Chisholm v. House, 3996.

• Decision Date: 26 July 1950
• Docket Number: No. 3996.,3996.
• Citation: 183 F.2d 698
• Parties: CHISHOLM et al. v. HOUSE et al.
• Court: U.S. Court of Appeals — Tenth Circuit

183 F.2d 698 (1950)

CHISHOLM et al. v. HOUSE et al.

No. 3996.

United States Court of Appeals Tenth Circuit.

July 26, 1950.

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Creekmore Wallace, Oklahoma City, Okl., and H. B. Parris, Eufaula, Okl. (Roy White, Eufaula, Okl., was with them on the brief) for appellants.

Thomas M. Finney, Tulsa, Okl., (Villard Martin, Garrett Logan, Robert J. Stanton and Donald P. Moyers, all of Tulsa, Okl. were with him on the brief) for appellees.

Before PHILLIPS, Chief Judge, and BRATTON and MURRAH, Circuit Judges.

MURRAH, Circuit Judge.

This appeal is a sequel to Chisholm v. House, 10 Cir., 160 F.2d 632, and is related to Bradburn v. McIntosh, 10 Cir., 159 F.2d 925. It involves the correctness of the trial court's judgment in the proceedings in pursuance of our mandate in the Chisholm appeal.

The factual background and much of the pertinent facts are to be found in the former appeals. In resume, however, the suit was commenced in 1940, in the District Court of Muskogee County, Oklahoma, by the heirs at law of Cussehta Yarhola, a fullblood Creek Indian, alleging a conspiracy on the part of the named defendants to cheat and defraud Cussehta of his legal share of the proceeds of the productive allotments of his deceased wife, Linda, and deceased daughter, Maley Fiers. The purpose of the suit was to void a certain trust instrument executed in 1924 by Cussehta, on the grounds of incompetency; cancel releases and acquittals of the trustees; establish liability for maladministration, and secure an accounting for funds, securities and profits held by them during the administration of the estate under the purported trust agreement.

The United States intervened on behalf of the Indian heirs in support of their allegations, and removed the case to the Federal Court under Section 3 of the Act of April 12, 1926, 44 Stat. 239, 240. After removal, all of the plaintiffs adopted the Government's complaint in intervention, and the issues were joined thereon.

At the conclusion of the evidence for plaintiffs, the trial court dismissed the action and entered judgment for the defendants. We reversed holding the evidence sufficient to establish that defendants "House, Hill Moore and Grayson entered into a scheme to obtain control and management of Cussehta's estate, with the design and purpose of deriving improper personal advantage and gain therefrom;" that they and persons acting in their behalf, induced Cussehta to execute the original trust agreement and the instruments supplemental thereto, and place such estate under the control and management of Hill Moore, Grayson and House; that later, D. W. Johnston entered into such scheme; that House, Hill Moore, Grayson and D. W. Johnston fraudulently induced Cussehta to agree to pay, and did pay, unconscionable and exorbitant fees to the trustees, and fraudulently induced Cussehta to execute acceptances of reports by the trustees which purported to discharge them and their sureties on their bonds from liabilities for the acts of the trustees; that the trustees made loans to Lake Moore, father of Hill Moore, which were not repaid, and failed to collect loans made by the trustees to D. W. Johnston; that the trustees made reports to Cussehta which were false and incomplete; that D. W. Johnston and Grayson made a report to Nancy and Lessey which was false and incomplete, and in so doing, the trustees violated their fiduciary obligations to Cussehta, Nancy and Lessey.

We accordingly concluded that the United States was entitled to an accounting from the trustees with respect to the interest in the allotments of Maley and Linda, which passed to Cussehta and later to Nancy and Lessey; that the other plaintiffs were entitled to an accounting with respect to the trust estate, and on an accounting, the court should scrutinize the administration of the trust estate by the trustees, should require the repayment by the trustees of the exorbitant and unconscionable fees charged by them, and determine their liabilities for the breaches of their duties and the maladministration of the trust estate. We further held the defendant Johnston liable to the plaintiffs, other than the United States, upon the loans made to him by the trustees which he failed to collect after he became trustee, and which he omitted from his final report to Nancy and Lessey. We voided House's contract with Cussehta for ten per cent of the value of his estate in the sum of $30,600.00 to have him restored to competency; held such fee exorbitant, unconscionable, and fraudulently obtained, and that the plaintiffs were entitled to recover the amount paid. We sustained the trial court's dismissal as to defendants McKinney, Randles, Chowning and the Okemah National Bank, holding the evidence insufficient to show that they had knowledge of the conspiracy or participated therein. We also sustained the trial court's dismissal as to the Shell Petroleum Company, the purchaser of the oil runs, on the grounds that the judgment of the County Court of Okfuskee County restoring Cussehta to competency not being void, the payment for the oil runs to the trustees under the trust agreement constituted a valid discharge of its liability.

