Barry v. Legler

• Decision Date: 08 May 1930
• Docket Number: No. 8611.,8611.
• Citation: 39 F.2d 297
• Parties: BARRY et al. v. LEGLER.
• Court: U.S. Court of Appeals — Eighth Circuit

39 F.2d 297 (1930)

BARRY et al. v. LEGLER.

No. 8611.

Circuit Court of Appeals, Eighth Circuit.

March 3, 1930.

Rehearing Denied May 8, 1930.

James M. Houston, of Kansas City, Mo., for appellants.

James M. Johnson and Donald W. Johnson, both of Kansas City, Mo., for appellee.

Before VAN VALKENBURGH and BOOTH, Circuit Judges, and DEWEY, District Judge.

VAN VALKENBURGH, Circuit Judge.

In the spring of 1920 there existed four oil corporations, to wit, the Ranger Refining Company, the Gate City Oil Company, the Steiner Oil Company, and the Steiner Oil Corporation, engaged variously in the production, refining, and marketing of oil in Texas and Missouri. In March or April, 1920, it was proposed to merge these four companies into one holding and operating corporation, and to this end appellants Barry and Scott, together with one Schwald, who was associated with them in the Ranger Refining Company, began the organization of the Ranger Refining & Pipe Line Company, a Delaware corporation, whose certificate of incorporation was filed in the office of the secretary of state of Delaware April 6, 1920. It was therein recited that the total authorized capital stock of this corporation should be $15,000,000, divided into 15,000,000 shares of common stock of the par value of $1 each. The amount of capital stock with which the corporation would commence business was placed at $1,000, consisting of 1,000 shares at par. Of this new corporation one R. L. Steiner was president, one Leon H. Schwald was vice president, appellant Barry was secretary, and appellant Scott was treasurer. From the outset Steiner discharged no active functions as president. The corporation, through agents employed for that purpose, began at once the sale of stock, described as preorganization stock, prior to July 1, 1920, and, after that, the capital stock of the company. From June 30 to November 1, 1920, inclusive, appellee, his mother, sister, and brother, residents of the state of Wisconsin, purchased 131,500 shares, for which they paid $109,625. Of this 94,000 shares were purchased at par, and 37,500 shares at 42 cents per share.

At the time of the merger the properties of the four corporations theretofore existing were taken over. It was then known that there were outstanding Steiner obligations of $400,000. Appellant Barry testifies that, immediately after the companies were taken over, "accounts payable began showing up for the Steiner Oil Company where payment for oil had been held in suspense while they were correcting titles to real estate, on which they were receiving oil. They had held up payments and there was a tremendous amount of those payments." They amounted to $475,000, making an indebtedness at the outset chargeable to the new company of $875,000. In the latter part of July, 1920, the company started to float a $1,000,000 bond issue; and, from the testimony of appellant Barry, it appears that about January 1, 1921, a temporary bond issue was put on through Stern Bros., brokers of Kansas City and Chicago. The financial situation was such, however, that immediately thereafter efforts were made to place on the market a $2,000,000 bond issue, but in April, 1921, while this matter was pending, and before such arrangements could be perfected, bankruptcy proceedings, with incidental receiverships, intervened. Ultimately the assets of the Ranger Refining & Pipe Line Company were sold under order of the court for $300,000. The assets were bought by the Interstate Refining Company, a corporation organized for that purpose. A dividend of 5 or 6 per cent. only was paid to creditors. For all the properties of the four merged companies the Ranger Refining & Pipe Line Company paid with 8,300,000 shares of its capital stock, distributed among the stockholders of such merged companies. The sale of stock following the organization of the Ranger Refining & Pipe Line Company, according to appellant Barry, aggregated approximately $175,000, including that purchased by appellee and his family. This stock was sold by David Weiss & Co., stock and bond brokers of Chicago, Ill. July 1, 1925, appellee brought suit against appellants Barry and Scott, and David H. Weiss of the firm of Weiss & Co., charging a conspiracy to defraud in the sale of the stock aforesaid by means of false and fraudulent representations. The petition was in three counts. The first count dealt with sales to appellee personally; actual damages being laid at $46,562.50. The second count involved the sales made to appellee's brother aggregating $43,062.50, for which sum judgment was prayed. The third count sought recovery on account of the sales made to appellee's mother and sister in the aggregate of $20,000. The mother, brother, and sister had duly assigned their claims to appellee, and the total amount in suit was $109,625, with interest. The allegation of false and fraudulent representations is as follows:

