Columbus Hotel Corp. v. Hotel Management Co.

• Decision Date: 11 September 1934
• Citation: 156 So. 893,116 Fla. 464
• Parties: COLUMBUS HOTEL CORPORATION et al. v. HOTEL MANAGEMENT CO. et al.
• Court: Florida Supreme Court

156 So. 893

116 Fla. 464

COLUMBUS HOTEL CORPORATION et al. v. HOTEL MANAGEMENT CO. et al.

Florida Supreme Court, Division A.

September 11, 1934

Rehearing Denied Oct. 26, 1934.

Bill by the Columbus Hotel Corporation and others against the Hotel Management Company and others. From a final decree dismissing their suit on its merits, complainants appeal.

Affirmed. Appeal from Circuit Court, Dade County; Uly O Thompson, judge.

COUNSEL

Evans Mershon & Sawyer, of Miami, Herman T. Stichman, of New York City, and L. L. Robinson and M. L. Mershon both of Miami, for appellants.

John P. Stokes, of Miami, R. D. Knight, J. C. Cooper, Jr., and C. G. Ashby, all of Jacksonville, and Loftin, Stokes & Calkins, of Miami, for appellees.

OPINION

DAVIS Chief Justice.

The subject of this suit was the Columbus Hotel properties located at Miami, Fla. Its object was to retrieve, by equitable proceedings, certain advantages for the benefit of holders of bonds on same that had been sold through G. L. Miller & Co., Inc., a bankrupt corporation. The advantages in controversy were alleged by complainants, suing as protective committee, to have been fraudulently obtained from them by means of covin, fraud, and misrepresentation on the part of one S. A. Lynch, in his dealings with the parties in interest. Complainants lost in the court below. They have brought their cause here on appeal from the final decree dismissing their suit on its merits at the final hearing had on complainants' bill of complaint, answer, and testimony.

The dismissed bill of complaint was in the nature of a bill of review, to set aside an executed foreclosure decree of the circuit court, but the principal relief sought was the rescission and cancellation of a certain agreement in writing, dated February 15, 1928, that had been entered into and executed between George E. Roosevelt and associates, constituting the bondholder's committee, and Hotel Management Company, the principal party appellee to this appeal.

Embraced in the prayer for relief was a demand for the rescission, cancellation, and setting aside of the various steps and acts of the several parties, taken or done by them toward, or in the course of their performance of, the February 15, 1928, agreement. Chief among such steps taken had been the entry of a consent foreclosure decree by the circuit court of Dade county, under which the properties foreclosed against had been sold and purchased in accordance with the February 15, 1928, agreement of settlement and compromise. This consent decree was sought to be set aside. Prayed also was the cancellation of all rights that had been acquired under it by Hotel Management Company, S. A. Lynch, and others, including the right to occupy the Columbus Hotel and operate it under a certain lease that had been derived from Columbus Hotel Corporation. Finally it was prayed that the several parties to the proceeding be each restored to their former positions and rights, as they existed prior to the making of the particular agreement sought to be rescinded and canceled.

The original and amended bill of complaint discloses that one of the defendants, Miami Holding Company, a corporation, owned as lessee and held the record title to certain 99-year leases which were later utilized as a site for the erection of the Columbus Hotel; that embraced in these leases was an option to purchase the leased site for $208,000; that on or about January 31, 1925, said Miami Holding Company, desiring to erect a hotel upon a portion of the leased property, through S. A. Lynch and T. W. Palmer, entered into an underwriting agreement with G. L. Miller & Co., Inc., a Florida corporation, for the issue and sale of $1,600,000 in principal amount of bonds, to be secured by a first mortgage upon a leasehold interest in the hotel site; that, to carry out the enterprise of financing thus undertaken, it was agreed that Miami Holding Company should execute a 93-year sublease on the property to East Coast Enterprises, Inc., another corporation, the stock of which Miami Holding Company owned and controlled; the sublease was to carry an annual rental starting at $60,000, which rental, however, should increase every five years at the rate of $5,000 until a maximum rental of $100,000 per annum should be reached; that the bonds to be issued to finance the erection of the hotel were to be issued through East Coast Enterprises, Inc., and should, by a written guaranty indorsed thereon, be guaranteed by the Miami Holding Company and secured by a first mortgage trust deed, with G. L. Miller, as trustee, upon the 93-year leasehold subinterest of East Coast Enterprises, Inc.; that another corporation, S. A. Lynch Enterprises Finance Corporation, should guarantee the placing in the completed hotel of $300,000 in furnishings, fully paid for; that 3,148 bonds, aggregating the principal sum of $1,600,000, were accordingly issued by East Coast Enterprises, Inc., in pursuance of said underwriting agreement, each of which bonds contained indorsed thereon the written guaranty of Miami Holding Company; other steps contemplated by the financing arrangements, not necessary to here particularize, were carried out, with the result that all of the contemplated bonds were duly authenticated, sold, issued, and delivered by East Coast Enterprises, Inc., or its representatives, and the hotel building was completed about March 15, 1926.