We were unable to determine whether, from the evidence adduced, defendants Martin, Lake Moore and McKinney were liable on the bound of trustees Hill Moore and Grayson. We accordingly vacated the judgment of dismissal as to them. We reversed as to the other defendants, and remanded the case with directions to proceed in conformity with our opinion.

In its order on the mandate, the trial court ordered the defendants Johnston and Grayson to file their accounts as trustees within sixty days, and that the defendant Martin, within the same time, cause to be filed for Hill Moore, deceased, and Grayson, or in his own behalf for them, an accounting for the period during which he was surety on their bond. The accounting was ordered without prejudice of the right of the defendants or any of them to raise appropriate defenses not inconsistent with the opinion and mandate of this court.

Before the case was tried, the defendant Johnston paid plaintiffs the sum of $15,000.00 in settlement of all claims against him, and the case was dismissed as to him, without prejudice however to the plaintiff's right of action against the remaining defendants. Grayson is an old insolvent Indian. He made only nominal defense in the former trial and did not personally respond or appear in these proceedings. Hill Moore died before this suit was commenced, and his estate was never made a party. His father, Lake Moore, died after the commencement of this suit, and it was never revived against his representatives. McKinney is judgment proof and unconcerned. The Government did not participate further after remand, and is no longer actively interested.

We exonerated Martin of any participation in the fraudulent scheme in the former appeal. The trial court has again found him innocent of any active participation or guilty knowledge of any fraudulent scheme, and we agree. The primary issue on this appeal is Martin's liability as a surety for Hill Moore and Washington Grayson from April 15, 1925 until December 19, 1929, when Hill Moore resigned and D. W. Johnston succeeded him as co-trustee. By the terms of the surety bond, Martin and the other sureties guaranteed the faithful performance of the trust, and by separate writing, Martin assumed joint control of the estate, with power to disapprove any transaction of the trustees. The basis of Martin's liability then is as surety for the trustees with power of joint control.

The assets of the trust estate in the custody of trustees Moore and Grayson, when Martin became surety with joint control on April 15, 1925, consisted of $2,899.63 cash, Cussehta's interest in the allotments of his wife Linda, and his daughter Maley, and eighty-three notes and mortgages, bearing eight per cent interest, with a face value of $281,500.00 The notes and mortgages represented loans on real estate in the Town of Okemah and the County of Okfuskee, Oklahoma, made by Cussehta's guardian before the creation of the trust estate in 1924, and by his trustees before Martin became surety.

During the period of Martin's suretyship, the trustees continued to collect the interest on the outstanding loans and reinvest the trust funds in real estate mortgages in Okemah and Okfuskee County.

In pursuance of the order of the court, Martin filed an accounting for the period of his suretyship. Exceptions were taken, an amendment was filed, and after further exceptions, another amendment was filed. Thereafter, upon a hearing on the plaintiff's exceptions, Martin testified from memory and records available to him concerning each and every transaction of the trustees while he was surety on their bond, and exercising joint control. From this evidence, the trial court scrutinized the nature and circumstances of each and every challenged transaction; if a loan, the value of the security at the time it was made and all other circumstances bearing upon the prudent and faithful administration of the trust estate.

The court found no fraud or conspiracy on the part of the trustees Hill Moore or Grayson, or any of the defendants, in the administration of the estate during Martin's suretyship. That is to say, that during this time, the trustees accounted for all of the assets coming into their hands or acquired by them, and delivered the same to their successor trustees; and that there was no evidence of misappropriations, "secret commissions" or "kickbacks."

Appellants invoke our general finding of a fraudulent scheme or conspiracy in the former appeal, and assert that no countervaling evidence was introduced in the subsequent hearings. They contend, therefore, that the defendants House, Moore, Grayson and Johnston stand guilty of a scheme to cheat and defraud Cussehta, and that it remains only for ...