R Cas

Lake St. El. R. Co. v. Ziegler

the debentures, the officers of the company owning or trolling the larger number of the bonds. Holders of bonds in the amount of $6,694,000 assented to the plan, and deposited their bonds as proposed, and received the debentures of the company; but holders of bonds to the amount of $780,000, including the individual defendants, declined to or have not assented to the plan. The company paid the interest on the debentures due July 1, 1895, but made default in the payment of interest upon the bonds of holders not assenting to the plan. On January 27, 1896, the complainant below filed its motion to remand the cause to the state court upon the ground that the court was without jurisdiction to hear and determine the cause, because there is not in the suit a controversy which is wholly between citizens of different states, and which can be fully determined as between them; and that no process was issued in the suit by the state court, and there was no controversy therein by the defendants, or either of them, and they had not submitted themselves to the jurisdiction of the state court. This motion was, on March 16, 1896, overruled by the court. The cause came on for final hearing on the 12th day of July, 1898, when a decree was passed dismissing the bill without prejudice to the complainant's right to assert the matters alleged in its amended bill by way of defense, or by cross bill to the bill exhibited by the Farmers' Loan & Trust Company against the Lake Street Elevated Railroad Company and others since the commencement of this suit, for the foreclosure of the trust deed executed by the complainant. From this decree both parties appeal, the complainant below assigning for error that the court erred in entertaining jurisdiction and in refusing to remand the cause to the state court, and also that the court erred in dismissing the bill and in declining to enter a decree for the complainant. The defendants assign for error that the court erred in dismissing the bill without prejudice, and in not dismissing it for want of equity.

Charles H. Aldrich, for complainant.

John J. Herrick, I. K. Boyesen, and Levy Mayer, for defendants.

Before WOODS and JENKINS, Circuit Judges, and SEAMAN, District Judge.

JENKINS, Circuit Judge, after the foregoing statement of the case, delivered the opinion of the court.

The question which must first engage our attention touches the jurisdiction of the court below and the propriety of the removal of the cause from the state court. The complainant was a citizen of the state of Illinois. All of the defendants were citizens of other states, with the exception of the American Trust & Savings Bank, one of the trustees under the trust deed, which was a citizen of the state of Illinois. By section 2, Act March 3, 1887 (24 Stat. 552, c. 373, § 2. cl. 3), as amended by Act Aug. 13, 1888 (25 Stat. 434, c. 866), it is

Lake St. El. R. Co. v. Ziegler

(N S)

provided that any suit of a civil nature of which the courts of the United States are given jurisdiction by the act, brought in the court of any state, the defendants being nonresidents of the state in which the suit is brought, may be removed into the federal court of the proper district; "and when in any suit mentioned in this section there shall be a controversy which is wholly between citizens of different states and which can be fully determined as between them, then either one or more of the defendants actually interested in such controversy may remove said suit into the circuit court of the United States for the proper district." Several cases have arisen in which the supreme court has passed upon and construed this statute. The summing up of the whole contention is, we think, well and accurately stated in Mr. Carter's recent work on the Jurisdiction of Federal Courts as Limited by Citizenship and Residence of the Parties.

"In the case of mere formal parties, if the action can be maintained as between the other parties to the suit, the fact that formal parties are joined as complainants or defendants, between whom and the opposing parties the requisite diversity of citizenship does not exist, will not oust the court of jurisdiction. In cases of this character the only question is as to who may be considered merely formal parties. In chancery proceedings the supreme court has divided parties into three classes: (1) Formal parties, who have no interest in the controversy between the immediate litigants, but have such an interest in the subject-matter as may be conveniently settled in the suit and thereby prevent further litigation; (2) necessary parties, who have an interest in the controversy, but whose interests are separable from those of the parties before. the court, and will not be directly affected by a decree which does full and complete justice between them; (3) indispensable parties, who not only have an interest in the subject-matter of the controversy, but an interest of such a nature that a final decree cannot be made without either affecting their interests or leaving the controversy in such a condition that its final determination may be wholly inconsistent with equity and good conscience. Formal parties may be made parties or not, at the option of the complainant. Necessary parties. must be made parties if practicable, in obedience to the general rules which require all persons to be made parties who are interested in the controversy, in order that there may be an end to litigation; but this general rule in the national courts is subject to the exception that, if such parties are beyond the jurisdiction of the court, or if making them parties would oust the jurisdiction of the court, the suit may proceed to a final decree between the parties before the court, leaving the rights of the absent parties untouched and to be determined in any competent forum. Indispensable parties must, of course, be made parties, and the court cannot proceed without them."

