American Dirigold Corp. v. Dirigold Metals Corp., 9028.

• Decision Date: 03 February 1942
• Docket Number: No. 9028.,9028.
• Citation: 125 F.2d 446
• Parties: AMERICAN DIRIGOLD CORPORATION v. DIRIGOLD METALS CORPORATION.
• Court: U.S. Court of Appeals — Sixth Circuit

125 F.2d 446 (1942)

AMERICAN DIRIGOLD CORPORATION v. DIRIGOLD METALS CORPORATION.

No. 9028.

Circuit Court of Appeals, Sixth Circuit.

February 3, 1942.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

C. J. Andre, of Saint Paul, Minn., and A. H. Williams, of Detroit, Mich. (Butzel, Eaman, Long, Gust & Bills, of Detroit, Mich., and Sanborn & Andre, of Saint Paul, Minn., on the brief), for appellant.

A. E. Fixel, of Detroit, Mich. (McLeod, Fixel & Fixel, of Detroit, Mich., on the brief), for appellee.

Before ALLEN, HAMILTON, and MARTIN, Circuit judges.

HAMILTON, Circuit Judge.

This cause was before us on a former appeal, 6 Cir., 104 F.2d 863, and was remanded with directions to the District Court to hear further evidence in camera.

The controversy involves the use of an alleged secret process for the manufacture of aluminum bronze, by the combination of copper, aluminum, tin and nickel in fixed ratio, blended at a given temperature, and being superior in purity and appearance to any metallurgical alloy theretofore used for the same purposes. The controversy further involves whether appellee is entitled to use exclusively the trade name "Dirigold" under which the product is sold.

The questioned process was discovered by Carl A. Von Malmborg and Carl Molin in 1914, and in 1921 with Von Malmborg's brother, Oscar, they organized a Swedish corporation under the name of Akliebaloget Dirigold Company which acquired the exclusive license to use the process everywhere except in Finland and the Scandinavian countries and at the same time Sven Johnson acquired the exclusive license to use it in those countries. The Swedish Company did not manufacture, its only substantial asset being the license. Under the Johnson license the alloy in question was manufactured and marketed in Europe under the trade name of "Dirigold." Later Malmborg and Molin organized the Dirigold Corporation of Delaware and on February 1, 1924, the Swedish Company gave this corporation an exclusive license to use the process in the United States and Canada, and it adopted and registered in the patent offices of the United States and Canada the trademark "Dirigold" and imported into the United States from the Johnson Company in Sweden products manufactured according to the formula and sold them under the trade name "Dirigold."

In 1926, the Dirigold Corporation of Delaware commenced the manufacture and sale of the product at Kokomo, Indiana. On October 4, 1930, an equity receiver was appointed for the Delaware Corporation in the United States District Court at Indianapolis, which receiver continued the business of the Company. In February, 1931, the stockholders of the Dirigold Corporation authorized its board of directors to effect a reorganization of the Company by forming a new corporation under the laws of Illinois, this corporation to be known as the Dirigold Metals Corporation. It was formed and Malmborg and Molin were directors. A plan of reorganization was perfected and submitted to the United States District Court in Indianapolis, and rejected. The contract of February 1, 1924, between the Swedish Company and the Dirigold Corporation of Delaware provided that if the latter Company should be liquidated, "all rights, hereby granted shall cease and shall revert to the party of the first part and belong to the latter as if this agreement had not been made."

Fearful that this provision might abrogate the contract, the Dirigold Metals Corporation of Illinois negotiated with the Swedish Company for a new contract and in September, 1931, a new contract was reduced to writing under which the Illinois Corporation acquired the exclusive and unlimited perpetual use of the process in the United States and Canada, subject, however, to the termination "for any reason whatsoever" of the license the Swedish Company had theretofore granted to the Dirigold Corporation of Delaware (then in receivership). Malmborg and Molin, the discoverers of the alleged secret process, joined in this contract as third parties and agreed to all of its terms. The contract was prepared in quadruplicate and signed by the Dirigold Metals Corporation of Illinois and Malmborg and Molin and mailed to the Swedish Corporation for signature, and signed by the officers of that corporation, one copy retained by it and the other three copies mailed to an agent of the Swedish Corporation at Kokomo, Indiana, with instructions that none of the copies of the contract were to be delivered to the Dirigold Metals Corporation of Illinois until it had acquired the assets of the Dirigold Corporation of Delaware in receivership. Internal strife developed among the officers and stockholders of the newly organized Illinois Corporation and the reorganization proceedings in the Federal Court became dormant, but the receiver continued the operation of the Company. On March 18, 1932, the agent of the Swedish Corporation returned to Sweden, but before leaving, delivered the three copies of the contract to a mutual friend of the two Malmborgs, with instructions to deliver it to the newly organized Illinois Corporation upon the receipt from it of its Class C stock certificate issued in the name of the Swedish Company for 20,000 shares and a like certificate for 10,000 shares to Oscar Von Malmborg.

