Connolly v. Gishwiller

• Decision Date: 07 August 1947
• Docket Number: No. 9241.,9241.
• Parties: CONNOLLY v. GISHWILLER et al.
• Court: U.S. Court of Appeals — Seventh Circuit

162 F.2d 428 (1947)

CONNOLLY v. GISHWILLER et al.

No. 9241.

Circuit Court of Appeals, Seventh Circuit.

June 19, 1947.

Rehearing Denied August 7, 1947.

Otis F. Glenn, Raymond G. Real, and Otto W. Barnes, all of Chicago, Ill., for appellants.

Theodore E. Rein and Morton C. Chesler, both of Chicago, Ill., for appellee.

Before SPARKS, MAJOR, and KERNER, Circuit Judges.

KERNER, Circuit Judge.

Harry E. Hallenbeck as receiver of Calumet National Bank of Chicago originally brought this action to recover alleged illegal profits claimed to have been derived by defendants, pursuant to a conspiracy, through the sale of various assets of the receivership for less than their actual value. Appellee, under appointment by the Comptroller of the Currency, is the present receiver of the bank. There were originally thirty-two defendants. When the decree was entered, appellants were the only defendants held liable.

The material allegations of the complaint are that defendant Gishwiller was employed by the Calumet Bond & Investment Company as a clerk and an assistant to various officers and by the bank when it was solvent; that she thus became familiar with the business of both corporations and that upon the bank's suspension she was employed by the various receivers; that Gishwiller, Cramer, Gans, and others of the defendants entered into a scheme and conspiracy to acquire the assets of the bank receivership at prices fraudulently less than the fair value thereof, in which scheme Gishwiller was to use her position and information and do everything in her power to further the objects of the conspiracy; that false or inadequate appraisals of the value of the assets were procured and submitted to the receiver and to the Comptroller of the Currency; that false representations were made that such prices were the full and fair market value; that Cramer acted as ostensible broker, and while pretending to act as broker, falsely represented to the receiver that he had obtained a purchaser at a given price, and in reliance upon such representations the receiver obtained authority from the Comptroller and the approval of the court to consummate the transactions initiated by defendants; that conveyances were made to nominees of defendants before payments for the assets were made, mortgages placed upon the assets and the proceeds used by the conspirators as they saw fit and paid to the receiver as and when such payments were convenient; that sometimes the proceeds of one asset would be used to acquire additional receivership assets; and that the conveyances so made to the nominees were thereafter sold for a greater price and the inadequate consideration was paid to the receiver.

The complaint prayed discovery, that an account be taken, and that defendants be ordered to pay to plaintiff such sum or sums as may be due; that the assets of the Investment Company acquired by the use of the properties or proceeds of properties fraudulently obtained from the receiver be adjudged to constitute a trust fund; and that defendants be decreed to execute such instruments of conveyance as shall be necessary to vest title in the receiver.

After defendants had filed answers denying the essential allegations of the complaint, the cause was referred to a master to take testimony and report the same with his findings of facts and conclusions of law. The master took the testimony of 68 witnesses, reported 9,896 pages of testimony, and admitted in evidence over 1,200 exhibits. He found that there was a conspiracy to defraud the Calumet National Bank receivership and that Cramer, Gishwiller, the Calumet Bond & Investment Company, Glenn R. Gans and others were parties thereto. He recommended a decree in accordance with the prayer of the complaint. Exceptions to the master's report were filed and overruled. The court found that all of the material allegations of the complaint were sustained by the evidence and a decree was entered that the reports of the master "are * * * hereby approved, confirmed and adopted by the Court as and for this Court's findings of fact, and by express reference said findings of said Master in each of said reports are hereby incorporated in this Decree with the same force and to the same effect as if said findings were in haec verba herein expressly stated and found, * * *." The decree orders that plaintiff shall recover from the Calumet Bond & Investment Company $7,900.55 and from Fern Gishwiller $16,889.17 The decree states: "* * * it being the intention and purpose of this Decree that the joint and several liability of the said defendants for money damages shall not exceed the aggregate sum of $16,889.17 and costs of suit." It also directs these defendants to convey to plaintiff certain properties described in the decree.

