Daily v. Universal Oil Products Co., Civil Action No. 43 C 1162.
| Decision Date | 26 November 1947 |
| Docket Number | Civil Action No. 43 C 1162. |
| Citation | 76 F. Supp. 349 |
| Parties | DAILY v. UNIVERSAL OIL PRODUCTS CO. |
| Court | U.S. District Court — Northern District of Illinois |
COPYRIGHT MATERIAL OMITTED
John A. Marzall, Richard L. Johnston, Carl Hoppe, and Spencer, Marzall, Johnston & Cook, all of Chicago, Ill., and George F. Wasson of Los Angeles, Cal., for plaintiff.
Floyd E. Thompson, of Chicago, Ill., and Ralph S. Harris and John R. McCullough, both of New York City, for defendants Universal Oil Products Co., a South Dakota corporation, Universal Oil Products Co., a Delaware corporation, and Carbon P. Dubbs.
James H. Cartwright, Arthur D. Welton, Jr., and Winston, Strawn & Shaw, all of Chicago, Ill., for defendant Robert J. Dunham.
John F. Cashen, Jr., Louis S. Hardin, John J. Waldron, and Pam, Hurd & Reichman, all of Chicago, Ill., for defendant Lolita Sheldon Armour.
Richard F. Babcock, of Chicago, Ill., Sidney G. Craig, of Evanston, Ill., and Sidley, Austin, Burgess & Harper, of Chicago, Ill., for defendant Joseph A. Alther.
Owen Rall, Tim G. Lowry, and Eckert & Peterson, all of Chicago, Ill., for defendant W. A. Levering.
Plaintiff, Dean Cauffield Daily, is the executor of the estate of Mary Belle Hardison, deceased. Plaintiff filed the complaint in this case on December 2, 1943, as the representative of the stockholders and creditors of the Sunset Oil Refining Company, a West Virginia corporation, which is and has been defunct for many years. At her death, in 1939, Mary Belle Hardison, as the heir of her deceased husband, W. L. Hardison, was the owner of certain shares of the capital stock of the Sunset Oil Refining Company.
The complaint as amended seeks equitable relief. The gist of the action is to establish a trust in regard to the profits and earnings which admittedly have accrued to the defendants and others from the transfer of certain patents and patent applications to the defendant, Universal Oil Products Company, a South Dakota corporation. The patents covered processes for the treatment and cracking of crude oil. The majority of the patents involved and particularly those from which great profits were derived were, at one time, in the possession of and used by the Sunset Oil Refining Company.
The alleged right now asserted by the plaintiff to recover a share of the profits derived by the defendants from the patents and patent applications referred to is based on the ownership by the Hardisons of a minority stock interest in the Sunset Oil Refining Company. Plaintiff alleges and contends that Sunset Oil Refining Company owned the patents and patent applications when they were transferred.
The defendants named in the complaint are:
1. Universal Oil Products Company, a South Dakota Corporation, the transferee of the patents and patent applications involved. The offices of this defendant are in Chicago, Illinois.
2. Universal Oil Products Company, a Delaware Corporation, the purchaser, on January 1, 1932, of all of the assets of the South Dakota corporation. The offices of this defendant are in Chicago, Illinois.
3. Carbon P. Dubbs, son and former associate of his father, Jesse A. Dubbs. Jesse A. Dubbs died in 1918. He owned the majority of the shares of the capital stock of the Sunset Oil Refining Company and he was the transferrer of the patents and patent applications.
4. Lolita Sheldon Armour, wife of J. Ogden Armour and transferee of certain shares of the capital stock of the South Dakota corporation, formerly owned by Armour.
5. Hiram J. Halle, Robert J. Dunham, John J. Mitchell, Joseph G. Alther, W. A. Levering, F. W. Croll, E. C. Ennis and E. Whitcomb, all of whom were connected with Universal Oil Products Company, the South Dakota corporation, in the organization and management of the company or through ownership of its capital stock.
6. All unknown participants in the conversion of three hundred shares of the capital stock of Universal Oil Products Company, a South Dakota corporation, which allegedly formed a part of a trust res held by Jesse A. Dubbs for the benefit of the stockholders and creditors of Sunset Oil Refining Company.
Of the foregoing defendants, Carbon P. Dubbs, a resident of Bermuda, was dismissed as a defendant on April 11, 1944, for lack of jurisdiction. Hiram J. Halle was also dismissed as a defendant on the same date and he died in 1944 before the trial of the case.
A statement of some of the essential facts involved will be helpful in understanding the issues raised by the contentions of the respective parties.
