Centmont Corporation v. Marsch

• Decision Date: 15 December 1933
• Docket Number: No. 2839.,2839.
• Citation: 68 F.2d 460
• Parties: CENTMONT CORPORATION v. MARSCH.
• Court: U.S. Court of Appeals — First Circuit

68 F.2d 460 (1933)

CENTMONT CORPORATION v. MARSCH.

No. 2839.

Circuit Court of Appeals, First Circuit.

December 15, 1933.

Walter A. Dane, of Boston, Mass., for appellant.

Ralph E. Tibbetts, of Boston, Mass., for appellee.

Before WILSON and MORTON, Circuit Judges, and HALE, District Judge.

WILSON, Circuit Judge.

On March 30, 1926, the Central Vermont Railway Company, which will hereinafter be referred to as the Central Vermont, as complainant, filed a creditor's bill in the District Court of Massachusetts against the Southern New England Railroad Corporation, which will hereinafter be referred to as the Southern New England, except when it may be necessary to distinguish it from a Rhode Island corporation having the name of the Southern New England Railway Company, alleging that it was threatened with a multiplicity of suits that would lead to wasteful strife and controversy, and would dissipate its assets, and asked that receivers be appointed to preserve its assets and reduce them to cash, determine the amount of outstanding claims and liens, and that the receivers be given such general powers as are usually bestowed upon them under similar conditions.

On the same date the respondent, the Southern New England, filed its answer admitting the allegations of the bill, and consented to a decree appointing receivers.

The receivers on January 1, 1931, reported cash on hand in the sum of $235,218.41. On October 22, 1931, the receivers reported that pursuant to an order of court the following creditors had filed proofs of claim: The Standard Oil Company of New York for $150; the receivers of the Central Vermont for $2,504,894.70, and an amended and corrected proof of a claim of $4,170,148.51; and John Marsch a claim based on a judgment against the Southern New England of $681,197.60. The receivers recommended the allowance of each of the three claims, except that it was agreed that the claim of Marsch should be allowed only for the amount of a judgment he had already recovered against the Southern New England, to wit, $622,359.28, for the balance due him under a contract for the building of a railroad in the commonwealth of Massachusetts from the town of Palmer to the Rhode Island boundary at Blackstone, in which suit he recovered judgment in the amount of $622,359.28.

Prior to the above report of the receivers, the Centmont Corporation, as assignee of the claim of the Central Vermont, was permitted to become a party plaintiff.

On October 27, 1931, Marsch filed objection to the report of the receivers as to the allowance of the claim of the Centmont Corporation as assignee on the following grounds:

(1) The Centmont Corporation was not entitled as a creditor to share in the assets in the hands of the receivers on a parity with other creditors.

(2) That, if a creditor, the amount it was entitled to receive was substantially less than that recommended for allowance by the receivers.

(3) That, if it were allowed to share in the assets, it was not entitled to interest on the principal of its claim.

(4) That the interest on its claim as computed by the receivers was erroneous.

By order of court under date of December 29, 1931, the issues raised by the objections of John Marsch were referred to H. La Rue Brown, Esq., as master, to examine the evidence and vouchers in support of the claim in dispute, and in support of the objections, and to report to the court his findings of fact thereon. The order was afterward amended and required the master to report to the court all the evidence bearing upon any question of fact which any party might request, and such other portions of the evidence as might be material to any requests for rulings or other questions of law which any party might desire to present to the court.

