Gochenour v. George & Francis Ball Foundation
| Decision Date | 21 January 1941 |
| Docket Number | No. 190.,190. |
| Citation | 35 F. Supp. 508 |
| Court | U.S. District Court — Southern District of Indiana |
| Parties | GOCHENOUR et al. v. GEORGE & FRANCIS BALL FOUNDATION et al. |
Joseph & Dann, of Indianapolis, Ind., and Shulman, Shulman & Abrams, of Chicago, Ill., for plaintiffs.
Thompson & Smith, of Indianapolis, Ind., and Warner, Clark & Warner, of Muncie, Ind., for defendants.
Judgment Affirmed January 21, 1941. See 117 F.2d 259.
This is a class action brought by A. B. Gochenour and ten others in their individual capacity and on behalf of all of the creditors of The Cleveland Terminals Building Company (hereinafter referred to as the "Terminals Company"), an Ohio corporation. The individual plaintiffs are residents of states other than Indiana. The defendant, George and Francis Ball Foundation, is an Indiana corporation, and the defendants, George A. Ball and F. B. Bernard, are residents and citizens of the State of Indiana.
The complaint charges that, in the month of August, 1935, O. P. Van Sweringen and M. J. Van Sweringen, each of whom was, at the time of the commencement of this action, deceased, together with one Charles L. Bradley, the defendants, George A. Ball, F. B. Bernard and others entered into a conspiracy for the purpose of defrauding the creditors of the Terminals Company, and of benefiting themselves. The facts which are alleged to have constituted such conspiracy are hereinafter referred to in this memorandum.
This action was begun by the filing of a complaint on October 11, 1939, to which complaint the defendants addressed a motion to dismiss on October 27. Plaintiffs, by leave of court, filed an amendment to their complaint, which amendment was filed on November 16, on which date the defendants' motion to dismiss was re-filed and addressed to the complaint as amended. There are to be found in Paragraph 18 of the amendment to the complaint certain allegations with reference to the action taken by the United States District Court for the Northern District of Ohio, Eastern Division, sitting as a bankruptcy court, in which court a reorganization proceeding under Section 77B of the Bankruptcy Act, 11 U.S.C.A. § 207, is pending for the Terminals Company and was so pending at the time of the commencement of this action. The defendants have challenged the correctness of those allegations by filing the affidavit of Roger P. Brennan to which is attached, as exhibits, certified copies of the proceedings in that court, in support of their motion to dismiss. A stipulation was filed on January 12, 1940, giving the court permission to consider such affidavit, together with the exhibits attached thereto, as well as a memorandum of certain bondholders filed in that proceeding, together with the allegations contained in the complaint and amendments thereto in this action, in determining such motion.
It is not deemed necessary to detail, at any great length, the allegations contained in the complaint, all of which, with the exception of those contained in Paragraph 18 of the amendment, the correctness of which is challenged by the defendants, must be accepted as true for the purpose of considering the motion to dismiss. In order that a clear understanding may be had of the questions presented for determination it is, however, deemed necessary to briefly review the charges contained in the complaint. It will be understood that any statement or statements made herein purporting to be a fact or facts are simply the allegations of such fact or facts contained in the complaint and amendment thereto.
On October 31, 1930, the Terminals Company executed its promissory note in the principal sum of $23,500,000, to secure the payment of which, certain collateral, the property of the Terminals Company, was deposited therewith, among which collateral so deposited were the following stocks and bonds:
1,435,360 shares Alleghany Corp. Common
Stock (no par value)
2,765 shares Alleghany Corp. Cum
5½% Pfd. Stock "A" Ex
Warrants ($100 par value)
20,950 shares Alleghany Corp. Cum
5½% Pfd. Stock "A" with
$30 Warrants ($100 p. v.)
3,920 shares Alleghany Corp. Cum
5½% Pfd. Stock "A" with
$40 Warrants ($100 p. v.)
100,000 shares The Higbee Co. Common
Stock (no par value)
$317,000 The Alleghany Corp. 20-Year
Coll. Tr. Conv. 5% bonds
Series of 1930 due April 1
1950 C/B's
$930,000 The Cleveland Terminals Building
Co. 2nd Mtge. 6% bonds
due May 1, 1935.
