order to make the statements therein not false

or misleading or necessary to correct any statement in

any earlier communication with respect to the solicita-

tion of a proxy for the same meeting or subject matter

which has become false or misleading.’’

Proxies were solicited as charged in the Complaint by

the making of false statements concerning plaintiffs’ inten-

tions, attitudes and their proposals and this Court had

jurisdiction to restrain the use of said proxies.

It is further well settled law that an agent may not en-

gage in a competing business or otherwise put himself in

a position in which his interests will conflict with his du-

ties to his principal. Brown v. Dupuy, 4 Fed. (2d) 467.

Francis Mohawk Mining & Leasing Company v. McKay,

141 Pac. 56.

The right of an employer to enjoin the use of confiden-

tial information which has been disclosed by an employee

was further confirmed in Tabor v. Hoffman, 118 N. Y. 30,

23 N. E. 12.

Whether or not the by-law of appellee railroad corpo-

ration is required by virtue of Section 12 of the Indiana

Public Service Commission Act, Chapter 2, and by virtue

of the following definitions in Section 5 of that statute

(Ch. 54, Burns’ Indiana Statutes, 105) which require a

majority in number of the Board of Directors of a street

railway or interurban railway to be residents of the State

of Indiana, depends on a determination of a question of

fact as to whether or not appellee is a railroad engaged

in interstate commerce or is an interurban line. From

what we have said heretofore, it is quite evident that appel-

lants take the position that because of the decision of the

“

Interstate Commerce Commission and the United States

Court of Appeals in 109 Fed. (2d) 419, the question has

already been resolved. If, however, this Court is of the

opinion that whether or not appellee railroad is an in-

terurban line or a railroad must be re-determined, cer-

tainly that question could not have been decided on a motion

to dismiss the Complaint. Courts have declared that a

Complainant need only show that its position is jeopardized

by statute, regulation or order and thereupon the Court

will afford relief for any uncertainties with respect to the

individual’s rights. In Gordon v. Bowles, 153 Fed. (2d)

614, the Court, on page 615, says:

‘“‘The Constitution ‘guarantees no particular form

of procedure; it protects substantial rights.’ National

Labor Relations Board v. Mackay Radio ¢& Telegraph

Co., 304 U. S. 333, 58 S. Ct. 904, 913, 82 L. Ed. 1381.

Cf. Morgan v. United States, 298 U. S. 468, 56 S. Ct.

906, 80 L. Ed. 1288. It requires that there shall be a

hearing at which each party can be heard and by virtue

of which substantial enjoyment of his constitutional

rights is preserved. The Declaratory Judgment Act,

28 U.S. C. A. Sec. 400, we think, affords complainant

a complete remedy. Under that Act, if there is a

reasonable dispute between the parties as to applica-

tion and interpretation of an act of Congress or ad-

ministrative order, either party has a right to resort

to the District Court in an application for declaratory

judgment. There witnesses may be examined and

cross-examined. The complainant need only show that

his position is jeopardized by the statute, regulation

or order, and thereupon the court will afford relief for

any uncertainties with respect to his rights. He is not

required to wait indefinitely. The proceeding has

the advantage of escaping any technical distinction be-

tween law and equity and enables the court to reach

the desired goal in the speediest and most inexpensive

form. United States Fidelity d Guaranty Co. v. Koch,

3 Cir., 102 F. 2d 288, 290, 295; Sunshine Mining Co.

v. Carver, D. C. D. Idaho, 41 F. Supp. 60, 63.’’

33.

Plaintiffs are limited to the number of individuals who

can be elected as Directors of defendant railroad by virtue

of the by-law requiring that a majority of the Directors be

residents of the State of Indiana. The stock of defendant

corporation is held by approximately 3,700 shareholders

scattered from coast to coast. Under these circumstances,

it is impossible for minority shareholders to elect a repre-

sentative board, a majority of whom are residents of the

State of Indiana and at the same time shareholders. Fur-

thermore, no other railroad operating in the State of In-

diana or incorporated in the State of Indiana is required

to elect Directors, a majority of whum are residents of the

State of Indiana.

CONCLUSION.

It is respectfully submitted that this Court should grant

this petition for certiorari to prevent the relitigation of the

question of fact as to whether or not a railroad is or is not

a common carrier engaged in interstate commerce and sub-

ject to the various statutes of the United States concerning

the operation of railroad carriers. 11 U. 8. C. A., Section

205; Section 77-B (m) of the Bankruptey Act of the United

States; 45 U.S. ©. A., Section 151; Railway Labor Act; 45

U.S. C. A., Section 228 (a); Section 1 (a) of the Railroad

Retirement Act of 1938; 45 U. S. C. A., Section 261 (a);

Section (a), Carriers Taxing Act of 1937; Section 20 (a) of

the Interstate Commerce Commission Act. The relitigation

of issues based on questions of fact after they were once

decided is legally unwarranted. In the interest of all car-

rier railroads, the Interstate Commerce Commission, the

stockholders of the carrier railroad and the general public,

it is not good policy to have the issue of common carrier

and interurban line retried on a question of fact for each

statute enacted by Congress as to which classification the

carrier fits into. No corporation can properly function if

it is to have a different status in the state of its domicile

and another status upon crossing the state border. Fur-

thermore, appellants-respondents should be entitled to their

day in court in order to prove and have determined the

question of fact as to whether or not the General Corpora-

tion Act of 1929 of the State of Indiana has superseded the

Act of 1861 under which appellee-respondent was incorpo-

rated. In addition thereto, appellants’ rights to elect di-

rectors should not be restricted to residents of Indiana at

the discretion of the directors of appellee-railroad unless

the statute of the state specifically makes the residence a

prerequisite to the election of the director. A corporation

cannot set up as a defense a doctrine of ultra vires since

that writ is reserved to the stockholder to question the

right of the Corporation to act and which is in essence

what the corporation is attempting to do. If the decision

of the Court of Appeals in the instant case is permitted

to stand, appellee would be authorized in any future pro-

ceeding to enforce various provisions of the Interstate

Commerce Act to seek refuge on the theory that the carrier

is permitted to have a separate determination by the Inter-

state Commerce Commission in each case as to whether or

not it is a carrier or an interurban railroad within the

exemption of the Commerce Act. These circumstances

should motivate the Supreme Court to grant this petition

for certiorari.

Respectfully submitted,

WutusMm Hennine Rosi,

33 South Clark Street,

Chicago 3, Illinois,

Attorney for Petitioners.

-_ we \“ <% : ’

APPENDIX A.

Origmal Signed.