The master, on June 7, 1932, filed a very clear, complete, and detailed report, in which he stated, in substance, that the claim of the Standard Oil Company for $150, and that of John Marsch for $622,359.28, should be allowed as recommended by the receivers; that the only disputed issues before him were: (1) Whether the claim of the Centmont Corporation should be allowed for any amount against the objection of John Marsch on the ground that the Southern New England was merely a subsidiary and instrumentality of the Central Vermont, through which the latter undertook to construct a railroad within the limits of Massachusetts, and therefore was not entitled to share in the assets of the Southern New England on a parity with bona fide creditors; (2) if the Centmont Corporation was entitled to share as a creditor, the correct amount of its claim; (3) whether interest should be allowed on the principal sum, and in what amount; and (4) as later developed, the contention of the appellant that Marsch was estopped from setting up the objection that the Centmont Corporation was not a creditor by presenting his claim to receivers appointed in a suit brought by the Central Vermont as a creditor, and admitted to be such by the respondent; and also from contending that the Southern New England was merely a subsidiary and agent of the Central Vermont by the rulings on demurrers in cases in the Massachusetts Courts brought by Marsch against the Southern New England, the Grand Trunk Railway Company, the Central Vermont Railway Company, and against all three jointly. The master found that the Southern New England was merely an instrumentality of the Central Vermont for the building of the railroad, and could not in equity prove its claim against the funds in the hands of the receivers of the Southern New England.

To clear away the objection that Marsch has no standing as an objector to the claim of the Centmont Corporation, before considering the merits of the objections of Marsch to the allowance of the appellant's claim, it should be noted that Marsch was not a party to this action when it was originally brought, and, until the receivers reported that they recommended the allowance of the Centmont Corporation's claim, Marsch's interests were not adversely affected. Even if it be determined that the Central Vermont or its assignee, the Centmont Corporation, is not a creditor of the Southern New England and cannot share in the assets of the Southern New England as against bona fide creditors, the Central Vermont owned all the capital stock of the Southern New England, and could properly bring the suit, since it was entitled to the balance of the assets, if more than sufficient to pay all claims of creditors duly allowed. In any event, a court of equity, having taken jurisdiction, will retain it to protect the interest of such creditors as are entitled to share in the assets.

We do not think the rulings of the Massachusetts court in the cases above referred to estop Marsch from presenting his objection in this action to the allowance of the claim of the Centmont Corporation. These proceedings, though the same parties or their privies are involved, do not involve the right of recovery by Marsch against the Central Vermont on his contract with the Southern New England. The Massachusetts court appears to have assumed from the declarations in these three cases that the motive of the Central Vermont in organizing the Southern New England was to escape or limit its liability for the acts and contracts of the Southern New England. Such a motive is entirely different from that found to exist by the master in this case.

While the Massachusetts court held there were not sufficient facts alleged in the actions against the Grand Trunk Railway Company and the Central Vermont Railway Company to warrant a judgment against them, since Marsch's contract was with the Southern New England, a separate corporate entity, it does not appear that all the facts found by the master bearing on the relations between the Central Vermont and the Southern New England were alleged in the actions against either of the two railroad companies last named. The Massachusetts court also sustained a demurrer in the action against the three corporations jointly, but on the ground that the Southern New England was described therein both jointly as a principal with the other two railroad companies and also as their agent, and it could not properly be joined as both principal and agent.

The rulings of the Massachusetts court in these cases went no farther than to hold that the holding by one corporation of all the capital stock of another and the management of both by the same executive officers did not alone constitute the holding company a principal and the subsidiary corporation as agent. It has recently indicated, however, in Hallett et al. v. Moore et al., 185 N. E. 474, 482, that although stock ownership claim may not be sufficient to render a subsidiary corporation an agent of the holding corporation, "there are instances where courts look through the corporate form to the individuals in order to protect the public, prevent a fraud, or to accomplish some other essential justice."

The question here is, whether the District Court, upon the facts found by the master, was warranted in holding that the Central Vermont so dominated the Southern New England that, except in form, the acts of the Southern New England were the acts of the Central Vermont; and in equity, as against bona fide creditors of the Southern New England, it could prove a claim against that corporation for moneys advanced to it to build an extension of the railroad system of the Central Vermont and Grand Trunk Railway which, under the laws of Massachusetts, the Central Vermont could not do itself, at least, without special legislation, and to construct which it caused the Southern New England to be organized and the acts of which it absolutely controlled.

Estoppel by a judgment must either appear on the face of the record or be shown by extrinsic evidence that the precise question was raised and decided in the former suit. Pennsylvania Canal Co. v. Brown (C. C. A.) 235 F. 669,...