Doggrell v. Great Southern Box Co., Inc., of Miss., 11701.

• Decision Date: 09 July 1953
• Docket Number: No. 11701.,11701.
• Parties: DOGGRELL v. GREAT SOUTHERN BOX CO., INC., OF MISSISSIPPI.
• Court: U.S. Court of Appeals — Sixth Circuit

206 F.2d 671 (1953)

DOGGRELL v. GREAT SOUTHERN BOX CO., INC., OF MISSISSIPPI.

No. 11701.

United States Court of Appeals Sixth Circuit.

July 9, 1953.

Harry W. Wellford, Memphis, Tenn. (Lewis R. Donelson, III, Harry W. Wellford, on the brief; Snowden, Davis, McCloy, Donelson & Myar, Memphis, Tenn., of counsel), for appellant.

John B. Mack, Memphis, Tenn. (Clarence Clifton, John B. Mack, Memphis, Tenn., on the brief; Clifton & Mack, J. W. Kirkpatrick, Memphis, Tenn., Norton & Norton, Forrest City, Ark., of counsel), for appellee.

Before MARTIN, McALLISTER and MILLER, Circuit Judges.

MARTIN, Circuit Judge.

Judgment for $3,332.47, with interest, was entered against appellant Frank E. Doggrell, Jr., and W. G. Konz, in an action brought by the appellee in the United States District Court for Western Tennessee. Appellant was one of the three original incorporators and also an original stockholder in Forrest City Wood Products, Inc., an organization attempted to be created in the spring of 1948 as a corporation under the laws of Arkansas. Concededly, at the time the debt was incurred upon which the instant action is grounded, the corporate organization had not been completed in compliance with the requirements of section 64-103, Arkansas Statutes, Annotated, 1947, which provides that the "corporate existence shall begin" upon filing the Articles of Incorporation with the Secretary of State; provided, however, "a set of the Articles of Incorporation * * * shall be filed for record with the County Clerk of the County in which the corporation's principal office or place of business in this State is located."

The corporate charter was not filed for record with the County Clerk of St. Francis County, the principal place of business of the corporation, or in any other county in Arkansas, until March 19, 1951, nearly three years after the issuance of the charter by the Secretary of State of Arkansas. During this period, the debt in controversy was incurred while Forrest City Wood Products was conducting a furniture manufacturing business at Forrest City, Arkansas. The instant action of appellee against appellant and Konz was brought to recover the invoice price of merchandise which, pursuant to contract made in the fall of 1950, it had sold and shipped to Forrest City Wood Products, Inc. The latter organization was in bankruptcy at the time the suit was filed.

The district court held that appellant and Konz, as incorporators and stockholders of Forrest City Wood Products, Inc., were liable as partners jointly and severally for the debts, including the one involved in this case, incurred by that organization. Konz has not appealed from the judgment. In his oral opinion, the United States District Judge rested his decision upon the authority of three opinions of the Supreme Court of Arkansas: Whitaker v. Mitchell Mfg. Co., 1952, 219 Ark. 779, 244 S.W.2d 965; Gazette Publishing Co. v. Brady, 204 Ark. 396, 162 S.W.2d 494, and Garnett v. Richardson, 35 Ark. 144. He distinguished an Arkansas case cited by appellant, Wesco Supply Company v. Smith, 134 Ark. 23, 203 S.W. 6, on its facts.

We think that undoubtedly the district judge construed the Arkansas opinions correctly. The Whitaker case, supra, is directly in point. There, the State of Arkansas' Supreme Court passed upon the legality of the incorporation of Forrest City Wood Products, Inc., at the time the debt in issue herein was incurred. Whitaker was the third incorporator of Forrest City Wood Products, Inc., and was directly responsible for the failure to record the corporate charter in St. Francis County, Arkansas, before the debts were incurred. He was president and general manager of the purported corporation in which both appellant and Konz were inactive. They had not even been aware that Whitaker had not filed the certificate as required by law before engaging in business and creating the corporate debt for which they were sued as partners.

