Elkins v. First Nat. Bank of City of New York

• Decision Date: 24 October 1930
• Docket Number: No. 2990.,2990.
• Citation: 43 F.2d 777
• Court: U.S. Court of Appeals — Fourth Circuit
• Parties: ELKINS et al. v. FIRST NAT. BANK OF CITY OF NEW YORK. GOODMAN MFG. CO. v. WEST VIRGINIA COAL & COKE CO. KEARNS et al. v. SAME.

43 F.2d 777 (1930)

ELKINS et al. v. FIRST NAT. BANK OF CITY OF NEW YORK.

GOODMAN MFG. CO. v. WEST VIRGINIA COAL & COKE CO.

KEARNS et al. v. SAME.

No. 2990.

Circuit Court of Appeals, Fourth Circuit.

September 19, 1930.

Rehearing Denied October 24, 1930.

Fred O. Blue, of Charleston, W. Va. (Sam T. Spears, of Elkins, W. Va., on the brief), for appellants.

Douglas W. Brown, of Huntington, W. Va. (Walter L. Brown and Fitzpatrick, Brown & Davis, all of Huntington, W. Va., on the brief), for appellee.

Before PARKER, Circuit Judge, and WEBB and SOPER, District Judges.

PARKER, Circuit Judge.

On December 2, 1927, the Goodman Manufacturing Company filed in the court below a bill praying the appointment of receivers for the West Virginia Coal & Coke Company. After receivers had been appointed in that suit, Walter F. Kearns and the First National Bank of New York City, with leave of court, filed a bill asking for the foreclosure of a mortgage securing a bond issue. The two suits were later consolidated and orders were entered decreeing a sale of the mortgaged property and appointing a special master to take, state, and report an account showing, among other things, the validity, amounts, and priorities of all claims of creditors of the insolvent company. A sale of the property was had, and a deficiency judgment in favor of the mortgage trustee in the sum of $9,614,574.89 was rendered. The receivers realized from the sale of the property not subject to mortgage the sum of approximately $560,000.

On January 7, 1929, Hallie D. Elkins and others, whom we shall hereafter refer to as petitioners, filed with the special master their proof of claim in the sum of $197,768.28, based upon a judgment rendered by the circuit court of Randolph county, W. Va., on November 12, 1928, in an equity suit brought to compel the payment of dividends for the year 1917 upon the class A preferred stock of the insolvent company which they held. Prior to the filing of their claim, the First National Bank of New York City had filed with the special master its two claims in the sum of $919,441.50 and $1,535, respectively, for money loaned to the company in the years 1924 and 1926. And on September 30, 1929, petitioners tendered their intervening petition asking that they be allowed to intervene in the suit and that their claim be given preference in payment over the claims of the bank. From an order refusing to allow the intervention and striking the petition from the record, this appeal is prosecuted.

The intervening petition alleged that petitioners had been the owners of certain coal and railroad properties which, upon the organization of the insolvent corporation in the year 1917, had been transferred to it, and for which they had received 21,677 shares of its preferred stock providing for the payment of 6 per cent. semiannual dividends as and when declared by the board of directors; that, in the organization of the corporation, an official of the First National Bank of New York City had acted for the petitioners, that the common stock had been issued to individuals or companies associated with that bank, and that the bank occupied a fiduciary relationship toward petitioners because of its ownership of the common stock and the control of the directorate; that the corporation earned and accumulated during the year 1917 net profits to the amount of $492,651.47, entitling petitioners to a dividend on their preferred stock, which they had demanded of the directors; that the directors, being controlled by the bank in its own interest and in the interest of the common stockholders, refused to declare such dividend but used net profits to the amount of $302,290.58 toward paying off and retiring its 4-10 year series of serial notes of an issue of $2,500,000, notwithstanding that during the year it had purchased and retired such notes to the amount of $1,831,000 out of its working capital; that during the four years, 1918-1921, approximately $254,000 of the earnings of the company had been used to retire serial notes and $520,248 to pay dividends on the preferred and $1,440,000 to pay dividends on the common stock; that on November 16, 1918, petitioners had instituted suit in the circuit court of Randolph county, W. Va., against the company and its directors for the recovery of the 1917 dividends on the preferred stock; and that on November 11, 1928, they had secured a final decree in that suit for $197,768.29 and had filed certified copy thereof with the special master. It concluded with a prayer that the $919,441.50 claim of the bank be postponed to the rights of petitioners under their claim.

At the time of the order striking the petition from the record, petitioners were allowed to amend same so as to allege that the free assets coming into the hands of the receivers constituted a trust fund for the payment of their claim, and to pray that such assets be held to be a trust fund for the payment of petitioners' claim and the other debts of the company "and that the rights and equities of the petitioners and said First National Bank of the City of New York therein, and thereto, as between themselves, be ascertained, determined and decreed" by the court.

There can be no question, we think, that the petition for intervention was properly denied. As originally presented, it amounted to no more than an application on the part of the petitioners to have themselves made parties to the receivership proceeding in order that they might determine a question as to priority in the allowance and payment of claims. A special master had been appointed to pass upon just such questions, and any claim of petitioners to priority or any objection to the claim of the bank should have been made before him. It is not the ordinary or the proper procedure in a receivership proceeding to allow claimants who can have their controversies settled before a master with right of review by the court, to be made parties to the original cause and thus complicate the issues there involved. Acme White Lead & Color Works v. Republic Motor Truck Co. (D. C.) 285 F. 88; Jones & Laughlin v. Sands (C. C. A. 2d) 79 F. 913; Sands v. Greeley Co. (C. C.) 80 F. 195.

In addition to merely raising a question of...