196 F.2d 139 (10th Cir. 1952), 4304, Blazer v. Black

Docket Nº:4304.
Citation:196 F.2d 139
Party Name:BLAZER v. BLACK.
Case Date:March 19, 1952
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit
 
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Page 139

196 F.2d 139 (10th Cir. 1952)

BLAZER

v.

BLACK.

No. 4304.

United States Court of Appeals, Tenth Circuit.

March 19, 1952

Page 140

[Copyrighted Material Omitted]

Page 141

A. D. Weiskirch, Wichita, Kan., and Jack O. Brown, Chicago, Ill. (Fred Dobmeier, Buffalo, N.Y., and Manford Holly, Wichita, Kan., on the brief), for appellant.

George Siefkin, Wichita, Kan. (George B. Powers, Samuel E. Bartlett, Carl T. Smith, John F. Eberhardt, Stuart R. Carter, Robert C. Foulston, Jr., and Robert N. Partridge, all of Wichita, Kan., on brief), for appellee.

Before PHILLIPS, Chief Judge, and BRATTON and MURRAH, Circuit Judges.

MURRAH, Circuit Judge.

This is a suit in the District Court of Kansas, by a former stockholder of a dissolved corporation, against its former president for compensatory and punitive damages for the alleged fraudulent conversion of the stockholder's stock before dissolution. At the conclusion of the plaintiff's case, the trial court sustained a motion for a directed verdict, and this appeal is from a judgment on that verdict.

The Black-Marshall Oil Company was organized under the laws of Illinois in 1940. It was authorized to do business in Kansas, and established its principal office in Great Bend, Kansas. Appellee, W. H. Black was one of its organizers and President. Dale Ives, an attorney at Aledo, Illinois, was also an incorporator and Secretary-Treasurer. More than 50,000 of the 200,000 shares of authorized common stock were sold to a group living in and around Aledo, where Black had lived and where Ives lived and practiced law. Herschel J. Blazer, a citizen of Aledo, and appellant here, owned 1150 shares of Black-Marshall stock. Stockholders meetings were held in Aledo, and Black came there from time to time to attend the stockholders meetings and report on the operations of the company, which was primarily engaged in drilling for and producing oil in Kansas.

As we construe and summarize the first amended complaint, it alleges that sometime in 1944, President Black devised a fraudulent scheme to acquire control of the stock of the Black-Marshall, including the appellant's stock, with the use of corporate funds; enter into an extensive drilling program, with borrowed funds, for the purpose of enhancing the value of the stock, and then sell the outstanding stock of the Company to the National Cooperative Refinery Association. In furtherance of that scheme, it is alleged that Black, acting through his agent Ives, induced the group

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of stockholders in and around Aledo, and particularly this appellant, to deliver their stock to Ives, endorsed in blank, under the false pretense that Black-Marshall had been sold for an undisclosed amount, but for an amount sufficient to pay the stockholders $12 per share; that the company would retain undeveloped properties held by its wholly owned subsidiary, the Landowners Oil Association; that Black-Marshall would be dissolved and the stockholders would be issued stock in the Landowners Oil Association proportionate to their interest in Black-Marshall stockholders proportionately; that relying upon these representations, and believing that Black-Marshall had been sold as represented, this appellant delivered his 1150 shares to Ives, endorsed in blank, in September 1945, who accepted the same and delivered them to Black; that the appellant was paid the sum of $13,800, representing $12 per share for his stock, by a check on Black-Marshall; that at about the time of this transaction, and on October 1, 1945, Black, as president of Black-Marshall, entered into an agreement with the National Cooperative Refinery Association, under the terms of which the latter loaned Black-Marshall $3,200,000, in consideration of the assignment of certain designated properties of Black-Marshall; that the Association further agreed to loan Black-Marshall the sum of $22,000 for each producing well drilled on the properties conveyed to the Association, until a total of not to exceed $528,000 was advanced, said loan to be evidenced by notes, payable not later than five days from the date of the agreement.

It is alleged that in furtherance of the fraudulent scheme, approximately $1,000,000 of the $3,200,000 loaned to Black-Marshall was used by Black personally, to acquire the stock of the stockholders in Black-Marshall, and that Black caused Black-Marshall to commence an extensive drilling program, during which 100 wells were drilled, 70 per cent of which were commercial producers, thus greatly enhancing the value of Black's stock in the corporation. It is alleged that after acquiring approximately 68,000 shares of the outstanding stock of Black-Marshall, including the 1150 shares of the appellant, all in blank, Black placed the same in his private lock box in Great Bend, Kansas; that it remained there as street stock, paid for by Black-Marshall but charged to Black's personal stock account until 56,402.75 shares were marked retired on June 1, 1947, and the remaining outstanding stock of the corporation sold to the National Cooperative Refinery Association for $7,500,000. It is alleged that the 56,402.76 shares, including the appellant's 1150 shares, marked retired, were in fact outstanding stock at the time of the sale, and based upon the sale price, was worth $51.06 per share or $58,719 for the 1150 shares owned by the appellant.

It is specifically alleged that at all times material, Black and his agent Ives, as officers of the Company, were acting in a relation of trust and confidence, and as such required to deal with the stockholders, including this appellant, with the utmost fairness, and were required to communicate to the appellant all material facts bearing upon the transactions mentioned relating to the true financial condition of Black-Marshall, and that they purposely failed to disclose the information and concealed transactions in order to effect the fraudulent scheme. Appellant avers that he first learned of the sale of Black-Marshall during the forepart of 1948, and after an investigation discovered the fraud. A demand for restitution was refused, and this suit followed in the Fall of...

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