McCandless v. Furlaud, 251.
| Citation | 75 F.2d 977 |
| Decision Date | 04 March 1935 |
| Docket Number | No. 251.,251. |
| Parties | McCANDLESS v. FURLAUD et al. |
| Court | United States Courts of Appeals. United States Court of Appeals (2nd Circuit) |
Ehrich, Royall, Wheeler & Walter, of New York City (Ralph Royall and James G. Holland, both of New York City, and William A. Magee, of Pittsburgh, Pa., of counsel), for plaintiff.
Eppstein & Hirshfield, of New York City (Louis B. Eppstein, Ira W. Hirshfield, and Louis J. Altkrug, all of New York City, of counsel), for defendants Maxime H. Furlaud, Kingston Corporation, Byron Corporation, and Chaucer Corporation.
Before MANTON, L. HAND, and CHASE, Circuit Judges.
The defendants Maxime H. Furlaud and Kingston Corporation appeal from a decree awarding the plaintiff the sum of $1,834,640.08 in an accounting suit for all funds or moneys coming into the hands of the defendants or any of them from the sale of bonds, notes, and shares of stock of the Duquesne Gas Corporation.
A receiver was appointed for the Duquesne Gas Corporation in the United States District Court for the Western District of Pennsylvania, and he sued in the District Court for the Southern District of New York, without appointment therein as an ancillary receiver. We reversed the decree, on a former appeal, for failure to have an ancillary receiver appointed in the Southern District of New York before suit. 68 F. (2d) 925. The Supreme Court reversed (55 S. Ct. 42, 79 L. Ed. ____), remanding the cause to this court to pass upon the merits of the issues presented.
The gravamen of the bill of complaint is to be found in paragraph 17, which alleges that the receiver is entitled, on behalf of the Duquesne Gas Corporation, to have the defendants account to the corporation "for the funds or moneys coming into their hands or into the hands of any of them or their agents or representatives from the sale of the securities of said Duquesne Gas Corporation or of any of said securities, and for the disposition made of such funds or moneys and to make restitution for any or all of such funds or moneys wrongfully diverted from Duquesne Gas Corporation and misappropriated or converted by the defendants or any of them to their own uses and for any or all secret or excessive profits taken or retained by them. * * *"
The prayer for relief asked that the defendants be compelled to account "for all funds or moneys coming into the hands of them or any of them or of the agents or representatives of any of them or in the hands of any one else acting with or for them from the sale of the bonds, notes and shares of stock of said Duquesne Gas Corporation."
The Kingston Corporation was organized under the New Jersey laws March 10, 1926; Furlaud & Co., Inc., incorporated under the New York laws July 18, 1928. The latter was authorized to promote and assist in the financing of corporations, firms, and syndicates in selling issues of securities. Defendant Maxime H. Furlaud was its president.
In 1929, the Kingston Corporation, a wholly owned subsidiary of Furlaud & Co., Inc., obtained options on various oil and gas properties in Western Pennsylvania, at a total purchase price of $2,572,989. Some of these options were taken in the name of an individual and later assigned to the Kingston Corporation. The properties were examined by engineers and appraisals were made; some, examined by one firm, at $4,929,787, and others, by another engineer, at $1,743,520. On February 21, 1930, Furlaud & Co., Inc., caused the Duquesne Gas Corporation to be organized under the Pennsylvania laws with a capital issue of 1,000 shares of no par value common stock. This was all subscribed and paid for by Furlaud & Co., Inc., at 50 cents a share, a price authorized by the board of directors of the Duquesne Gas Corporation. Arrangements were then made for the owners of the optioned properties to execute deeds to the Duquesne Gas Corporation to be held in escrow in various banks in and around Western Pennsylvania, with directions to deliver them upon the payment of the purchase price. Prior to the date of closing, April 9, 1930, a bankers' syndicate was organized consisting of Furlaud & Co., Inc., as managers and other banking houses, to purchase when and if issued and to distribute in allotted territories, first mortgage 6 per cent. gold bonds of the Duquesne Gas Corporation of a par value of $4,000,000 which it was arranged the Duquesne Gas Corporation would issue. On March 19, 1930, Furlaud & Co., Inc., as such distributing group manager, advised security dealers by letter that it had purchased "when, as and if issued" the bonds of the Duquesne Gas Corporation, and offered to sell these securities to the dealers for resale by them. A subscription blank accompanied the offer. It was filled in and returned to Furlaud & Co., Inc., with each dealer's order. On March 25, 1930, an advertisement appeared in a New York newspaper over the names of the five members of the bank syndicate, offering the securities for sale. At this time, when the entire stock of the Duquesne Gas Corporation was held by Furlaud & Co., Inc., the gas company authorized the issuance of $4,000,000 first mortgage bonds, and also $1,000,000, 6½ per cent. notes to be secured by mortgages, and the authorized capital stock was increased from 1,000 to 1,250,000 shares of common stock without par value.
On April 7, 1930, an agreement of reorganization was entered into between the Duquesne Gas Corporation and the Kingston Corporation by which the latter agreed it would cause the optioned properties, all its assets other than cash, to be transferred to the Duquesne Gas Corporation, which in turn agreed to issue to the Kingston Corporation 535,000 shares of common stock without par value and $1,300,000 principal amount of convertible gold bonds and to assume an obligation of the Kingston Corporation to the Central Hanover Bank & Trust Company in the sum of $3,015,000. Prior to the closing on April 9, 1930, two loans were made by the Central Hanover Bank & Trust Company, one for $3,015,000 for the Kingston Corporation, and the other for $3,379,500 to Furlaud & Co., Inc.
The Kingston Corporation, at the closing, delivered its certified checks, drawn on the Central Hanover Bank & Trust Company, for a total of $2,449,900 to the Equitable Trust Company, the Guarantee Trust Company of New York, and the Central Hanover Bank & Trust Company, respectively. These checks put the banks in funds to meet the drafts, in their hands, drawn on the Kingston Corporation by the banks in Western Pennsylvania, which held in escrow the deeds transferring the properties to the Duquesne Gas Corporation. The Western Pennsylvania banks released the deeds upon being notified of the aforesaid payments. Upon receiving telegraphic and telephonic advice that the deeds had been recorded, the Duquesne Gas Corporation issued the securities to the Kingston Corporation in accordance with the terms of the reorganization agreement. At the same time Furlaud & Co., Inc., pursuant to an agreement of April 7, 1930, delivered its check, drawn on the Central Hanover Bank & Trust Company, for $3,379,500 to the Duquesne Gas Corporation as the purchase price for $2,700,000 par value 6 per cent. bonds at 90, and $1,000,000 6½ per cent. gold notes of the Duquesne Gas Corporation at 88, and 139,000 shares of its common stock at 50 cents a share. These securities were immediately delivered to Furlaud & Co., Inc. Duquesne Gas Corporation then drew its check for $3,015,000 to the order of the Central Hanover Bank & Trust Company in payment of the Kingston Corporation's one day loan, the payment of which the Duquesne Gas Corporation had assumed. The Duquesne Gas Corporation then had left in its treasury $365,000.
On the day of the closing, some of the security dealers, who had agreed to purchase about $2,350,000 face value of the bonds, sent their representatives to the Central Hanover Bank & Trust Company with checks payable to the order of Furlaud & Co., Inc., and picked up the bonds which they had agreed to purchase. The checks thus received totaled $1,886,330....
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