Kennedy v. St. Paul & Pacific R. R. Co. (Before DILLON, Circuit Judge.) Land Grant to Railroad Company.—Receiver.—Power to Borrow Money to Complete Line of Road to Save the Land Grant. THIS was a motion by complainants upon bill and affidavits for the appointment of a receiver. The complainants are holders of certain railroad mortgage bonds, and sue for themselves and all other bondholders who may come in and seek relief by the suit. The defendants are, "The St. Paul & Pacific Railroad Company," "The First Division of the St. Paul & Pacific Railroad Company" (both corporations under the laws of Minnesota), George L. Becker, Wm. G. Moorehead, and Horace Thompson, trustees under a certain mortgage for $15,000,000, hereinafter described, certain trustees under other mortgages given by said railroad companies, and "The Northern Pacific Railroad Company." The material facts are substantially as follows, viz: The said St. Paul & Pacific Company was organized under the act of March 10, 1862, and was authorized, inter alia, to construct a railroad from St. Paul, northwesterly, via St. Anthony, to Breckenridge, about two hundred and twenty miles, called the "main line; " with a branch from St. Anthony, up the Mississippi river, to Watab, about ninety miles, called the "branch line; " with a line from Watab, up said river, to Brainerd, about sixty miles, called the "Brainerd Extension;" with a line from St. Cloud, northwesterly, to St. Vincent, near the British Possessions, about three hundred and thirty miles, called the "St. Vincent Extension." Under acts of Congress of March 3, 1857, March 3, 1865, and March 3, 1871, respectively, and various legislative acts of the state of Minnesota, said company was endowed with a land grant of ten sections to the mile, title to vest as often as twenty miles should be completed and equipped. Kennedy v. St. Paul & Pacific R. R. Co. The said First Division Company was created out of said St. Paul & Pacific Company by the issue of special stock under act of the state legislature February 6, 1864, and was vested with all the rights, franchises, and property of said St. Paul & Pacific Company appertaining to said main line, from St. Paul to Breckenridge, and to said branch line from St. Anthony to Watab. Its lines of road are all completed. It stands charged with mortgages as follows, viz: On main line, from St. Anthony to Breckenridge-March 1, 1864, $3,000,000; July 1, 1868, $6,000,000; December 1, 1870, $1,500,000, to one Litchfield. On branch line, from St. Paul to Watab-March 11, 1862, $120,000; June 2, 1861, one for $700,000 and one for $1,200,000; October 1, 1865, $2,800,000. Of the latter class but $780,000 were issued, leaving $2,020,000, for exchange for bonds of the prior issues, making the entire bonded indebtedness on the main line $10,500,000, and on the branch line about $2,800,000. Except the Litchfield mortgage, nearly all of this indebtedness is owned and held in Holland, Europe. In the fall of the year 1870, the east sixty miles of the said main line was uncompleted, and the parties interested in its completion, including said First Division Company, in order to raise money for its completion and at the same time secure the completion of the said St. Vincent and Brainerd extensions, brought about an arrangement between the said two companies as follows, viz: On the 1st of April, 1871, the said First Division Company issued its bonds for $15,000,000, and, to secure said issue, the said St. Paul & Pacific Company mortgaged to said Becker, Moorehead, and Thompson, trustees, all its franchises, rights, and property, including its said land grant, appertaining to said St. Vincent and Brainerd extensions, and executed to said First Division Company a lease, for ninety-nine years, of its road for both of said extensions, and, in consideration thereof, the said First Division Company undertook to negotiate said Kennedy v. St. Paul & Pacific R. R. Co. bonds, and out of the proceeds thereof to construct, complete, and equip the said extensions from St. Cloud to St. Vincent, and from Watab to Brainerd, on or before the 1st day of March, 1873, on which day the aforesaid land grant would lapse by limitation of said acts of Congress. By the terms of said mortgage, the whole proceeds of said $15,000,000 issue were to go to the construction of said extension lines, so much of said scheme as contemplated a diversion of a portion of said proceeds to the said main line not being made public or communicated to the persons who subsequently purchased said bonds. At the same time the defendant, the Northern Pacific Railroad Company, became the owner, by purchase, of all the capital stock of the said St. Paul & Pacific and First Division Companies. Thereupon the said First Division Company constituted the firm of Lippmann, Rosenthal, & Co., of Amsterdam, Holland, its agents, to negotiate said bonds, and prior to