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    PETERSON v. CHICAGO, R I & P R CO, 205 U.S. 364 (1907)

    U.S. Supreme Court

    PETERSON v. CHICAGO, R I & P R CO, 205 U.S. 364 (1907)

    205 U.S. 364

    AUGUSTA A. PETERSON and Ida Peterson, a Minor, Plffs. in Err.,
    v.
    CHICAGO, ROCK ISLAND, & PACIFIC RAILROAD COMPANY.
    No. 225.

    Argued and submitted March 6 and 7, 1907.
    Decided April 8, 1907.

    Statement by Mr. Justice Day:

    This case comes here upon a certificate from the circuit court of the United States for the northern district of Texas, raising the question of the jurisdiction of that court over an action brought by plaintiffs in error, Augusta A. Peterson and Ida Peterson, the latter a minor, suing by her mother and next friend, and both being citizens of Texas, against the Chicago, Rock Island, & Pacific Railroad Company, an Illinois corporation.

    The plaintiffs in error, wife and daughter of one John Peterson, an employee of the Pacific company, sought recovery for the alleged negligent killing of said John Peterson while engaged as an engineer in its employ at Chickasha, in the Indian territory, on October 19, 1903. It is charged in the petition that the Pacific company was then engaged in carrying on its business in the state of Texas in the name and through the Chicago, Rock Island, & Gulf Railroad, a corporation of the state of Texas, which latter corporation, it was alleged, was [205 U.S. 364, 365]   an auxiliary corporation and agent of the defendant, and was then and there dominated and controlled by it, its lines of railroad being operated by the Pacific company as a part of the Rock Island system.

    It was charged that S. B. Hovey, vice president and general manager of the Gulf company, residing in Tarrant county, Texas, was also the general manager and local agent of the Pacific company in that state. It was also alleged that F. E. Merrell was the local agent in Tarrant county, Texas, of the Pacific company, and that M. E. Sebree was the local agent for it in said county and state.

    Service of citation was made on the defendants by serving the parties above named as its agents in Tarrant county, Texas, in pursuance of the statute of the state. The defendant moved to quash the service on the ground that none of the parties were such agents, and filed in support of its motion the affidavits of each,-Hovey, Merrell, and Sebree,-denying such agency. Thereafter plaintiffs made application for additional process in pursuance of a later statute of the state of Texas, to be hereinafter noticed, and charged that A. L. Thomas, who resides in Tarrant county, Texas, was a train conductor engaged in handling trains over the tracks of the Gulf railroad in the state of Texas and over those of the Pacific railroad beyond the limits of the state, and that he was engaged in running and handling passenger trains on the tracks of both said companies on both sides of the state line, and is an agent and representative of the defendant company, residing in Tarrant county, Texas. It was further charged that V. N. Turpin, who resides in Fort Worth, Tarrant county, Texas, was a ticket agent engaged in the selling of tickets and the making of contracts for transportation and for and in behalf of the Pacific company from the city of Fort Worth, Texas, over the lines of the Gulf company, in the state of Texas, and over the line of the defendant company beyond the line of said state, and was an agent and representative of the defendant company in said state and county. [205 U.S. 364, 366]   These persons, Thomas and Turpin, were accordingly served under the application for new process as the agents and representatives of the defendant company in the said county and state.

    The defendant company filed a supplemental motion to quash this service upon the grounds that these persons were not the agents or representatives of the defendant company, filing their affidavits in support of said motion. In the return of the writ served on Hovey it was also set forth that he was general manager of the Pacific company, residing in Tarrant county, Texas. The motion and supplemental motion to quash the service was heard by the court, the motion sustained, and the cause dismissed for want of jurisdiction, the court holding that the defendant had not been properly served with process.

    From the stipulated facts, documentary evidence, and testimony embodied in the bill of exceptions, the following facts, pertinent to the determination of the issues, may be gathered:

    The Pacific company and the Gulf company are both of the 'Rock Island system' of railroads. The second annual report of the 'Rock Island company' (June 30, 1904) shows that it is the owner of the entire capital stock, except directors' shares, of the Chicago, Rock Island, & Pacific Railroad Company, a corporation of Iowa; that company owns 695,574.75 shares of the capital stock of the Chicago, Rock Island, & Pacific Railway Company, a corporation of the states of Illinois and Iowa, and 286,349 shares of the common capital stock of the St. Louis & San Francisco Railroad Company, a corporation of the state of Missouri, and the report adds:

    This report purports to be made by order of the board of directors, was dated October 17, 1904, and was signed by Robert Mather, president. Appended to this report, as a part of it, under the head of 'Statements and Exhibits, Rock Island System Lines,' was the following statement, to wit:

