
    The State, ex rel. Crabbe, Atty. Genl., v. The Indiana, Columbus & Eastern Traction Co.
    
      Quo warranto — Ouster of interurban traction company from franchise — State court mthout jurisdiction where federal court obtained prior juiisdiction — Federal recewer in foreclosure proceeding operating traction company — Noncompliance with franchise paving provisions caused by federal court.
    
    An action in quo warranto was instituted in a state court for the purpose of forfeiting the charter of an interurban traction company and of ousting it from its corporate franchises, including its right to operate within certain city limits, for the reason that the corporation had, under express provisions of the local city franchise, forfeited the same together with its right to operate within said city. In the action it was developed by the pleadings and proof that, prior to the bringing of the quo warranto suit, the property of the traction company had been placed in the custody of a federal court in a foreclosure proceeding and that the same was in the possession of and was being operated by a federal receiver under the decrees of that court. Held:
    
    1. Under the casé presented a judgment of ouster from operation under the local city franchise or the appointment of a receiver by the state court would in effect interfere with and disturb the jurisdiction and custody of the federal court; and that court having obtained prior jurisdiction and custody of the corporate property, such property and the method of its operation is withdrawn from the jurisdiction of the state courts.
    2. The gravamen of this action, as presented, is based upon ,a forfeiture by the traction company because of the latter’s noncompliance with express provisions of a local city franchise relating to street paving and street car service. The record does not disclose any default upon the part of the corporation with respect to those provisions prior to the time the federal court assumed jurisdiction over the corporate property and its method of operation. The alleged noncomplianee with the terms of the local franchise was caused, not by the act of the corporation, but by the federal court after it assumed jurisdiction. For that reason a writ of ouster as prayed for should not issue.
    (No. 19846
    Decided May 18, 1927.)
    In Quo Warranto.
    Suit was instituted in this court by the state of Ohio, on the relation of the Attorney General, against the respondent, which is an interurban electric railway operating between Columbus and Lima, Ohio, a part of its route extending through the city of Bellefontaine in this state.
    The cause was submitted to this court upon the pleadings and evidence, the pleadings consisting of relator’s petition, the answer of the respondent, and the reply thereto. Relator’s petition recites the incorporation of the respondent, and that on or about April 25, 1908, it acquired a franchise from the city of Bellefontaine, which is set forth at length, the pertinent portions of which will be later referred to. The petition further recites that on or about November 9, 1925, pursuant to a petition filed, signed by residents residing along Main street in said city between Sandusky and Rush avenues, the city council passed a resolution finding and declaring the necessity of improving said Main street between Sandusky and Rush avenues by paving the same with cement, and that the city engineer was instructed to prepare plans and specifica: tions for the improvement, which were later duly filed and approved by the city council; that on or about February 22, 1926, tbe city council passed an ordinance providing for tbe improvement, and for tbe issuance of notes tberefor, to be sold for tbe creation of a fund to pay for tbe proposed improvement in anticipation of bonds thereafter to be issued, and that tbe notes were sold, moneys received, and tbe funds placed in tbe city treasury. Further allegations were made, showing tbe legality of tbe proceeding of the city council in that respect. Tbe petition further recites that bids were thereafter received and a contract made with tbe city for tbe construction of tbe improvement according to tbe plans and specifications referred to; that it was provided that tbe improvement should be completed on or before August 21, 1926; that the portion of Main street to be improved was closed to traffic and possession thereof delivered to tbe contractor, who proceeded with tbe improvement by excavating and removing certain portions of tbe surface of tbe street; that tbe respondent was notified to proceed with its part of tbe construction of tbe street’s superstructure in accordance with tbe franchise it had theretofore obtained from tbe city. Tbe •petition alleges that tbe respondent refused to perform its part of tbe improvement, as provided in its franchise, and that by reason thereof tbe street has become impassable and the property owners along the same are denied ingress and egress thereto; that tbe street is being left, by reason of excavations already made, in a condition wherein pipes and mains are exposed to serious injury, and water and fire protection service are endangered.
    Tbe petition further alleges that in violation of tbe provisions of its franchise tbe respondent, without the consent of the city, “discontinued the operation of the city car, * * * and are continuing to refuse to furnish and afford to the city the city car service provided for in said franchise.” It further recites that a large number of citizens who had been using said city car service as their means of transportation have been deprived thereof by reason of the failure and refusal upon the part of the respondent to afford said car service. It also alleges that the franchise under which the respondent operates, contains the following provision:
