Darling Stores Corporation v. Young Realty Co.

• Decision Date: 24 June 1941
• Docket Number: No. 11883.,11883.
• Citation: 121 F.2d 112
• Parties: DARLING STORES CORPORATION v. YOUNG REALTY CO.
• Court: U.S. Court of Appeals — Eighth Circuit

121 F.2d 112 (1941)

DARLING STORES CORPORATION v. YOUNG REALTY CO.

No. 11883.

Circuit Court of Appeals, Eighth Circuit.

June 24, 1941.

George Cosson and George Cosson, Jr., both of Des Moines, Iowa (Eugene Frederick Roth, of New York City, on the brief), for appellant.

Robert J. Bannister, of Des Moines, Iowa (John E. Perry and Stipp, Perry, Bannister & Starzinger, all of Des Moines, Iowa, on the brief), for appellee.

Before WOODROUGH, JOHNSEN, and VAN VALKENBURGH, Circuit Judges.

VAN VALKENBURGH, Circuit Judge.

The somewhat complex and confusing status of affairs in this controversy are thus best stated in the findings of the trial court:

"1. Young Realty Company is an Iowa corporation, and at all times significant herein was and still is owner of Lots 7 and 8, in Block 2, in the Original Town of Fort Des Moines, now included in and forming a part of the City of Des Moines, Iowa, on which premises was located a store building which included the premises known as 710 Walnut Street, in Des Moines, Iowa.

"2. Darling Shops was a partnership organized on May 9, 1934, by George A. Gluck and Max H. Gluck for the operation of a ladies' ready-to-wear retail merchandising business. It continued to operate as such until April 30, 1936, at which time it included a chain of fifty or more stores throughout the United States. Effective as of April 30, 1936, it was converted into a corporation known as Darling Stores Corporation. During the period of transition from May 1, 1936, to June 24, 1936, George A. Gluck and Max H. Gluck operated the business as interim trustees for the benefit of Darling Stores Corporation in process of formation. The principal place of business of Darling Shops, the partnership, was at 370 Seventh Avenue, New York City.

"3. Darling Shops, Inc., of Delaware, was incorporated in the State of Delaware on June 20, 1935. Its offices were at 370 Seventh Avenue, New York City. It and eight other subsidiaries of the partnership Darling Shops were created and existed solely for the purpose of leasing store locations throughout the United States, which they in turn subleased to the partnership at the same rental, and, after June 24, 1936, to Darling Stores Corporation. Darling Shops, Inc., of Delaware had no assets and no income of any kind, except that it received from subleasing transactions from Darling Stores Corporation and which it immediately transmitted to its lessors. It made no profit from subleasing transactions and existed only to serve Darling Shops, and, after its creation, Darling Stores Corporation.

"4. Darling Stores Corporation was incorporated in the State of New Jersey on June 24, 1936, and its principal offices were located at 370 Seventh Avenue, New York City. On June 24, 1936, a contract was entered into between Darling Stores Corporation and Darling Shops, the partnership, whereby the latter transferred, sold and assigned all its assets, business, stock of goods, trade, goodwill, and all shares of stock in subsidiary corporations, including all the capital stock of Darling Shops, Inc., to Darling Stores Corporation. In return Darling Stores Corporation issued a large quantity of its capital stock to George A. Gluck and Max H. Gluck, the partners in Darling Shops, and expressly assumed all the obligations and liabilities of the partnership, including all created during the interim trusteeship, after April 30, 1936, and prior to June 24, 1936.

"5. On June 14, 1935, Young Realty Company leased the premises known as 710 Walnut Street to Adeline Chain Stores, Inc., from June 1, 1935, to June 30, 1940, at a rental of $600.00 a month.

"6. In the month of May, 1936, Adeline Chain Stores, Inc., sought to assign its lease with Young Realty Company to Darling Shops, Inc., of Delaware, and to secure the assent of Young Realty Company to the assignment. Adeline Chain Stores, Inc., assured Young Realty Company that the proposed assignee of the lease, Darling Shops, Inc., of Delaware, was a solvent substantial merchandising corporation, operating many stores throughout the United States, and Young Realty Company obtained a Dun and Bradstreet report showing that Darling Shops, Inc., was a solvent financially able corporation. In assenting to the assignment and assumption of the lease by Darling Shops, Inc., Young Realty Company believed in the truth of the information so furnished it, and by reason of the manner in which business was conducted at the Darling Shops store at 710 Walnut Street in Des Moines, Iowa, from July 1, 1936, until the breach of the lease in April, 1938, Young Realty Company and its officers and agents had no knowledge of the real corporate setup of the various Darling corporations until a considerable time after breach of the lease in April, 1938.