    The Chicago, Rock Island, & Gulf Railway Company:

    Terral, I. T. (Red River), to Dallas, Texas 126.67 Bridgeport, Texas, to Graham, Texas 53.29 Texhoma, O. T., to Bravo, Texas-New Mexico state line 91.75 Texola, O. T. (Texas state line), to Amarillo, Texas 112.97 ___ Total, Chicago, Rock Island, & Gulf Railway Company 386.68"

    Plaintiff also introduced in evidence a railroad folder, dated July 10, 1904, on which was printed in large letters, 'Rock Island System Time- table,' in which appears the names of the Chicago, Rock Island, & Pacific Railway Company, Chicago, Rock Island, & El Paso Railway Company, and the Chicago, Rock Island, & Gulf Railway Company, with a list of the names and residences of the passenger and freight agents, and a schedule of the passenger trains on said linnes. [205 U.S. 364, 368]   On the inside of the cover of the folder is a map showing the lines of the said railroad company, so connected as to belong to one system. Below the map is printed:

    The origin of the Gulf company is thus stated in the annual report of the Rock Island road, June 30, 1904:

    Plaintiffs also introduced in evidence the twenty-fourth annual report of the Pacific company for the year ending June 30, 1904, in which it is set forth:

    Mileage Operated. The Chicago, Rock Island, & Pacific Railway 6,760.74 The Chicago, Rock Island, & El Paso Railway 111.50 The Chicago, Rock Island, & Gulf Railway 386.92

    Yarnall, Texas, to Amarillo, Texas 108,615 64 Jacksboro, Texas, to Graham, Texas 32,138 96 [205 U.S. 364, 370]   Red River to Fort Worth, Texas 28,013 04 Texhoma (Texas state line) to Bravo, Texas 9,646 03 Texola (Texas state line) to Yarnall, Texas 2,328 30

    System Mileage Under Construction.

    By the Chicago, Rock Island, & Gulf Railway Company:

    Amarillo, Texas, to Texas-New Mexico boundary 69.87

    Upon the hearing counsel made an agreed statement of facts, as follows:

    [The list shows that of the 754 shares subscribed, 745 were held by one of the attorneys of the Pacific company, and of the other nine shares, three were held by other employees of that road.]

    [Exhibits A and B are not printed, as they are the contract and cancelation thereof, both made before the present case arose.]

    [The list is not printed, as the record discloses that, except directors' shares, the stock is held for the Chicago, Rock Island, & Pacific Railway Company.] [205 U.S. 364, 378]   'The Chicago, Rock Island, & Gulf Railway Company is operating under a lease that part of the line of the Chicago, Rock Island, & Pacific Railway Company which begins at the north boundary line of the state of Texas, extending northward to the town of Terral, Indian territory, a distance of about one and one-sixth miles.

    A. L. Thomas 'was, at the date of said service, and is now, and has for many years been, a conductor running on and handling passenger trains for the defendant, the Chicago, Rock Island, & Pacific Railway Company, the Chicago, Rock Island, & Texas Railway Company, and later on the Chicago, Rock Island, & Gulf Railway Company, after its purchase of the Texas company, running and handling such trains between Fort Worth, Texas, and Caldwell, Kansas. That the run of said Thomas is now and has been from Fort Worth, Texas, to Caldwell, Kansas, as aforesaid, on both sides of the state line, and that Caldwell, Kansas, is the end of the first passenger division on said lines north of Fort Worth. And it is further agreed that V. N. Turpin, upon whom process was served herein as the ticket agent of the defendant company, was, at the date of the service of said process and has been for a long time, ticket agent of the Chicago, Rock Island, & Gulf Railway Company at Fort Worth, engaged in selling tickets for the said Chicago, Rock Island, & Gulf Railway Company, over its lines and also over the lines of the Chicago, Rock Island, & Pacific Railway Company and all of its connections. It is further agreed that the facts are that 'Thomas is carried on the Pacific company's pay roll and paid for services rendered while on that company's line north of the Texas state line; and is carried on the Gulf company's pay roll and paid by the Gulf company for services rendered on its line south of the Texas state line; and that Turpin is carried on the Gulf company's pay roll alone, and is not carried on the Pacific company's pay roll, and is not an agent of the Pacific company, unless the above-stated facts make him one."

    The annual report of the Pacific company shows that the board of directors of said company consists of thirteen members, with an executive committee of eight members. [205 U.S. 364, 382]   The report of the Rock Island company shows that the board of directors of said company consists of sixteen members and its financial committee of six members.

