Chicago, Milwaukee & St. Paul Railway Co. v. Des Moines Union Railway Co.

Background

Two connecting railroad companies sued a city terminal company and two men (the Hubbell brothers and their firm) over ownership and control of a joint railroad terminal in Des Moines. The railroads say the terminal company was created to hold the terminal property in trust for their joint use under an 1882 agreement, later carried into corporate articles and a 1889 operating agreement. The Hubbells came to hold most of the terminal company stock, and disputes arose over whether that stock and later amendments ended the original trust and who should get so-called “surplus earnings.”

Reasoning

The Court considered whether the papers and conduct showed the terminal company was simply a trustee holding title for the railroads’ benefit. Reading the original contract, the incorporation papers, the operating agreement, and later events together, the Court found a clear trust: the terminal company holds legal title but must operate the terminal for the railroads’ use at cost. The 1890 amendments were unauthorized and did not end the trust. The Hubbells had notice of the trust and were fiduciaries, so their large stockholding is subordinate to the trust and cannot be used to profit at the railroads’ expense.

Real world impact

The practical result is that the railroads remain the beneficial owners of the terminal property and are entitled to the terminal’s use on cost-based terms. The Hubbells must surrender and cancel their contested shares (with repayment terms), and the railroads are entitled to an accounting and to surplus earnings credited by wheelage. Further details will be worked out by the trial court.

Dissents or concurrances

A lower-court judge dissented, viewing the amendments and long acquiescence as changing control; the Supreme Court rejected that view as insufficient to end the trust.