Before the

INTERSTATE COMMERCE COMMISSION

Finance Docket No. 14551

APPLICATION

Chicago South Shore and South Bend Railroad

For Authority to Issue Securities under

Section 20a of the

Interstate Commerce Act

Joun C. Lawyer,

R. Stanuey ANDERSON,

Josepn D. Lawyer,

Room 701—5305 Hohman Avenue,

Hammond, Indiana,

Counsel for Chicago South Shore

and South Bend Railroad.

Filed May 10, 1944

Interstate Commerce Commission

May 5, 1944.

Application

Exhibits—

Exhibit

0.666 BESO KDHE COBEP TPS CeCe SOK eK SORA ES

1—Amendment of Articles of Incorpora-

Q—By-Laws ........ccesscccccccccceces

3—Directors’ resolution authorizing re-

capitalization ...........+--+++eee:

4—Directors’ resolution designating offi-

cers to file Application............

5—Opinion of Counsel...........++-+++--

6—Map of Railroad..........---+-+++0+:

7—Copy of stock certificates

Present Common $50 Par........

New Common $12.50 Par........

8—Statement of Income for the years

ended December 31, 1942 and 1943..

9—Balance Sheet as of December 31,

NS rai Sino pee need cas encnien

Exhibit 10—Details of purposes of proposed issue

Exhibit 11—Proposed amendment of Articles of In-

corporation ..........+eeeeeeeeeee

Before the

InTERSTATE COMMERCE COMMISSION

Finance Docket No. ..............

APPLICATION

Chicago South Shore and South Bend Railroad

For Authority to Issue Securities under

Section 20a of the

Interstate Commerce Act

To The Honorable The Interstate Commerce Commission:

Chicago South Shore and South Bend Railroad, Appli-

cant herein, respectfully represents:

1, The exact corporate name of Applicant is: Chicago

South Shore and South Bend Railroad.

2. The names, titles and post office addresses of the

Applicant’s vice president, secretary, comptroller, and

attorneys by whom the application is signed, verified and

filed on behalf of Applicant are as follows:

Cuares H. Jonzs, Vice President,

Michigan City, Indiana,

Epwarp H. Utuey, Secretary and Comptroller,

Michigan City, Indiana,

Joun C. Lawyer, R. Stanney Anperson and

Joseru D. Lawyer, Attorneys for Applicant,

701—5305 Hohman Avenue,

Hammond, Indiana.

3, Applicant is a corporation duly organized and exist-

ing under the laws of the state of Indiana with its principal

place of business and office in the city of Michigan City, in

La Porte County, Indiana. Applicant was incorporated

June 23, 1925 and accepted the provisions of The Indiana

General Corporation Act by executing Articles of Reorgan-

ization dated September 16, 1929, which were filed with and

approved by the Secretary of State of Indiana, September

18, 1929 and filed for record in the recorder’s office of La

Porte County, Indiana, October 3, 1929. Applicant is duly

admitted as a foreign corporation to do business in the

state of Illinois and has been so authorized and admitted

to do business since July 10, 1925. Applicant is engaged as

a common carrier in the transportation of passengers and

property by electric railroad over a line approximately 90

miles in length between Randolph Street in the city of

Chicago in the state of Illinois and the city of South Bend

in the state of Indiana, and intermediate points. Applicant

carries passengers, freight, baggage, express and the

United States mail over its line of railroad and as a com-

mon carrier is open to the public generally.

4. The Applicant operates as a carrier in the states of

Indiana and Illinois.

5. The nature of the application and the purposes and

uses of the proposed issue and the proceeds thereof are as

follows:

Applicant has issued and outstanding 77,895 shares (in-

cluding as of December 31, 1943, 1,228 shares reserved for

exchange under the plan of recapitalization effective April

30, 1942, authorized by the order of this Commission en-

tered February 27, 1942 in Finance Docket No. 13628) of

Common Capital Stock of the par value of $50.00 per share.

Said order of this Commission of February 27, 1942, au-

thorized Applicant to issue not exceeding 77,904 shares of

Common Capital Stock of the par value of $50.00 per share

in exchange for the outstanding First Preferred Stock and

Second Preferred Stock on the basis indicated in the order.

In making the exchange fractional shares that resulted in

connection with the exchange of the First Preferred shares

for shares of the present Common Capital Stock of the par

value of $50.00 per share amounting in the aggregate to

nine full shares, were purchased at the rate of the current

market value of $29.00 per share, and canceled by Appli-

cant, in order to avoid the issuance of fractional shares.

It is now desired to convert the said present issued and

outstanding shares of Common Capital Stock of the par

value of $50.00 per share into shares of Common Capital

Stock of the par value of $12.50 per share on the basis of

four shares of such Common Capital Stock of the par value

of $12.50 per share for one share of the present Common

Capital Stock of the par value of $50.00 per share.

6. The conversion of the Common Capital Stock of the

par value of $50.00 per share into Common Capital Stock

of the par value of $12.50 per share may be made by an

amendment of the Articles of Incorporation upon an affirm-

ative vote of the holders of at least a majority of the

Common Capital Stock issued and outstanding. Such issue

is for a lawful object within the corporate purposes of

Applicant and compatible with the public interest, which is

necessary and appropriate for and consistent with the

proper performance by the Applicant of service to the

public as a common carrier, and which will not impair its

ability to perform that service, and is reasonably necessary

and appropriate for such purpose.

7. The new Common Capital Stock of the par value of

$12.50 per share will not be sold but will be issued in ex-

change for the present outstanding Capital Stock on the

following basis:

The said 77,895 shares of Common Capital Stock of the

par value of $50.00 per share now issued and outstanding

as aforesaid, shall become and be converted into 311,580

shares of Common Capital Stock of the par value of $12.50

per share on the basis of four shares of Common Capital

Stock of the par value of $12.50 per share for each share

of Common Capital Stock now outstanding of the par value

of $50.00 per share.

Upon surrender to the corporation of certificates repre-

senting or entitling the holder to outstanding shares of

Common Capital Stock of the par value of $50.00 per share,

such holder shall be entitled to receive therefor certificates

representing shares of Common Capital Stock of the par

value of $12.50 per share on the basis of four shares of

Common Capital Stock of the par value of $12.50 per share

for one share of Common Capital Stock of the par value

of $50.00 per share.

8. The new Common Capital Stock of the par value of

$12.50 per share will be issued by Applicant to its present

security holders upon the basis herein stated. The issue

will be handled by Applicant without any underwritings,

contracts or other arrangements in connection with the

issue.