January 1, 1872, 10,700 of said bonds for $1,000 each were so negotiated, the proceeds amounting to about $8,000,000, after which time the market fell, and no further bonds could be negotiated. The balance of said bonds are still held by said Lippman, Rosenthal, & Co. agents, who claim to hold them for advances to said First Division Company to the amount of $900,000. Of the money thus realized, twenty per cent was set apart for interest, and, after payment of commissions and other expenses, about $3,000,000 of the remainder was used in the completion of said main line and the payment of interest on the main line mortgage bonds, and the balance was used in the purchase of iron and material and in the payment to contractors for work on said extension lines. In the fall of 1871, the whole work of constructing and completing said extension lines was let to DeGraff & Co. and commenced by them, the iron to be furnished by the First Division Company -the whole work to be completed prior to said March 3, 1873, In July, 1872, the First Divi Kennedy v. St. Paul & Pacific R. R. Co. sion Company failed to meet its engagements to its contractors, and in October of that year was obliged, for want of funds, to order the work stopped, owing to its contractors about $700,000, which was subsequently reduced, by a payment in iron, to about $500,000, which it still owes to said contractors. At the time of such suspension the Brainerd extension was all graded ready for the ties, except about four miles thirty-five miles from St. Cloud westward, and about one hundred and four miles commencing twelve miles south of Glyndon, the point of junction with said Northern Pacific Company, and extending northward-in all about one hundred and thirty-nine miles, was completed, with cars running, leaving about two hundred and fifty-one miles unfinished, but about three-fourths graded. By act of Congress of March 3, 1873, the life of said land grant was extended to December 3, 1873. The said First Division Company, at the time of the hearing (July 29, 1873), had taken no step toward completing said lines, and was insolvent, having a large floating debt and interest coupons under protest. It is admitted, or shown, that the average value of the lands to be secured by the construction of said lines is $6 per acre, and without said lands the security for said bonds of the $15,000,000 issue will be greatly inadequate, and the holders thereof must suffer great and irreparable loss. Nearly the whole of said last-named issue of bonds are held in Holland, and the complainants are holders of some of them, as well as holders of some of the bonds of all of said issues except the Litchfield mortgage. Said complainants claim to represent all of the Holland holders of said $15,000,000 issue, and produce specific authority, by cable, from Amsterdam, from such holders, to the amout of $11,622,750 thereof. They also claim, that by reason of the insolvency of said First Division Company, and of various fraudulent and improper acts of its managing officerswhich are not here recited, because the court does not deem Kennedy v. St. Paul & Pacific R. R. Co. them material to the real merits of the application — that a receiver should be appointed for all the lines of said First Division Company, as well as of said extension lines; and they claim as part of the relief to which they are entitled, that the court should charge the sum of $3,000,000, which was so diverted from said extension lines to said main line, as a specific lien upon said main line in favor of said extension lines, to take precedence of the mortgages upon said main line. They also ask that said receiver be authorized to borrow money sufficient to complete said extension lines by the 3d day of December next, and secure the same by debentures, to be a lien upon said extension lines and the lands belonging thereto, to take precedence of said mortgage thereon, and with such money to complete said lines and secure said lands without delay. George L. Otis, J. M. Gilman, and James Gilfillan, for the plaintiffs. Messrs. Bigelow, Smith, Cuyler, and Gray, for the several defendants. DILLON, Circuit Judge.—I am of opinion, upon the facts shown by the pleadings, exhibits, and affidavits, that the plaintiffs are entitled to a receiver as respects the St. Paul & Pacific Company, but not as respects the other defendants. The application has been earnestly pressed as against the First Division Company on the ground of the diversion of the loan for the benefit of that company. But it appears that the road of this company is mortgaged probably to its full value to bona fule holders of bonds who had no notice of the equity set up by the plaintiffs. The contingency of the plaintiffs establishing an equitable lien upon the road of the First Division Company, as against its mortgage bondholders, is so improbable as to render it quite clear that the |