West v. American Telephone & Telegraph Co.

• Decision Date: 16 November 1939
• Docket Number: No. 8140,8141.,8140
• Citation: 108 F.2d 347
• Parties: WEST et al. v. AMERICAN TELEPHONE & TELEGRAPH CO. AMERICAN TELEPHONE & TELEGRAPH CO. v. WEST et al.
• Court: U.S. Court of Appeals — Sixth Circuit

108 F.2d 347 (1939)

WEST et al. v. AMERICAN TELEPHONE & TELEGRAPH CO.

AMERICAN TELEPHONE & TELEGRAPH CO. v. WEST et al.

Nos. 8140, 8141.

Circuit Court of Appeals, Sixth Circuit.

November 16, 1939.

Harry L. Deibel, of Cleveland, Ohio (C. M. Vrooman and Harry L. Deibel, both of Cleveland, Ohio, on the brief), for Charles Peyton West and others.

William B. Cockley, of Cleveland, Ohio, for American Tel. & Tel. Co.

Before SIMONS, ALLEN, and HAMILTON, Circuit Judges.

ALLEN, Circuit Judge.

Charles Peyton West and Maurice John West, as plaintiffs, filed a bill in equity praying that the American Telephone and Telegraph Company, defendant, be compelled to restore plaintiffs' right as remaindermen in certain shares of stock in the defendant corporation. The District Court entered a decree for the plaintiffs, but refused to order payment of dividends accruing since November 2, 1929, the date of the alleged unlawful assignment and sale of the stock. As appeals were prosecuted by both parties, they will be denominated as plaintiffs and defendant respectively in this opinion.

The facts are in the main stipulated, and there is no material controversy in the evidence, the two plaintiffs being the only witnesses. Charles P. West, father of the plaintiffs, died in 1926 in Cleveland, Ohio, leaving to his widow, Grace C. West, who was also executrix, a life estate in his property, and the remainder to the plaintiffs. The widow (who was both aunt and stepmother of the plaintiffs) applied as executrix to the probate court for distribution in kind of stocks of the estate, including 92 shares of stock in the defendant corporation, and the plaintiffs in writing consented to such distribution. The probate court issued an order of distribution, and a copy of this order and the application therefor, together with a certified copy of the will and letters testamentary, were presented to the defendant, which on February 2, 1927, transferred the 92 shares to Grace C. West, without in any manner indicating her limited ownership. In October, 1929, Grace C. West delivered the stock to Paine, Webber & Company, brokers in Boston, Massachusetts, as collateral for her individual account with them, together with an assignment and power of attorney to transfer. On November 4, 1929, the defendant issued a new certificate for the shares to Paine, Webber & Company.

Plaintiff Maurice John West, at that time a practicing attorney, was informed in 1930 that his stepmother had suffered great losses in the stock market, and that some of the estate securities "were gone." He demanded that his stepmother show him the certificates, and she refused. While he investigated the status of certain other stock in which his stepmother had a life interest, the remainder belonging to him and his brother, he made no further investigation with reference to the stock of the defendant company until 1934. He then wrote to the defendant and learned of the transfer to Paine, Webber & Company. Plaintiff Charles Peyton West made no investigation whatever at any time.

Suit at law for damages was instituted in the Common Pleas Court of Cuyahoga County, Ohio, on June 2, 1934. The plaintiffs were successful in the trial court, but the Court of Appeals of Cuyahoga County reversed the judgment of the trial court and rendered final judgment for defendant. Motion to certify the record in the Supreme Court of Ohio was denied. The present bill in equity was then filed in the District Court on July 14, 1937.

The defendant in its appeal (No. 8141) contends (1) that it is not liable for the transfer of the stock because the plaintiffs consented to the distribution in kind, and (2) that the action is barred by the Ohio statute of limitations, by laches, and by the judgment of the Court of Appeals of Cuyahoga County.

