Elmer Co. v. Kemp

• Decision Date: 11 December 1933
• Docket Number: No. 7174.,7174.
• Citation: 67 F.2d 948
• Parties: ELMER CO., Limited, et al. (CORNISH et al., Interveners) v. KEMP.
• Court: U.S. Court of Appeals — Ninth Circuit

67 F.2d 948 (1933)

ELMER CO., Limited, et al. (CORNISH et al., Interveners) v. KEMP.^*

No. 7174.

Circuit Court of Appeals, Ninth Circuit.

December 11, 1933.

Franklin W. Peck, Walter J. Little, W. Eugene Craven, and Ivan G. McDaniel, all of Los Angeles, Cal., for appellants.

O'Melveny, Tuller & Myers and David R. Faries, all of Los Angeles, Cal. (Don F. Tyler and McIntyre Faries, both of Los Angeles, Cal., of counsel), for appellee.

Before WILBUR and SAWTELLE, Circuit Judges, and NORCROSS, District Judge.

WILBUR, Circuit Judge.

The property herein involved is in the possession of the receivers of the Elmer Company, Limited, appointed by the District Court of the United States in an equitable action brought by creditors of that corporation for the purpose of conserving the assets of the corporation. This action was brought by A. N. Kemp as receiver of the Guaranty Building & Loan Association to recover all the property and assets of the Elmer Company, Limited, upon the ground that all of such property was the proceeds of money embezzled by Gilbert H. Beesemyer from the assets of the Guaranty Building & Loan Association of Los Angeles, which will hereinafter be referred to as the building and loan association, and deposited with and used by the Elmer Company in the purchase of the assets in its possession at the time the receivers were appointed for such corporation.

It is admited that between the 3d of May, 1921, and the 11th of December, 1930, Beesemyer feloniously appropriated and converted to his own use $8,145,000 of the assets of the building and loan association.

Appellants contend that the bill fails to state a cause of action by reason of the failure to trace the embezzled funds into the specific property in the possession of the appellants. The appellee did allege that no funds whatever were invested in the business of the Elmer Company except the embezzled funds of the building and loan association. We think this a sufficient allegation that the property in the possession of the appellants was derived wholly and exclusively from the embezzled funds, although, as will subsequently appear, the proof did not entirely sustain this allegation because the proof shows that other funds were furnished and used in the purchase of property now in the hands of the trustee.

The appellants claim that it was error for the trial judge to strike out the bill in intervention filed by the general creditors. It is sufficient to say in that regard that no appeal was taken from the order. The creditors are not parties to this appeal. The trial court, however, permitted the attorney for the intervening creditors to be associated with the attorneys for the receivers and to set up the same matters that were alleged in the creditors' bill in intervention.

Appellants claim that the court erred in permitting the appellee to read in evidence statements contained in the preliminary report of the appellants as receivers in the receivership of the Elmer Company. This evidence was admissible as a declaration of the appellants, and its weight was to be determined in connection with other evidence in the case. The fact that the report was a preliminary one did not render it inadmissible.

The next specification of error is thus stated: "The court erred in admitting into evidence over the objections of appellant the `work sheets' received in evidence as plaintiff's Exhibit 2, the cancelled checks received in evidence as plaintiff's Exhibit 3, and the testimony of A. L. Moreton, given in reference thereto."

The original books of account and papers upon which the auditor's report was predicated were available to both sides. The testimony of the experts in reference thereto was merely to aid the court and the parties in the consideration thereof. It is clearly admissible for that purpose where the books were all in the custody of the court, and its receivers and were equally available to both sides. The books of the Elmer Company, Limited, showed that there was a balance of $1,861,431.73 owing to Gilbert H. Beesemyer for money he provided for its use at various times. It is stipulated that this amount was deposited in the bank account of the Elmer Company, Limited, by Beesemyer. Work sheet summaries were introduced in evidence showing that $1,882,850.94 had been withdrawn by Beesemyer from the building and loan association's funds and turned over to the Elmer Company, Limited. Of this amount $1,246,508.71 was paid to the Elmer Company, Limited, by checks drawn by Beesemyer upon the funds of the building and loan association, and $576,342.23 was paid to the Elmer Company, Limited, by checks of Beesemyer drawn on funds which he had withdrawn from the building and loan association and deposited to his own credit. Beesemyer, who is now in the penitentiary, testified that he had withdrawn about $1,200,000 from the funds of the association, and turned that amount over to the Elmer Company by checks of the building and loan association payable to the Elmer Company, and about $600,000 he had turned over by checks upon funds deposited in various banks in his own name, which funds had been withdrawn from the building and loan association's funds.