$258,506.94 The Higbee Co. 6% Subordinated
Note due March 1,
1934.
This note, together with the collateral deposited therewith, was delivered by the Terminals Company to the Vaness Company, a holding company, which was managed and controlled by the same individuals as those who comprised the officers and directors of the Terminals Company. At the same time there was executed by the Vaness Company its certain promissory note in the principal sum of $16,000,000, to secure the payment of which, certain collateral, the property of the Vaness Company, was deposited therewith. Both of these notes, together with the collateral deposited therewith, were delivered to J. P. Morgan & Company, which principal amounts, together with six per cent interest per annum thereon, were payable at their office on May 1, 1935. Of the collateral thus deposited there remained on deposit with J. P. Morgan & Company, on September 30, 1935, the above-listed stocks and bonds of the Terminals Company, as well as certain collateral belonging to the Vaness Company.
It is alleged that, during the month of August, 1935, O. P. Van Sweringen and M. J. Van Sweringen were the principal officers and directors of the Terminals Company and in charge of all its affairs, at which time it was insolvent; that they, together with one Charles L. Bradley, became trustees of its property for the benefit of its general creditors; that it, therefore, became their duty to exert every effort to protect its property for the benefit of its general creditors; that they knew that the collateral deposited with J. P. Morgan & Company would be sold upon default of the payment of the Terminals Company's note; that they did not notify the creditors of such default and sale, but, instead, entered into a conspiracy with the defendants Ball, Bernard and others to purchase such collateral at a nominal and inadequate price. For the purpose of furthering or perfecting such conspiracy, plaintiffs say that the Midamerica Corporation, an Ohio corporation, was incorporated on September 26, 1935; that, on September 30 of that year, the same day upon which the Terminals Company's collateral was sold by J. P. Morgan & Company, but prior to the hour of the sale, at an organization meeting, the following officers and directors for such corporation were elected, to-wit:
and that of such officers and directors, Anzalone and Murphy were, at that time, officers of the Terminals Company. At such meeting, O. P. Van Sweringen was authorized to purchase, on behalf of the Midamerica Corporation, the collateral deposited by the Vaness Company and by the Terminals Company, at the sale held later that day by J. P. Morgan & Company; that, pursuant to such authority, he did purchase such collateral, paying for the Terminals Company collateral the sum of $318,000, which such sum was much less than the actual market price thereof, thereby enabling such corporation to realize a large profit from such transaction, alleging such profit to have been $1,816,068.75. Plaintiffs say that, at all times, defendants knew the real value of such collateral and that, through its purchase and the further purchase of the Vaness collateral, the Midamerica Corporation was enabled to gain control of the following railroads, to-wit:
Chesapeake & Ohio Ry. Co. Pere Marquette Ry. Co. New York, Chicago & St. Louis R. R. Co. Erie R. R. Co. Missouri Pacific R. R. Co. New Orleans, Texas & Mexico R. R. Co. Texas & Pacific R. R. Co. Chicago & Eastern Illinois Ry. Co. Wheeling & Lake Erie Ry. Co. International & Great Northern Ry. Co.
From the operation of such railroads large profits are alleged to have been derived by these individual defendants, and others.
Subsequent to the purchase of the Terminals Company's collateral by Midamerica Corporation, O. P. Van Sweringen and M. J. Van Sweringen died; that thereafter, the defendant, George A. Ball, acquired 93.67 per cent of the corporate stock of the Midamerica Corporation and transferred it to the defendant, George and Francis Ball Foundation, without consideration; that such Foundation, being an Indiana corporation, was organized by the defendants, George A. Ball and F. B. Bernard. The complaint sets forth the details of a certain transaction alleged to have taken place between the defendant, Foundation, and the purchaser of certain assets from the Midamerica Corporation and alleges that the cash realized from the sale of such assets was distributed among the stockholders of the Midamerica Corporation in the form of liquidating dividends. Shortly, thereafter, the defendant, Foundation, is alleged to have acquired the remaining capital stock of such corporation and it is now the sole owner thereof. This transaction took place on or about May 4, 1937.
It is the theory of the original complaint that the alleged acts of the defendants, together with the Van Sweringens, and others, as alleged therein, constituted a conspiracy, upon their part, to acquire at a price much less than its actual...
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