Upon obtaining authorization of this Commission to issue

said Common Capital Stock of the par value of $12.50 per

share in accordance with the proposed plan for recapitali-

zation, the directors of Applicant having adopted a reso-

lution pursuant to the provisions of Section 23 of The

Indiana General Corporation Act (25-222 Burns Ind. St.

Anno.) setting forth the proposed amendment, directing

that it be submitted to a vote of the shareholders entitled

to vote in respect thereof at a meeting of such shareholders

called for that purpose, notice thereof having been mailed

to each shareholder, the shareholders will vote on said

amendment to the Articles of Incorporation and upon the

said amendment being adopted by the affirmative vote of

at least a majority of the outstanding shares, the Articles

of Amendment (in the form of Exhibit No. 11 hereto at-

tached) will be completed, signed in triplicate, and filed

with the Secretary of State by the officers of Applicant,

and thereafter filed for record with the County Recorder

of La Porte County, Indiana, as required by Section 29

of The Indiana General Corporation Act (25-228 Burns

Ind. St. Anno.) and will thereupon become effective and

the said securities authorized by this Commission herein

will then be issued.

9. Attached hereto and made a part hereof are the fol-

lowing exhibits :

Exhibit

No.

1—Attested copy of amendment of Applicant’s Ar-

ticles of Incorporation, adopted by resolution

of stockholders on March 25, 1943.

Applicant’s Articles of Incorporation with

prior amendments filed with this Commission

as Exhibit 1, pages 13 to 86 of the Application

dated January 30, 1942, and the attested copy

of the amendments to the Articles of Incor-

poration voted by stockholders April 30, 1942,

and filed with this Commission on May 6, 1942,

Finance Docket No. 13628, are by reference

thereto made a part hereof.

. 2-<Authenticated copy of Applicant’s by-laws, with

amendments to date.

. 3—Authenticated copy of resolutions of the board

of directors of Applicant adopted May 5, 1944,

authorizing proceedings to recapitalize.

. 4~—Authenticated copy of resolutions of the board

of directors of Applicant adopted May 5, 1944,

designating officer to file this Application.

. 5—Opinion of Counsel.

. 6—Map of Applicant’s railroad.

. 7—Form of present Common Capital Stock certifi-

cate of the par value of $50.00 per share and

form of Common Capital Stock certificate of

the par value of $12.50 per share, proposed to

be issued in exchange for present capital stock.

8—Verified statement of the income of Applicant

for the years ended December 31, 1942 and

1943.

No. 9—Verified copy of Applicant’s balance sheet as of

December 31, 1943.

No. 10-—Statement of complete details of the purposes

of the proposed issue.

No. 11—Proposed Articles of Amendment of the Articles

of Incorporation.

Wuererork, Applicant prays that after investigation by

the Commission of the purposes and uses of the proposed

issue of Capital Stock the Commission by order duly auth-

orize such issue and change in the par value of said Com-

mon Capital Stock, and Applicant further prays for all

other appropriate relief in the premises.

Darep at Michigan City, Indiana, this 5th day of May,

1944.

Respectfully submitted,

Cxrt1caco Sour SHORE AND Sours Benp RarLRroaD

(CORPORATE SEAL) By Cuarues H. Jones

Its Vice President

Michigan City, Indiana.

ATTEST:

Epwarp H. Urtey,

Its Secretary

Joun C. LawYEr,

R. Stanuey ANDERSON,

Josern D. LawYEr,

Attorneys for Applicant,

701-5305 Hohman Avenue,

| Hammond, Indiana.

SraTe oF INDIANA

88.

County or La Porte

Epwarp H. Urtzy, being duly sworn, deposes and says

that he has duly executed the attached Application for and

on behalf of Chicago South Shore and South Bend Rail-

road named therein; that he is the secretary and comp-

troller of the Company and that he is duly authorized by

the Applicant to verify and file this Application. Deponent

further says that he is familiar with such Application and

the transactions referred to therein and that the matters

and things therein stated are true.

Epwarp H. UTtey.

Subscribed and sworn to before me this 5th day of May

A.D. 1944.

Frep A. Kors

(NOTARY SEAL) Notary Public

My Commission expires November 8, 1945.

APPENDIX B.

In tHe Unirep States Court or APPEALS

For the Seventh Circuit.

No. 11230. October Term, 1954, October Session, 1954.

William Henning Rubin, Morton)

H. Bernstein, John E. Kelly,

Sr., and Lillian M. Kelly, his

wife; John E. Kelly, Jr. and

Charles Turner,

Plaintiff s-Appellants, Apout from ie

vs. : ;

Chicago South Shore & South Bend poop tangy +

Railroad, an Indiana Corpora- Northern District

tion; Jay Samuel Hart, Presi- of Illinois, Eastern

dent; Edward H. Bross, Secre-| _pjvision. :

tary; W. A. Kissel and William

A. Quail, doing business as the

Kissel Organization, a partner-

ship of New York City, New

York,

Defendants-Appellees. |

November 24, 1954.

Before Durry, Chief Judge, Fixyncan and SCHNACKEN-

BERG, Circuit Judges.

Soniackensens, Circuit Judge. A complaint was filed in

the District Court by plaintiffs, who are Illinois stock-

holders of the defendant Indiana corporation, against the

corporation’ and its president and secretary, as well as the

members of a proxy soliciting partnership known as Kissel

Organization. The complaint prays for a temporary in-

junction restraining the corporation from proceeding with

its annual meeting to be held on March 25, 1954, until the

further order of the court, that the court decree that a

by-law of the corporation requiring a majority of the

directors to be residents of the state of Indiana is illegal

and void, that a permanent mandatory injunction issue

causing the directors to remove said by-law from the min-

ute-books, that the officers and directors of the corpora-

tion be permanently restrained from using certain proxies

secured for said meeting until said by-law has been re-

scinded by the board of directors and from paying for the

solicitation of said proxies, that the court appoint a master

in chancery to conduct the meeting, and for general relief.

On March 23, 1954, on motion of plaintiffs, the court

authorized the contemplated meeting to be called and or-

ganized, and directed that it be continued to March 29, 1954.

Thereafter South Shore filed a motion to dismiss the

complaint, which motion was sustained. This appeal fol-

lowed.

The principal question in this case is raised by plaintiffs’

contention that the following by-law adopted by the direc-

tors of the corporation is invalid: ‘‘A majority of the

directors shall be residents of the state of Indiana.’’

The motion to dismiss admits, inter alia, the facts set

forth in the complaint as now stated.