Jesse A. Dubbs was an experienced and competent oil chemist. He died in 1918. For some time prior to 1900, he had engaged in the production of asphalt from crude oil. He owned and was the managing officer of the Globe Asphalt Company, a corporation with offices in Pittsburgh, Pennsylvania, which vended asphalt. He had experimented on and developed an air blown process for the production of asphalt from crude oil with an asphalt base. He filed an application for a patent and on April 3, 1900, United States Letters Patent No. 646,639 were issued to him on that process. Sometime before patent No. 646,639 was issued, Jesse A. Dubbs organized the Sunset Oil Refining Company as a corporation under the laws of the State of West Virginia, with one thousand shares of capital stock.
J. A. Dubbs needed capital to develop and use the patent No. 646,639 and to enable him to carry on his work in the petroleum business. On April 21, 1900, he entered into an agreement with W. L. Hardison of Los Angeles, California. This agreement provided that:
(1) Hardison would pay to Sunset Oil Refining Company one-fourth of all costs and expenses that the company had expended to that time in constructing its plant at Obispo Station in Los Angeles County, California.
(2) Hardison would pay Jesse A. Dubbs the sum of $10,000.00 on specified dates.
(3) Dubbs would assign and transfer to Hardison a one-fourth interest in the Sunset Oil Refining Company and the Globe Asphalt Company. (One-fourth interest in the Sunset Oil Refining Company comprised two hundred fifty shares of its capital stock.)
(4) Dubbs would grant to the Sunset Oil Refining Company, its successors or assigns, an exclusive license for the use and control of United States Letters Patent Numbered 646,639 dated April 3, 1900, to be used in the State of California or any place within the limits of the United States where the process would be applicable or advantageous to use in treating or refining petroleum oils having an asphaltum base. The exclusive license and control was to hold good so long as the Sunset Oil Refining Company should carry on in good faith the process of refining under the letters patent.
(5) Dubbs should be the President of the Sunset Oil Refining Company and should receive a salary of $2,500 per year. His son, E. J. Dubbs, should be superintendent of the plant and receive $125 per month.
(6) Hardison should be the Vice President and Treasurer of the company, with no salary being stipulated.
Following the execution of the foregoing agreement with Hardison, Dubbs, on May 5, 1900, entered into a written agreement with the Sunset Oil Refining Company, which agreement provided in substance:
The Sunset Oil Refining Company agreed to issue to J. A. Dubbs 990 shares out of a total of 1,000 shares of its capital stock in consideration of:
1. The sum of $12,000 that had already been paid into the company's treasury by Dubbs. This sum had been paid to Dubbs by Hardison.
2. Dubbs agreed to give and grant an exclusive license to the Sunset Oil Refining Company, its successors or assigns, for the use and control of letters patent No. 646,639 and any other patents that might be issued to Dubbs in relation to said process (the process involved in patent No. 646,639) which Dubbs agreed in like manner to transfer.
The exclusive license was for use of the process in any place within the United States where it would be applicable or advantageous to use in treating or refining petroleum oils having an asphaltum base and was to continue so long as the company, its successors or assigns, should in good faith carry on the process of such treating and refining petroleum oils under said letters patent.
All of the transactions enumerated in the foregoing agreements were consumated. Hardison paid $12,000 to Dubbs and Dubbs in turn paid that sum in to the treasury of the Sunset Oil Refining Company. Hardison received two hundred fifty shares of the company's one thousand shares of capital stock and Dubbs retained the balance of seven hundred fifty shares. Business commenced. From the outset Jesse A. Dubbs controlled and ran the company in every respect. The evidence shows that he was truly the alter ego of the Sunset Oil Refining Company.
The business of the company was extensive. The main plant was a refinery located at Terminal Island, California, and was known as the Ostend plant, the Obispo plant and the San Pedro plant. The operations covered the entire field of oil refining. The production of asphalt from the residue of oil distillation was stressed but the refining operations included the segregation of all products of distillation, such as gasoline and illuminating oils. All of this business was in relation to the process under patent No. 646,639, which was issued on April 3, 1900. This relation appears in the description of the process in patent No. 646,639, which reads in part:
"The invention described herein relates to certain improvements having for these objects a large increase in the distillates produced and a refinement of the residuum to a merchantable form or condition." and: "resulting in the production of asphalt as a residue and at the same time producing distillates of a much lighter specific gravity than would otherwise result."
The patent was entitled "Distilling Petroleum." It described the process of distilling petroleum by the use of heat and with the addition of air. Sunset Oil...
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