On May 06, 1878 the Santa Fe Company with Attorneys, Willard Teller, Gilbert B. Reed and Charles E. Gast and
the Denver Rio Grande Company with Messengers, Wells, Smith and Macon of Denver and H. A. Risley of
Colorado Springs appeared before Judge Hallett in the United States Circuit Court in Denver. After hearing all
arguments, the judge issued a temporary order forbidding either company from working in the disputed Canon
and invited Judge Dillon of St. Louis to consider the case jointly before rendering a decision.
Before inviting Judge Dillon, Judge Hallett issued a restraining order against both companies, they were to
vacate the property and were forbidden to continue work until a decision was rendered. To make sure there
were no problems, the judge imposed a $20,000 bond on each company to ensure good behavior of both parties.
On June 01, 1878, Judges Dillon and Hallett ruled in favor of the Canon City & San Juan Company to continue
grading but would not allow them to lay rails. This was a temporary makeshift decision only to last until the
regular session of the United States Circuit Court, which was to convene on July of that year.
On the 23rd of August, 1878, the United States Circuit Court ruled in favor of the Canon City & San Juan
Railroad on the basis of their filing of surveys with the Receiver of Federal Land Office if Pueblo on July 23,
1877 and afterwards approved by Carl Schurz, Secretary of the Interior. While the Congressional act of 1872
had granted the Rio Grande the right of way two hundred feet wide, from Colorado to Old Mexico, the Rio
Grande had not taken the formal steps to secure such right of way through the Canon. The decision however
only took into account the first twenty miles of the Canon, which the Santa Fe had secured with the Act of
March 03, 1875. The upper part of the Canon was still in controversy and the decision only put the Denver Rio
Grande's prior claim, subordinate to the Santa Fe. The Denver Rio Grande promptly made an appeal to the
United States Supreme Court and while waiting they continued working of their line from above the twenty
mile limit. In New York a group of foreign capitalists purchased $1,000,000 of the Denver Rio Grande first
mortgage bonds, which funds would absorb the floating debts of the company and provide for a short but
vigorous building campaign in the disputed territory. On September 01, 1878, the Rio Grande filed suit in
Federal Circuit Court against the Pueblo & Arkansas Valley Railroad for the right of way through the upper
Canon to Leadville and from the mouth of the South Arkansas to San Luis Park, due west of the Canon City.
On September 03, the Secretary of the Interior formally approved the plats for a line to Leadville and across
Poncha and Marshall Passes, for the Santa Fe. On September 12th, the railroad consolidated the Pueblo &
Arkansas Valley Railroad with the Canon City & San Juan Railroad, thus bringing its Colorado interests under a
single corporate head. The capital stock of the combination thus effected was $6,000,000. Not only did the
Santa Fe people plan to reach Leadville; it was proposed to extend branches through Gunnison Pass, into Park
and Summitt Counties of the interior and through Colorado Springs to Denver. This meant the direct invasion of
all territory occupied by the narrow gauge railroad.
However, on October 19th, 1878 the Santa Fe and the Denver Rio Grande entered into a lease agreement. The
lease would run for thirty years beginning on December 01, 1878, allowing the Denver Rio Grande to lease all of
its lines, facilities and privileges of conducting business to the Santa Fe but keeping its corporate structure
intact. It provided for direct payment of percentages of capital earned, rental of trackage, rolling stock and
fixed structures, payment for depreciation and not to enter into any other agreements with competing
railroads of the Denver Rio Grande.
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