Plaintiffs are owners of shares of the common stock of

South Shore which maintains an office in Chicago, Illinois.

Although it was originally incorporated in 1925 under an

Indiana statute entitled ‘‘An Act for the incorporation of

1. Hereinafter sometimes referred to as ‘‘South Shore,’’

street railroad companies’” it later became subject to the

general corporation act of Indiana by filing articles of re-

organization on September 18, 1929, providing ‘‘This Cor-

poration hereby accepts all of the terms and conditions of

the Indiana ‘General Corporation Act,’ of 1929.”’

South Shore is a common carrier engaged in transporta-

tion of freight and passengers in interstate commerce be-

tween the cities of South Bend, Indiana, and Chicago,

Illinois, and operates a bus line through a subsidiary from

Michigan City, Indiana, to Benton Harbor, Michigan. In

excess of 50 percent of its revenue is derived from freight

moving in interstate commerce. It is a party to a large

number of tariffs publishing joint rates to and from points

throughout the country and has arrangements with all

other railroads for the division of inter-line freight rev-

enues. It has traffic solicitation offices in various states.

It operates an electric railroad between Chicago and South

Bend, which is approximately 90 miles in length and

parallels and competes with lines of the New York Central

System.

Following South Shore’s filing a petition under Section

77 of the Bankruptcy act*, in the United States District

Court on September 30, 1933, a plan of reorganization was

approved, which plan ‘‘could not be consummated until

authority was granted’’ by the Interstate Commerce Com-

mission.

In 1935, in a proceeding before the Interstate Commerce

Commission there was a finding and decision that South

Shore was not a street, interurban, or suburban electric

railway within the meaning of the exemption proviso of the

first paragraph in § 1 of the Railway Labor act, as amended

June 21, 1934.‘

2. Approved June 4, 1861. Sec. 13,297 et seq. Burns Indiana

Statutes, 1926 Ed.

3. 110. 8. C. A. § 205.

4, 450.8. C. A. § 161.

a oc eo KF &O

In a proceeding instituted by South Shore before the In-

terstate Commerce Commission on June 2, 1938, the com-

mission decided that on and after said date the defend-

ant corporation was not within the terms of similar exemp-

tions in section 1(a) of the Railroad Retirement act of

1937° or section 1(a) of the Carriers Taxing act of 1937°.

In 1939 South Shore filed a suit in the District Court of

United States for the Northern District of Indiana to en-

join James R. Fleming, United States district attorney,

from instituting a proceeding against it for violation of

the Railway Labor act’, wherein the Interstate Commerce

Commission intervened. Thereupon the court determined

that South Shore was not within the scope of the Railway

Labor act. Upon appeal to this court® that determination

was affirmed.

In 1944 South Shore requested permission of the Inter-

state Commerce Commission to issue shares of capital

stock, and the commission rendered a report finding that

South Shore was a common carrier and approved the is-

sue. The application recited that South Shore is a cor-

poration duly organized and existing under the laws of

the state of Indiana, having been incorporated June 23,

1925, and having accepted the provisions of the Indiana

general corporation act by executing articles of reorgani-

zation dated September 16, 1929, which were filed with

and approved by the Secretary of State of the state of

Indiana, that it is engaged as a common carrier in the

transportation of passengers and property by electric rail-

road between Chicago, Illinois, and South Bend, Indiana,

and intermediate points, and that its principal place of

business is Michigan City, Indiana.

45 U. 8. C. A. § 228a.

45 U. S.C. A. § 261a.

45 U. 8. C. A. §§ 151 et seq.

Chicago 8S. 8. & 8. B. R. BR. v. Fleming, 109 F. 2d 419.

anton

Prior to plaintiffs’ acquisition of their stock, directors

of South Shore adopted a by-law known as section 1 of ar-

ticle IV as hereinbefore set forth®. There is no provision

9. The motion to dismiss states that this by-law was adopted in

1930. Appellee’s brief states this by-law ‘‘has siood unassailed for

more than 24 years.’’ Plaintiffs have not questioned these state-

ments at any time in this court.

in the general corporation ac: requiring a majority of di-

rectors to be residents of Indiana.

The complaint alleges that the Kissel Organization was

employed by plaintiff’ Rubin to solicit proxies for the an-

nual meeting held on March 26, 1953, and thereby it ‘‘ob-

tained information in trust and in confidence and is now

in the employ of the defendant railroad, whose interests

are adverse to that of plaintiffs’? and further that said

firm ‘‘is using said information that was received in trust

and in confidence to obtain proxies in favor of manage-

ment and against that of plaintiff Rubin.”’

According to plaintiffs there are two contested issues:

a. ‘Is defendant railroad a common carrier engaged

in interstate commerce, or an interurban or street car line?

If defendant railroad is a common carrier engaged in in-

terstate commerce, then the restrictive by-law limiting a

majority of the corporation’s directors to residents of the

state of Indiana is void and of no force and effect.’’

b. ‘‘Is defendant railroad authorized to hire a proxy-

soliciting firm which had heretofore been retained and en-

gaged in proxy solicitation for one of the plaintiffs and

during the course of said employment with plaintiff ob-

tained certain confidential and privileged information

which is being used against the plaintiffs?’’

However, defendant insists that the only contested is-

sue is whether South Shore’s by-law requiring a majority

of its directors to be residents of Indiana is valid.

Inasmuch as it appears that the annual meeting orig-

inally set for March 25, 1954, was continued to March 29,

1954, and that the meeting was held and its business trans-

acted, it may be that this entire case became moot. How-

ever we shall resolve any doubt against that conclusion

and

proceed to a determination of certain aspects of the

merits.

Section 2 of the Indiana General Corporation act’

provides :

‘‘Corporations may be organized for pecuniary profit

under this act for any lawful business purpose or pur-

poses, except rural loan and savings associations,

credit unions or corporations for the conduct of a bank-

ing, railroad, insurance, surety, trust, safe deposit,

mortgage guaranty or building and loan business.’’

Section 7 of the same act™ provides in part:

‘‘The power to make, alter, amend or repeal the by-

laws of a corporation shall be vested in the board of

directors, unless otherwise provided in the articles of

incorporation. * * *’’

Section 9 of said act!” provides in part:

‘The business of every corporation shall be managed

by a board of directors, at least a majority of whom

are citizens of the United States. Directors need not

be shareholders in the corporation unless the articles

of incorporation or by-laws so require, but shall have

other qualifications as the by-laws prescribe. * * *.”’

Section 73 of said act’ repealed certain sections of the

street railroad companies act of June 4, 1861.

