Brown v. Denver Omnibus & Cab Co.

• Decision Date: 18 November 1918
• Docket Number: 5019.
• Parties: BROWN v. DENVER OMNIBUS & CAB CO. et al.
• Court: U.S. Court of Appeals — Eighth Circuit

254 F. 560

BROWN v. DENVER OMNIBUS & CAB CO. et al.

No. 5019.

United States Court of Appeals, Eighth Circuit.

November 18, 1918

James H. Brown, of Denver, Colo., pro se.

William V. Hodges, of Denver, Colo. (D. Edgar Wilson, of Denver Colo., on the brief), for appellee Denver Omnibus & Cab Co.

Thomas E. Watters, of Denver, Colo., for appellee Continental Trust Co.

Before SANBORN, CARLAND, and STONE, Circuit Judges.

CARLAND Circuit Judge.

The complaint of the appellant alleged: That the Cab Company was a citizen of Wyoming and the Trust Company and appellant were citizens of Colorado. That appellant commenced the action in behalf of himself and all other holders of bonds secured by the mortgage hereafter mentioned who should come into the suit and contribute to the costs and expenses thereof. That July 31, 1909, the Cab Company in order to secure the payment of the principal and interest of 800 sinking fund first mortgage 6 per cent. gold bonds to be issued by it, executed and delivered to the Trust Company as trustee a mortgage or deed of trust on the property described in the complaint consisting of real and personal property. That said bonds were all certified and issued by the Trust Company in the aggregate sum of $250,000. That plaintiff was the owner of 52 of said bonds, of the par value of $500 each. That the bonds were to become due October 1, 1929, and draw interest at 6 per cent. per annum, payable quarterly. That the Cab Company failed to pay the interest on the bonds which became due and payable July 1, 1916, October 1, 1916, January 1, 1917, April 1, 1917, and July 1, 1917. That on divers and sundry occasions within six months prior to the commencement of the action, and more than six months subsequent to said default in the matter of interest, the appellant, on behalf of himself and all other bondholders of the same class similarly situated, had made repeated requests, verbally as well as in writing, that said Trust Company act under said mortgage for the collection of said interest and the protection and enforcement of the lien of said mortgage. That said Trust Company made no objection to the requests that were verbal on account of said requests not being in writing, but wholly refused to act in any manner for the purpose of collecting said interest or to protect the lien of the mortgage. That John M. Kuykendall was the president and general manager of the Cab Company and together with Anna his wife, owned a majority of its stock; that John W. Springer was a stockholder, director, and at different times had held the office of president and vice president of the Trust Company and now was in the general control and management thereof. That said Trust Company did a banking business, and the Cab Company, commencing July 1, 1910, became and was a borrower of the Trust Company to the extent of $70,000. That the Trust Company, pretending to act under the trust deed, but in fact wholly in violation thereof, certified and issued for a nominal consideration $100,000 par value of bonds of the Cab Company purporting on their face to be secured by said trust deed, in excess of the $250,000 in bonds above mentioned. That said Trust Company retained of said spurious bonds $85,000 par value as collateral security for the indebtedness of the Cab Company to said trustee. That the trust deed provided that, if any bonds should be lawfully issued by said Cab Company in addition to the said $250,000 par value, the proceeds thereof, together with 15 per cent. upon the amount issued to be furnished and supplied by the Cab Company from its earnings, should be invested in improvements, betterments, or other property, which improvements, betterments, or other property should become as fully subject to the terms, conditions, and covenants of the mortgage or trust deed as though expressly incorporated therein. That said 15 per cent. was not furnished by the Cab Company, nor was any of the proceeds of said spurious bonds invested in improvements, betterments, or other property of said Cab Company. That in April, 1913, the Trust Company sold its banking business, including the indebtedness of the Cab Company, together with the collateral securing the same to the Interstate Trust Company, the appellee Trust Company guaranteeing the payment thereof. That pretending to act under a provision of the deed of trust on February 7, 1911, the Trust Company released from the lien of the trust deed property of the reasonable value of $55,000, and received therefor 25,000 shares of the common and 30,000 shares of the preferred stock of the Seeing Denver Company. That instead of holding said stock in trust for the benefit of the bondholders under the deed of trust, the Trust Company, in collusion with the Cab Company, permitted the latter to pledge said stock as collateral security for the unsecured indebtedness of the Cab Company. That by reason of this transaction $55,000 in value of the property covered by the trust deed was wholly lost to the bondholders. That the indebtedness of the Cab Company for the following years was about as follows:

Years. Bills Payable. Bonds.