    Eleven members of the board of directors of the Pacific company are also members of the board of directors of the Rock Island company. Five members of the executive committee of the Pacific company are also members of the finance committee of the Rock Island company. The officers of the Rock Island company, with two exceptions, are also officers of the Pacific company, and a majority of the officers of either said companies are common to both of them.

    S. B. Hovey, upon whom service was made as aforesaid, was also produced as a witness, and testified that at the time of the service of citation upon him he was the vice president and superintendent of the Gulf railroad company, and resided at Fort Worth, Texas; that he held the same position in the Chicago, Rock Island, & Texas Company before it acquired the Gulf company, and before that time he had been for many years an employee of the Pacific company; that the train despatcher of the Pacific company, located on its lines at Chickasha, in the Indian territory, is also train despatcher of the Gulf company. He was a 'joint man,' as the trains were operated by the same crews across the Texas state line without stopping; that the movements of trains on the Gulf route are directed from Chickasha as are those on the line of the Pacific company after they cross the state line going northward. The daily reports of the cars on the Gulf line are made to the chief despatcher at Chickasha; that the business could not be handled in any other way.

    Settlements between the two companies are made on a mileage basis. Reports are made by the officers of the Gulf company to Mr. Winchel, who is president of the Gulf company and of the Pacific company. The Gulf company keeps a fund on deposit with the Pacific company at Chicago and receives interest thereon; that when the defendant company [205 U.S. 364, 383]   constructed its line of road across the Red river in 1892 the Texas company was organized, and the Pacific company furnished the money with which the road was constructed south from Red River to Fort Worth. Most of the directors of the Texas company were employees of the Pacific company. No dividends were paid on the stock of the Texas company, and when the Gulf company took over its property the directors surrendered their stock in the old company and got back their $5.00 each; that the transfer to the Gulf company of the Texas road, the El Paso road, and the Mexico road was for the purpose of consolidating these roads and getting under one management the management of the system. The employees who run over both the Pacific and Gulf lines while in Texas are employed and discharged by the latter company; north of the Texas line they are employed and discharged by the Pacific company; the operation of trains was then as it had been before the Rock Island & Texas road ceased to exist; that the Pacific company did not pay any part of the salaries of the heads of the departments of the Gulf company,-none for the general office. It, the Pacific company, pays the train men according to the number of miles run on its rails. The Gulf company pays the expenses of the men while on the rails of that company according to the number of miles run; that the Rock Island & Gulf Company had separate cars, servants, and agents of its own; that the Gulf company lines booked trains daily between Fort Worth and its northern terminus and back, which trains do not run on the lines of the Pacific road. He also testified that the lines mentioned on the Rock Island folder as constituents of the Rock Island system, namely, the Chicago, Rock Island, & Mexico; the Chicago, Rock Island, & El Paso; the Choctaw, Oklahoma, & Gulf; the Chicago, Rock Island, & Texas; and the Chicago, Rock Island, & Pacific, were not operated as one road, but were operated separately; that the revenues were divided, just as revenues earned by the Chicago, Rock Island, & Gulf and T. & P. would be divided; that they were [205 U.S. 364, 384]   divided on a mileage basis; that no reports were made by the Gulf company to the head of the traffic department of the Pacific company; that reports were made by the Gulf company to the president of the Gulf company, who was also president of the Pacific company; that no representative of the Pacific company was sent to examine the books of the Gulf company further than just as a representative of any other connecting line would occasionally check up business with the Gulf company; that the books of the latter company had never been audited from the Chicago office; that there was no contract between the Gulf company and the Pacific company, except a traffic agreement as to the division of rates, made by the general freight agent of each line, of the same character of contract which exists between the Gulf company and other line with which it interchanges business; that the Gulf company owned about 1,500 or 1,600 freight and cattle cars and about twenty engines, which were marked C. R. I. and G.; the train despatcher has no power to furnish cars on the Gulf road if I instruct him not to do so; that since he had been vice president of the Gulf company he had had no connection whatever with the Pacific company and no duties to perform with any other railroad than the Gulf company; that for traffic hauled over the two lines the Gulf company received the amount agreed upon by the general freight agents in the same manner that the Gulf company and the T. and P. divided the revenues; that neither road pays any part for moving freight over the other line, nor pays any part of the loss sustained while in the hands of the other company by damage to freight; that the Gulf company has on deposit with the Pacific company several hundred thousand dollars, for which it receives 6 per cent interest per annum. When needed it is checked out.