"To induce plaintiff to purchase said stock, defendants themselves and by their agents, falsely and fraudulently represented to plaintiff that said Ranger Refining and Pipe Line Company was solvent; that it was upon a dividend paying basis; that it had no debts; that its assets exceeded its capital liabilities; that the book value of its stock was in excess of $1.25 per share; that the Ranger Refining Company had been paying dividends of three per cent. per month out of earnings of said company; that the assets of said Ranger Refining and Pipe Line Company were of such value and its business so prosperous that its capital stock was of an actual value exceeding its par value; that arrangements had been made to list said stock on certain stock exchanges; that the companies which had been taken over by the said company had all been prosperous and had been paying dividends out of earnings; that in a very short time the price of said stock to the public would be advanced to 125% of the par value, and said defendants further falsely and fraudulently represented that the said stock offered to plaintiff and which plaintiff purchased was treasury stock of said corporation; that no individual stock was being sold, and that the proceeds of the sales of stock, especially the stock offered to plaintiff would be turned into the treasury of said corporation as a part of its capital."

At the trial appellee dismissed as to Weiss, and the jury returned a verdict against Barry and Scott jointly in the sum of $27,021.27 on the first count, $22,968.10 on the second count, and $13,510.63 on the third count. Judgment was entered accordingly, and this appeal followed.

The errors assigned and urged may be considered under these heads:

(1) The action of the trial court in admitting in evidence testimony of E. A. Biddick, Homer Rundell, and Dale Rundell concerning statements and representations as to the financial condition of the Ranger Refining & Pipe Line Company of a like nature to those upon which this action is based.

(2) The refusal of peremptory instructions requested by defendants at the close of all the evidence on the ground that neither scienter nor participation by defendants in the representations made had been shown.

(3) The instruction permitting the jury to find against defendants on all three transactions, for the reason urged that the evidence of appellee and his witnesses showed that neither defendant was liable under either the first or third purchase of stock made by appellee and his relatives.

(4) The action of the court in overruling the motion for new trial based upon an alleged showing that the verdict of the jury was a quotient verdict, and therefore unlawful.

(5) Sending into the jury room with the jury the petition in the case.

(6) Overruling the motion for a new trial, and to set aside the verdict and judgment, on the ground that they were against the law and weight of the evidence.

(7) The action of the court in giving to the jury the following instruction:

"Gentlemen of the jury, you will take to the jury room with you, in addition to the petition in the case, two forms of verdict; one to be used in the event your verdict is for the plaintiff, one to be used in the event your verdict is for the defendant. The first is `We, the jury in the above entitled cause, on the first count of the petition, find for the plaintiff and against defendants and assess plaintiff's damages at blank dollars.' * * * The other form is `We, the jury in the above entitled cause, on the first count of the petition find for the defendants and against the plaintiff.'"

1. The testimony of these three witnesses, Biddick and the two Rundells, dealt with representations made by appellant Barry in person at a meeting May 21, 1920, at Livingston, Wis., held for the purpose of selling stock in the Ranger Refining & Pipe Line Company. The representations made, according to the testimony of these witnesses, were substantially identical with those charged in appellee's petition. The objection made is that this testimony is incompetent because the statement were not made in the presence of appellee. But they were made at a proximate date, and concerning the same subject-matter. They purport to have been made by Barry himself. One of the defenses in this case was that the representations to Legler and his relatives, if made at all, were those of Weiss & Co., unauthorized by appellants and made without their knowledge. As to Barry, this testimony was clearly competent as bearing upon his intent and purpose, and, if the conspiracy and joint participation was shown, it was competent also as to Scott. Castle et al. v. Bullard, 23 How. 172, 186, 16 L. Ed. 424; Mutual L. Ins. Co. v. Armstrong, 117 U. S. 591, 6 S. Ct. 877, 29 S. Ct. 997; Thomas v. United States (C. C. A. 8) 156 F. 897, 17 L. R. A. (N. S.) 720; Chitwood v. United States (C. C. A. 8) 153 F. 551, 11 Ann. Cas. 814.

Furthermore, although at the hearing some contention was made to the contrary, the record unmistakably shows that objection...