1912 ...... $132,074.00 ... $290,700.00

1913 ...... 124,799.00 ... 290,700.00

1914 ...... 110,132.00 ... 305,300.00

1915 ...... 104,203.00 ... 305,300.00

That $250,000 of said bonded indebtedness represents the valid bonds issued under the trust deed. That, commencing about the year 1911, the Cab Company became indebted to the Denver National Bank in the sum of $15,000, which was subsequently increased to $23,850 and is a part of the bills payable above mentioned. That said bank was given of the bonds of said company, $19,200 par value, as collateral security for the indebtedness of the Cab Company. That one Harry C. James, a stockholder, director, and vice president of said bank, was also a creditor of the Cab Company, either personally or as an agent and representative of said bank, in an amount aggregating the sum of $12,500. That said James was also a stockholder of the Cab Company and also a bondholder in the sum of $5,200; that W. C. Bradbury claimed to be the owner of $7,000 par value of said spurious bond issue and also was a stockholder of the Cab Company and the owner of $10,300 par value of said valid bond issue. That one David G. Miller was a stockholder of the Cab Company and owned $10,000 par value of either the valid or spurious bond issue. That Frank L. Woodward was a large stockholder of the Cab Company and the owner of $35,700 par value of its bonds. That on or about the year 1912, John M. Kuykendall, in control of a majority of the stock of the Cab Company, caused and procured the said James, Bradbury, Miller, Springer, in control of the Trust Company, Woodward, and other holders of the valid and spurious issue of bonds of the Cab Company, to make a loan from and out of their said several personal holdings of the bonds, to be pledged as collateral to secure the different bills payable creditors of the said Cab Company, thereby making said bondholders general and unsecured creditors of the Cab Company for the face or other value of said bonds. That in the trust deed the Cab Company covenanted and agreed that it would in every year beginning with the 1st day of October, 1912, up to and including the 1st day of October, 1919, pay to the trustee not less than $10,000 in gold coin or its equivalent, to be applied by the trustee to the retirement of the bonds secured by said trust deed from and after October 1, 1919. That at no time whatsoever did the Cab Company perform said covenant and agreement or in any manner provide a sinking fund for the payment of said bonds. The complaint also contained the following allegations:

'That in total and in entire disregard of their said legal and equitable obligations, so to do, as aforesaid, the said the Denver National Bank, Harry C. James, W. C. Bradbury, David G. Miller, Frank L. Woodward, and a number of other persons comprising the said bond-loaning unsecured creditors of said Cab Company, whose names to this (plaintiff) are unknown, did conspire and co-operate and confederate themselves together to cause and procure, and did and have ever since on or about the month of October, A.D. 1912, caused and procured the said Cab Company to commit a breach of its covenants and agreements aforesaid, in the aforesaid mortgage, so that the said Cab Company has and did and ever since said last date is diverting and misapplying any and all surplus of its earnings over and above the amount of its regular running expenses to the payment of the principal and interest of the said bills payable, and of the indebtedness for which the bonds of the aforesaid bond-loaning creditors of said Cab Company were and are pledged, instead of applying such surplus from said earnings to the payment of said first and prior lien of the interest upon said lawful bond issue, and to the creation and maintenance of the aforesaid sinking fund, as required by said Cab Company's said bond and mortgage contract, and thereafter to the upbuilding of the equipment of said Cab Company, and also have and did, during all the times aforesaid, conspire, co-operate, and confederate themselves together as aforesaid to and did cause and procure the said Trust Company to commit breaches of its said duties and obligations to this plaintiff and all other lawful bondholders for whom he sues herein, by failing, neglecting, and refusing to act or to exercise any of the powers or authority aforesaid, conferred upon it under the said mortgage, for the security, protection, and benefit of plaintiff and other lawful bondholders, or any of them, notwithstanding the default of the said Cab Company, concerning the creation of the said sinking fund and the said defaults in

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