    A copy of the folder of the 'Rock Island system's' lines was sent up with the record. A copy of the map shown on the folder is printed on the freight window of the office of the agent of the Gulf company and calendars with that map [205 U.S. 364, 385]   printed on them are distributed for the purpose of advertising the system lines.

    Messrs. D. T. Bomar, S. W. Stewart, J. A. Templeton, and Sam J. Hunter for plaintiffs in error.

    [205 U.S. 364, 386]   Mr. M. A. Low for defendant in error.

    Mr. Justice Day delivered the opinion of the court:

    [205 U.S. 364, 388]   This case presents a question of jurisdiction to be determined as one of fact. It may be divided into two propositions: First. Was the Pacific company doing business in the state of Texas? Secondly. If so, were the alleged agents served with process in the state of Texas duly authorized as such, and competent to be thus served, in such wise as to give jurisdiction of the Pacific company?

    The statutes which concern service on corporations in the state of Texas are as follows (Sayles' Texas Civil Statutes): [205 U.S. 364, 389]   Art. 1194, 25. Foreign private or public corporations, etc.-Foreign private or public corporations, joint stock companies, or associations, not incorporated by the laws of this state, and doing business within this state, may be sued in any court within the state having jurisdiction over the subjectmatter, in any county where the cause of action or a part thereof accrued, or in any county where such company may have an agency or representative, or in the county in which the principal office of such company may be situated; or, when the defendant corporation has no agent or representative in the state, then in the county where the plaintiffs or either of them reside.'

    By the act of March 13, 1905 (General Laws of Texas, 1905, p. 30), an additional method of serving foreign corporations was provided as follows:

    It is settled by the decisions of this court that foreign corporations can be served with process within the state only when doing business therein, and such service must be upon an agent who represents the corporation in its business. St. Clair v. Cox, 106 U.S. 350 , 27 L. ed. 222, 1 Sup. Ct. Rep. 354; Goldey v. Morning News, 156 U.S. 518, 521 , 522 S., 39 L. ed. 517, 519, 15 Sup. Ct. Rep. 559; Conley v. Mathieson Alkali Works, 190 U.S. 406 , 47 L. ed. 1113, 23 Sup. Ct. Rep. 728.

    It is contended upon the part of the plaintiffs in error that the Pacific company was doing business in the state of Texas, because of a partnership arrangement with the Gulf company, or because the latter company was the agent of the Pacific company, or, as is sometimes said, the representative of the Pacific company in the state of Texas. As to the question of partnership, we do not think this record presents a question of that sort. The suit is not for a partnership liability. It is an action upon a single cause of action for the tort of the Pacific company. Service is not had by serving one partner. The real contention is that the service reaches the Pacific company because of the agency or representative character of the Gulf company.

    Is it true that the Gulf company was the agent of the Pacific company or its mere creature in such a sense that to serve it is equivalent to serving the controlling company? It is a fact that both companies had common agents and employees to a certain extent, but the record shows that such employees were paid in proportion to the business done for each company. And that while in the service of the companies respectively they were under the exclusive management and control of the company in whose service they were engaged, with no [205 U.S. 364, 391]   power to discharge or employ the one company for the other; and that, although the service was in a sense common, it was kept distinct and separate in the control and payment of the employees while in the separate service of the respective companies.

    It is true that the Pacific company practically owns the controlling stock in the Gulf company, and that both companies constitute elements of the Rock Island system. But the holding of the majority interest in the stock does not mean the control of the active officers and agents of the local company doing business in Texas. That fact gave the Pacific company the power to control the road by the election of the directors of the Gulf company, who could, in turn, elect officers or remove them from the places already held; but this power does not make it the company transacting the local business.

    This record discloses that the officers and agents of the Gulf company control its management. The fact that the Pacific company owns the controlling amount of the stock of the Gulf company and has thus the power to change the management does not give it present control of the corporate property and business. Pullman's Palace Car Co. v. Missouri P. R. Co. 115 U.S. 587, 597 , 29 S. L. ed. 499, 502, 6 Sup. Ct. Rep. 194.