Article 2(b) of South Shore’s articles of incorporation,

as amended in 1944, provides in part, as follows:

10.

11,

12.

13.

Burns Indiana Statutes, 25-201.

Thid., 25-206.

Ibid., 25-208.

Thid., 25-404.

‘To maintain and operate, and to that end to con-

struct, purchase, lease or otherwise acquire, own and

control street railroad, interurban street railroad and

suburban street railroad lines and systems, * * *.’’

Section 1 of Article IV of South Shore’s by-laws pro-

vides:

‘‘A majority of the directors shall be residents of the

State of Indiana.’’

The source of South Shore’s corporate powers is the

State of Indiana, by virtue of whose act for the incorpora-

tion of street railroad companies it was originally organ-

ized and by virtue of whose general corporation act it has

existed since September 18, 1929. From that source South

Shore’s board of directors derived general power to make

by-laws and specific power to make by-laws prescribing

qualifications for directors, which are in addition to the

statutory qualification that at least a majority of the board

of directors are to be citizens of the United States.

Moreover, it is apparent that its adoption was not be-

cause of any ulterior or improper motive aimed at plain-

tiffs. It was adopted in 1930 and obviously is authorized

by the Indiana Public Service Commission act. That act

provides that the term ‘‘public utility’’ as therein used

means and embraces every corporation owning, operat-

ing, managing or controlling any street railway or inter-

urban railway", and requires that a majority in number

of the board of directors thereof shall be bona fide residents

and citizens of the State of Indiana”.

Under these statutory provisions South Shore’s by-law

now under attack is valid. If, in the conduct of its business,

it is exceeding or deviating from its charter powers, that

14. Burns Indiana Statutes, 54-105.

15. Ibid., 54-212.

is a matter for the state itself to assert in a direct proceed-

ing brought for that purpose.

It is immaterial in the litigation before us that the agen-

cies of governments other than the state of Indiana may

have determined for their own legislative or administra-

' tive purposes that South Shore is a railroad engaged in

interstate commerce. South Shore’s corporate structure,

including such matters as the qualifications required of

its directors, is a matter controlled entirely by Indiana law.

Plaintiffs argue that South Shore, when it accepted all

of the terms and conditions of the Indiana general cor-

poration act in 1929, dropped its status as a ‘‘street rail-

way company’’ which it had acquired when it was orig-

inally incorporated in 1925 under the act of June 4, 1861,

and became a common carrier engaged in the transporta-

tion of freight and passengers in interstate commerce.

We assume that by this argument plaintiffs mean that

South Shore’s status thereby was changed from a street

railway company to a railroad. Without that construc-

tion the argument is meaningless. However, if it is meant

that South Shore became a railroad, that conclusion is

erroneous for at least one reason, which is that section 2

of the Indiana general corporation act does not permit

railroads, as distinguished from street or interurban rail-

ways, to be organized thereunder. Railroads are spe-

cifically excepted from that act.’* Therefore, it is clear

that South Shore could adopt and continue to exist under

that act only as a street or interurban railway. South

Shore’s status is the same under the general corporation

act as it was when that corporation was created under the

Indiana law for the formation of street and interurban

railways.’* The validity of the by-law in question is not

16. Burns Indiana Statutes, 25-201.

17. Burns Indiana Statutes, 1926, ed., §§ 13,297 et seq.

affected by the fact that South Shore, as a common carrier,

engages in interstate commerce in the conduct of its stree

railway or interurban railway business.

2. Whether or not South Shore should have been re-

strained by the District Court from using at its ann

meeting the proxies secured by the Kissel Organization, is

a moot question, the meeting having been held and a

journed.

As to the prayer of the complaint that South Shore’ ~

be enjoined from paying Kissel Organization for its work

in securing the proxies pursuant to an agreement with

South Shore, no reason has been assigned by plaintiffs

indicating that the agreement is unenforceable for any rea-

son. Whether the proxies were obtained by Kissel Or- 7

ganization by means of an improper use of confidential in- ~

formation, which might make it liable to plaintiffs, is ir-

relevant because plaintiffs pray for no relief against Kissel

Organization. On the record before us no reason appears

that indicates it is not entitled to enforce its contract

against South Shore for services rendered. Hence it

would be improper to enjoin South Shore from performing

its obligation under that contract.

For the reasons hereinbefore set forth, the order of the’ ~

District Court dismissing the action with prejudice i

AFFIRMED.

PAGE

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CITATIONS

Aetna Life Insurance Co. v. Carrillo, 164 F. 2d 883

Sed a MEE <a0h sinks ncbnensway hous schaeh cose

Ark-Tenn Distributing Corporation v. Breidt, 209 F.

ee Cees Hy DOOD iis 50 soeneced rs geen hain as

Chicago, South Shore & South Bend R. R. v. Fleming,

100 TF. Sd 419. (C.A. 7, 1080). 0. «6 vncaececaweses

Reconstruction Finance Corporation v. Goldberg, 143

F. 2d 752 (C.A. 7, 1944), certiorari denied, 323 U.S.

Wash ye eka th Pad Kanak Jaane ben deeeNeteaa 10

PAGE

Statutes:

Burns Indiana Statutes, 1926 Ed., Secs. 13,297 et seq. 6

District of Columbia Business Corporation Act (Pub-

lic Law 389 (83rd Cong. 2d sess.)).......-+++++-

Indiana General Corporation Act

Sec. 2 (Burns 1) rere it).

See. 7 (Burns 25-206)... .....--. cece cere ee eeee 4,11

Sec. 9 (Burns 25-208). ......... cece e eee eeee 4, 11-12

Sec. 18 (Burns 25-217)...... 0... cece reece eeees 5, 12

Indiana Public Service Commission Act

See. 5, ch. 1 (Burns 54-105).......-.0+-- sees 5, 12-13

Sec. 12, ch. 2 (Burns 54-212)........-.-+s+e00- 3, 4, 13

Interstate Commerce Act, Sec. 20a...........+-++- 7,8

Model Business Corporation Act, Sec. 33.........- 9

1 Oregon Revised Statutes, § 57.185.......-.4+-++- 9

1953 Wisconsin Statutes, § 180.31.............--+- 9

Miscellany:

3 Am. Jur. “Appeal and Error,” pp. 423-424........ 10

4 C.J.8., pp. 480-484, 491. 0... eee eee ee eee ees 10

2 Fletcher, Cyclopedia on Corporations, 4 298...... -)

2 Fletcher, Cyclopedia on Corporations, $ 307...... 9

214 I, C. Oe hick paw es Rasen Veveeeeenn's 5,7

Illinois Constitution, Art. XI, §11............0005 9

In THE

SUPREME COURT OF THE UNITED STATES

Ocroser Term, 1954

No. 615

WILLIAM HENNING RUBIN, e# al.,

Petitioners,

vs.

