Bank of Andrews v. Gudger

• Decision Date: 13 March 1914
• Docket Number: 1251.
• Citation: 212 F. 49
• Parties: BANK OF ANDREWS et al. v. GUDGER. In re CHEROKEE TANNING EXTRACT CO.
• Court: U.S. Court of Appeals — Fourth Circuit

212 F. 49

BANK OF ANDREWS et al. v. GUDGER.

In re CHEROKEE TANNING EXTRACT CO.

No. 1251.

United States Court of Appeals, Fourth Circuit.

March 13, 1914

Donald Witherspoon, of Murphy, N.C. (James H. Merrimon, of Asheville, N.C., and Witherspoon & Witherspoon, of Murphy N.C., on the brief), for petitioners.

Alf. S Barnard, of Asheville, N.C., and W. D. Payne, of Charleston W.Va. (Stevens & Anderson and Merrick & Barnard, all of Asheville, N.C., and Payne, Minor & Bouchelle, of Charleston W. Va., on the brief), for respondent.

Before PRITCHARD, KNAPP, and WOODS, Circuit Judges.

WOODS Circuit Judge.

This petition to superintend and revise in the bankruptcy of Cherokee Tanning Extract Company presents to the court a delicate matter of conflict between the superior court of the state of North Carolina and the District Court of the United States for the Western District of North Carolina. In accordance with the accustomed dignity and decorum of the federal and state courts in such a condition, the judges of the courts concerned have asserted their convictions of judicial duty with the utmost courtesy and consideration for each other, leaving the differences to be settled by appellate courts in the manner provided by law. This court enters upon the consideration of the questions involved giving full force to the law that the superior court of North Carolina is a court of general jurisdiction and that the presumption is therefore in favor of its jurisdiction as to all matters justiciable in that state, while the District Court of the United States is confined to the jurisdiction expressly conferred or necessarily implied by federal statutes. Case of the Sewing Machine Companies, 85 U.S. (18 Wall.) 553, 557, 21 L.Ed. 914.

The material facts are not in dispute. Cherokee Tanning Extract Company, a corporation organized in 1902 under the laws of North Carolina, was engaged in the manufacture of tanning extracts in that state. By a summons dated April 21, 1913, and a complaint verified April 30, 1913, W. C. Barker, W. J. Dingledine, Henry A. Walker, and W. S. Barker, as minority stockholders of the corporation, brought their action in the superior court of North Carolina for the county of Cherokee against the corporation and H. N. Gitt, W. P. Stine, and Frank W. Hunt, setting out in the complaint many acts tending to show fraudulent mismanagement of the company by the majority of the stockholders and the board of directors for the purpose of depreciating the stock in furtherance of an alleged plan to purchase the stock at a low price to the great injury of the minority stockholders. The caption of the complaint included as plaintiffs those above named 'and all others, the stockholders and creditors of the Cherokee Tanning Extract Company who will come in and make themselves parties and contribute to the cost of the suit. ' There was also an allegation in the complaint that the action was brought for the benefit of the plaintiffs and all creditors and stockholders who would come in and make themselves parties to the suit and contribute to the expenses. Insolvency at the time the action was brought was negatived by the following allegation as to the danger of future insolvency:

'Plaintiffs repeat and reaffirm their allegation that the defendant Cherokee Tanning Extract Company is in imminent danger of becoming insolvent unless this honorable court should intervene and prevent the carrying out of the unlawful and fraudulent agreements entered into between the said Gitt and Hunt, which agreements constitute acts of wrongful oppression of the minority stockholders and ought not to be allowed. They reassert and reaffirm the liabilities of said Gitt and Stine on account of their alleged misconduct, and they respectfully submit to the court that a receiver to take charge of and wind up the affairs of the corporation is the only salvation for the minority stockholders and for the creditors of said company.'

The prayer for relief was as follows:

'Wherefore plaintiffs demand judgment that a receiver be appointed to at once take charge of all the property and effects of the Cherokee Tanning Extract Company; that said receiver, if it shall be determined that these plaintiffs cannot do so, be directed to at once assert in this action, or a proper one to be begun for the purpose, a liability against the said H. N. Gitt and W. P. Stine and Frank W. Hunt on account of said acts; that said receiver be authorized and directed to at once sell all of the manufactured product of the said defendant company at market price for cash; that he be authorized to use up only the material on hand in the manufacture of extract and that it be sold at the market price; that said receiver take charge of all the property and effects of every kind, including choses in action; that the same be sold upon such terms as the court may direct, said choses in action collected; and that all the property and business of the Cherokee Tanning Extract Company shall be sold out and the proceeds thereof applied, under the order of this court, as the law directs; for the costs of this action and for such other and further relief in the premises as to the court may seem to be just.' On May 5, 1913, Hon. Henry P. Lane, judge of the superior court sitting in Cherokee county, made an ex parte order appointing J. Q. Barker receiver to take charge of the corporate property, under a finding by the court recited in the order that the corporation 'is being mismanaged and is in imminent danger of becoming insolvent,' and that suit should be brought on behalf of the corporation against the defendants, Hunt, Gitt, and Stine, on account of their alleged misconduct of the affairs of the corporation. The order required the defendants to show cause at a future day why a permanent receiver should not be appointed. Barker, the receiver appointed by the court, took charge of the property under the order. The complaint was afterwards amended in particulars not important to this controversy. The defendant corporation and Gitt and Stine demurred and answered, and by the answer put in issue the material allegations of the complaint, specifically denying that the corporation was in imminent danger of insolvency, unless it should be made so by the action instituted by the plaintiffs.

A motion made by the defendants to discharge the receivership was heard by Hon. G. S. Ferguson, judge presiding at the November term, 1913, of the superior court for Cherokee county. The motion was refused in an order containing the following as the reason for the refusal:

'* * * The court adjudges that it is apparent that the majority stockholders have combined together to control the affairs of the corporation, the Cherokee Tanning Extract Company, and have undertaken in an illegal and unauthorized manner to force the minority to sell their stockholdings at a price to be fixed by the majority, and to exclude the minority from any voice or participation in the management of the affairs of the corporation, and to control the corporation, as they see fit, and have mismanaged the affairs of the corporation, and have done other things which make it apparent to the court that it is impossible that the corporation should longer exist and carry on its business and that a sale of its assets and winding up of its affairs, including the payment of its debts, is all that remains to be done.'

In the meantime on September...