Ferguson v. Tabah

• Decision Date: 13 April 1961
• Docket Number: No. 291,26796.,Dockets 26723,291
• Citation: 288 F.2d 665
• Parties: Murray FERGUSON, as Trustee in Reorganization of Equitable Plan Company, Plaintiff-Appellee, v. Fred TABAH, Louis A. Schnider, Sol R. Kurlander, Clayville Truck Rental Corp., Pan American Investment Corporation, Charles Holdings, Inc., and Doeskin Products, Inc., Defendants-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

288 F.2d 665 (1961)

Murray FERGUSON, as Trustee in Reorganization of Equitable Plan Company, Plaintiff-Appellee, v. Fred TABAH, Louis A. Schnider, Sol R. Kurlander, Clayville Truck Rental Corp., Pan American Investment Corporation, Charles Holdings, Inc., and Doeskin Products, Inc., Defendants-Appellants.

No. 291, Dockets 26723, 26796.

United States Court of Appeals Second Circuit.

Argued February 14, 1961.

Decided April 13, 1961.

Thacher Proffitt, Prizer, Crawley & Wood, New York City (Edward C. Kalaidjian, John C. Crawley and Robert S. Stitt, New York City, of counsel), for appellee.

Meyer, Kissell, Matz & Seward, New York City (Lester Kissel and James C. Quigley, New York City, of counsel), for appellants Fred Tabah and Pan American Inv. Corp.

McCarthy, Kapelman & Nathanson, New York City (I. Z. Nathanson and

Samuel Aleyner, New York City, of counsel), for appellants Doeskin Products, Inc. and Clayville Truck Rental Corp.

Samuel H. Levinkind, New York City, for appellants Louis A. Schnider, Sol Kurlander and Charles Holdings, Inc.

Walter P. North, Gen. Counsel, and Irving M. Pollack, Asst. Gen. Counsel, Washington, D. C. (Kiva Berke, New York City, of counsel), for the Securities and Exchange Commission, amicus curiae.

Ernest Angell, New York City (William Stackpole, New York City, of counsel), on behalf of himself, opposing the petition for writ of mandamus brought by appellants Doeskin Products, Inc.

Before LUMBARD, Chief Judge, and CLARK and SMITH, Circuit Judges.

SMITH, Circuit Judge.

This appeal represents yet another in the long series of attempts to straighten out the financial chaos and ruin left by Lowell M. Birrell when that gentleman forsook these shores for those of our southern hemisphere neighbor, Brazil.¹ Plaintiff is Trustee in Reorganization of the Equitable Plan Company, a California industrial loan company allegedly milked of $8 million by Mr. Birrell. Defendant Doeskin Products, Inc. fared no better in the hands of Birrell and his associates. It is estimated that more than ten million dollars was stolen from the latter corporation.

The action is a derivative one, Equitable claiming as the holder of roughly 200,000 shares of Doeskin stock. The defendants, other than Doeskin, are present and past officers and directors of that corporation — and outsiders — claimed to be responsible for or privy to a number of alleged swindles which have resulted in the looting of Doeskin.

Plaintiff claims that in September of 1957 Birrell, then a director and Chairman of the Board of Doeskin Products, contrived to fraudulently issue 1,070,000 shares of stock which had been authorized but were still unissued by the corporation. The stock was issued to a Panamanian corporation, Darien, Compania de Inversiones y Finanzas, S.A. That corporation was the holding company for a murky and mysterious "Cuban group" headed by one Jose Capmany, in whose name the shares were registered. It is alleged that this group was at all times merely a "front" for Birrell. "Payment" was nominally made with a check for $2,140,000 to Doeskin. Immediately, however, Birrell caused Doeskin to write a check for that amount in favor of its wholly owned subsidiary, Keta Gas & Oil, which corporation, in turn, drafted a similar check payable to Cubanda, a wholly owned subsidiary of Keta. Cubanda apparently never was anything more than a corporate shell totally devoid of assets and none can be presently found. None of the defendants in this action claim that Doeskin received any actual consideration for the huge bloc of shares nor do any of them seriously dispute the larcenous nature of the transaction.

Seventy thousand of the shares, after being used to cover some of Birrell's debts with a Canadian brokerage house, were promptly sold back to Doeskin for $100,000. Then, in February of 1958, the remaining one million shares were "sold" by Darien to defendant Charles Holdings, Inc., a Canadian corporation owned by defendants Smiley² (5/6) and Schnider (1/6). The stock was bought for one dollar a share and was obtained for $30,000 in cash plus $970,000 in non-interest bearing promissory notes which were neither endorsed nor guaranteed nor collateralized.³ From the time of this transaction until Judge Palmieri appointed a receiver, the so-called "Canadian group" was in control of Doeskin's management. In addition to Smiley and Schnider, this group includes defendants Leznoff, Kurlander, Cutler and Perlmutter.