CHICAGO, SOUTH SHORE AND SOUTH

BEND RAILROAD,

Respondent.

On Petition For A Writ of Certiorari

To The United States Court of Appeals

For The Seventh Circuit

BRIEF FOR THE RESPONDENT IN OPPOSITION

OPINION BELOW

The district court did not write an opinion. Its order

dismissing the action appears in the record at page 28.

The opinion of the court of appeals (Pet. 44-52) is reported

in 217 F. 2d 177.1

JURISDICTION

The judgment of the court of appeals sought to be re-

viewed was entered on November 24, 1954 (see Pet. 44).

i cae word ‘‘affirmed’’ in the opinion below (line 15, Pet. 47)

was changed to ‘‘reversed’’ by order of November 30, 1954 (see

217 F. 2d at p. 179 (line 8)).

The petition for a writ of certiorari was filed on February

23, 1955. The jurisdiction of this Court is invoked under

Section 1254(1) of the Judicial Code.

QUESTION PRESENTED

Whether the respondent’s by-law requiring a majority of

its directors to be residents of Indiana is valid.

STATUTES INVOLVED

The pertinent statutory provisions are set forth in the

Appendix, infra, pp. 11-13.

STATEMENT

The complaint herein was filed on March 22, 1954, by

certain Illinois stockholders of the respondent Indiana cor-

poration (R. 3-21). Diversity of citizenship was the as-

serted basis of jurisdiction (R. 4).

The complaint alleges that the 1930 by-law of the re-

spondent which requires a majority of its directors to be

residents of Indiana is invalid. It is claimed that the by-

law is not sanctioned by the Indiana General Corporation

Act, and that the Indiana Public Service Corporation Act,

which requires such a by-law, is inapplicable. Accordingly,

the petitioners assert that the by-law is void. (R. 4.21.)

In addition to the complaint seeking a declaration that

this by-law is invalid, on March 23, 1954, the petitioners

filed a motion for preliminary injunction asking that re-

spondent’s annual meeting be-postponed until petitioners

received responses to their second, annual proxy solicita-

tion of respondent’s stockholders (R. 22-23, 16-18).

On the same day that the motion for preliminary injunc-

tion was filed, there was a hearing before the district court

at which the validity of the assailed by-law was argued at

length (R. 3). At the conclusion of the hearing, the dis-

trict court entered an order postponing the respondent’s

annual meeting, so that petitioners would have time to re-

ceive a response to their proxy solicitation (R. 24). The

court indicated that petitioners were entitled to no further

relief (R. 25).

On April 12, 1954, the respondent filed a motion to dis-

miss which disclosed that the annual meeting, postponed in

accordance with the aforesaid order, had taken place. No

lawsuit was filed in Illinois or Indiana attacking the conduct

of the annual meeting. The principal ground of the motion

to dismiss was that the by-law in question is valid under the

Indiana General Corporation Act. Further, it is required

by the Indiana Public Service Commission Act. (R. 25-26.)

On April 12, 1954, at the initial hearing on the respond-

ent’s motion to dismiss, the petitioners conceded that the

validity of the by-law requiring a majority of directors to

be Indiana residents was the only remaining point the peti-

tioners were asking the court to decide (R. 27).

Subsequent to the April 12 hearing, briefs were filed by

both sides with relation to respondent’s motion to dismiss,

and a full hearing was held on that motion on June 4, 1954

(R. 3). At the hearing, the district court concluded that the

by-law in question is authorized by the Indiana General

Corporation Act, that it is required by Section 12 of Chap-

ter 2 of the Indiana Public Service Commission Act and,

in addition, that it is valid under general principles of

corporation law. Accordingly, at the conclusion of the

June 4 hearing, it entered an order dismissing the action

(R. 28). The court of appeals affirmed (Pet. 44-52).

ARGUMENT

This case presents no question of federal law and there

is no conflict of decisions. The sole issue before the Court

is whether the respondent’s 1930 by-law requiring that

“A majority of the Directors shall be residents of the State

of Indiana” (R. 12) is valid. Throughout the petitign it is

stated that the question at issue is a question of fact re-

quiring further hearings. In truth, the question is one of

state law. If the concededly applicable Indiana General

Corporation Act authorizes the by-law or if the Indiana

Public Service Commission Act applies to the respondent,

the by-law is unquestionably valid.

1. The assailed by-law is valid under the Indiana Gen-

eral Corporation Act. In 1929, pursuant to Section 46

thereof (Pet. 11-12), the respondent adopted the Indiana

General Corporation Act and now exists thereunder (R. 5).

Section 7 of that Act (Appendix, infra, p. 11) vests the

power to make by-laws in the board of directors of a cor-

poration unless the articles of incorporation provide other-

wise, and it is undisputed that respondent’s articles do not.

Section 9 of the Act (Appendix, infra, pp. 11-12) authorizes

the residence qualifications embodied in the by-law, for

Section 9 provides that “Directors * * * shall have other

qualifications as the by-laws prescribe.” Obviously, there-

fore, the by-law is authorized by the Indiana General Cor-

poration Act.

2. In addition, the by-law is required by Section 12,

Chapter 2 of the Indiana Public Service Commission Act.

The by-law was adopted in conformity with that statutory

provision, which states (Appendix, infra, p. 13):

“A majority in number of the board of directors of

each and every company or association organized under

the laws of the State of Indiana and coming under the

provisions of this Act, shall be bona fide residents and

citizens of the State of Indiana while acting as such

directors.”

- .

This statutory provision is mandatory and applies to every

company coming under the provisions of the Indiana Pub-

lic Service Commission Act. The respondent is subject to

that Act by virtue of the definitions of “public utility” and

“qtility” contained in Section 5 thereof (Appendix, infra,

p. 12). Those definitions include every “street railway

or interurban railway” (idem). The respondent’s articles

of incorporation make it plain that it is within said defini-

tions, for Article 11(b) provides that respondent’s corpo-

rate purpose is “to maintain and operate * * * street

railroad, interurban street railroad and suburban street

railroad lines and systems * * *” (Pet. 50). The respond-

ent is operating pursuant to indeterminate permits granted

under the Indiana Public Service Commission Act. See

214 1.C.C. 167, 169.?