    “If said company, its successors and assigns, shall at any time fail or refuse to comply with any of the terms or provisions of this ordinance, then all the rights and provisions herein granted shall be forfeited, and the city of Bellefontaine shall have the right to enter upon and have full possession of said streets or public grounds to the exclusion of said company, its successors and assigns.”
    The two provisions, contained in the franchise ordinance passed by the city council, upon the violation of which the relator claims the right to forfeiture, were: (a) That the respondent at its own expense, is required to “pave in such manner and with such surface or foundation, as the council may order, all the space between its track and eighteen (18) inches on the outside of the outer rail thereof;” and (b) that the grantee, its successors and assigns should “provide a separate local street car service within the corporate limits of the city of Bellefontaine to accommodate and take care of all local traffic in said city with a schedule not less frequent than 30 minutes” between 6 a. m. and 10:15 p. an., which service was to continue in operation until changed or abolished by the consent of the city council.
    Because of the noncompliance of the respondent with these two provisions of the franchise, the relator, relying upon such provisions for forfeiture, brought this action in quo warranto, praying:
    “That the defendant be adjudged to have forfeited its charter and franchise, and all rights thereunder and incidental thereto, and that it be ousted from further operation of its interurban lines within the territory of the city of Beliefontaine; that its charter be declared forfeited, and that a receiver be appointed to accomplish and effect all things incidental to the order of ouster herein prayed for. ’ ’
    Relator further prayed for any other or proper relief to which he may be entitled in this proceeding.
    The respondent admits that the provisions with reference to paving and 30-minute street car service, and also the clause relating to forfeiture, as pleaded in the petition, were included in the franchise ordinance of April 25, 1908. It also admits the discontinuance of operation of 30-minute local car service, and that the paving improvement was not complied with according to the city’s specifications. However, as a defense to the quo warranto action, the respondent alleges that the franchise acquired in 1908 expires on April 25, 1933, and that the life of the improvement provided for in the proceedings of council would extend beyond the term of the franchise. The answer further alleges that on January 25, 1921, an action for foreclosure of mortgage and general equitable relief was brought in the District Court of the Northern District of Ohio, Western Division, against the respondent and others, and that on that date a decree was issued by said court appointing a receiver for the respondent company, who ever since has been and is now in the control and possession of respondent’s property and its operation under the jurisdiction of the federal court. This decree is fully set forth in the answer and discloses that one McClure was appointed receiver, “with power to hold, preserve, manage, control and operate said railway,” and that the respondent, its officers and agents, were required to deliver all of respondent’s property to the receiver, who was “empowered to properly operate said property,” and that respondent was enjoined “from interfering in any way whatsoever with the possession or management of any part of the property in the custody of the receiver.” While many of the allegations in the respondent’s answer are mere conclusions, they do assert that all the property of the respondent, including its franchise, is now in custodia legis, and in the custody, control, and jurisdiction of said federal court. It is alleged that the paving by the respondent of said street, according to the specifications of the city council, and its restoration of local street car service, are legally impossible for the reason that both would constitute an interference with operation of the property by the federal court, which expressly enjoined the respondent from interfering in any way whatever with the possession or management of the property in the custody of the receiver. While admitting the discontinuance of the street car service within the city, the answer alleged that this discontinuance was caused by the receiver and not by the respondent, for the reason that said service was conducted at a financial loss because of insufficient patronage by the city’s public. The respondent insists that the acts of the receiver performed under the orders of the federal court could only be questioned by federal jurisdiction.
    A reply was filed by the relator which admitted that the life of the improvement, as provided in the proceedings of the council, would extend beyond the terms of the franchise, if the improvement were made in accordance with the city’s plans. The relator, for want of information, denied the allegations in the respondent’s answer relating to the making of said decree by the federal court, and that the respondent’s property was in the possession, custody, control, and jurisdiction of that court; it therefore demanded proof of that fact. The relator in its reply also alleged that neither the paving improvement nor the street car service would have interfered with the order of the federal court, and for want of information denied that the discontinuance of the street car service was the action of the receiver. It denied that the car was operated at a financial loss, or that its operation would occasion a financial burden in case of its operation by the receiver.
    The cause was submitted to this court on the pleadings set forth and upon the evidence taken upon the facts put in issue by said pleadings.
    
