Darragh v. H. Wetter Mfg. Co., 766.

• Decision Date: 18 January 1897
• Docket Number: 766.
• Citation: 78 F. 7
• Parties: DARRAGH v. H. WETTER MANUF'G CO. et al.
• Court: U.S. Court of Appeals — Eighth Circuit

78 F. 7

DARRAGH v. H. WETTER MANUF'G CO. et al.

No. 766.

United States Court of Appeals, Eighth Circuit.

January 18, 1897

(Syllabus by the Court.)

Rights created or provided by the statutes of the states to be pursued in the state courts may be enforced and administered in the national courts either at law, in equity, or in admiralty, as the nature of the rights or remedies may require.

An enlargement of equitable rights by the statutes of the states may be administered by the federal courts as well as by the courts of the states.

'A party by going into a national court does not lose any right or appropriate remedy of which he might have availed himself in the state courts of the same locality. The wise policy of the constitution gives him a choice of tribunals. ' Davis v. Gray, 16 Wall. 203, 221.

A contract creditor, who has not reduced his claim to judgment may maintain a bill in equity in the federal court, under the statutes of the state of Arkansas (sections 1425-1428, San. &amp H. Dig.), for the appointment of a receiver and the sale of the property of an insolvent corporation of that state, and for the distribution of its assets among its creditors.

A stockholder of an insolvent corporation, whose stock is worthless, and cannot be made of any value by the granting of the relief prayed in his bill, cannot maintain a suit to set aside an order appointing the receiver and a decree directing a sale of the property of the corporation, on the ground that its officers and directors fraudulently colluded with the complainant in the proceeding, to enable it to obtain the order and decree.

Courts of equity do not attempt to right wrongs at the suit of those who have not suffered from them, or to grant decrees that can give their suitors no relief.

This is an appeal from a decree dismissing a bill in equity filed in the court below by the appellant, Thomas J. Darragh, against the H. Wetter Manufacturing Company, the Dickinson Hardware Company, and the W. W. Dickinson Hardware Company, three corporations, to set aside an order appointing a receiver of the property of the Dickinson Hardware Company, and a decree for its sale, made by the court below in a suit between the H. Wetter Manufacturing Company and the Dickinson Hardware Company. The bill alleged the existence of these facts:

The Dickinson Hardware Company was a corporation engaged in the mercantile business at Little Rock, in the state of Arkansas in the month of November, 1895. Its business had been affected by the general depression, but it had at all times met its maturing obligations, and none of its commercial paper had gone to protest. Its capital stock was $100,000 $68,500 of which had been subscribed and paid for. Of this the appellant owned $29,000, W. W. Dickinson $29,000, J. H Martin $8,000, and G. H. Lyon $2,500. The directors of the corporation were W. W. Dickinson, J. H. Martin, and G. H. Lyon, and Dickinson was its president and Lyon its secretary. These directors formed a conspiracy to wreck the corporation, to defraud its creditors and stockholders, and to obtain its property for themselves. Thereupon they induced the H. Wetter Manufacturing Company to file in the court below a bill in these words:

'United States Circuit Court, Eastern District of Arkansas, Western Division.

'H. Wetter Mfg. Co. vs. Dickinson Hardware Co.

'Original Bill.

'To the Judges of Said Court, in Chancery Sitting: Your orator states that it is a corporation created and doing business under the laws of the state of Tennessee, while the defendant is a corporation created and doing business under the laws of the state of Arkansas, and in inhabitant of this district. Said defendant is indebted to your orator, for goods sold and delivered, in the sum of twenty-eight hundred forty-two and 90-100 dollars, and is insolvent, but that the distributive share going to your orator upon a distribution of its assets will exceed the sum of two thousand dollars. Your orator therefore prays for process of subpoena against the defendant; that it be required to answer this bill; that a receiver be appointed to take possession of its assets, and to administer the same; that they be reduced to money and distributed among the creditors entitled thereto; and for all other proper relief.

Rose, Hemingway and Rose.'

