Des Moines Bank & Trust Co. v. George M. Bechtel & Co.

Citation243 Iowa 1007,51 N.W.2d 174
Decision Date08 January 1952
Docket NumberNo. 47363,47363
PartiesDES MOINES BANK & TRUST CO. et al. v. GEORGE M. BECHTEL & CO. et al.
CourtUnited States State Supreme Court of Iowa

Havner & Powers, Des Moines, F. A. Ontjes, Mason City, Hays, Guernsey & Powers, Centerville, for plaintiffs-appellants.

Cook, Blair & Balluff, Davenport, for individual defendants-appellees.

Valentine & Valentine and Valentine & Greenleaf, Centerville, Bradshaw, Fowler, Proctor & Fairgrave, Des Moines, for Iowa Southern Utilities Co. of Delaware, defendant-appellee.

Carl H. Lambach, Davenport, for DeElda Lee, executrix of estate of J. Ross Lee, deceased, defendant-appellee.

BLISS, Justice.

By stipulation of the parties, approved by this Court, the appeal was presented on a printed record of 550 pages of pleadings, procedural matters, and the findings, opinion and decree of the trial court of 148 pages. The evidence is not set out in the printed record. The printed arguments have over 600 pages. The evidence is before us, for review de novo, in 8,000 or more pages of depositions and transcripts of testimony, and many thousands of exhibits accumulated in twenty or more years in the operation of this corporation, consisting of corporate records, books of account, minute books, correspondence, computations, and instruments and records of numerous kinds.

The original notices were served on the defendants on or about April 22, 1943, and the petition of plaintiffs, later amended, was filed May 7, 1943. Trial was begun before Judge Peisen on September 9, 1946 and continued to November 22, 1946, and terminated shortly thereafter by his death. Judge Narey was appointed as trial judge, and after reading the testimony already taken, he proceeded with the trial on September 2, 1947 and concluded with the testimony on November 17, 1947, and rendered judgment and decree on May 25, 1948. The appeal was presented to this Court at the April, 1951 period.

One phase of the controversy was before this Court on issues of law in State ex rel. Weede v. Iowa Southern Utilities Company of Delaware, 231 Iowa 784, 2 N.W.2d 372, 4 N.W.2d 869, and from a decree on a fact issue in said case in State ex rel. Weede v. Bechtel, 239 Iowa 1298, 31 N.W.2d 853, 8 A.L.R.2d 1162.

The named plaintiffs herein are mostly persons living in the territory served by the Utilities Co., who bought their preferred stock from employees of the company or of others, all of whom were selling as agents of Bechtel & Co. To such as they and to the general public the preferred stock was sold at par and accrued dividends, particularly during the period when the major units of property were acquired. To the stockbrokers in New York City and elsewhere who had the selling rights outside of Iowa, the Bechtel company delivered the preferred stock at discounts substantially under par.

Leona E. Tunnell and her sister Alta M. Price, and William Randall acquired their stock in 1921 when the company was a Maine corporation, and exchanged it for preferred stock in the Delaware company in 1924. The other named plaintiffs acquired their preferred stock in the Delaware company, for the most part, between 1924 and 1932, inclusive.

The petition, as amended, alleged, and the plaintiffs contend, that George M. Bechtel and Harold R. Bechtel, in conspiracy, cooperation and connivance with others of the defendants, fraudulently and wrongfully and in breach of their fiduciary relations to the Delaware company, in the acquisition of property for said company, secretly obtained it at prices greatly less than the prices at which it was turned into the company, and that the Bechtels and J. Ross Lee and other defendants wrongfully appropriated the excess consideration. Plaintiffs also alleged and contend that the Bechtels wrongfully took from the company large sums of money as operating or management fees in connection with the company, and approximately $700,000 in dividends on the common stock paid out of capital assets, and wrongful commissions and expenditures. Plaintiffs alleged and contend also that the defendants, Edward L. Shutts, E. F. Bulmahn and others, without the authority or knowledge of the directors, wrongfully appropriated by means of a secret account in the Harris Trust & Savings Bank of Chicago many thousands of dollars of the company's funds.

The individual defendants and the Iowa Southern Utilities Co. of Delaware answered separately, and denied the allegations, and affirmatively pleaded that the recovery and relief prayed for were barred by statutes of limitation and by laches, and as to certain defendants by discharges in bankruptcy, and that some issues are settled by prior adjudication.

No service was obtained on the defendants, Edward de Rivera, H. H. Polk, and W. C. Langley & Co., and there are no appearances for them. After the commencement of this action, Martha R. Bechtel, the wife of George M. Bechtel, died, as did J. Ross Lee, and Geo. M. Bechtel, as executor of the estate of Martha, and DeElda Lee, as executrix of the estate of her husband, were respectively substituted as defendants.

