David C. Frederick's book *Rugged Justice: The Ninth Circuit Court of Appeals and the American West, 1891-1941* (Berkeley: University of California Press, 1994--there's a Foreword by Sandra Day O'Connor) is available online.
http://publishing.cdlib.org/ucpressebooks/view?docId=ft22900486&brand=ucpress Chapter Two of the book is entitled "Railroads, Robber Barons, and the Saving of Stanford University." In it, Frederick points out:
"Within five years of its creation, the court was presented in 1895 with a case of enormous and multifaceted dimensions: United States v. Stanford. The holding of the case established the liability of the railroad magnates, or 'robber barons,' who had reaped enormous profits from United States government subsidies for the unpaid loans of the railroad they owned, the Central Pacific Railroad Company. At a deeper level, the case illuminated the interplay between key government actors and railroad interests in influencing the course of litigation. It also provided a first comprehensive look at the court's internal procedures and the jurisprudence of two Ninth Circuit judges whose views would clash for three decades: William B. Gilbert and Erskine Ross. At the trial and appellate stages, these two jurists decided the case in favor of Mrs. Jane Stanford on grounds her attorneys did not argue. Her victory saved a fledgling university, Leland Stanford Junior University, which would not have survived if the government had prevailed.
"Although the case did not have a significant effect on the development of law, it bears detailed attention for several reasons. First, the outcome of the case saved one of the most important institutions in the West, Stanford University. At a social level, the case highlights the importance of judicial decisions even when those decisions do not have long-lasting legal significance. Scholars of legal history often overlook the significance of judicial decisions that do not bear on the evolution of the law but which nevertheless mark federal judges as important actors in the development of the nation..."
http://publishing.cdlib.org/ucpressebooks/view…
There has been a little bit of discussion here
https://www.alternatehistory.com/discussion/showthread.php?t=123483 and a lot more at soc.history.what-if
https://groups.google.com/forum/#!msg/soc.history.what-if/dOkhfr_d48w/-XbJs01RmogJ https://groups.google.com/forum/#!msg/soc.history.what-if/Tyyj91ojNls/megxEuSHlnQJ about what would have happened had there been no limited liability. On this question, it is important to note that, as Frederick points out,
"In the late nineteenth century, however, the rule of limited shareholder liability was not universal, and California was a very important exception...In its original constitution of 1849, California law provided that '[e]ach stockholder of a corporation or joint-stock association shall be individually and personally liable for his proportion of all its debts and liabilities.'...For the government to succeed in the Stanford suit, then, it would have to convince the courts that the California law applied, and the Central Pacific shareholders were liable for the company's debts." Given the existence of individual shareholder liability in California, the government decided not to bring suit against the Central Pacific itself, since it believed that the railroad did not have the funds to pay the $60 million judgement sought; instead it went after Leland Stanford's widow Jane Stanford as executrix of Stanford's estate. (Granted that California law made it reasonable to go after the big stockholders rather than the corporation, one still may wonder why the government decided to go after a sympathetic widow who was struggling to keep a university alive, rather than after the last living Central Pacific magnate, Collis Huntington. Frederick isn't sure what the answer is, but notes that Huntington had reportedly paid a *lot* of money to influence Congress...)
As Frederick notes, "Jane Stanford well understood the threat presented by the complaint. An adverse decision would render her unable to sustain support payments for Stanford University, and the life of the institution would be in jeopardy." [1] In the end, Judge Erskine Ross dismissed the complaint against the Stanford estate on a ground that Mrs. Stanford's lawyers had not even argued--that somehow, despite the explicit language of the California constitution and general corporate statute, California law did not *really* provide for individual shareholder liability! His
"opinion rested on four propositions. First, Ross wrote that statutory, and not common, law created individual liability of stockholders for corporate debts; he then analyzed California state law and determined that stockholders were not individually liable. Second, he interpreted a California Supreme Court decision as rendering nugatory the provision of the California constitution that assessed individual liability for corporate debt in the proportion of stock ownership. Third, Ross deemed California's general corporate statute invalid for vagueness, because it did not definitely assess liability on individual stockholders. 'It is manifest,' he said, 'that the declaration that the stockholder is liable for all the debts and liabilities of the corporation 'in proportion to the amount of stock by him held' does not establish any rule by which any definite liability can be fixed.' Finally, he held that the contract between the United States government and the railroad companies excluded any option for the government to seek indemnity from stockholders for the railroad companies' debts. Of this last proposition Ross observed that the congressional statute 'embodying the contract' should speak to the question, yet he determined that the statute, though 'drawn with great care, . . . is not as explicit as it should have been.' Ross concluded that the statute contained no 'absolute, unqualified promise to repay the bonds' and that Stanford thus assumed no personal obligation . . . to repay them.'"
The Ninth Circuit Court of Appeals affirmed Judge Ross's decision in an opinion by Judge William B. Gilbert "holding that Congress had not intended to impose liability on the Central Pacific stockholders under the contract terms created by the 1862 statute. Gilbert veered away from Ross's heavy reliance on California law and instead emphasized the special status of the Central Pacific under the laws of the United States." The US government then appealed to the US Supreme Court, which affirmed the Ninth Circuit in *United States v. Stanford*, 161 US 412 (1896)
http://laws.findlaw.com/us/161/412.html Justice Harlan, speaking for a unanimous court, found it unnecessary to decide on the construction of "the laws of California relating to the personal liability of stockholders for the debts of railroad corporations." Harlan's argument simply was that whether or not California law provided for unlimited shareholder liability, the Congressional statute in question did not.
