Bankers Trust Co. v. Texas & Pacific Railway Co.

Background

A New York corporation acting as mortgage trustee sued to foreclose a railroad mortgage against two companies, including one created under acts of Congress and operating in the Northern District of Texas. The bill said the mortgage was made under authority of several congressional acts, was filed in the Department of the Interior, and that the case met the required money amount and “arose under the Constitution and laws of the United States.” The Texas and Pacific Railway Company moved to dismiss, citing a 1915 law that bars federal courts from taking suits “upon the ground that said railroad company was incorporated under an act of Congress.” The District Court dismissed the bill for lack of jurisdiction, and the trustee appealed directly to this Court under the Judicial Code.

Reasoning

The central question was whether a railroad’s federal charter by itself lets a federal court hear the case. The Court explained that language in the 1871 charter saying the company could “sue and be sued” gives the company capacity to appear in courts but does not by itself create federal jurisdiction. Earlier cases had treated federal charters as laws giving rise to federal questions, but Congress in 1915 changed the rule by saying such incorporation alone cannot be the basis for federal jurisdiction. The bill here did not present a separate federal question apart from the charter, and the Court also held that a railroad created by Congress is not a citizen of any State for purposes of “different States” suits, so diversity jurisdiction failed.

Real world impact

The Court affirmed the dismissal. That means plaintiffs cannot rely only on a railroad’s federal charter to bring suits in federal court. Parties must identify another federal law issue or pursue claims in state court, and the decision is about where the case can be heard, not the underlying rights on the mortgage.