We will refer separately hereinafter to each specific item of wrongful conduct for which the plaintiffs seek recovery for the company on behalf of themselves and of other stockholders similarly situated.

The numerous separate transactions involved in this appeal and the enormous record compel the Court to limit the factual statement to a very inadequate presentation of the matters involved, in order to keep the opinion to a reasonable length. The controversy grows out of the very close and involved relations between the Iowa Southern Utilities Co. and Geo. M. Bechtel & Co. The latter was simply the name adopted by George M. Bechtel when he entered the business of buying and selling bond issues of the various municipalities of Iowa in 1891, with his main office at Davenport. The word 'Bankers' followed the company name on his stationery, but he was not a banker in the commonly accepted, or commercial, sense of the word. In the earlier years he handled only municipal bonds, but when that business slackened he dealt also in other corporate bonds. It was claimed for him that he handled ninety per cent of the municipal bonds issued in Iowa. But he never accepted deposits except money of his customers left with him for bond purchases which was immediately redeposited to his credit in other regular banks. He never operated in the manner of the customary commercial or savings bank. Checks were not drawn upon him. He was not a member of the Davenport Clearing House, and he did not comply with statutory provisions, or regulations, applicable to banks.

When his son, Harold, finished school, and was later discharged from army service, he began working for his father, and in January, 1926, his father and he formed a partnership, and retained the old business name of the father. After some years of apparently real success they met with reverses. On January 2, 1933, the Securities Department of the State of Iowa discovered that the Bechtels had neglected to renew their license to sell securities. Further investigation disclosed that the funds of various municipalities in their hands were not being kept segregated, but were mingled with their general deposits in other banks. A license was denied them and injunction and receivership proceedings were instituted, and in September, 1933, involuntary bankruptcy proceedings were begun against the Bechtel partnership and its two partners, and carried to conclusion, and their discharge in 1934. Although the Bechtel Company was a partnership, G. M. Bechtel was designated as its President, and Harold R. Bechtel signed the company name as Vice President, and, J. Ross Lee, a very important factor in the company, was authorized to sign its name as Vice President.

Turning now to the affiliate of the Bechtel Co., the Utilities Co. It was incorporated in 1914 or 1915, as a Maine corporation, under the name of the Iowa Southern Utilities Co. of Maine, with its central office and its field of operation at Centerville, Iowa, and vicinity. G. M. Bechtel had some business connections with this company in its early years. He had also underwritten a bond issue for the municipal electric plant of the city of Newton, Iowa, on which the city defaulted, and turned the plant over to Bechtel for the balance of $32,500 owing on the bonds. He rebuilt the plant at an expense of $150,000, and disposed of it to the David G. Fisher Co., a dealer in public utility properties. This was Bechtel's entrance into that business.

On Feb. 2, 1922, the Maine company, supra, bought the Newton plant from the Fisher company for $375,000. At a special meeting of the stockholders of the Maine company, at Portland, Maine, on February 20, 1922, all of the outstanding common stock of 5,800 shares was present and held by David G. Fisher & Co., and of the preferred stock present, the Fisher company held 1,150 shares and Geo. M. Bechtel & Co. held 1860 shares. At this meeting the capital was increased from $1,500,000 to $10,000,000, of 100,000 shares, 50,000 of which were preferred stock with a par value of $100 a share, and 50,000 shares were no-par common stock. Among the six directors of the Maine company were Harold or H. R. Bechtel, Ray Nyemaster, and Frank S. Payne. Each held one share of common stock, to qualify him. Edward L. Shutts was assistant secretary. E. F. Bulmahn was also a director. At a meeting of the Board of Directors of the Maine company on January 19, 1923, J. Ross Lee was made a director and also a Vice President of said company. All of these persons were very active in the Centerville company in the years following.

On April 11, 1922, J. Ross Lee, acting for Geo. M. Bechtel & Co., made a written agreement, over his individual signature, with J. C. Sullivan of the Creston Mutual Electric Light, Heat and Power Co. of Creston, Iowa, to buy all of the common stock of that company, being 5,000...

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33 cases
  • State ex rel. Weede v. Bechtel
    • United States
    • United States State Supreme Court of Iowa
    • December 16, 1952
    ...action is in 239 Iowa 1298, 31 N.W.2d 853, 8 A.L.R.2d 1162 (April 6, 1948), supra. The third appeal was in Des Moines Bank & Trust Co. v. George M. Bechtel & Co., Iowa, 51 N.W.2d 174, decided January 8, 1952, in which a petition for rehearing by the defendants was denied. A certified copy o......
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