All States Investors, Inc. v. Bankers Bond Company

• Decision Date: 07 April 1965
• Docket Number: No. 15959.,15959.
• Citation: 343 F.2d 618
• Parties: ALL STATES INVESTORS, INC., Plaintiff-Appellee, v. The BANKERS BOND COMPANY, Inc., Elinore Sedley, Defendants-Appellants, and James E. Dunne, II, Moses Master, Administrator of the Estate of Charles D. Dunne, Deceased, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

343 F.2d 618 (1965)

ALL STATES INVESTORS, INC., Plaintiff-Appellee, v. The BANKERS BOND COMPANY, Inc., Elinore Sedley, Defendants-Appellants, and James E. Dunne, II, Moses Master, Administrator of the Estate of Charles D. Dunne, Deceased, Defendants-Appellees.

No. 15959.

United States Court of Appeals Sixth Circuit.

April 7, 1965.

Wilbur O. Fields, Louisville, Ky., for appellants.

Henry J. Stites, Louisville, Ky., for James E. Dunne, II, and others.

Henry R. Heyburn, Louisville, Ky., and Henry W. Strasburger, Dallas, Tex. (Henry W. Strasburger, Royal H. Brin, Jr., Strasburger, Price, Kelton, Miller & Martin, Dallas, Tex., Henry R. Heyburn, Clay L. Morton, Marshall, Cochran, Heyburn & Wells, Louisville, Ky., on the brief), for All States Investors.

Before CECIL, PHILLIPS and EDWARDS, Circuit Judges.

CECIL, Circuit Judge.

This cause of action grew out of the issue and sale of bonds by the City of West Buechel, a Sixth Class City of the State of Kentucky. The details of this ingenious transaction are set forth in an opinion of this Court reported at Texas Continental Life Insurance Company v. Dunne, 307 F.2d 242, and in the opinion of a District Judge reported at Texas Continental Life Insurance Company, Plaintiff v. Bankers Bond Company, Inc., Elinore Sedley, Charles D. Dunne and J. E. Dunne II, Defendants, 187 F.Supp. 14.

The Texas Continental Life Insurance Company hereinafter referred to as Texas Continental purchased $100,000 of these bonds and All States Life Insurance Company made a purchase of the bonds in the amount of $250,000. Mr. B. F. Biggers represented these insurance companies in the purchase of the bonds.

The bonds¹ subsequently defaulted and actions were brought in the United States District Court for the Western District of Kentucky by Texas Continental and All States Life Insurance Company for recovery on the bonds. The defendants were The Bankers Bond Company, Inc., Elinore Sedley, James E. Dunne II, and Moses Master, Administrator of the Estate of Charles D. Dunne, Deceased, hereinafter referred to as Bankers Bond, Mrs. Sedley and the Dunnes. The alleged causes of action were common law fraud and violation of the Securities Act of 1933, the Securities Exchange Act of 1934 and Rule X-10b-5 of the Securities & Exchange Commission. A trial of the Texas Continental case resulted in a disagreement by the jury. Thereafter, on motion, the District Judge granted judgment to the plaintiff. 187 F.Supp. 14. On appeal we remanded the case to the District Court for retrial. 307 F.2d 242. The cases were then consolidated for trial. All States Investors, Inc., the plaintiff-appellee herein, and hereinafter referred to as All States Investors, is the assignee of All States Life Insurance Company. Judge Frank Wilson sitting by designation from the Eastern District of Tennessee tried the cases to a jury for three days beginning January 21, 1963.

After the noon recess, on January 23rd, the parties announced that all matters at issue between the parties in both cases had been settled. The jury was dismissed and the entry of a final order was postponed pending the closing of the settlement by the parties within thirty days. The settlement between the plaintiff Texas Continental and the defendants having been consummated, according to the agreement, we are not further concerned with that case. Upon failure of the parties in the other case to consummate the settlement agreement, Judge Wilson granted a judgment against Bankers Bond and Elinore Sedley in the sum of $257,500 plus interest, in favor of the plaintiff All States Investors. It is this judgment and the procedure by which it was obtained that is now before us on this appeal.

For the purposes of this review, the pertinent provisions of the settlement agreement between All States Investors and the defendants are as follows:

1. An action pending in Texas between All States Investors, and James E. Dunne, II, was to be dismissed with prejudice and without award of costs of either party.

2. Bankers Bond and Mrs. Sedley were to purchase, at the time of closing, from All States Investors $250,000 of the face amount of the West Buechel revenue bonds for $90,000 and a promissory note with Bankers Bond and Mrs. Sedley as makers in the amount of $15,000. The note was to be paid in five equal annual installments of $3,000 each without interest. In the event of default, there was an acceleration clause making the entire balance due with interest at 6% from date of default.

