Douglas v. Thompson

• Decision Date: 26 April 1943
• Docket Number: 4-6826
• Citation: Douglas v. Thompson, 176 S.W.2d 717, 206 Ark. 92 (Ark. 1943)
• Parties: Douglas v. Thompson
• Court: Arkansas Supreme Court

176 S.W.2d 717

206 Ark. 92

Douglas v. Thompson

No. 4-6826

Supreme Court of Arkansas

April 26, 1943

Appeal from Crittenden Chancery Court; J. F. Gautney, Chancellor.

Affirmed in Part and Reversed in Part.

Harrelson & Harrelson, Mann & McCulloch, and Norton & Butler, for appellants.

Elton A. Rieves, Jr., John A. Fogleman, A. B. Shafer, Roy Church, and Wils Davis, for appellees.

Griffin Smith, Chief Justice. Mr. Justice Frank G. Smith did not participate in the consideration or determination of this case.

OPINION

Griffin Smith, Chief Justice.

Tri-County Drainage District, embracing lands in Crittenden, St. Francis, and Cross counties, was formed in 1914. Six percent serial bonds amounting to $ 400,000 were issued, with maturities September 1 of each year. Interest was payable in March and September, final obligations falling due in 1934. In 1918 a sub-district was created. ^[1] Its $ 45,000 of 5 1/2% bonds matured over a period of eighteen years, the last falling due September 1, 1935.

Commissioners all residents of Crittenden county, were W. B. Rhodes, C. W. Cooper, and John W. Scott.

S. H. Jones, claiming to be a bondowner, made certain allegations in a suit filed in Crittenden Chancery Court, in consequence of which Rhodes, Cooper, and Scott were appointed Receivers October 10, 1932. The Court's direction was that the Receivers executed bond for $ 50,000. Sureties, prima facie, were Z. T. Bragg and H. C. Williamson. ^[2]

In addition to various business interests, including farming on a large scale, Rhodes was cashier of The Bank of Marion. ^[3] He seems to have been in virtual control of the institution and administered its affairs in a personal manner. This bank was designated in the receivership order as depository. The Bank became insolvent and was taken over by the State Commissioner February 7, 1938, although the deputy commissioner (R. E. Robertson) did not assume his duties until February 21.

It is alleged in appellants' brief that Rhodes, Scott, and Cooper did not file a report or publish any information until December 3, 1937 -- more than two years after the last bond of the sub-district had matured, and more than three years after bonds of the principal district were past-due.

In these circumstances -- having served as commissioners for eighteen years, and as receivers for five years -- Rhodes, Scott, and Cooper filed a petition alleging that bonds were outstanding. Prayer was that a six percent levy on the assessed betterments be extended for 1938. Three days later the order was made.

Following insolvency of the Bank of Marion and suicide of Rhodes and Scott, C. H. Bond, L. L. Barham, and Luther Wallin were appointed co-receivers.

It is contended that landowners did not learn additional assessment had been made until they began paying taxes in 1938. As a consequence of conferences had by those affected, attorneys were employed to determine whether the tax should be paid.

Failing to find records it had been presumed were kept by the Commissioners, and in the absence of reports by the Receivers, John A. Ellis, a Memphis public accountant, was employed by landowners to make an audit. ^[4]

Ellis began work April 15, 1938. ^[5] He ascertained that virtually all records pertaining to the District had been kept by Rhodes in his office in the bank building. It is stated in a brief that these records were "among [Rhodes'] private files." There is the further contention, supported by Ellis' testimony, that because of the indiscriminate manner of bookkeeping, there was no way to distinguish between bank records, district records, records of the commissioners, and records pertaining to the receivership, without referring to private records kept by Rhodes.

The audit was completed August 15, 1938. Irregularities by Rhodes, in which Scott is alleged to have participated as beneficary, are many. ^[6]

Scott owned numerous farms, and also appears to have been engaged in the real estate business. He and Rhodes were associated in agricultural operations.

Robertson, as receiver, and A. B. Goodrum, an accountant representing Russell Brown & Company in auditing the bank's books, cooperated with Ellis. Due to the incompleteness of records, and to inconsistencies in bookkeeping, Ellis was not able to definitely determine the amount of bonds outstanding at any designated period. L. K. Thompson, of Memphis, claimed to own bonds of the par value of $ 43,000. These were acquired, according to appellants, in aid of a conspiracy with Rhodes, Scott, and others, who are thought to have designed a plan for converting the District's misfortune into personal financial gain.