Petitioners have argued that the Indiana Public Service

Commission Act does not apply to the respondent because

it has accepted and is organized under the Indiana General

Corporation Act (Pet. 12-13, 19, 34). However, the very

fact that the respondent is now organized under the Indiana

General Corporation Act shows that it is a street or inter-

urban railway according to Indiana law, for Section 2 of

the Indiana General Corporation Act (Appendix, infra,

p. 11) does not permit railroads, as distinguished from

street or interurban railways, to be organized thereunder.

Thus, since railroads are expressly prohibited from organ-

izing or doing business under the Indiana General Corpo-

ration Act, it is clear that the respondent could adopt, and

continue to exist under, the Indiana General Corporation

Act only as a street or interurban railway. Moreover, pur-

suant to Section 18 of the Indiana General Corporation

Act (Appendix, infra, p. 12), the Indiana Secretary of

State has approved the respondent’s incorporation under

that Act (Pet. 27, 38). Respondent’s status, therefore, is

2 This report of the Interstate Commerce Commission comprises

Exhibit A to the complaint (see Pet. 18)

precisely the same now under the Indiana General Corpo-

ration Act as when it was originally incorporated under

the 1861 special Indiana law for the formation of street

and interurban railways. (Sections 13,297 et seq., Burns

Ind. Stat., 1926 Ed.) For the purposes of Indiana law,

respondent is unquestionably an interurban railway and is

subject to Indiana statutory requirements applicable to

such companies, including the requirement of the Indiana

Public Service Commission Act that a majority of its

directors be residents of Indiana. None of the cases cited

by petitioners even suggests the contrary.

It is immaterial that respondent is treated as a common

carrier engaged in interstate commerce for the purpose of

several federal statutes, on the ground that it is an inter-

urban railway which derives more than fifty percent of its

revenues from transportation of freight. No federal stat-

ute relieves respondent from complying with Indiana law

respecting the qualification of directors of a corporation

organized and conducting business as an interurban rail-

way under the laws of Indiana. In an effort to persuade

this Court to grant certiorari, the petitioners state that the

respondent should not be permitted to “relitigate” the ques-

tion whether it is a common carrier engaged in interstate

commerce and accordingly subject to certain provisions

in federal statutes (Pet. 33). But the respondent concedes

that it is a common carrier in interstate commerce within

the purview of such provisions; it is not seeking to reliti-

gate that question.

The opinion in Chicago, Seuth Shore and South Bend

Railroad v. Fleming, 109 F. 2d 419 (C.A. 7, 1940), support-

ing the determination of the Interstate Commerce ‘Commis-

sion that the respondent is subject to the Railway Labor

Act, has no bearing on the question of the validity of the

by-law.” In the proceedings before the Interstate Com-

merce Commission, there was no denial that the respondent

| 2p

is validly incorporated under the laws of the State of In-

diana as a street and interurban railway and operates under

franchises and indeterminate permits for street, interurban

and suburban railways. The report of the Interstate Com-

merce Commission shows that the respondent’s “Articles of

Reorganization, like the original Articles, authorized the

operation of street, interurban or suburban lines” (214

LC.C. 167, 169°) ; they still do (Pet. 50; ef. Pet. 11, 21, 22).

“The original franchises to use the streets in various cities

and towns for a street and interurban railway were sur-

rendered in 1922 for an indeterminate permit under the

Public Service Commission Law of Indiana” (214 L.C.C.

167, 169).

The estoppel cases relied upon by petitioners (Pet. 29)

are inapplicable because respondent has consistently main-

tained that, under Indiana law, it is incorporated as an

interurban or street railway pursuant to the Indiana Gen-

eral Corporation Act and is subject to regulation under the

Indiana Public Service Commission Act (ef. Pet. 18). This

position has never been abandoned and respondent has

faithfully complied with both statutes (cf. Pet. 13, 22).

Petitioners rely on respondent’s 1944 application for au-

thority to issue securities under Section 20a of the Inter-

state Commerce Act (Pet. 20, 35-43). However, that appli-

cation shows that the respondent was acting pursuant to

Sections 23 and 29 of the Indiana General Corporation Act

(Pet. 20, 40-41) and that respondent then too- considered

itself as an interurban or street railway, for the Indiana

General Corporation Act does not apply to railroads (see

Section 2 thereof, Appendix, infra, p. 11). Respondent

could not by a course of conduct lift itself by its bootstraps

aad assume a corporate status prohibited by the law to

which it owes its existence. Petitioners simply refuse to

recognize that the validity of this by-law depends on In-

3 See note 2, supra.

diana law, and that under Indiana law the by-law is not

only valid but required.

Petitioners observe that respondent did not comply with

the procedure prescribed by the Indiana Public Service

Commission Act for the issuance of stock (Pet. 19-20), but

that is because under the Interstate Commerce Act the

respondent is considered a common carrier in interstate

commerce subject to the stock issuance requirements of that

Act, which expressly provides that in such circumstances

the Interstate Commerce Commission’s jurisdiction is “ex-

elusive and plenary” and that a carrier need not obtain

other approval for the issuance of securities (49 USC

20a(7)). No provision of the Interstate Commerce Act re-

lieves respondent from complying with the requirement of

the Indiana Public Service Commission Act as to the resi-

dence of its directors.

Petitioners’ statement that “it is impossible for minority

shareholders to elect a representative board, a majority of

whom are residents of the State of Indiana” (Pet. 33) is

belied by petitioners’ own slate of directors, a majority of

whom were from Indiana (see R. 25). There is no require-

ment in the Indiana General Corporation Act, the Indiana

Public Service Commission Act or in the respondent’s

charter or by-laws that directors must also be shareholders

(ef. Pet. 33). Petitioners’ assertion that Indiana railroads

are not required to elect directors, @ majority of whom are

residents of Indiana (see Pet. 33), is irrelevant. The point

is that every interurban or street railway incorporated in

Indiana must observe such a requirement of the Indiana

Public Service Commission Act. Corporations organized

and operating in Indiana as railroads, as distinguished

from street, interurban or suburban railways, are not sub-

ject to the Indiana Public Service Commission Act.

