Bechtel Trust Co. v. Iowa-Wisconsin Bridge Co.
| Citation | 19 F. Supp. 127 |
| Decision Date | 04 March 1937 |
| Docket Number | No. 220.,220. |
| Parties | BECHTEL TRUST CO. et al. v. IOWA-WISCONSIN BRIDGE CO. (KENDRICK et al., Interveners). |
| Court | U.S. District Court — Northern District of Iowa |
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Bradshaw, Fowler, Proctor & Fairgrave, of Des Moines, Iowa (formerly Bradshaw, Schenk & Fowler), for plaintiffs.
F. A. Ontjes, of Mason City, Iowa, and Chas. N. Dohs and Wm. C. Green, both of St. Paul, Minn., for interveners.
H. Haehlen, of Waukon, Iowa, for Iowa-Wisconsin Bridge Co.
W. B. Sloan, of Des Moines, Iowa, and Senneff, Bliss & Senneff, of Mason City, Iowa, for Phoenix Finance Corporation.
This is a suit in equity by trustees under a trust deed, purporting to secure a $200,000 issue of bonds, and that purports to convey to the trustees an interstate bridge across the Mississippi river from the town of Lansing in Allamakee county, Iowa, to a point on the opposite Wisconsin shore. Plaintiffs' bill alleges default and a breach of condition in failure to pay the principal of two bonds of $5,000 each, the interest upon the entire issue, and the taxes on the bridge. The defendant, Iowa-Wisconsin Bridge Company, hereinafter referred to as the Bridge Company, appeared timely and answered the bill, alleging, in substance, that a majority of the stock of the Bridge Company was owned by directors and stockholders of the Phœnix Finance System, Inc., who were also officers and directors of the Bridge Company, and that the bonds were issued to the Phœnix Finance System, Inc., in exchange for stock in the Bridge Company unlawfully surrendered and returned to the Bridge Company. Not much progress was made under this answer and later Fayette D. Kendrick, a stockholder in the Bridge Company and certain other stockholders, were permitted to intervene and join as defendants, and the petition of intervention of such stockholders by order was permitted to stand as an answer in behalf of the Bridge Company. After process of amendment, this pleading, after alleging the necessary jurisdictional facts, as a defense alleges in substance that at the time of the execution of the trust deed and the issuance of the bonds the Bridge Company was in complete control of one John A. Thompson who controlled a majority of its voting stock and who controlled its officers and board of directors, and who was also the president and owner of a controlling interest in the Phœnix Finance System, Inc., and controlled its officers and board of directors, and other subsidiary companies; and that the said Thompson in fraudulent conspiracy with others who were officers and directors of the Bridge Company, and also officers and directors of Phœnix Finance System, Inc., planned and schemed to acquire the ownership of said bridge to the exclusion of the Bridge Company and its other stockholders, and as a part of such fraudulent scheme and plan caused the bonds in question to be issued and the trust deed purporting to secure the same to be executed without lawful consideration to the Bridge Company, and particularly that the said John A. Thompson caused approximately $60,500 in bonds to be issued in exchange for stock in the Bridge Company unlawfully surrendered by him or his controlled company, Phœnix Finance System, Inc.; and caused to be built up on the books of the Bridge Company a false and fictitious account in the sum of approximately $97,000, indicating and declaring in substance that the Bridge Company owed Phœnix Finance System, Inc., such sum, and caused bonds in that aggregate amount to be issued without consideration to the Bridge Company; and other things done and accomplished by said John A. Thompson in pursuance of said fraudulent conspiracy to the end that said trust deed and all of said bonds so issued are fraudulent and void.
After issue joined, by order of the court in pursuance of agreement of parties, the cause was referred to Hon. James W. Kindig, as special master in chancery, to hear and report the evidence with findings of fact and conclusions of law in pursuance of the existing Equity Rules. The master qualified and proceeded with his long and arduous task and, after fifty-five days devoted to the taking of testimony, filed his report which with the exception of a number of comparatively minor items aggregating in all approximately $27,000, found the issues for the defendant and interveners.
In due time the trustees, plaintiffs, and Phœnix Finance Corporation, successor to Phœnix Finance System, Inc., which in the meantime had become a party plaintiff to the suit, filed exceptions to the report of the master. The defendants also filed certain exceptions to the findings of the master unfavorable to them. The cause then came before the court upon the various exceptions to the master's report, which were submitted after oral arguments and very voluminous and complete briefs by all parties.
