Charles Keeshin, Inc. v. Farmers & Merchants Bank of Rogers
| Decision Date | 21 November 1961 |
| Docket Number | 440.,Civ. A. No. 438 |
| Citation | 199 F. Supp. 478 |
| Parties | CHARLES KEESHIN, INC., an Illinois Corporation, Plaintiff, v. FARMERS & MERCHANTS BANK OF ROGERS, an Arkansas Corporation; Farmers Produce Co., an Arkansas Corporation, Frank Hall and Charles L. Garrett, Defendants. CHARLES KEESHIN, INC., an Illinois Corporation, Plaintiff, v. Jeff DUTY, Nelson Dodd, Al Hollingsworth, Jeff Brown, Frank Hall, and Hardy Croxton, Defendants. |
| Court | U.S. District Court — Western District of Arkansas |
COPYRIGHT MATERIAL OMITTED
Maurice H. Kamm, Chicago, Ill., Rose & Kizer, Fort Smith, Ark., for plaintiff.
Shaw, Jones & Shaw, Fort Smith, Ark., James T. McDonald, Rogers, Ark., for Farmers & Merchants Bank of Rogers, Farmers Produce Co., Frank Hall and Charles L. Garrett.
Crouch, Jones, Blair & Cypert, Springdale, Ark., J. William Murphy, Fayetteville, Ark., for Jeff Duty, Nelson Dodd, Al Hollingsworth, Jeff Brown, Frank Hall and Hardy Croxton.
The above causes were consolidated for hearing and disposition of the pending motions to dismiss now before the court. The motions are bottomed upon the contention that the Keeco Sales Corporation, organized and existing under the laws of Arkansas, is an indispensable party plaintiff in the present cases, and that if such corporation is made a party plaintiff, there will not be the requisite diversity of citizenship to support the jurisdiction of the court.
On May 26, 1961, the plaintiff filed its complaint in Civil No. 438, seeking to recover the amounts of checks drawn on the account of the Keeco Sales Corporation, which the plaintiff alleges were in fact illegal payments and for which the defendants are liable. Summons was served on all of the defendants on May 27, 1961, except defendant Frank Hall, who was served on June 3, 1961.
On June 7, 1961, the defendants filed a motion to dismiss on the ground that the complaint failed to state a claim. On June 12, 1961, the court overruled that motion, and the question therein raised is no longer before the court.
On June 21, 1961, the defendants filed their original answer, but on July 25, 1961, they filed an amendment to the answer, in which they alleged that the Keeco Sales Corporation, an Arkansas corporation (Keeco), is an indispensable party, and that upon the joinder of Keeco as a party plaintiff, the court would be divested of jurisdiction.
On June 2, 1961, plaintiff in Civil No. 440 filed its complaint seeking to recover damages which it alleges arose from the seizure of property and assets of the plaintiff and its subsidiary, Keeco Sales Corporation (Keeco), by the defendants, acting as trustees for the benefit of creditors under the provisions of a purported assignment, entitled "Indenture and Trust Agreement," which was signed by the defendants either purporting to represent plaintiff and its subsidiary, Keeco, or the several creditors. Summons was served on all of the defendants on June 3, 1961.
On July 8, 1961, the defendants filed a motion to dismiss which contained the same allegations as the amended answer filed by defendants in Civil No. 438 on July 25, 1961.
It appearing that the same or similar questions were involved in the respective motions to dismiss, the motions in both cases were set for hearing at Fort Smith, Arkansas, on August 31, 1961.
The hearing on the motions was held at the time and place set, at which time ore tenus and documentary evidence were introduced by both sides, and oral arguments in support of and in opposition to the motions were made. Comprehensive briefs have been submitted by the learned counsel for the parties for the court's consideration at times prior and subsequent to the hearing.
It is admitted that the plaintiff in both cases, Charles Keeshin, Inc., is a corporation duly incorporated and existing under the laws of the State of Illinois; that the corporate defendants are corporations organized and existing under the laws of the State of Arkansas; that the individual defendants are all citizens and residents of the State of Arkansas; and that Keeco is a corporation organized and existing under the laws of the State of Arkansas.