      Mr. E. G. Turner, attorney general, Mr. U. G. 
      
      Hahn, city solicitor, and Mr. J. E. Safer, for plaintiff.
    
      Messrs. Martin & Corry, Messrs. Eagleson & Laylin, and Messrs. West & Campbell, for defendant.
   Jones, J.

It is admitted that the franchise ordinance of April 25, 1908, contained the provisions herein set forth with respect to the paving and the local street car service by the respondent nnder the terms of the ordinance. It is also admitted that said ordinance contained the provisions in respect to the forfeiture of the franchise, as herein set forth. It is also admitted that the life of the improvement contemplated under the proceedings of the city council would extend beyond the term of the franchise, which expires on April 25, 1933.

A great deal of evidence was taken by the parties, much of which is irrelevant in view of the conclusions arrived at by this court. So far as the relevant facts pertain to the issue made by the respondent, they are substantially as follows: The respondent was incorporated and was an interurban electric railway company, operating in the state over a line extending from Columbus to Lima, through Bellefontaine. On January 25, 1921, in a proceeding for foreclosure instituted in the federal District Court of Northern Ohio, the traction company was, by a decree of that court, placed in the hands of a receiver, who, under its decree, took possession of the traction company’s property with full power to operate it; and said property has been ever since and now is under the control of and is being operated by said receiver. By that decree the respondent was restrained from interfering, in any way whatsoever, with the possession or management of the property under the receiver’s control. While the Attorney General objected to the testimony relating to the action of the federal court appointing a receiver, and his subsequent operation of the traction company, this court is of the opinion that such testimony was relevant and admissible. The main legal question presented by the answer is: May the Attorney General oust the defendant from its corporate rights and declare a forfeiture of its charter and franchise under the facts thus presented and proven?

It may not be amiss to detail some of the pertinent facts giving rise to this controversy. As heretofore stated, the provisions contained in the franchise ordinance are admitted. The prior jurisdiction of the federal court, together with its decree taking control of the traction property, and authorizing its operation, are proven. While the Attorney General alleges that respondent discontinued the operation of the city car, and denies that its discontinuance was caused by the receiver, it develops from the testimony that in its decree of May 4, 1926, the federal court instructed its receiver to immediately discontinue the operation of such local car service, “as such operation is unprofitable and constitutes a burden which should not be further continued by the receiver.” Some question is made by counsel for respondent that the proceedings of the city council, beginning November 9, 1925, requiring brick paving, etc., were, not authorized by the original franchise ordinance. However, that question, or the construction of the franchise ordinance in respect to the character of paving, is unimportant for the following reason:' In the fall of 1925 and the spring of 1926, when the city improvement proceedings were pending, differences arose between the city officials and the federal court as to the character and expense of the paving improvement. It is in evidence that the improvement by brick paving would entail a cost to the traction company of from $24,000 to $25,000, and that paving with concrete would be some $1,500 to $2,000 less; the federal judge, because of this expense, and because of the short life of the franchise compared with the much longer life of the improvement, was only willing to improve with less costly material, viz., a tarvia surface, which the engineer employed by the receiver estimated would cost “between $6,000 and $7,000.” While these differences relating to paving were pending, numerous conferences were held between the city officials and the receiver. In response to a request for advice, the judge of the United States District Court, referring to the fact that the expense of permanent paving was not justified because of the brief life of the franchise, announced to the receiver that “the court will not authorize the issuing of receivership certificates for this purpose.” The federal court confirmed this attitude in its decree of May 4, 1926. However, it authorized its receiver to submit propositions to the city council of Bellefontaine for a new franchise acceptable to the federal court.