In its opinion in Whitaker v. Mitchell Mfg. Co., supra, the Arkansas Supreme Court said that appellant Whitaker sought to distinguish his case on its facts from Gazette Publishing Company v. Brady, supra; but that the only factual difference between the two cases was that, in the Whitaker case, the Articles of Incorporation were filed with the County Clerk on the day of the trial, while in the Gazette case they "were never so filed." The difference was held to be of no avail to Whitaker for the reason that if he were liable individually when the obligation was incurred he could not later, without consent of the creditor, do anything to escape such liability. The court also rejected the contention of Whitaker that the Gazette case should be overruled. It was pointed out that the insistence that corporate existence began when the Articles of Incorporation were filed with the Secretary of State had been considered but not accepted in the Gazette case, inasmuch as a line of decisions, beginning with Garnett v. Richardson, supra, had held that under the statutes of Arkansas the Articles of Incorporation must be filed with both the Secretary of State and the County Clerk. The court said 219 Ark. 779, 244 S.W.2d 966.: "The Garnett case, supra, decided in 1879, is short and simply holds that where a purported corporation had not filed its Articles with both the Secretary of State and the County Clerk the individuals (attempting to form the corporation) were liable for a contracted debt."

In Harrill v. Davis, 168 F. 187, the Court of Appeals for the Eighth Circuit held incorporators individually liable as partners for a debt incurred prior to the filing of their Articles of Incorporation, where they failed to file such articles in both places required by the Arkansas statute.

Wesco Supply Company v. Smith, supra, cited by the appellant herein, was distinguished from the Garnett case in that, in the first-mentioned case, Smith had bought stock in the corporation after the attempted corporate organization and knew nothing of the failure to file the charter as required by law. Therefore, he was held not personally liable for merchandise sold to the purported corporation. In concluding its opinion in the Whitaker case, the highest court of Arkansas said: "Regardless of what our views might be were this a case of first impression, the issue presented here was squarely passed on in the Gazette case, supra, and we find no compelling reason for disturbing that decision."

After the United States District Judge had decided this case in favor of appellee and while the appeal of Doggrell was pending, a judge of the Chancery Court of Shelby County, Tennessee, sitting at Memphis, reached a contrary conclusion of law in a suit brought against appellant and Konz, based on an indebtedness of the Forrest City Wood Products, Inc. Turner Brass Works v. Doggrell, Jr., and Konz. A Tennessee creditor instituted the action. The Tennessee Chancellor took cognizance of the decision of the Supreme Court of Arkansas in Whitaker v. Mitchell Mfg. Co., supra; but, upon the stated authority of Woods v. Wicks, 75 Tenn. 40, refused to follow the Arkansas law as pronounced by the highest court of that state for the asserted reason that the liability sought to be enforced was penal in character and therefore would not be enforced in the Tennessee forum. The Chancellor held, too, that the bill should be dismissed for the further reason that, under the uniform partnership laws of both Tennessee and Arkansas — the liability of the partners being for partnership debts and obligations of the sort involved, joint only and not joint and several — Whitaker, though a necessary party, had not been joined as a defendant. Appellant urges that, upon the authority of Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477, the federal court must follow the law of the forum in which the federal court sits and that, therefore, the decision of the state court chancellor is binding, not only on the United States District Court, but also upon this court as well.

We are not in accord with the statement that the decision of the Tennessee trial judge in the Turner Brass Works case, is binding on the federal court. The Chancery Court of Shelby County, though a court of record, does not publish its opinions. Many years ago, the Supreme Court of Tennessee stated, with respect to one of its own decisions: "The opinion was not ordered published in our reports. It remained, therefore, under the rule of this court, only the opinion of the judge who filed it, and valuable merely for its reasoning, although the judgment rendered in the case was the judgment of the whole court. The court does not encourage the citing of the unpublished opinions of its members, and never refers to them unless compelled to do so by a reference of counsel thereto." Phoenix Cotton Oil Co. v. Royal Indemnity Co., 140 Tenn. 438, 442, 443, 205 S.W. 128, 130. Cf. Board of Commissioners of Union City v. Obion County, 1949, 188 Tenn. 666, 669, 222 S.W.2d 7.

In 1948, the Supreme Court of the United States decided that, under the Rules of Decision Act, 28 U.S.C.A., § 725 now § 1652 as applied in Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, in a diversity of citizenship case where decision turned on a question of state law on which there had been no decision by the highest court, a federal court need not follow the decision of a county court of common pleas whose decisions are not reported and, under the state practice, are binding only on the parties to the particular case and do not constitute precedents in any other cases in that court or in any other court of the state. King v. Order of United Commercial Travelers of America, 333 U.S. 153, 158-162, 68 S.Ct. 488, 92 L.Ed. 608. In writing the unanimous opinion of the Supreme Court in that case, Chief Justice Vinson pointed out that the Erie Railroad decision had left open the difficult question of the effect to be...