Calumet National Bank was closed by the Comptroller of the Currency on October 1, 1931, and James C. White was appointed receiver and continued to act as such until his death. June 22, 1932, Clarence F. Buck was appointed receiver to succeed White and continued to act as receiver until April 22, 1936.

Calumet Bond & Investment Company is an Illinois corporation engaged in the general mortgage and investment business.

Fern North Gishwiller was employed by the bank and the Calumet Bond & Investment Company in 1924. She was a stenographer in the trust department of the bank and a bookkeeper-stenographer for the Investment Company. She was retained by White and then by Buck as a stenographer, and in October, 1932, she was directed to, and thereafter did, keep the books of the receivership. As Buck's confidential clerk and assistant she was given a wide range of power and discretion. She was entrusted with the duty of keeping the books of the receivership, compiling the receiver's reports, contacting appraisers, and contacting and corresponding with brokers and others. She met Richard Cramer in February or March, 1935.

In 1933 Gishwiller began negotiations to acquire all of the capital stock of the Investment Company. By April, 1936, she had acquired all of the capital stock, and the Company was housed in a building formerly owned by the receivership, which had been obtained through Cramer's efforts and conveyed to the Investment Company, of which Cramer was president, and Gishwiller was secretary and treasurer. In the summer of 1937, while the affairs of Cramer, Gishwiller and the Investment Company were being investigated by a National Bank examiner, Gishwiller and Cramer left Chicago. They planned a trip, going from New York by steamship through the Panama Canal to the West coast.

On June 8, 1937, Gishwiller visited the office of the Comptroller of the Currency at Washington, D. C., where she interviewed the Supervisor of Insolvent Banks. She testified that she told him she had heard nothing in connection with the investigation of the bank receivership; that the Supervisor sent her to the office of the counsel for the Comptroller; that she called upon this counsel and told him of the purpose of her visit and that if her presence would be required she would abandon her trip through the Panama Canal; that the Comptroller's counsel advised her that the report in connection with the bank receivership had not been received; that it could not pass through the various departments for final action prior to the time she had indicated she would return to Chicago; and that she was told she could proceed on the contemplated trip, with assurance that her presence would not be required in connection with the investigation prior to July 1, 1937. From Washington, Cramer and Gishwiller proceeded to New York, where they boarded a steamer on June 12, 1937. They returned to Chicago on July 1, 1937.

Richard Cramer, another defendant, had been a real estate operator. He died in November, 1945, prior to the entry of the decree. In November, 1933, Cramer was employed by the Home Owners' Loan Corporation and remained there until January, 1935, when he re-entered the real estate business under the name of Cramer, Foot & Co. About this time he contacted Buck with the view of purchasing or selling some of the assets of the bank. According to the testimony of both Buck and Cramer, Cramer suggested to Buck that he would like to acquire the assets of the receivership, but could not make purchases in his own name because of judgments against him; that he would submit the offers with some variations in form so that his creditors, upon inquiry, could not ascertain whether Cramer was buying for himself or for a client.

Cramer testified that he told Buck that in many instances it would be necessary to place a mortgage on the real estate to secure sufficient funds to pay for the asset and that Buck agreed that in such cases he Buck would give Cramer title papers and other documents, in trust, to enable him to mortgage the property. Buck testified that he told Gishwiller that deeds were to be delivered to Cramer on his receipts without the payment of money.

Glenn R. Gans, another defendant, was a real estate operator who had had transactions with Cramer for many years, and in some of the sales involved in this case, he shared in the commissions. He became deceased on February 20, 1946. He was not a witness in the case. In the spring of 1935 he was sent by Cramer to the office of the bank where he was interviewed by Gishwiller upon the subject of furnishing appraisals for the receivership assets, but Buck never spoke to or saw Gans. Buck testified that Gishwiller told him that a man named Gans had been in the office soliciting the business of making appraisals, that he looked up Gans before he Gans made any appraisals and made up his mind to employ him. Commencing in the spring of 1935, offers and proposals came from Cramer, along with letters of recommendations for their acceptance addressed to the Comptroller, prepared for Buck's signature and signed by Buck, but invariably phrased in Gishwiller's language. Appraisals for the assets...