Gila Water Co. v. Witbeck

• Decision Date: 12 November 1928
• Docket Number: No. 5571.,5571.
• Citation: 29 F.2d 175
• Parties: GILA WATER CO. et al. v. WITBECK.
• Court: U.S. Court of Appeals — Ninth Circuit

29 F.2d 175 (1928)

GILA WATER CO. et al. v. WITBECK.

No. 5571.

Circuit Court of Appeals, Ninth Circuit.

November 12, 1928.

Joseph L. B. Alexander, William L. Barnum, Alexander B. Baker, and Louis B. Whitney, all of Phœnix, Ariz., for appellants.

Kibbey, Bennett, Gust, Smith & Lyman, of Phœnix, Ariz., for appellee.

Before GILBERT, RUDKIN, and DIETRICH, Circuit Judges.

DIETRICH, Circuit Judge.

This is an appeal from an order appointing, with broad powers, a receiver for the Gila Water Company. The company is the owner of more than 75,000 acres of land in Arizona and of a canal system headed by a dam in the Gila river, constructed to supply water for the irrigation of the land. The plaintiff, Ruth Witbeck, is the holder of a small amount, 125 shares, of its capital stock, and in her complaint she alleges that she brings the action not only in her own behalf but upon the behalf of Arthur Ainsworth, Frank Ainsworth, and Sylvia Craig, who are her brothers and sister and each of whom also holds 125 shares. Plaintiff sues in her capacity as stockholder and not otherwise, and the burden of her complaint is mismanagement of the Gila Company's affairs by its codefendant Frank A. Gillespie who, since 1919, has been in control thereof as a majority stockholder. From as far back, at least, as 1901 down to 1919, C. F. Ainsworth, plaintiff's father, and his immediate family held all of the stock of the company. The project was incomplete, and apparently for some time the enterprise had been dormant, when in 1919 Gillespie came into it under the circumstances briefly explained in our decision in No. 5557, Murphy et al. v. Craig (filed November 5, 1928) 28 F.(2d) 963. Under the arrangement therein referred to, Gillespie was to provide, in addition to the $300,000 paid to Murphy, $700,000 to be used for the purpose of development, and in return was to have a large majority of the capital stock. Pursuant to the terms of the contract, the Ainsworth directors resigned, and Gillespie and his nominees were elected; Ainsworth himself, however, remaining on the board. Gillespie became president and Ainsworth was made vice president. The latter, who is an attorney at law, also became counsel for the company and continued to be a director, the vice president, and counsel up until the early part of 1926. This fact is adverted to for the reason that the record leaves no escape from the view that the suit is essentially a controversy between members of the two families, headed and directed upon the one side by C. F. Ainsworth and on the other by the defendant Gillespie. No creditor is complaining, and no one of the few individual water users presents any grievance.

The complaint was filed June 4, 1926, not long after Ainsworth resigned as an officer of the company. In so far as concerns grievances for which a court may grant relief, the averments are general and vague to a high degree. There are specific prayers for injunction and a receivership and that an auditor be appointed to audit the company's books and accounts — all remedies of an intermediate or provisional character, to which the court can resort only in case they are ancillary to ultimate relief which may be the subject of a final decree. There is a further prayer that the true indebtedness of the company be determined; but, with the exception of Frank A. Gillespie, no one claiming to be a creditor is made a party. For example, the mortgagee of a mortgage of record upon which there is apparently due half a million dollars is not named as a defendant, though apparently it is plaintiff's contention that the claim is in whole or in part invalid. There is also a prayer, based upon a vague and almost incomprehensible allegation of the pleading, that the transfer to the company of certain water rights be canceled, and a like prayer respecting the "attempted purchase" by the company of some lands from the state of Arizona, though neither the state of Arizona nor the persons who transferred the water rights are made parties. And finally plaintiff prays that upon a determination of the company's outstanding indebtedness the court, through a receiver, sell sufficient of the company's property to discharge the same. In short, without the presence of other parties no relief of a permanent or final character could be granted, unless it be injunctive relief against a sale of the entire holdings of the company, which it is alleged Gillespie was planning or intending to make at the time the suit was filed. The averments upon this subject are so general and vague that it is to be doubted whether they state a cause of action.

Apparently the suit was commenced for the purpose primarily of enjoining the execution of this alleged project of sale. Accordingly, upon no showing other than that made by the bill, upon the day after the suit was commenced plaintiff secured an order requiring the defendants to appear and show cause why an injunction should not be issued, and in the meantime restraining them from proceeding with the sale. Upon June 30, 1926, the date to which the hearing upon the order to show cause was continued, the court, upon consideration of the complaint and an affidavit made by C. F. Ainsworth, ordered the issuance of an injunction pendente lite as prayed, restraining the sale of any part of the company's property. This injunction remained in force until June 16, 1927, when it was dissolved upon plaintiff's own motion. Substantially nothing further was done until February 6, 1928, when plaintiff made a motion for the appointment of a receiver based upon the complaint and the injunction affidavit filed nearly two years prior thereto, and an affidavit of...