Pusey & Jones Co. v. Hanssen

• Citation: 279 F. 488
• Decision Date: 15 March 1922
• Docket Number: 2780.
• Parties: PUSEY & JONES CO. v. HANSSEN.
• Court: U.S. Court of Appeals — Third Circuit

279 F. 488

PUSEY & JONES CO. v. HANSSEN.

No. 2780.

United States Court of Appeals, Third Circuit.

March 15, 1922

William A. Glasgow, Jr., of Philadelphia, Pa., Robert Penington and George N. Davis, both of Wilmington, Del., Chester N. Farr Jr., of Philadelphia, Pa., and Selden Bacon, of New York City, for appellant.

William H. Button, of New York City, and William G. Mahaffy and John P. Nields, both of Wilmington, Del., for appellee.

Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.

WOOLLEY Circuit Judge.

On a bill of complaint filed by Hanssen, a subject of the King of Norway, the District Court entered a decree appointing receivers for the Pusey & Jones Company, a corporate citizen of Delaware. 276 F. 296. The respondent took this appeal.

There is little dispute about the facts. For the purpose of this review, they are abridged as follows In 1917, Christoffer Hannevig acquired all the capital stock both common and preferred, of three corporations of the State of Delaware. They were the Pusey & Jones Company, which had a shipbuilding plant at Wilmington, Delaware; the New Jersey Shipbuilding Company and the Pennsylvania Shipbuilding Company, which had plants at Gloucester, New Jersey. Hannevig was also the owner of nearly all the stock of two other corporations, the Bulk Oil Transports Company and the Manss Steamship Corporation. He was the president, and owner of substantially all the stock, of Christoffer Hannevig, Inc., a corporation engaged in the business of shipbrokerage.

The Transports Company entered into a contract with the Pusey &amp Jones Company for the construction of five ships at sums agreed upon. The Steamship Corporation entered into contracts with the New Jersey Shipbuilding Company for the construction of four vessels at stipulated sums. In August, 1917, the United States Shipping Board Emergency Fleet Corporation requisitioned construction under these contracts. After this was done, Hannevig, through his corporate control, caused the Transports Company and the Steamship Corporation to sell their contracts for the nine ships to nine Norwegian persons and corporations. At this sale, the nine Norwegian interests paid Hannevig a profit over and above the original price on each contract, and in addition a sum equal to 10 per cent. of the original contract prices, which Hannevig represented had been paid by the Transports Company and the Steamship Corporation to the Pusey & Jones Company and the New Jersey Shipbuilding Company, respectively, at the time the contracts were entered into. This representation was wholly false. Thus Hannevig became indebted to the nine Norwegians in an amount upwards of $1,200,000.

On learning this situation, the Norwegians sent Hans Karluf Hanssen (later the complainant in this action) to the United States with authority, in writing, to collect the moneys owed them by Hannevig and 'to take all legal steps which he may deem necessary in order to secure (their) said claims.'

After his arrival, Hanssen obtained from Hannevig approximately $565,000, leaving due something over $700,000. To secure this balance Hannevig, on February 13, 1920, gave Hanssen, subject to redemption upon payment of his indebtedness to his Norwegian creditors, three certificates for seventy-two hundred shares of the preferred stock of the Pusey & Jones Company. The first two certificates (for seven thousand shares) were in the name of Christoffer Hannevig, Inc., the accompanying power of attorney being signed by the corporation for transfer to Hannevig, followed by Hannevig's endorsement in blank. The third certificate (for two hundred shares) was in the name of Hannevig with the accompanying power of attorney signed by him for transfer in blank. As further security, Hannevig gave Hanssen nine promissory notes signed by the Pusey & Jones Company, amounting in all to the sum of $650,000, of which eight, aggregating $350,000 were payable to Christoffer Hannevig, Inc., and by it endorsed in blank; and the ninth, for $300,000, was payable to Christoffer Hannevig and by him endorsed in blank. All these notes were overdue but each had been extended by endorsement in accordance with a letter to the United States Shipping Board Emergency Fleet Corporation, . . . which had made heavy advances to the Pusey & Jones Company, . . . providing that the notes should not be payable until the completion of certain ships. The ships were finished in 1919. It further appears (but not by endorsement) that there was an agreement between the Pusey & Jones Company, the Shipping Board, Hannevig and Christoffer Hannevig, Inc., under which the notes were not to be enforced until a mortgage of the Pusey & Jones Company held by the Shipping Board was liquidated. The mortgage remains unsatisfied.