As to the first point, the defendant urges that it is not liable, upon the ground that the transfer of stock to Grace C. West without limitation was authorized by the plaintiffs. We do not agree with this contention. The defendant, having been presented with a certified copy of the will and the application for and order of distribution, had notice that Grace C. West was not entitled to receive a stock certificate indicating that she had an unlimited ownership in these shares. Each of these papers showed that Grace C. West was a life tenant only, and the will showed that plaintiffs were entitled to the remainder interest. The defendant is liable for negligence committed by its agents when the stock was transferred without limitation to Grace C. West, in February, 1927. St. Romes v. Levee Steam Cotton Press Co., 127 U.S. 614, 8 S.Ct. 1335, 32 L.Ed. 289; American Steel Foundries v. Hunt, 6 Cir., 79 F.2d 558; Loring v. Salisbury Mills, 125 Mass. 138, 150.

Defendant further urges that the action is barred by the statute of limitations. In the case in the state court no demand and refusal was alleged, and the Court of Appeals reversed the judgment of the trial court upon that ground, and entered final judgment for the defendant. The present case alleges and proves demand and refusal, and the District Court held that the cause of action arose at the date of the refusal of the demand in June, 1937, and that as the equity case was filed July 14, 1937, the cause of action was therefore not outlawed.

We think the District Court erred in holding that demand and refusal were necessary to the accrual of the cause of action. These plaintiffs as remaindermen have no immediate right to possession of the certificates. When the wrongful transfer was made, they were entitled to sue the defendant immediately for damages for the destruction of their remainder interest without any demand. Lowry v. Commercial & Farmers' Bank, 15 Fed. Cas. No. 8581, page 1040, 1050; Coffey v. Wilkerson, 58 Ky. 101, 1 Metc. 101; Yeager v. Bank of Kentucky, 127 Ky. 751, 106 S.W. 806, 16 Ann. Cas. 537. The District Court relied upon and misconstrued the decision of this court in American Steel Foundries v. Hunt, supra, in holding that demand was necessary. In that case the action was brought by the owner of the stock certificate against a company which had issued a new certificate for the same shares. The shares had not been issued in the name of the owner, and the holder of record had represented that the certificate had been lost. When the new certificate was issued, the owner sued for damages for conversion without presenting his own certificate and demanding that the corporation issue one in his name. This the court held he could not do, upon the ground that as to the rightful owner the issue of new stock was void and wholly ineffective unaccompanied by any affirmative act, such as a denial of the owner's right to receive dividends, vote, or participate in distribution of the corporate assets. Pure Oil Co. v. Hunt, 46 Ohio App. 329, 188 N.E. 738; Steverding v. Cleveland Co-Operative Stove Co., 121 Ohio St. 250, 167 N.E. 883, and Cleveland & Mahoning Rd. Co. v. Robbins, 35 Ohio St. 483, are not authority for the proposition that demand and refusal are necessary in a suit by a remainderman arising out of a transfer of stock in violation of his rights. All of these cases adjudicate controversies which involve the rights of the present owner of the stock, and not of remaindermen.

The only Ohio case squarely on this subject is West v. American Telephone & Telegraph Co., 7 Ohio Op. 363, which is the decision of the Court of Appeals reversing the judgment of the trial court in favor of plaintiffs herein, in the state case, and entering final judgment for the defendant. In that decision it was held that demand was necessary before the cause of action accrued, but that case also relied upon and misconstrued American Steel Foundries v. Hunt, supra.

It is an interesting question whether, under Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487, the federal courts are bound by judgments of inferior state courts. The judgment in the state case was rendered by the Court of Appeals of Cuyahoga County. While it, of course, has persuasive force, it is not binding on the courts of appeals for the other 87 counties of Ohio. A motion to certify was made in the Supreme Court of Ohio, and overruled. This may well have been because that court did not deem the case to be of great general and public interest. Ohio Constitution, Art. IV, Sec. 2. The settled rule in Ohio is that the Supreme Court, by denial of motion to certify the record, lays down no law. It not infrequently makes pronouncements counter to those of circuit courts of appeals whose judgments it has refused to certify, on the same questions covered by those judgments. Village of Brewster v. Hill, 128 Ohio St. 343, 353, 190 N.E. 766.

In Erie Rd. Co. v. Tompkins, supra 304 U.S. 64, 58 S.Ct. 822, 82 L.Ed. 1188, 114 A.L.R. 1487, the Supreme Court stated that "Except in matters governed by the Federal Constitution or by acts of Congress, the law to be applied in any case is the law of the state. ...