Had the Ninth Circuit and the US Supreme Court affirmed on the basis of Judge Ross's original decision, the case would--at least for Californians--have had some importance as a precedent, on the issue of whether or not there was unlimited shareholder liability in California. Instead, the Supreme Court deliberately avoided that issue, and rendered a decision on a basis so narrow that the *Stanford* case has rarely been cited since. The Court relied solely on the fact that none of the Pacific Railroad acts "contains any clause imposing upon the stockholders of a corporation receiving subsidy bonds personal responsibility for any debt due to the United States from such corporation by reason of its failure to pay those bonds at maturity...It is said, however, that these principles have no application to stockholders of California corporations that came into existence under constitutional and statutory provisions making a stockholder of a railroad corporation liable, in proportion to his stock, for its debts and obligations...But it cannot be inferred, from the legislation of congress, that it intended, for the protection of the interests of the United States, to impose a heavier liability upon the stockholders of the California company than was imposed upon the stockholders of the Union Pacific Railroad Company. Why should it have so intended? Why should it be supposed that congress would purposely make it more difficult to construct one part of the proposed national highway than another? "
As Frederick notes, this reasoning is questionable. The Court simply *assumed* that imposing individual liability on Central Pacific's shareholders would make it harder to construct its share of the "national highway." Furthermore, while Judge Gilbert's opinion in favor of the same conclusion was better argued, there is still a problem with the whole idea of drawing conclusions from Congress' failure to provide specifically for shareholder liability:
"The statutory omission of shareholder liability for the Union Pacific could instead be explained by Congress's control of the appointment of directors and the terms of the corporation's existence. If the Union Pacific acted contrary to Congress's intent, the legislature could then amend the original statutes and direct appropriate action. Congress had no such control over the Central Pacific, an entity incorporated under California law. If the terms of that railroad's incorporation or its actions raised concern in Congress, the national legislature could not redress the problem by statue. Congress reserved to itself only the right to amend the 1862 statute, which set out the terms of the land grants and subsidy bonds, 'at any time, having due regard for the rights of such companies named herein.'...Thus, Congress could alter the terms of the contract but could not change the Central Pacific as a corporate entity. Accordingly, Congress might well have intended not to hold the Union Pacific's shareholders liable for the corporation's debts and yet have retained its option of pursuing the Central Pacific stockholders. Given this view of the congressional legislation, Ross's concentration on the substantive basis for shareholder liability under California law made a great deal of sense, whether or not one agreed with his interpretation of that law."
http://publishing.cdlib.org/ucpressebooks/view?docId=ft22900486&chunk.id=d0e542
Furthermore, as a contemporary legal commentator pointed out, Gilbert's emphasis on the US government's intent was a departure from ordinary principles of corporation law, under which a creditor's rights did not depend on intent to hold the stockholders liable: "on the contrary, the charter or statute under which the stockholders are individually liable is conclusively deemed in law to enter into and form a part of the contract between the parties."
https://books.google.com/books?id=RgFCAQAAMAAJ&pg=PA936
So there was certainly a plausible legal case to be made that (a) contrary to what Judge Ross found, California law did provide for shareholder liability, and (b) contrary to what the Ninth Circuit and the US Supreme Court found, nothing in the Congressional railroad land-grant legislation made Central Pacific's obligations to the US government an exception to such liability. Suppose the courts had indeed so found, and Stanford University was wrecked financially? (This may be almost ASB territory, because the Supreme Court seems to have been determined not to let Stanford University fail. Justice Field was a good friend of the Stanford family, and after the case was decided sent a telegram to Mrs. Stanford: "Heaven's care and overflowing kindness never fail." And even US Attorney Henry S. Foote wrote Mrs. Stanford that "Circumstances of course compelled me to appear for the Govt. against you, in your noble and heroic effort to preserve for yourself, and the State of California the University that bears the name of your dear son. . . . But not for one moment . . . had
any other feeling than that you ought and would succeed, in preserving to the young men and women now living, and to those yet unborn the blessings entailed by the preservation of the institution so beloved in this State.")
So does some other private institution arise to fill the void left by Stanford University's demise? Or does the University of California become even larger and more important than in OTL? And of course without Stanford University is there still a Silicon Valley?
[1] On this point, see the San Francisco Chronicle's discussion of Mrs. Stanford as one of the "Top Ten by the Bay":
"JANE LATHROP STANFORD (1828-1905): She was the widow of Leland Stanford, one of the handful of men who made modern California. She was a small woman, a bit eccentric, who fancied she looked like Queen Victoria and talked directly to God.
"She and her husband founded the Leland Stanford Junior University as a memorial to their son. But the university barely survived Stanford's death. Jane Stanford, the widow with a will of iron, saved Stanford University's life and preserved the institution that planted the seeds of Silicon Valley.
"Leland Stanford, a Wisconsin lawyer, California storekeeper, governor, railroad baron and U.S. senator, was one of the four founders of the Central Pacific railroad and immensely wealthy. When Leland Jr. died, the Stanfords famously announced 'the children of California shall be our children' and endowed the university at the family farm in Palo Alto.
"But the university ran into trouble on the senator's death in 1893. His enormous estate was tied up in litigation. The country was in recession. Her business advisers told Mrs. Stanford that the university had to be closed.
"Worse, Stanford University had powerful enemies, most importantly Collis P. Huntington, the surviving member of the 'Big Four,' who had founded the railroad, and the most powerful man in California. The university was a waste of money; 'Stanford's circus' he called it.
"But Mrs. Stanford would not give in. She subsidized the university, even offered to sell her jewels to keep it open.
"'It would have gone under,' said Kevin Starr, the historian. 'It would not have survived without this woman. And look what happened. Stanford is one of the three or four great universities on the planet.'
"Mrs. Stanford died under mysterious circumstances in Honolulu in 1905. But she was one of the first of the great women of the 20th century in California."
http://www.sfgate.com/bayarea/article/Top-Ten-By-the-Bay-2890285.php