In October 1932, Carl Von Malmborg wrote his brother, Oscar, in Sweden, that the reorganization of the Dirigold Corporation of Delaware by the creation of the new Illinois Corporation should be abandoned and a new corporation formed under the laws of Delaware or some other state and when organized, the contract then being held by their mutual friend should be delivered to it. None of the other stockholders or officers of the old Delaware Corporation or of the newly organized Illinois Corporation or Molin had any knowledge or notice of the correspondence between the two brothers, and Oscar Malmborg was under the impression that the proposed new Company was a part of the reorganization plans of the old Delaware Corporation and had been agreed to by its stockholders and directors and by Molin. Acting under this assumption, on November 11, 1932, Oscar Malmborg cabled his brother, Carl, "you are authorized to make the requested change in the contract."

In January, 1934, Carl Malmborg organized the corporate appellee, the Dirigold Metals Corporation under the laws of Delaware and dominated and controlled it, all of which was done without the knowledge or consent of the other stockholders and directors of the old Delaware Corporation in receivership or the newly formed Illinois Corporation or Carl Molin.

On January 31, 1934, Carl Malmborg had the appellee issue 20,000 shares of its Class C stock to the Swedish Company and 10,000 like shares to his brother, Oscar Malmborg. He delivered them to the escrow agent holding the contract of September, 1931, and this contract was delivered to Carl Malmborg in exchange for the shares. Carl Malmborg changed the date on the contract from September, 1931 to January 31, 1934, and delivered it to the then newly organized appellee, but did not change the word "Illinois" as the state of incorporation to "Delaware," the place of incorporation of appellee.

The escrow agent mailed the stock certificates for the shares to Oscar Malmborg in Sweden, who retained them about six months. Immediately upon his discovery that the contract was not with the successor of the old corporation, he returned them by mail to the escrow agent in Chicago, Illinois. The post office department was unable to locate the addressee and the letter was returned unopened to Oscar Malmborg and he retained the stock certificates about eighteen months, in the meantime corresponding with the receiver of the Delaware Corporation and Molin about its reorganization. The appellant in the meantime having been organized and having acquired the assets of the old corporation at judicial sale, Oscar Von Malmborg returned the stock certificates to the appellee and the Swedish Corporation passed a resolution cancelling the license theretofore granted by it to the Dirigold Metals Corporation of Illinois which was then in the possession of the appellee under the circumstances here detailed.

Under the foregoing facts, the appellee claims and the court found that it has the exclusive right to the process discovered by Molin and Malmborg in 1914 and also the trademark "Dirigold." Malmborg tried to persuade Molin to join the new Company after its organization, which he refused, telling Malmborg he desired to operate his business independently.

In May, 1934, the Dirigold Metals Corporation of Illinois was dissolved by quo warranto proceedings in that State because of failure to file annual reports and pay taxes according to its laws. The equity receivership of the old Dirigold Corporation of Delaware was continued, but the State of its creation statutorily suspended its charter in 1934 for failure to pay taxes.

In the latter part of 1934, Molin communicated with Oscar Von Malmborg, president of the Swedish Company about reorganization of the old Dirigold Corporation of Delaware in receivership and in November, 1934, the Swedish Company authorized Molin and John E. Frederick, the equity receiver, to effect a reorganization of this corporation by forming a new company to take over its business and assets, including the original 1924 contract. A small interest in the new company was to be set aside to the stockholders of the old and they consented to the plan. Carl Malmborg was invited to join in the formation of the new company but declined, insisting that appellee then had the exclusive license to manufacture and sell under the name "Dirigold" the product of the secret process.

In July, 1935, pursuant to a decree of the District Court for the Southern District of Indiana, all the assets and good will of the old Dirigold Corporation of Delaware were offered at public sale and Molin and his associates acquired them for...