The theory of the appellee is that these moneys were embezzled by Beesemyer for the purpose of going into the business of prospecting for oil, and that all the property acquired by him was in furtherance of his plan to engage in that business with the hope and for the purpose of repaying the building and loan association money theretofore embezzled by him, and that the moneys subsequently embezzled and turned over to the Elmer Company were used in pursuance of this plan. Beesemyer testified substantially to this effect.

Pursuant to this plan Beesemyer caused the Elmer Company, Limited, to be incorporated with 2,500 shares of stock of the par value of $10 each. He subscribed for all but two of the shares, which were issued to his subordinates to qualify them as directors, and paid the face value thereof, $24,980, with funds embezzled from the building and loan association. Beesemyer, masquerading under the name of the Elmer Company, Limited, his alter ego, proceeded to acquire leases of prospective oil properties and to drill wells for the discovery and production of oil. Some of these wells proved to be dry holes and others practically nonproductive. In this way over $1,500,000 was dissipated. Oil was struck in Venice wells Nos. 1, 2, 3, 4, 5, and 6, and in Jameson wells Nos. 1, 2, 3, 4, and 5 at Santa Fé Springs. The flow of oil in Jameson wells Nos. 3, 4, and 5 had ceased, and they were unproductive at the time of the trial of this suit. Up to December 13, 1930, the day appellants were appointed receivers of the Elmer Company, $471,667.80 had been received from production of oil in the Venice and Jameson wells. In addition to the funds embezzled from the building and loan association, there were used in the drilling of the wells at Venice and Santa Fé Springs the sums of $225,000 advanced for that purpose by De Mille Productions, Inc., of which all but $81,000 has been returned, and $9,000 derived from Alexander Pantages under a special agreement for sharing expenses of drilling and also sharing in the oil produced from two wells which were in process of drilling at the time appellant receivers were appointed. The total value of all the assets of the Elmer Company at the time of the appointment of appellants as its receivers was $286,000.

The assets consisted of well drilling machinery located at the above-mentioned producing wells, or in a warehouse at Santa Fé Springs. It was the opinion of some of the witnesses that the equipment which had been used in drilling the unproductive wells was obsolete and practically worthless; that all the leases acquired by the Elmer Company prior to the commencement of the producing wells at Santa Fé Springs (the Jameson wells) and at Venice had little or no value; and that the only assets of the Elmer Company which possessed any value were the producing wells, the personal property, drilling equipment and tools, purchased when drilling operations were being prosecuted on these wells, and money on hand. The creditors' claims, which amount to $467,544.33, consist of secured claims of $21,770.70, unsecured approved claims $178,606.61, unsecured, unallowed claims $93,952.79; miscellaneous notes payable $91,956.69; claim of De Mille Productions, Inc., $81,257.54.

Austin P. Sutter, a witness for the defense, who had been connected with the Elmer Company prior to the receivership, in charge of its books, and who was an expert accountant, testified that he had examined the creditors' claims for the purpose of determining whether or not they should be allowed, and that as result of his investigation he found that all the material was on hand which was referred to in the approved claims; and that there was, in addition to the property and equipment referred to in the claims of creditors, other property and equipment on hand.

As we understand this testimony, the personal property, which was still unpaid for, the purchase price of which was over $200,000 (being secured claims $21,770.70, and unsecured claims $178,606.61), was still on hand at the time the receiver took charge of the assets of the Elmer Company. Some of this property (costing $178,606.61), furnished by the creditors who dealt with the company, was subjected to a trust in favor of the building and loan association to the exclusion of the creditors who had thus furnished the property on credit. It is clear from the evidence that in the drilling of the Jameson and Venice wells money which was embezzled by Beesemyer from the building and loan association was used and that, in addition thereto, money derived from De Mille Productions, Inc., and Pantages was used, and that those who are now...