Railroad Reorganization - Stuart Daggett

But while once more progress toward reorganization seemed to have ceased, sensational developments occurred in the factional conflicts to which we have already referred. To Mr. Ives, barred from all participation in the management of the road, denied a salary, and unable to obtain the removal of the receivers by Judge Jenkins, came the idea of appealing to another court. It will be remembered that, the original receivership suit had been instituted in the circuit court of Milwaukee, Wisconsin, and that that court ever since had been regarded as possessing primary jurisdiction. Since no compulsion existed on other courts to recognize this jurisdiction of the Milwaukee court, the orders of which were supreme in its own district only, and the smooth working of the receivership was due to a respect for “comity,” it was possible, as Ives well knew, for any circuit court along the line to throw existing arrangements into the direst confusion. Relying on this fact, President Ives sent the General Counsel of the company to present applications for the removal of the receivers to one court after the other along the road.[620] In September, 1895, judges willing to take jurisdiction were found in Seattle, in the far northwestern corner of the United States.[621] Petition was made in two parts: first, that the Seattle court take jurisdiction; second, that it remove Messrs. Oakes, Rouse, and Payne. Judge Hanford of the Federal Court of the Washington District called Judge Gilbert of the United States Circuit Court to sit with him, and deciding on the question of jurisdiction first, according to the request of the receivers, the two judges held that the principle of comity did not of necessity apply in the Northern Pacific case because no part of the railroad was within the jurisdiction of Judge Jenkins’s court, and any court along the road could more properly and efficiently administer the trust. The court, therefore, directed the receivers to answer the charges of malfeasance, and to file their answers in Seattle by October 2; also to file their accounts with the clerk of the court at Seattle,[622] and to file each a $100,000 bond.[623]

The result was the prompt resignation of the receivers, who in a letter to Judge Jenkins made their feelings clear. “Your receivers manifestly cannot administer the trust,” said they, “with justice to the parties interested, or themselves, if subject to the orders and instructions as to the general administration from two or more independent tribunals. We cannot abide, nor can we ask our sureties to abide, the danger of the differences of opinion between courts, each assuming to be controlling as to the expenditures of the receivership in the general administration, in view of the immensity of the interests involved.... Unless your receivers recognize, as they understand it, that that honorable court [the Seattle court] is the court of primary jurisdiction they will of necessity be in contumacy.... Your receivers are not willing under any circumstances to file an additional bond in such jurisdiction, nor are they willing to put themselves in a position to endanger their right to challenge the jurisdiction of that honorable court.”[624] Judge Jenkins accepted the resignations and appointed Messrs. McHenry, chief engineer of the Northern Pacific, and Bigelow, a Milwaukee banker, receivers.[625] The hitherto respected principle of comity had, however, lost all force. On September 30 Judge Sanborn at St. Paul confirmed Judge Jenkins’s appointments for the states of Minnesota and North Dakota; on October 1 Judge Hanford at Tacoma refused to accept the resignation of the old receivers, but removed them and appointed Andrew F. Burleigh for the district of Washington; on October 2 Judge Billinger concurred in Burleigh’s appointment for Oregon; on October 7 Judge Knowles at Helena, Montana, confirmed the above for the districts of Washington and Oregon, and appointed Captain J. H. Mills and E. L. Bonner for the district of Montana; and in the week ending October 26 Judge Beatty appointed Burleigh receiver for Idaho. The only conservative action was that of Judge Lacombe in New York, who deferred his appointments as often as the matter came before him, in the hope that the Western judges would come to an agreement.

The situation at the end of October, 1895, was as follows: in Wisconsin, Minnesota, and North Dakota there were two receivers, Messrs. McHenry and Bigelow; in Montana there were three receivers, Messrs. Mills, Bonner, and Burleigh; and in Idaho, Washington, and Oregon there was one receiver, Andrew F. Burleigh. It was a condition of affairs which could not be endured. In each of the Western States orders were made compelling all agents or persons connected with the road to deposit all money collected in that state, and it was at any time in the power of the receivers in any state to appoint operating officers distinct from those managing traffic over the other parts of the line. On January 9, 1896, Judge Gilbert simplified the situation by retiring Messrs. Mills and Bonner, and by appointing Andrew F. Burleigh sole receiver for the district of Montana. This reduced the number of receivers to three, and left Burleigh in control of the road west of North Dakota, and McHenry and Bigelow in control of the rest. Application was now made to the Supreme Court of the United States, and on January 28, 1896, four justices of this tribunal, acting as justices assigned to the several districts in which the Northern Pacific Railroad Company had property,[626] decided that Judge Jenkins’s court for the Eastern District of Wisconsin should be considered the court of primary jurisdiction, and issued each an order to this effect to take effect in his particular circuit.[627] The various circuit judges hastened to conform. On February 21 Judge Lacombe confirmed the appointment of F. G. Bigelow and E. H. McHenry as receivers for the Second Judicial District, and similar action had by then been taken by the judges of the other districts except that of the state of Washington. There Judges Gilbert and Hanford refused to discharge Burleigh, although recognizing that the general orders for the management and control of the railroad property were henceforth to issue from Judge Jenkins’s court.[628] The judicial strife was thus at an end. President Ives obtained the removal of the receivers to whom he particularly objected, but did not overthrow the authority of the Milwaukee court, nor secure any material gain to compensate for the great trouble which he caused.

With the receivership tangle straightened out it became possible to proceed again with the work of reorganization, and on March 16, 1896, the final plan was published, endorsed not only by the Adams Committee, but by President Ives and his Stockholders’ Protective Committee, and by other important interests as well. The feeling had become general that some action should speedily be taken, and that it was in the interest of all parties that the factional conflicts which had raged so long and with so little result should cease. Reorganization was proposed on the following basis:

(a) The abandonment of Chicago as the eastern terminus, and the limitation of the railway on the east by the Mississippi River and the Great Lakes;—the bonds and stocks of the Chicago & Northern Pacific and of the Chicago & Calumet Companies to be sold.

(b) The ultimate union of the main line, branches, and terminal properties through direct ownership by a single company.

(d) Ample provision for additional capital as required in a series of years for the development of the property and for the greater facilities necessitated by an increased business.

There were to be issued:

$130,000,000 in prior lien 100-year 4 per cent gold bonds, to be secured by a mortgage upon the main line, branches, terminals, land grant, equipment, and other property embraced in the reorganization ... and ... thereafter acquired.[629]