Some time prior to this transaction, the three Delaware corporations had been consolidated into one corporation under the laws of Delaware, taking the name of the Pusey & Jones Company. Two days before the settlement with Hanssen, Hannevig as President of the Pusey & Jones Company (consolidated) sold its Gloucester plant to the Baltimore Dry Docks & Shipbuilding Company and received in part payment a check of the latter concern for $750,000 payable to the order of the Pusey & Jones Company, pledging with the purchaser large blocks of the stock of the Pusey & Jones Company as security for the return of the money in the event the Shipping Board failed to satisfy its mortgage against the plant. On the same day Hannevig endorsed the check in the name of the Pusey & Jones Company and deposited it to the credit of Christoffer Hannevig, Inc. (his own shipbrokerage concern), and thereafter used the funds in its business. No action, then or later, was taken by the Pusey & Jones Company against Hannevig for this misappropriation of its funds or to offset its liability on its notes pledged to Hanssen.

After the transaction with Hannevig, Hanssen went back to Norway, at all times retaining possession of the securities. During the succeeding year demands for payment were made upon Hannevig without avail. Finally, in April, 1921, Hanssen returned to the United States. In the meantime a dispute between the Pusey & Jones Company and the United States Shipping Board had grown out of their mutual obligations, the Shipping Board indicating a purpose to deduct $3,700,000 from its indebtedness of $7,194,000 to the Pusey & Jones Company. Also a number of suits had been brought against the Pusey & Jones Company. In one, the Baltimore Dry Docks & Shipbuilding Company had recovered a judgment against the Pusey & Jones Company for $800,125. Regarding this judgment under the circumstances as invalid and realizing there remained but four days of the term of the court at which the judgment had been rendered within which to attack its validity, Hanssen filed a bill of complaint in the District Court, describing himself as a stockholder and creditor of the Pusey & Jones Company, reciting the before mentioned transaction by which he acquired its stock and notes, alleging the Company's insolvency, and praying for the appointment of receivers with authority to take over its assets, administer its affairs and particularly to proceed by appropriate action to vacate and set aside the judgment referred to. Pursuant to the prayer of the bill, the court, on June 9, 1921, entered a decree ex parte appointing receivers. This decree was nisi in character as it ordered the Pusey & Jones Company to appear on a named day and show cause why the said receivers should not be continued during the pendency of the action.

Pending what was in effect a rule to show cause the nine Norwegian parties personal and corporate, were, on their petition, granted leave to intervene as parties complainant. During the same period an involuntary petition in bankruptcy was filed against the Pusey & Jones Company in the District Court of the United States for the Southern District of New York. On its answer admitting insolvency, the Company was adjudged a bankrupt. Later, the adjudication was attacked by the receivers appointed by the District Court of the United States for the District of Delaware, resulting in litigation not pertinent to the matter before us on this appeal except in the final result that the adjudication was annulled and the bankruptcy petition dismissed.

Following the institution of the proceeding in bankruptcy but before its termination, the rule to show cause why the receivers should not be continued came on for hearing. On the first day of August, 1921, the District Court, on an opinion handed down on July 21, 1921, made its decree of June 1, 1921, appointing receivers, absolute. 276 F. 296. The Pusey & Jones Company by this appeal now attacks the validity of that decree on the grounds urged before and denied by the court below.

Having shown diverse citizenship of the parties, the complainant by his bill invoked the equity jurisdiction of the District Court to enforce a right conferred by a state statute. Darragh v. H. Wetter Mfg. Co., 78 F. 7, 14, 15, 23 C.C.A. 609; Jones v. Mutual Fidelity Co. (D.C. Del.) 123 F. 506; Land Title & Trust Co. v. Asphalt Co. of America (C.C.A. 3d) 127 F. 1, 17, 18, 62 C.C.A. 23. This statute is section 3883 of the Revised Code of Delaware of 1915. With the parts on which questions have been raised italicized by us, it reads as follows:

'Whenever a corporation shall be insolvent, the Chancellor, on the application and for the benefit of any creditor or stockholder thereof, may, at any time, in his discretion, appoint one or more persons to be receivers of and for such corporation, * * * the powers of such receivers to be such and continued so long as the Chancellor shall think necessary. * * * '

On its interpretation of the statute...