The master in his report, after reciting briefly the historical features of the case and the issues as defined by the pleadings, makes fourteen specifically numbered findings of fact. I shall here refer to them in their numerical order.
Finding 1. That on February 20, 1932, the Bridge Company executed the trust deed as of date, however, January 1, 1932, to secure a bond issue of $200,000, and complainants were named as trustees.
Finding 2. That the Bridge Company as of January 1, 1932, purported to authorize the issuance of $200,000 of bonds.
Finding 3. That the principal on the bonds, together with interest and taxes, as alleged in the complaint, are in default.
Finding 4.
(a) That John A. Thompson before the issuance of the bonds or authorization of the trust deed came into control and management of the Bridge Company.
(b) That during all of that time and thereafter said Thompson also controlled the Phœnix Finance System, Inc., and affiliated companies.
Finding 5. That notwithstanding certain inhibitory provisions in its charter, the Bridge Company, through the influence of Thompson and his associates, caused $60,500 of bonds to issue to Thompson or Phœnix Finance System, Inc., in exchange for Class A stock held by him, without giving like opportunity to other stockholders.
Finding 6. That the issuance of said bonds in consideration of the surrender of the said shares impaired the capital of the Bridge Company, and was in violation of a statute of Delaware under which the Bridge Company was incorporated.
Finding 7. That the action of Thompson in promoting such exchange of shares for bonds was fraudulent and for the purpose of conferring upon himself a preference over other holders of Class A stock.
Finding 8. That $97,000 of the bonds were transferred by the Bridge Company to Thompson or his controlled companies on a pretended book account originating out of a pretended mortgage for $50,000 covering an obligation which J. W. Shaffer & Co. was in duty bound to perform under its construction contract, and which contract provided for a surety company performance bond, which Thompson permitted Shaffer & Co. to omit to furnish. That Thompson and his companies did not, in fact, perform the obligation on behalf of Shaffer & Co., but built up a pretended account to make it falsely appear that Shaffer & Co. failed in its duty, and that Thompson and his controlled companies expended $97,000 in such performance. But as a matter of fact, Thompson and his controlled companies only expended $9,000 in payment to a subcontractor in settlement of a mechanic's lien, and that $88,000 of said $97,000 of bonds was without consideration.
Finding 9. That resolutions pretended to have been passed by the Bridge Company authorizing said $97,000 issue of bonds were not genuine and legal resolutions so far as they related to $88,000 of the $97,000 issue, but were procured through the influence and connivance of Thompson and his associates, and that independent directors and stockholders voting in support of such resolutions were deceived and misled by misrepresentations of Thompson.
Finding 10.
(a) That of said bonds the Bridge Company received full consideration for the said $9,000 thereof paid in settlement of the mechanic's lien.
(b) That of $7,400 of bonds issued to Helmer N. Anderson, the Bridge Company received consideration only of $6,000.
(c), (d), (e), (f), and (g) were five $1,000 bonds issued in settlement and compromise of five disputed claims, and the Bridge Company received full consideration.
(h) Respecting $10,000 of bonds issued to Bradshaw, Schenk & Fowler, attorneys, to secure two notes aggregating $4,000, the Bridge Company received consideration to the extent of $4,000.
(i) That the remaining bonds, approximating $19,000 or $20,000, were issued to the Phœnix Finance Corporation as security for a note of $3,125 given in part to secure an advance for the payment of taxes of the Bridge Company, and that said bonds were valid only to the extent of said note.
(j) That of the bonds held by Bradshaw, Schenk & Fowler, in the amount of approximately $6,000 are without consideration and invalid.
(k) That of the bonds above issued to Phœnix Finance Corporation to secure the note of $3,125, approximately the sum of $16,975 are without consideration and obtained by fraud and invalid.
Finding 11. That Thompson, speaking for himself and the Phœnix Finance System, Inc., and his other affiliated institutions, admitted that he and his institutions owned at least 90 per cent. of the total $200,000 bond issue, and now hold the same.
Finding 12. That as alleged in paragraph 18 of the petition of intervention, any demand before the commencement of this suit that might have been made by the interveners to obtain relief from the issuance of said bonds from and through the defendant corporation would have been unavailing.
Finding 13. That the Bridge Company was not making, and would not have made, a good faith defense to the complainants' action...
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