    In Conley v. Mathieson Alkali Works, supra, suit was brought upon a contract with the Mathieson Alkali Works. The defendant had designated no agent upon whom summons could be served, and service was made upon two members of the board of directors resident of the city of New York. Upon motion made to set aside the service of summons a reference was directed to ascertain whether the defendant corporation was doing business in the state of New York. The master reported, among other things, that the defendant had operated a plant at Niagara Falls, but had conveyed all its property to another corporation organized under the laws of Virginia. That the consideration expressed for the conveyance was $1 and other valuable consideration, but the substantial consideration was the entire capital stock of the [205 U.S. 364, 392]   grantee, the Castner Electrolytic Alkali Company. That the business of the defendant since said transfer was carried on in Providence, where it had its principal place of business. The master found that the company at the time of attempted service was not doing business in New York. Of the effect of the transfer of the entire stock of the new company to the defendant the master found: 'The fact that it held the entire capital stock of the Castner Electrolytic Alkali Company, and that the operations of that company were carried on under the same management as before December 31, 1900, is not material. The new corporation was a separate legal entity, and, whatever may have been the motives leading to its creation, it can only be regarded as such for the purposes of legal proceedings. It was that corporation alone which transacted any business in this state, notwithstanding it may have been for all practical purposes merely the instrument of the defendant corporation. People v. American Bell Teleph. Co. 117 N. Y. 241, 22 N. E. 1057; United States v. American Bell Teleph. Co. 29 Fed. 17.'

    Upon exceptions the master's report and conclusions were affirmed and the service set aside. That judgment was affirmed in this court. In the course of the opinion, Mr. Justice McKenna, speaking for the court, coming to deal with the effect of the transfer to the Castner Company, said: 'The defendant was competent to convey its property to the Castner Electrolytic Alkali Company and afterwards make the locality of its own business Providence and Saltville. Whether the transfer to the latter company was fraudulent we certainly cannot decide from this record, and the by-law which provided for a monthly meeting in New York could not of itself keep the corporation in New York. The testimony is positive that no business of the corporation was done in New York city after the transfer of the Niagara Falls plant; and that all of the business of the corporation was conducted at Providence, except that of a purely manufacturing character, which was conducted at Saltville. [205 U.S. 364, 393]   So, in the case at bar, notwithstanding the ownership of the stock in the Gulf company by the Pacific company, the former company transacts the business in Texas, and is a separate legal entity, authorized under the laws of Texas and legitimately carrying on business there.

    There is no evidence that the Pacific company may not lawfully hold the stock of the Gulf company, and under the statute of Illinois it seems to be authorized so to do. 3 Starr & C. Anno Stat. (Ill.) p. 3229. It is true that the Pacific company loaned the money to build the road of the Texas company, predecessor of the Gulf company. But, as was well observed by Judge (afterwards Justice) Jackson in United States v. American Bell Teleph. Co. supra: 'For one person to supply means for another to do business on is not the doing of that business by the former.'

    The conduct and control of the business in Texas was intrusted to the Gulf company. As the largest stockholder the Pacific company had an interest in that business, but a separate corporation had been legally created in Texas, with authority to make contracts and control its own affairs and carry on its own business. This separate corporation had its own officers, a large amount of its own property, was responsible for its contracts and to persons with whom it dealt.

    Nor do we think that the persons served with process are agents of the Pacific company doing the business of the company in Texas. Section 2 of the act of March 13, 1905 (Laws of Texas, 1905, p. 30), is very broad, and would seem to comprehend conductors who handle trains for two or more corporations over foreign or domestic roads across the state lines of Texas and on the track of a domestic railroad within the state of Texas, or upon any agent who has an office in Texas and who sells tickets or makes contracts for the transportation of passengers or property over any line of railroad or part thereof of any such foreign corporation or company; and such companies and agents, by 3 of the act, are made agents of the foreign corporation or company, upon whom the cita- [205 U.S. 364, 394]   tion may be served. But it is essential to the validity of such service that the corporation shall be doing business within the state, and that the service be upon an agent representing the corporation with respect to such business. Goldey v. Morning News, and Conley v. Mathieson Alkali Works, ubi supra.

    The conductors, one of whom was served, when he crossed the Texas line, this record shows, became the servant and agent of the Gulf company. The ticket agent sold tickets for the Gulf company, in whose employment he was. He would also sell tickets good upon its line and over the lines of the Pacific company, but he transacted this business as the agent of the Gulf company. As to Hovey, the record fails to show that he was agent of the Pacific company; on the contrary, it shows that he had no connection with the company, and that his duties were confined to the affairs of the Gulf company. The same is true of Merrell, and as to Sebree, the record shows that for the services rendered as trainmaster he was paid by each company for the service performed by it and had no charge as agent of the business of the Pacific company in the state of Texas.

    We reach the conclusion that the Pacific company was not doing business in the state of Texas, and that the attempted service was not upon agents of that company transacting its business in that state in such a sense as to give jurisdiction by service of citation upon them. The judgment of the Circuit Court is affirmed.

    Dissenting: The CHIEF JUSTICE and Mr. Justice Moody.

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