Britton v. Andrews

• Decision Date: 30 September 1925
• Docket Number: No. 6968.,6968.
• Citation: 8 F.2d 950
• Parties: BRITTON v. ANDREWS et al.
• Court: U.S. Court of Appeals — Eighth Circuit

8 F.2d 950 (1925)

BRITTON v. ANDREWS et al.

No. 6968.

Circuit Court of Appeals, Eighth Circuit.

September 30, 1925.

Robert J. Bannister, of Des Moines, Iowa, and C. M. Stilwill, of Sioux City, Iowa (J. M. Parsons, of Des Moines, Iowa, on the brief), for appellant.

E. A. Morling, of Emmetsburg, Iowa, and A. C. McGill, of Des Moines, Iowa (Healy & Breen, of Ft. Dodge, Iowa, E. A. & W. H. Morling, of Emmetsburg, Iowa, Kindig, McGill, Stewart & Hatfield, of Sioux City, Iowa, Mallory & Leming, of Hampton, Iowa, and Jepson, Struble, Anderson & Sifford, of Sioux City, Iowa, on the brief), for appellees.

Before LEWIS and BOOTH, Circuit Judges, and PHILLIPS, District Judge.

BOOTH, Circuit Judge.

This is an appeal from a decree dismissing a bill, called an ancillary bill, brought by the receiver of the Midland Packing Company against a large number of defendants, to enforce collection from them on their alleged unpaid stock subscriptions in said company. A brief outline of the facts leading up to the present bill is as follows:

The Midland Packing Company was organized under the laws of the state of Iowa in 1918 to carry on a general meat-packing business. The original authorized capital stock was $3,500,000. By an amendment to its articles, this was increased to $8,000,000. About $3,000,00 of the stock was purchased and paid for; $5,000,000 more was subscribed for, on which about $2,000,000 was paid, leaving approximately $3,000,000 unpaid on the stock subscriptions. In connection with these subscriptions for stock, cash payments were generally made for part of the purchase price, and promissory notes were given for the balance. These notes to an amount of more than $1,000,000 were negotiated by the Midland Packing Company, either by way of sale or by way of pledge, and to a very large amount they are still outstanding. The company built a packing plant at Sioux City, Iowa, at a cost of over $3,000,000.

In April, 1920, Peter Hegnes, a citizen of South Dakota, brought a suit in equity in the federal court for the Northern District of Iowa against the Midland Packing Company, alleging that he was a stockholder in the company; that the company had by fraud secured promissory notes from him and from many others for the purchase of stock in the company; that the company was insolvent or in imminent danger of insolvency; that it had no funds on hand for a working capital. He prayed for a rescission of the contract of purchase of the stock, for an injunction against the sale of the promissory notes given by him, for a receiver for the company, and for general relief. A general receiver was appointed by the court, and possession was taken by him of all the assets of the company for the purpose of winding up its affairs as an insolvent corporation. The receivership thus inaugurated still continues, the assets of the company have been largely collected, claims have been filed and allowed, and the affairs of the company generally administered.

In 1922, the receiver, McMillan, commenced a suit in the court of his appointment, called an ancillary suit, against a large number of defendants, divided by the bill into two classes, stockholder defendants and creditor defendants. The bill alleged that the stockholder defendants had, each entered into a contract for the purchase of stock in the Midland Packing Company; "that at the time of entering into said contracts each of the said stockholder defendants executed and delivered to the Midland Packing Company his promissory note or notes for the unpaid balance of the stock so subscribed for by him, and that a large part of the notes so executed and received by the said company were indorsed by it, and sold and transferred, in the due course of business, to the creditor defendants, * * * who are now the owners and holders thereof in due course." The bill further alleged that part of the notes were held by the creditor defendants as collateral security for money loaned to the Midland Packing Company; that claims aggregating $2,173,477 had been filed against the company in the receivership proceedings and had been approved; that the total claims filed amounted approximately to $3,400,270; that the total amount of unpaid notes on the subscriptions to the stock of the company was $3,062,650, of which amount about 50 per cent. was uncollectable; that the plant of the company could not be sold for more than 50 per cent. of its actual appraised value, $2,522,931.