When the Ellis audit was filed and Receivers, having ample time to proceed in the District's interest, failed to act upon information disclosed, A. G. Douglas and others (September 19, 1938) intervened in the suit under which such Receivers were appointed.

As evidence was taken and facts were developed, additional pleadings were filed. These were in the nature of amendments to the intervention. The substituted Receivers were made defendants. Liability was asserted against the following: (1) The estate of John W. Scott. (2) The estate of W. B. Rhodes. (3) Z. T. Bragg and H. C. Williamson, sureties. (4) The estate of Howard Curlin. (5) Bank of Marion. (6) J. C. McCaa. (7) The District's present receivers. (8) C. W. Cooper. (9) Officers of the defunct bank. (10) L. K. Thompson.

Service was either had upon all parties, or those not served participated in such manner as to make service unnecessary. Thompson answered. In a counter claim he asked for judgment against the District for the bonds he claimed to own.

May 6, 1939, J. C. Young was appointed as the Court's Commissioner. His first report was made September 5, 1941. With the exception of a part of the Thompson claim, all issues were found against the interveners.

The appeal questions correctness of the Court's action in allowing Thompson to recover $ 36,293.66, and in declining to render judgments (a) against the bank for $ 25,436.56, representing the aggregate sums Rhodes is alleged to have diverted from the District's assets while such funds were on deposit or after they came into Rhodes' hands as district assets with the institution Rhodes managed: (b) against the estate of John W. Scott for $ 32,516.27; (c) against Z. T. Bragg and H. C. Williamson, jointly and severally, for $ 32,516.27; and, (d) against the estate of Howard Curlin for $ 1,815.71. Appellees moved in this Court to have the appeal dismissed for failure of appellants to sufficiently abstract. If such deficiency existed the error was cured by appellants' supplemental abstract filed December 21, 1942, with leave.

Appellants state in their reply brief that after the transcript was filed the administrator of the Rhodes estate, to whom had been presented the claim of $ 32,516.27, agreed with attorneys representing the landowners and with Receivers for the District that a payment of $ 7,500 would be made. The claim had been disallowed by the administrator and was pending in the probate court. The offer was accepted in consideration of a covenant not to sue. Chancery approved. It is now conceded by appellants that the aggregate of $ 25,436.56, asserted against the Bank, should be credited with $ 7,500, leaving a balance of $ 17,936.56.

Amounts sought to be recovered from the Bank are listed in the audit under eleven schedules, $ 22,101.12 having been compiled from debits against the District evidenced by unauthorized memoranda. Withdrawals by charge tickets bearing no signature amount to $ 3,042.99. Another item is "check to C. R. Head, $ 292.40."

The claim of $ 32,516.27 against the estate of John W. Scott is a composite of District funds diverted to unauthorized purposes and not accounted for by the Receivers, funds diverted from assets of the District by bond manipulations, withdrawals from District account, and profits made by receivers on bond purchases. Claims against Bragg and Williamson as sureties are the same as those urged against the Scott estate -- $ 32,516.27.

As to the amounts sought to be recovered from the Curlin estate, deposits are alleged to have been credited to his bank account as part of the profits realized from bonds purchased at a discount by Rhodes and perhaps others. It is contended that District funds were used and that the bonds were redeemed at par. As an indication of the scope of the litigation, various pleadings and filing dates are shown in the margin. ^[7]

In response to the Jones petition, answer was filed by Rhodes, Cooper, and Scott, as commissioners, in which it was asserted that all bonds maturing prior to 1931 had been paid. It was then alleged that $ 24,000 of $ 32,000 maturing September 1, 1931, had been paid, leaving $ 8,000 delinquent; that $ 34,000 would mature September 1, 1932, $ 36,000 September 1, 1933, and $ 31,000 September 1, 1934 -- a total of $ 109,000.

Between October 10, 1932, and a date not designated, the Receivers are alleged to have collected and disbursed $ 134,905.83, ". . . this being approximately $ 25,000 more than the total bonds reported outstanding when Receivers were appointed." There was the cumulative contention that no improvements had been made, no maintenance costs had been incurred, and that the Receivers served without authorized pay. Despite what, in effect, the interveners pointed to as inconsistencies, the Receivers reported that on December 3, 1937, $ 43,000 of bonds, exclusive of interest, were outstanding. There was reference to the Court's order of March 31, 1938, in which it was recited that Thompson was the owner of bonds equal in amount to obligations referred to by the Receivers. ^[8]

Listed in assets of the defunct Bank were ...