Whether this action in quo warranto would ordinarily lie where prior jurisdiction of a federal court had not intervened by taking over the possession, control, and operation of the traction utility is not before this court. The relator bases his right to the relief sought here upon the authority of State ex rel. Attorney General v. Columbus, Delaware & Marion Electric Co., 104 Ohio St., 120, 135 N. E., 297. But that case, and the principles there announced, do not apply, for it nowhere appears that any judgment of ouster would affect the prior jurisdiction acquired by a federal court. Nor, for a similar reason, is the case of Ohio ex rel. Attorney General v. Pennsylvania & Ohio Canal Co., 23 Ohio St., 121, germane. In neither case were the jurisdiction and orders of a federal court drawn into question, as in this instance.

It is disclosed by the record that the federal judge will not issue receiver’s certificates for the payment of the paving expense under the city’s plans, for the reason that such expense would be too large an outlay in view of the short life of the company’s local franchise. Manifestly, since the court would not issue such certificates, the collection of the paving expense by the city could only be made by some legal process against the respondent’s corpus now in custodia legis of the federal court. That court had also ordered the receiver to discontinue the local car service, required to be given under the franchise, for the reason that its operation proved unprofitable and constituted a burden upon the corporation. It is impossible to escape the conclusion that the enforcement of the city’s claim by ¡means of this suit would be a direct interference with the custody of the property in the hands of the federal court, and would contravene its orders, should any writ in quo warranto issue and be enforced under our quo warranto statutes.

Counsel for the relator contend that the jurisdiction of the federal court is not exclusive since that court has no power to revoke the charter and franchises of the corporation granted by the state; that a suit for such purpose will lie only in the state court; and that a judgment of ouster ought to issue notwithstanding the previous appointment of the receiver by the federal court. In this connection many cases are cited in support of such contention, special reliance being placed upon the decision of an inferior court of the state of New York, viz., People v. New York City Ry. Co., 57 Misc. Rep., 114, 107 N. Y. S., 247, and upon authorities therein cited. If this court should simply make a decree for the dissolution of the corporation and fail to disturb its assets, it might be true that such a decree would not interfere with the prior jurisdiction of the federal court. But our quo warranto statutes require the administration of the property by trustees in case of ouster and dissolution, and such incidental procedure would directly interfere with the custody of the federal court. And should we appoint a receiver, as prayed for, a conflict would presently arise over the possession of the traction property.

However, since the jurisdiction of the federal court has been drawn in question it may be well to ascertain the decision of our highest federal court upon the subject under consideration. The case of Wabash Rd. Co. v. Adelbert College, 208 U. S., 38, 28 S. Ct., 182, 52 L. Ed., 379, reversing a decision of this court, was reported after the New York Railway case, supra, was decided. A federal court had obtained jurisdiction of railroad property under foreclosure proceedings; thereafter some holders of equipment bonds brought their action in the state court for the purpose of enforcing their lien. In the course of the opinion, Mr. Justice Moody, reviewing the procedure, and upholding the prior jurisdiction of the federal court, said, at page 54, 28 S. Ct., 187:

“When a court of competent jurisdiction has, by appropriate proceedings, taken property into its possession through its officers, the property is thereby withdrawn from the jurisdiction of all other courts. The latter courts, though of concurrent jurisdiction, are without power to render any judgment which invades or disturbs the possession of the property while it is in the custody of the court which has seized it. For the purpose of avoiding injustice which otherwise might result, a court during the continuance of its possession has, as incident thereto and as ancillary to the suit in which the possession was acquired, jurisdiction to hear and determine all questions respecting the title, the possession or the control of the property. * * * Those principles are of general application and not peculiar to the relations of the courts of the United States to the courts of the states; they are, however, of especial importance with respect to the relations of those courts, which exercise independent jurisdiction in the same territory, often over the same property, persons, and controversies; they are not based upon any supposed superiority of one court over the others, but serve to prevent a conflict over the possession of property, which would be unseemly, and subversive of justice; and have been applied by this court in many cases, some of which are cited, sometimes in favor of the jurisdiction of the courts of the states and sometimes in favor of the jurisdiction of the courts of the United States.” Citing cases.