R Cas

Lake St. El. R. Co. v. Ziegler

The bill here affected certain bonds and stock of the complainant company, which were alleged to be held by the individual defendants, and which it was charged were obtained by Ziegler in fraud of the duty which he owed to the complainant as a director, and under the circumstances stated in the bill. The validity of the trust deed and of the contract with Underwood and Green were not attacked, nor was the validity of the stock and bonds in question impugned. But it was said that, because of the supposed violation of duty by Ziegler, who acquired the stock and bonds of the contractors and certain of the bonds from the company while he was a director of the company, he, and the other individual defendants who received their bonds from him with notice of the circumstances, ought justly to account to the company for the bonds and stock held by them, respectively, and to surrender to the company such bonds and stock upon repayment to them by the company of the amount respectively paid by them therefor. The trustees under the trust deed, one of whom was a citizen of the state of Illinois, of which state the complainant was also a citizen, were made parties defendant to obtain against them an injunction pendente lite restraining them from taking possession of the road and from commencing suit at law upon the bonds or in equity to foreclose the trust deed by reason of default of the company in the payment of interest upon the affected bonds at the solicitation or upon demand of the individual defendants. No decree was sought against the trustees, or other relief demanded against them. It is quite clear that these trustees were not necessary parties to the suit, because they had no interest in the controversy, and certainly no interest separable from that of the individual defendants. They were either indispensable parties or merely formal parties. These trustees were appointed in the interest of all the bondholders to protect the mortgage security, and upon default to take measures to subject it to sale in payment of the amount which should be found due upon the bonds. They were not the holders or owners of the bonds and stock in controversy, nor had they any interest therein. It was matter of indifference to them whether the complainant or the individual defendants should be adjudged entitled to these bonds. If the complainant should, by decree, become the owner of the bonds and stock upon repayment to the individual defendants of the amount they paid therefor, the bonds and stock would be valid bonds and stock in its hands, the bonds still secured by and entitled to the protection of the trust. deed, and both bonds and stock subject to resale by the company. The controversy, therefore, in no way affected the validity of the bonds, and in no way lessened the legal estate in the property which, by the trust deed, was vested in the trustees. They had no possible interest in the controversy, and were not indispensable parties to it. They were merely formal parties, made such to prevent them by injunction

Lake St. El. R. Co. v. Ziegler


pendente lite from complying with the demand of the individual defendants to proceed to execute the trust because of the default of the company. They were under no obligation to comply with such demand, because, under the terms of the trust deed, the individual defendants were not the holders of a sufficient number of bonds to require the trustees to put into execution their powers. They might, of their own motion, proceed to foreclose for the default, but that duty was not rendered imperative by the demand of the individual defendants, and they are only sought to be enjoined from compliance with that demand, and not from exercise of their discretion. The controversy could be wholly determined without their presence. They were merely formal parties, and the community of citizenship of the bank, trustee, with the complainant cannot oust the federal court of jurisdiction. This conclusion, we think, is supported by the decisions of the ultimate tribunal. In Walden v. Skinner, 101 U. S. 577, 25 L. Ed. 963, a bill was filed against the principal defendant to reform a deed executed to a deceased person, and to declare a trust with respect to the land conveyed. The executors of such deceased person, who were citizens of the same state with the complainant, were also made defendants, that they might be compelled, upon decree declaring the trust, to convey the title derived by them from such deceased person. was held that they were merely formal parties to the suit, and, jurisdiction as between the complainant and the principal defendant being undoubted, that jurisdiction could not be defeated by the joinder of formal parties whose citizenship was the same as that of the complainant. In Barney v. Latham, 103 U. S. 205, 26 L. Ed. 514, a citizen of Minnesota and a citizen of Indiana brought suit against citizens of New York, Massachusetts, and Wisconsin, and a land company, a citizen of Minnesota. An accounting was sought with respect to moneys received by the individual defendants upon the sale of certain lands, in which it was claimed the ancestors of the complainants were interested, and also with respect to like lands which the individual defendants had caused to be conveyed to the land company, that that company should convey to the complainants their proportionate interest in the land. It was held that there was a separable controversy between the complainant and the defendant company, which could be determined, as between them, without the intervention of the land company; and that the suit was, therefore, properly removable. In delivering the opinion of the court, Mr. Justice Harlan observes (pages 214, 216, 103 U. S., and page 518, 26 L. Ed.):