The prayer was "that the amount due and owing from each of the said stockholder defendants, on their several contracts, referred to in this bill of complaint, be ascertained and established by the court, for the several amounts, as shown by Schedule A, or for such amounts as the court shall find to be due from them, and that the judgment and decree of this court be rendered against each of said defendants for the amount so found to be due from them, and that the assets be marshaled and equitably distributed, so as to equalize the loss among the stockholders, and for such further decree in that behalf as shall preserve the rights of all the parties interested therein, * * * and that each and all of the said creditor defendants be required to bring into court and surrender to the receiver each and all of the notes so held by them, or either or any of them, to the end that the notes may be fully accounted for and be surrendered to the stockholder defendants upon payment thereof, or surrendered for cancellation in connection with any judgment or decree that may be entered herein against them, and the plaintiff prays such other and further relief as the court may deem just and equitable in the premises."

It was held by this court (Carey v. McMillan, 289 F. 380) that the bill should be dismissed. The court in its opinion said:

"To sum up: The demand made against each defendant being purely legal, each demand being independent of every other, the amount demanded against each being the full amount unpaid on the stock, no accounting being necessary, no contribution being necessary, community of interest of the defendants in all the important questions of law and fact involved not being shown and being highly improbable, we are of opinion that the bare multiplicity of suits is not sufficient to give the court jurisdiction to entertain the present bill in equity. The plain and adequate remedy at law open to the receiver is to bring ancillary actions at law in the federal court against the several defendants whose notes he holds. When the pleadings are made up, if it is found feasible and desirable to consolidate the suits into one or several groups for trial, the power of the court is ample for that purpose. The convenience of the parties can thus be served, the cost of the litigation need not by appreciably greater, and the right of trial by jury will be preserved."

In 1923 a suit in equity was brought in the same court by John A. Reagan, as trustee, against the same defendants (stock subscribers) as in the McMillan bill. Reagan alleged in his bill that he was a judgment creditor, having obtained a judgment in the state court of Iowa upon the indorsement of certain promissory notes by the Midland Packing Company which were made to it by subscribers to its stock; that execution had been returned unsatisfied; that the company was insolvent; that claims existed against the company, of the same class as plaintiff's claim, amounting to more than $1,750,000; that there were other claims, of a class inferior, amounting to more than $2,000,000; that the receiver had sold the plant and other assets, and had collected sufficient proceeds to pay 15 per cent. to 20 per cent. to creditors of the same class as plaintiff.

The prayer of the bill was "for an accounting to fix and determine the assets and liabilities of the Midland Packing Company and the amount of its unpaid stock subscriptions, and that the court shall fix and determine the percentage of his unpaid stock subscriptions which each defendant stockholder shall pay, and the amount of the fair and equitable contribution of each defendant herein for the payment of the debts of said corporation, and that by said decree judgment shall be rendered and entered against each defendant for a sufficient amount of his unpaid stock subscriptions to in the aggregate pay the claim of this plaintiff against the Midland Packing Company, and those of all other creditors similarly situated, together with interest and its costs and disbursements in this action, and that it may have decree for such other and further relief as shall seem just and equitable in the premises."

The court below dismissed the bill, on the ground that, since there was a receiver already in possession of the assets of the company and administering the same, the suit by Reagan would be an interference with the possession of the court, and therefore could not be maintained. 298 F. 500. This judgment of dismissal was affirmed by this court in Reagan v. Midland Packing Co., 8 F.(2d) 954, decision filed September 30, 1925.

In 1924 after the dismissal of the Reagan suit in the lower court, the present suit was brought by the receiver against the same defendants (stock subscribers) as in the McMillan and...