Conversely, it was held by the Supreme Court of the United States that the administration by a state court of the estate in its receiver’s hands could not be interfered with by a court of the United States. Porter v. Sabin, 149 U. S., 473, 13 S. Ct., 1008, 37 L. Ed., 815.

The principle announced by the United States Supreme Court was followed by this court in Board of County Commissioners v. Public Utilities Comm., 107 Ohio St., 442, 140 N. E., 87, 30 A. L. R., 429, wherein the syllabus reads:

“Where an interstate system of interurban railroads is in the custody of a receiver appointed by a federal court in proceedings to foreclose a mortgage, and that court grants an application to abandon a branch line of such system, which branch is wholly within this state, on the ground that it is operated at a loss, such order of the federal court concerning property in its custody may not be disturbed by the state commission or the state courts.”

A case very similar to this arose before the federal Circuit Court of Appeals in Havner, Atty. Gen., v. Hegnes, 269 F., 537, decided about 13 years later than the decision in the New York Railway case, supra. There, a citizen of South Dakota had brought an action in the United States District Court for Northern Iowa, against a corporation organized under the laws of that state, asking for equitable relief and for the appointment of a receiver to take charge of the assets of the corporation. On April 26, 1920, the federal judge issued an order requiring the defendant to show cause why a receiver should not be appointed, as prayed for. Before the time for hearing the application for the appointment of a receiver had expired the Attorney General of Iowa commenced an action in the state court seeking to dissolve the corporation, and a receiver was appointed by the state court. A few days later the federal court made an order enjoining further proceedings in the state court, and ordered the receiver of that court to turn over the property and assets of the defendant to the receiver appointed by the federal court. Appeal was taken to the federal circuit court and the case heard before Judges Sanborn, Carland, and Hunger. Alluding to the contention that is made by counsel for the relator in this case, viz., that the issues and subject-matter involved in the two courts are not the same and that therefore there can be no infringement of jurisdiction between them, Judge Carland quotes with approval the following rule:

“The court which first acquires the lawful jurisdiction of specific property by the seizure thereof or by the due commencement of a suit, from which it appears that it is or will become necessary to a determination of the controversy involved or to the enforcement of its judgment or decree therein for the court to seize, to charge with a lien, to sell, or to exercise other like dominion over it, thereby withdraws that property from the jurisdiction of every other court so far as necessary to accomplish the purpose of the suit, and entitles that court to retain control of it requisite to effectuate its final judgment or decree therein free from the interference of every other tribunal. ’ ’

The federal court, although holding there might be no conflict of jurisdiction as to the causes' of action, held there wa.s a conflict relating to the res, and that the court first acquiring actual and constructive possession of the property and assets of the corporation had the right to-retain the same to the exclusion of all other courts. The injunction allowed by the lower court against the receiver of the state court, respecting the possession of the property, was allowed to stand.

Some question is ¡made by counsel for the relator, although not presented by the pleadings, to the effect that no meeting of the stockholders of the corporation had been had since the appointment of this receiver, and that the corporation, if it functions at all, does so simply by means of directors who continue to hold over. We do not attach much importance to this claim, since it is very evident that with the property in the hands of the federal court, but very little active duty would devolve upon the stockholders and directors while this situation remains. However, the gravamen of this action, under the pleadings presented, is based solely upon the forfeiture of the Bellefontaine franchise because of noncompliance with its provisions with respect to paving and street car service. This noncompliance, however, was not caused by the corporation while it was operating the railway. So far as this record discloses the corporation complied with the terms of its franchise until its property was taken from it by the federal court. If any reason for forfeiture exists it was caused, not by the act of the corporation, which is souglit to be ousted from its franchise, but solely by the act of the federal court, which had assumed jurisdiction of its property and changed its method of operation in the city of Bellefontaine. If we assume that this court has jurisdiction to oust the respondent as prayed for by the Attorney General, certainly it would not make such order in view of the evident fact that the real complaint is directed against the acts of the federal court rather than those of the corporation.

The writ is denied.

Writ denied.

Marshall, C. J., Day, Kinkade, Robinson and Matthias, JJ., concur.  