"We have endeavored to show that the land company was not an indispensable party to the controversy between the plaintiffs and the defendants, citizens of New York, Wisconsin, and Massachusetts. Whether those defendants and the land company were not proper parties to the suit, we do not now

R Cas


Lake St. El. R. Co. v. Ziegler

decide. A defendant may be a proper, but not an indispensable, party to the relief asked. In a variety of cases it is in the discretion of the plaintiff as to whom he will join as defendant. Consistently with Consistently with the established rules of pleading, he may be governed often by considerations of mere convenience; and it may be that there was or is such a connection between the various transactions set out in the complaint as to make all of the defendants proper parties to the suit, and to every controversy embraced by it. We are of the opinion that, upon the filing of the petition and bond of the individual defendants in the separable controversy between them and the plaintiffs, the entire suit, although all of the defendants may have been proper parties thereto, was removed to the circuit court of the United States, and that the order remanding it to state court was erroneous.

* * *

In Bacon v. Rives, 106 U. S. 99, 1 Sup. Ct. 3, 27 L. Ed. 69. an accounting was sought by the complainant against the principal defendant, as between whom the federal court had undoubted jurisdiction. The other defendants, who had like citizenship with the complainant, were trustees of an estate in which the principal defendant was interested, and the bill asked for a decree against the defendant's trustees for the amount of the principal defendant's interest in the estate, in satisfaction, in whole or in part, of the part which might be adjudged against the principal defendant upon the accounting. The court held that, while the trustees were proper parties to the suit, they were neither indispensable nor necessary parties, and jurisdiction of the federal court was not devested by their joinder. We are referred to several cases in the supreme court which are supposed by counsel to hold a different doctrine, and to establish that the trustees here are indispensable parties to the suit. We think that the effect of these decisions has been misconceived. Corbin v. Van Brunt, 105 U. S. 576, 26 L. Ed. 1176; Winchester v. Loud, 108 U. S. 130, 2 Sup. Ct. 311, 27 L. Ed. 677; Thayer v. Association, 112 U. S. 717, 5 Sup. Ct. 355. 28 L. Ed. 864; Crump v. Thurber, 115 U. S. 56, 5 Sup. Ct. 1154, 29 L. Ed. 328; Insurance Co. v. Huntington, 117 U. S. 280, 6 Sup. Ct. 733, 29 L. Ed. 898; Brooks v. Clark, 119 U. S. 502, 7 Sup. Ct. 301, 30 L. Ed. 482; Torrence v. Shedd, 144 U. S. 527, 12 Sup. Ct. 726, 36 L. Ed. 528; Wilson v. Oswego Tp., 151 U. S. 56, 14 Sup. Ct. 259, 38 L. Ed. 70; Merchants' Cotton-Press & Storage Co. v. North American Ins. Co., 151 U. S. 368, 14 Sup. Ct. 367, 38 L. Ed. 195. Whether one is an indispensable party, or a mere formal party, depends upon the case made; and a brief reference to the facts in each of these cases will, we think, establish that the decisions are in accord with the principle herein asserted.

In Corbin v. Van Brunt the action was in ejectment by citizens of the state of New York against a corporation of the same state, and individual defendants, residents of other

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