3. Closing was to be within thirty days from the execution of the agreement.

4. The parties were to release liability on United States Government Bonds in the face amount of $150,000 held as collateral security by Fidelity and Deposit Company of Maryland, surety upon a supersedeas bond in the Texas Continental case.

5. The West Buechel bonds were to be delivered simultaneously with the payment of the money and the delivery of the note. Mutual releases were to be exchanged between the parties.

6. Upon consummation of the closing of the settlement agreement, an order was to be entered dismissing the case with prejudice.

7. Item (4) of the agreement provided in part:

"To avoid further delay, hardship, inconvenience, or costs to the parties, this agreement contains a stipulation with respect to the event of failure of the defendant to consummate this transaction of a nature which will vest jurisdiction and right in this Court to make and enter the order hereinafter provided."

The stipulation to which reference is made is as follows:

"If the Bankers Bond Company and Mrs. Elinore Sedley, or either of them, shall fail, within the time herein provided for consummation and closing of this agreement, to carry out and perform their obligations thereunder, as hereinabove provided, this Court shall have the right, authority and jurisdiction, upon certification of such fact by counsel of record for each of the plaintiffs, without notice or the necessity for the hearing of any further evidence, forthwith to enter a judgment in each case in amount claimed in the complaint against the defendants, The Bankers Bond Company and Mrs. Elinore Sedley, and a joint judgment in both cases against the defendant, James E. Dunne, II, in the amount of $15,000 and said defendants hereby waive any right which they might have to appeal or seek to appeal from the judgment so entered."

It was further stipulated that the West Buechel bonds, which were the property of All States Investors, were in the possession of the Honorable Martin R. Glenn, Clerk of the United States District Court, at Louisville. The agreement was signed by Henry R. Heyburn and Ira Lee Allen as attorneys for Texas Continental Life Insurance Co., by Henry W. Strasburger as attorney for All States Investors, Inc., by A. Berkowitz and J. C. Satterfield as attorneys for The Bankers Bond Company, Inc., by Henry J. Stites as attorney for James E. Dunne, II, by G. Charles Childre, president of the Texas Continental Life Insurance Co., by Tyrus R. Davis, president of The Bankers Bond Company, Inc., by Mrs. Elinore Sedley, and by James E. Dunne, II. The District Judge filed a copy of the agreement with the Clerk of the Court on October 10, 1963.

On February 21, 1963, the parties met and Bankers Bond and Mrs. Sedley tendered performance of their obligations in accordance with the agreement. All States Investors was unable to deliver the West Buechel bonds and the agreement was not consummated. It developed that the Clerk of the Court did not have the bonds and the parties were unable to locate the bonds or account for them.

On April 18, 1963, counsel for plaintiff-appellee moved for judgment for $250,000 (sic) with interest from 1957. Judge Wilson heard the motion on April 27th. The lawyers and all parties were present. In the meantime, All States Investors had obtained an indemnity agreement of both All States Investors and B. F. Biggers. It had dismissed the action in Texas according to agreement. It had also released the government bonds which had been held by Fidelity and Deposit Company of Maryland which was required in order that Bankers Bond and Mrs. Sedley could meet their payment of $90,000 to All States Investors. At the hearing of April 27th, Judge Wilson directed counsel for appellee to file an amended motion for judgment which would insure that all issues presented by the failure to consummate the settlement agreement would be before the Court. Such an amended motion was filed on May 6, 1963.

Judge Wilson decided this motion in an opinion filed October 4, 1963. He found that on the basis of the record the bonds in question were, by accident and without fault or intention of anyone, lost, stolen or misplaced. He further found that the plaintiff had tendered an assignment, release and indemnity agreement by which it warranted ownership of the bonds, made an assignment of them to Bankers Bond, released the defendants from any claims arising out of the bonds and agreed to indemnify the defendants against any loss by reason of failure to produce them. The indemnity agreement was guaranteed by B. F. Biggers and Judge Wilson found it to be adequate security.

Judge Wilson also found that in accordance with the settlement agreement, the plaintiff dismissed with prejudice its pending lawsuit in Dallas, Texas, that the defendant James Dunne, II, delivered his note for $15,000 payable to Bankers Bond and Mrs. Sedley, and that Bankers Bond and Mrs. Sedley received and retained this note.

Judge Wilson said:

"The Court finds that all of this, when considered together, constitutes substantial performance of the settlement agreement upon the part of the plaintiff and that the failure to deliver the bonds under the circumstances does not constitute a material failure of performance on the part of the plaintiff."

He also found that the negotiations of the parties subsequent to the discovery of the loss of the bonds constituted a modification of...