3. The by-law is also valid as a matter of general cor-

porate law. The requirement in the Indiana Public Service

Commission Act that a majority of directors of each com-

pany subject to that Act shall be residents of Indiana evi-

dences that this by-law comports with the public policy of

Indiana. It is well settled that directors’ qualifications

prescribed in by-laws are valid unless they conflict with the

charter, a statute, or public policy of the state of incorpora-

tion (2 Fletcher, Cyclopedia on Corporations, § 298). No

such conflict exists here. There is nothing extraordinary

about the requirement contained in this by-law. Several

states require a prescribed number of directors to be

residents of the state (2 Fletcher, op. cit., § 307). For

example, a provision of the Illinois Constitution (Art. XI,

§ 11) requires a majority of the directors of a railroad to be

residents of Illinois. Section 33 of the Model Business Cor-

poration Act, prepared by the Committee on Corporate

Laws of the American Bar Association and published in

1953 by the American Law Institute, requires directors to

be residents if the articles or by-laws so provide. That

provision has already been enacted in Wisconsin and

Oregon, and a similar provision has been enacted in

the District of Columbia, based on the 1947 draft of the

Model Business Corporation Act.‘ Thus it is apparent that

the by-law is in harmony with the public policy of Indiana

and Illinois, where the respondent is doing business, and

with the most recent expressions of sound public policy

by leading experts on corporation law and the Congress

of the United States.

4. Petitioners now complain that the Kissel proxy-

soliciting firm “was using confidential information ob-

tained” from petitioners (Pet. 29-31; see also Pet. 3). This

point could not be advanced in the court below or here be-

cause in the district court petitioners waived all questions

4 1953 Wis. Stats. § 180.30; 1 Ore. Rev. Stats. § 57.185; Public

Law 389, 83d Cong., 2d Sess.

except as to the validity of the by-law (R. 27).5 Further-

more, this charge is against the Kissel organization, a New

York partnership (R. 4), which was not made a party.® The

petitioners themselves have acknowledged that “Proxy

solicitors are a dime a dozen and it is a question of who

pays the highest price” ( Appendix B to respondent’s brief

below). They have cited no pertinent SEC rule or judicial

decision in their favor. The decisions contained in their

petition (pp. 29-31) either involve the professional ethics

of attorneys or are cases in which agents or employees

violated their existing agency or employment. Finally, as

the court below acknowledged, this question is moot (Pet.

52).

CONCLUSION

Since this case presents no question of federal law and

there is no conflict of decisions, the petition for a writ of

certiorari should be denied.

Respectfully submitted,

Kenneta F’. Burgess,

Water J. Cummines, JR.,

Dowatp W. INGLE,

Attorneys for Respondent.

Swiey, Austry, Burcess & Smrru,

Of Counsel.

March 1955.

5 See Reconstruction Finance Corporation v. Goldberg, 143 F, 2d

752, 759 (C.A. 7, 1944), certiorari denied, 323 U. S. 770; Aetna

Life Insurance Co. v. Carillo, 164 F. 2d 883, 884 (C.A. 5, 1947);

Ark-Tenn Distributing Corporation v. Breidt, 209 F. 2d 359, 360-

361 (C.A. 3, 1954); 4 Corpus Juris Secundum, pp. 430-434, 491;

3 Am. Jur. '‘ Appeal and Error,’’ pp. 423-424.

6 The only defendants served were the South Shore and Jay Sam-

uel Hartt, its president and a resident of Illinois. When the

defendants informed the district court that Mr. Hartt’s presence

ara diversity jurisdiction, the plaintiffs dismissed him (see

APPENDIX

Article IV, Section 1, of respondent’s by-laws provides

(R. 12):

“A majority of the Directors shall be residents of the

State of Indiana.”

Article 2(b) of respondent’s articles of incorporation, as

amended in 1944, provides in pertinent part that respond-

ent’s corporate purpose is (Pet. 50) :

“To maintain and operate, and to that end to con-

struct, purchase, lease or otherwise acquire, own and

control street railroad, interurban street railroad and

suburban street railroad lines and systems, * * *.”

Section 2 of the Indiana General Corporation Act pro-

vides : ‘

“Corporations may be organized for pecuniary profit

under this act for any lawful business purpose or pur-

poses, except rural loan and savings associations, credit

unions or corporations for the conduct of a banking,

railroad, insurance, surety, trust, safe deposit, mort-

gage guaranty or building and loan business.” (Burns

25-201.) (Emphasis supplied.)

Section 7 of the Indiana General Corporation Act pro-

vides in pertinent part:

“The power to make, alter, amend or repeal the by-

laws of a corporation shall be vested in the board of

directors, unless otherwise provided in the articles of

incorporation. * * *” (Burns 25-206.)

Section 9 of the Indiana General Corporation Act pro-

vides in pertinent part:

“The business of every corporation shall be managed

by a board of directors, at least a majority of whom are

citizens of the United States. Directors need not be

shareholders in the corporation unless the articles of

incorporation or by-laws so require, but shall have

other qualifications as the by-laws prescribe. * * °.”

(Burns 25-208.) (Emphasis supplied.)

Section 18 of the Indiana General Corporation Act pro-

vides :

“Upon the presentation of the articles of incorpora-

tion, if the secretary of state finds that they conform

to law, he shall indorse his approval upon the triplicate

copies of the articles, and, when all fees have been paid

as required by law, shall file one copy of the articles in

his office and issue a certificate of incorporation to the

incorporators. The certificate of incorporation, to-

gether with two copies of the articles bearing the in-

dorsement of his approval, shall be returned by him to

the incorporators or their representatives.” (Burns 25-

217.)

Section 5, ch. 1, of the Indiana Public Service Commission

Act provides in pertinent part:

“The term ‘public utility’ as used in this act shall

mean and embrace every corporation, company, in-

dividual, association of individuals, their lessees, trus-

tees, or receivers appointed by any court whatsoever,

that now or hereafter may own, operate, manage Or

control any street railway or interurban railway or any

plant or equipment within the state for the conveyance

of telegraph or telephone messages, or for the produc-

tion, transmission, delivery or furnishing of heat, light,

water or power, or for the furnishing of elevator or

warehouse service either directly or indirectly to or

for the public, but said term shall not include a muni-

cipality that may now or hereafter acquire, own, OF

operate any of the foregoing facilities.

“The term ‘utility’ as used in this act shall mean

every street railway or interurban railway, and every

plant or equipment within the state used for the con-

veyance of telegraph and telephone messages, or for

the production, transmission, delivery, or furnishing

of heat, light, water or power, or for the furnishing of

elevator or warehouse service, either directly or in-

directly to the public: * * *” (Burns 54-105.) (Em-

phasis supplied.)

Section 12, ch. 2, of the Indiana Public Service Commis-

sion Act provides in pertinent part:

«* * * A majority in number of the board of directors

of each and every company or association organized un-

der the laws of the state of Indiana and coming under

the provisions of this act, shall be bona fide residents

and citizens of the state of Indiana while acting as such

directors.” (Burns 54-212.)

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.