The debt of $2,842.90 mentioned in this bill was a simple debt upon contract, and no part of it had ever been reduced to judgment. $1,880.30 of it was not due, and $1,110 was for goods that were never received or accepted, but were returned, by the Dickinson Hardware Company. The bill was filed on November 1, 1895. At the time of its filing the H. Wetter Manufacturing Company made a motion for the appointment of a receiver of the property of the Dickinson Hardware Company, and W. W. Dickinson, its president appeared in court, without the issue of a subpoena, and consented to the appointment of his brother-in-law as the receiver. The court at the same time made the appointment, and made an order that all creditors of the Dickinson Hardware Company should present their claims to the court or to the receiver within 90 days. On December 20, 1895, a meeting of the St. Louis creditors of the Dickinson Hardware Company was held, and that meeting appointed a committee of three to investigate and report the financial condition of the corporation. They went to Little Rock, and examined its assets. The inventory of the receiver, which had been filed, disclosed the fact that the face value of those assets was $244,230.93, and that the liabilities of the corporation were $153,949.08; but the committee reported on December 31, 1895, that the actual value of these assets was only $117,278.42, and recommended that a proposition to pay the creditors 40 per cent. of their claims in full settlement thereof, which had been made by the corporation through Dickinson, its president, be accepted. The report of this committee does not fairly show the value of the assets of the corporation, which was in reality $175,917.42. The directors of the Dickinson Hardware Company were indebted to that corporation in the following amounts, viz.: W. W. Dickinson, in the sum of $19,070.93; J. H. Martin, in the sum of $3,272.28; and G. H. Lyon, in the sum of $2,338.18. The appellant, was at Hot Springs, Ark., when the receiver for this company was appointed, and had no notice of such action or contemplated action; but immediately after a conference between W. W. Dickinson and the creditors in St. Louis, at which the offer of settlement was submitted, Dickinson notified him that, unless he would consent to the forgiveness of the debts of the directors to the corporation, he (Dickinson) would proceed no further with the compromise. The appellant refused to consent to this, and Dickinson then notified him to look out for his own interest. Thereupon, on January 21, 1896, Dickinson, pursuant to a resolution of the board of directors of the corporation, appeared in the court below, and consented, on behalf of the Dickinson Hardware Company, to a final decree in the suit of the H. Wetter Manufacturing Company against it, which was then rendered. This decree recited that some of the merchandise shown by the inventory of the receiver had been converted into money, and that some of it had been delivered upon orders by the court to intervening claimants, and directed that all the property of the corporation be sold in bulk by the master, after four weeks' published notice, and that the money in the hands of the receiver should pass to the purchaser with the other property. It provided for the distribution of the proceeds of the sale among the creditors, share and share alike. The directors of the Dickinson Hardware Company, together with Fannie R. Dickinson, the wife of W. W. Dickinson, and John W. Dickinson, his brother, then organized a new corporation under the laws of the state of Arkansas, styled the W. W. Dickinson Hardware Company. The shares of the stock in it were $25 each. W. W. Dickinson, J. H. Martin, G. H. Lyon, and John W. Dickinson each took one share, and Fannie R. Dickinson 285 shares. Instead of proceeding further with the compromise of the claims of the old corporation, W. W. Dickinson obtained assignments of the claims against it to this new corporation for 40 per cent. of their face value, one-half of which was to be paid in cash, and the other half in secured notes, maturing in 6 and 12 months. He had these assignments deposited with an agent in Little Rock, to be delivered to this new corporation whenever the cash and the notes should be paid over for them. When the bill of the appellant was filed, he had thus procured the deposit with this agent of assignments of claims to the amount of more than $100,000, ready to be delivered to the new corporation whenever the payments should be made. Meanwhile, W. W. Dickinson, J. H. Martin, and G. H. Lyon were in the employment of the receiver, and perfectly familiar with the amount and value of the assets of the old corporation. The sale was advertised, and was about to take place. Dickinson, to prevent competition at the sale, and with the intent to purchase the property for his new corporation, represented to inquirers that nearly all the debts owing to the old corporation that could be collected had been paid, and at the same time he was writing to the debtors not to pay until after the sale. There was $20,000 cash in the hands of the receiver that would go to the purchaser. Dickinson, who was the general manager of the receiver, and his other employes gave evasive and unwilling answers to those who inquired as to the amount and value of the property to be sold, and no one but these employes could ascertain its quantity and value. The decree and all these...