Shortly after the erection of the hotel had been accomplished, East Coast Enterprises, Inc., made a 5-year lease of the completed hotel to Hotel Operating Company of America, the annual rental being agreed upon to start at $325,000 a year and increase to $450,000 a year, should the lease be renewed and continue for the extended period of ten years after the expiration of the period originally specified. Not long thereafter the hotel was damaged by the hurricane of September, 1926, for which damage insurance in the sum of $175,000 was realized.

On or about September 27, 1926, G. L. Miller & Co., Inc., which had underwritten the $1,600,000 bond issue, issued by East Coast Enterprises, Inc., became an involuntary bankrupt in the United States District Court for the Southern District of New York. This event led to the setting up of a bondholders' protective committee for the general purpose of protecting the interests of holders of bonds, and of interim receipts calling therefor, sold by or through G. L. Miller & Co., Inc., including the bonds issued by East Coast Enterprises, Inc., the approval of Hon. Julian W. Mack, United States Circuit Judge, before whom the bankruptcy proceedings were pending, being a condition of the protective arrangement.

East Coast Enterprises, Inc., defaulted on its bonds, and foreclosure proceedings based thereon were begun in the circuit court of Dade county on January 7, 1927, by complainants purporting to act as trustees under the trust deed securing the bonds. Defendants named in the suit were East Coast Enterprises, Inc., Miami Holding Company, and others. On June 3, 1927, Biscayne Trust Company, as alleged successor trustee to G. L. Miller, filed an amended bill in that suit, very much broadening the scope of the relief prayed, and making as defendants thereto all of the associated and inter-related corporate entities that were alleged to have, or were supposed to have, some right, title, interest, or liability in connection with the indebtedness which the foreclosure suit was instituted to enforce in the first instance. Among the claims involved were those for alleged dissipation of the insurance moneys that had been collected the year before; claims and alleged liens upon the hotel property, its furnishings and fixtures; claims of the unpaid contractor, Realty Construction Company; and assertions of liability based upon the guaranties and other undertakings had in connection with the enterprise of financing and building the completed hotel. In this suit a receiver was appointed, and under that appointment the possession of real and personal property involved passed into the receiver's custody.

Such being the status of things, it is alleged that in the late summer of 1927 S. A. Lynch entered into certain negotiations with the bondholders' committee looking to the working out of some settlement by which Lynch, through some one of his corporations, might acquire and take over the possession of the hotel, its furniture and fixtures, and thereby settle the pending litigation in which the bondholders were engaged, through the activities of their trustee, in attempting to collect the indebtedness represented by the outstanding defaulted bonds. The negotiations thus begun culminated in the execution of the contract of February 15, 1928, the rescission of which became the principal object of this suit, when the bondholders' committee claimed to have discovered fraudulent representations on the part of Lynch in connection with its inducement.

So, as disclosed by the bill of complaint, the gravamen of the equity asserted by the bondholders' committee as against the defendants below was that Lynch falsely and fraudulently had represented that Miami Holding Company, the guarantor upon the bonds issued by East Coast Enterprises, Inc., had no assets, and was utterly insolvent and defunct, whereas in truth and in fact it was in contemplation of law the owner of property and assets consisting of leaseholds, lands mortgages, notes, accounts, contracts, and stocks of great value that had been by it fraudulently conveyed to a corporation described as Enterprise Realty & Securities Corporation, one of the defendants, through one C. E. Holcomb, who was a brother-in-law of Lynch, and that such assignment from said Miami Holding Company to the said C. E. Holcomb was, at...