Keeco was organized under the laws of the State of Arkansas in May 1956, and functioned until September 1958, when it suspended its operations. It was the sales outlet for Charles Keeshin, Inc., which was doing business in Arkansas as Keeshin Poultry Company and Kish-Rock Poultry Farm. It was held out to the public as a division of the Keeshin Poultry Company. Keeco, Kish-Rock, and the Keeshin Poultry Company shared the same office in Rogers, Arkansas, and the same managerial and administrative personnel operated Keeco, Kish-Rock and Keeshin Poultry Company from the same office. However, separate books and accounts were maintained for each of the organizations.
The corporate structure of Keeco is as follows: President, June Keeshin; Vice President, Seymour Keeshin; Secretary, Frank Hall; and Bookkeeper, Sue Craig.
Seymour Keeshin is the President of the plaintiff, Charles Keeshin, Inc., but Charles Keeshin, his father, is the majority stockholder. Although June Keeshin is the wife of Seymour Keeshin, she owns no stock in her own name in Charles Keeshin, Inc. The defendant, Frank Hall, is a minority stockholder in Keeco, but his only connection with Charles Keeshin, Inc., was that he was employed as general manager of Kish-Rock and Keeshin Poultry Company in Rogers, Arkansas. He received his orders directly from Seymour Keeshin as to matters of policy or over-all operations of the Keeshin enterprises in Rogers, but it was his duty and responsibility to make decisions as to the day-to-day operations since Seymour Keeshin spent most of his time in Chicago. Keeshin made only periodic business trips to Arkansas, and Hall had no occasion to go to Chicago. Other than communicating by letter or by phone, Keeshin and Hall would on occasion have a conference at some intermediate location or on the few instances that Keeshin came to Arkansas.
The majority stockholders of Keeco and the plaintiff, Charles Keeshin, Inc., were closely related and the dealings between the corporations were far from being at arm's length. Keeco derived the bulk of its operating capital from the plaintiff. Furthermore, as the sales outlet, it received preferential rates in the purchase of the poultry products of Keeshin Poultry Company, and in reciprocation it resold to Charles Keeshin, Inc., the same products at a like preferential rate.
As to the external appearance of these corporate manipulations, the defendants introduced at the above-mentioned hearing on August 31, two letters:
The first marked as defendants' Exhibit 1, dated October 31, 1956, upon the stationery of Charles Keeshin, Inc., which was addressed to Mr. Charles Garrett as President of the defendant Farmers & Merchants Bank of Rogers, Arkansas, reads as follows:
The second letter marked as defendants' Exhibit 2, dated July 23, 1957, upon the stationery of Keeco Sales Corporation, Division of Keeshin Poultry Company, General Offices Chicago, Illinois, reads as follows:
By September 1958, at which time Keeco suspended its operations, Charles Keeshin, Inc., apparently was in financial difficulties, and on February 16, 1959, filed its petition in the United States District Court, N.D.Ill., E.Div., seeking an arrangement under Chapter XI of the Bankruptcy Act. As for Keeco, its assets were impounded by the Benton Chancery Court on July 10, 1959, pending further orders by that court. This action by the Benton Chancery Court grew out of a complaint filed by the defendant trustees on November 1958 against Keeco and the plaintiff, Charles Keeshin, Inc., in which they sought to have a judgment against Keeco and Charles Keeshin, Inc., for the total amount of the claims of the creditors represented by the trustees. After intervention on behalf of Benton County to secure a tax lien on the above assets and after the Referee in Bankruptcy for the United States District Court for the Northern District of Illinois, E. Div., entered an order, dated June 24, 1959, directing the trustees to deliver the assets in question, the court found that it should impound the assets held by the trustees until the rights of the various parties could be fully determined.
Stated simply, the motions before the court present this issue: Whether Keeco is an indispensable party plaintiff to the causes of action of Charles Keeshin, Inc., and if so, whether the citizenship of Keeco is such as to destroy the diversity of citizenship of...
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