"7. On June 1, 1936, on assurance of Young Realty Company that its assignment of the lease to Darling Shops, Inc., of Delaware, would be consented to, Adeline Chain Stores, Inc., executed its assignment. On June 2, 1936, Darling Shops, Inc., assumed the obligations of the lease and agreed to perform them. The lease, by its terms, expressly forbade any assignment without the consent of the landlord, Young Realty Company. On June 5, 1936, Young Realty Company consented to the assignment and the assumption by Darling Shops, Inc.

"8. In the month of June, 1936, a bank account was opened in the name of `Darling Shops' in Bankers Trust Company, in Des Moines, Iowa. The storeroom at 710 Walnut Street, Des Moines, Iowa, was occupied, a stock of goods placed therein belonging to Darling Stores Corporation, and the store was given the name `Darling Shops'. As at the first of July, 1936, the store commenced operation as a ladies' ready-to-wear retail merchandising business.

"9. During the operation of `Darling Shops' store at 710 Walnut Street, in Des Moines, Iowa, all the goods which were sold were furnished by and owned by Darling Stores Corporation, and all the receipts, except those needed to pay salaries of the manager and clerks, utilities services and similar items, were deposited in the `Darling Shops' account in Bankers Trust Company and were withdrawn by Darling Stores Corporation in New York City. Rent due under the lease was paid by checks sent out from the main offices of the `Darling' organizations at 370 Seventh Avenue, New York City. All the business done at the store was done under the name `Darling Shops.' All correspondence between the manager and the head offices of the `Darling' organization was conducted under the name of `Darling Shops'. All goods were ordered through and sent through the main offices of the `Darling' organization at 370 Seventh Avenue, New York City.

"10. Darling Shops, Inc., at all times material herein, had the same offices as Darling Shops, the partnership, and after its organization, Darling Stores Corporation; the officers of Darling Shops, Inc., were all officers of Darling Stores Corporation, and all the capital stock of Darling Shops, Inc., was owned by Darling Stores Corporation. Darling Shops, Inc., had no assets and no income, except from funds paid to it on subleasing transactions by Darling Stores Corporation, which funds it immediately paid over to its lessors entirely.

"11. On April 10, 1938, the `Darling Shops' store at 710 Walnut Street, in Des Moines, Iowa, was abandoned, the stock of goods therein removed in the night, and the April rent then due and delinquent was left unpaid and no rent was paid thereafter".

These findings of fact are not substantially challenged in argument or brief. We find in the record explicit admissions by appellant of their more important and decisive features. Thus, in a prospectus issued to induce the public to purchase its stock, Darling Stores Corporation said of its subsidiaries as follows:

"These subsidiaries lease store locations for various periods of time, either at a stated rate of monthly rental or at a stipulated percentage of sales. They, in turn, sublease these locations to the parent organization at the same rate and basis of rent as provided for in the original lease. The subsidiaries exist only to serve the parent company and do not profit through subleasing transactions. In certain instances leases were negotiated directly with the landlord by the predecessor partnership; the partners have subleased these locations to the Corporation at the rental provided in the original leases".

And it further advised the Securities and Exchange Commission that it was the operator of the fifty or more Darling Shops throughout the country, including the Des Moines store, and the owner of the merchandise, goods, furniture and fixtures, trade names and leaseholds of the "Darling Shops" business. In one of the exhibits, relating to matters before the Securities and Exchange Commission, it is stated that the business originated as a partnership up to April 30, 1936; and that, during the period of transition from May 1, to June 30, 1936, George A. Gluck and Max H. Gluck operated the business as interim trustees for the benefit of the corporation in process of formation.

May 31, 1939, appellee brought suit in equity in the District Court of Iowa in and for Polk County, against Darling Shops, Inc., and Darling Stores Corporation, charging that Darling Shops, Inc., was the mere adjunct agent and instrumentality of Darling Stores Corporation, that the latter wholly dominated, directed, and controlled the former and is directly liable to appellee on the lease. Plaintiff-appellee prayed that the said lease should be so reformed as to make Darling Stores Company, as the real party in interest, directly liable on the assumption agreement made by Darling Shops, Inc.; and that appellee have judgment against both defendants for damages suffered by the breach of said lease. The case was subsequently removed to the United States District Court for the Southern District of Iowa. That court, being of opinion that the record conclusively established ...