Late in 1958 there was a further sale, by Charles, of Doeskin stock. Smiley had, in February, approached defendant Fred Tabah, president of Pan American Investment Corporation (another defendant), concerning the purchase from Darien of the million shares. While Tabah was not interested at that time, he told Smiley to see him again in the Fall. In December, Pan American purchased from Charles 200,000 shares of Doeskin. The consideration of $183,000 was paid in three installments — in December of 1958 and in May and June of 1959. A contract was executed between Pan American and Doeskin whereby the latter obtained the services of Tabah as president of Doeskin for a five year term beginning January 1, 1959.

In June of 1959 Smiley and Charles. Holdings began negotiations for still another transfer of Doeskin stock. A Zurich attorney named Sandberg allegedly contacted Smiley on behalf of an undisclosed principal concerning the availability of the one million shares. Smiley finally went to Switzerland the week of August 10, 1959 and contracted to sell to Synta Corporation Reg. Trust, a Liechtenstein corporation with headquarters in Zurich, 600,000 shares of Doeskin common. The consideration for this "sale" was the return of $600,000 of Charles Holdings, Inc. notes in favor of Darien, which notes had somehow found their way into the hands of Synta. The other terms of the transaction were perhaps even more strange. Charles Holdings was given an irrevocable proxy to vote the shares and Synta bound itself not to sell, transfer or hypothecate the stock without the written consent of Charles; the Canadian management was to continue operating Doeskin with no participation by Synta.

Although plaintiff's principal count concerns the invalidity of the million shares, he has also advanced numerous other claims of corporate plundering. Shortly after the inception of the Smiley regime, in March of 1958, defendant Juan F. Aguilar-Leon presented a claim, as assignee of Jose Capmany, for $53,500, the alleged brokerage commission on the sale of the 1,070,000 shares of stock.⁴ Director Henderson has testified in other proceedings that he objected strenuously to the payment of this claim. He asserted that the usual trade custom was that the broker deducts his fee from the proceeds of the sale. He also pointed out that there was no reference in the minutes of Doeskin's Board of any agreement to pay any commission nor was there any such contract in the corporation's files. He noted that it was strange that this first demand for payment came a full six months after the sale and urged that the size of the demand alone militated in favor of further study. Nevertheless, a payment of $20,000 on account was made immediately to Leon and the balance was paid shortly thereafter, a small deduction having been made for such prompt cash remittance.

Another charge of corporate misfeasance is leveled at Smiley & Co. because of Doeskin's payment, in July, 1958, of a claim by Lomega Explorations, Ltd. for $50,000. The claim was presented by one Jay Fisher, currently vacationing with Birrell in Brazil,^* who was allegedly, at that time, a "notorious accomplice" of the master swindler. At the time of this payment, Doeskin's wholly owned subsidiary, Keta, had claims against Lomega totaling in excess of $50,000.

Plaintiff further claims that Doeskin's management illegally siphoned money out of the corporation by payments to suppliers of the company. A contract was entered into with the Bell Container Corp. for that company to provide Doeskin with corrugated boxes in which to market its products. Bell supplied Doeskin with most of its needs in that line from August, 1958 until early in 1960. It is alleged that defendant Daspin, president of Bell, obtained and kept the benefits of that contract only by making large payments totaling $47,000 to Harry Workman, also a defendant, a Canadian, and, like Leon and Fisher, closely linked to Birrell.

The Clayville Truck Rental Corp. was a corporation formed in January of 1959. Daspin and Harold J. Simon, a New Jersey trucking executive, each owned 10% of its capital stock, the remaining 80% interest being held by Abe Weitzman, still another Canadian and alleged also to be an intimate of Lowell Birrell. Doeskin then proceeded to transfer all of its trucking business to Clayville. In 1960 Doeskin purchased all of the stock in Clayville and since that time has been supplying its own trucking needs. Although the books of Clayville indicate that Weitzman probably never paid a penny for his stock, he received more than $150,000, in various forms, from his Clayville "venture." Another fact of great significance is that Clayville paid an attorney, Sidney Hellenbrand, $5,000 to satisfy a debt owed that gentleman by Lowell Birrell in connection with prior criminal and disbarment proceedings.

Finally, the trustee charges that the defendant officers and directors of Doeskin have been bleeding the corporation through excess travel, amusement and subsistence allowance and through the submission of "fees." The top echelon of management, as aforestated, is almost exclusively made up of Canadians. The corporation has been assuming the "commuting" expenses on weekends and has been paying the weekday New York hotel bills. As of September 3, 1960 there were "advances" outstanding, in excess of salary and expense allowances, to Tabah, Schnider, Cutler and Kurlander, totaling $27,450. Although Smiley's "advance" account as of that date was "onl...