Grable v. Killits

• Decision Date: 09 June 1922
• Docket Number: 3713,3725.
• Citation: 282 F. 185
• Parties: GRABLE et al. v. KILLITS, District Judge. [a1] SAME v. BACON BROS. CO.
• Court: U.S. Court of Appeals — Sixth Circuit

282 F. 185

GRABLE et al. v. KILLITS, District Judge. ^[a1]

SAME v. BACON BROS. CO.

Nos. 3713, 3725.

United States Court of Appeals, Sixth Circuit.

June 9, 1922

[Copyrighted Material Omitted]

George E. Brand and U.S. Bratton, both of Detroit, Mich., and Harold W. Fraser, of Toledo, Ohio, for petitioners and appellants.

George D. Welles, of Toledo, Ohio (Tracy, Chapman & Welles, of Toledo, Ohio, on the brief), for respondent and appellee.

Before KNAPPEN, DENISON, and DONAHUE, Circuit Judges.

KNAPPEN Circuit Judge.

On April 29, 1921, the Bacon Bros. Company, a corporation organized under the laws of Ohio, appellee in No. 3725, filed its bill in the court below against a large number of individuals, alleged to be, respectively, officers, trustees members of board of appeal, members of executive board, or members generally of the United Brotherhood of Maintenance of Way Employees and Railway Shop Laborers, which is a voluntary, unincorporated association, having its principal office and place of business at Detroit, Mich. Neither of the defendants was a citizen or a resident of the district of suit, nor was either of them found therein. They were sued 'in their respective capacity as representatives of said United Brotherhood and of all the members thereof,' alleged to constitute a class so numerous as to make it impracticable to bring them all before the court. The bill, after setting forth the respective duties and relations of the Brotherhood officers, its executive board, appeal board, and trustees, may be thus sufficiently summarized:

In September, 1919, the Brotherhood duly adopted a constitution providing for its engaging in a co-operative plan for the purchase from manufacturers, and the distribution to members of the Brotherhood, of clothing, shoes, and other merchandise; its general convention making provision for the creation of a co-operative department. Accordingly, on or about January 8, 1920, for the purpose of engaging in the manufacture (among other things) of gloves and mittens (which was plaintiff's then business), the Brotherhood purchased from plaintiff certain real estate, buildings, and equipment in Toledo, Ohio, at a price of $90,214.62 (all of which was duly paid, except $10,440.83, the title being taken in the name of trustees for the Brotherhood, who still hold the same); also materials for the manufacture of gloves and mittens at a price of $105,297.75 (fully paid for in cash), as well as finished merchandise at a price of $218,054.89, which was not paid for, under an agreement that the factory should be operated by one of the Bacons, who was plaintiff's secretary and treasurer, for a term of five years, the Brotherhood bearing the operating expenses of the factory and providing sufficient funds, to be kept on deposit in Toledo banks, for the purpose. A minimum manufactured product of $1,000,000 in value was contemplated, one half (or so much thereof as it could use) to be retained by the Brotherhood for sale to its members, the other half to be taken by plaintiff and paid for on the basis of 5 per cent. above the cost of production. ^[1] The Brotherhood having failed to provide funds to pay expense of purchasing materials and operating the plant, and, owing to internal dissensions, having failed to distribute among its members any substantial proportion of the product manufactured between January 8, and June 30, 1920, and to provide funds therefor, plaintiff was obliged to assume the management and control and to use its own money and credit for the purpose stated, with the agreement of the Brotherhood's representatives, not only for providing the product for distribution to the Brotherhood's members and plaintiff's established trade, but to minimize its damages. Plaintiff thus purchased, in its own name, but really on account of and for the benefit of the Brotherhood, and pursuant to the agreement referred to, large amounts of materials necessary to the manufacture of the product in question, and took for its own use more of the product than it was required to take under the agreement mentioned, with the result that on June 30, 1920, the Brotherhood was indebted to plaintiff for the purchase price of finished merchandise on hand January 8, 1920, amounts advanced by plaintiff for purchases of materials, for labor in the factory, for overhead expenses in operating the same from January 8, 1920, to June 30, 1920, for interest on money advanced, and on account of contracts for materials not delivered, aggregating nearly $700,000 (less a credit of about $272,000), for which sums plaintiff claimed a lien upon materials and manufactured products still in its possession, in addition to the $10,440.83 unpaid balance on purchase price of real estate, for which plaintiff claimed a vendor's lien

On or about June 30, 1920, it was agreed between plaintiff and the Brotherhood that the previous agreement be terminated, that the Brotherhood be relieved from all its obligations under its agreement with said Bacon, plaintiff assuming all liabilities and expenses incurred in the operation of the plant from January 8, 1920, to January 1, 1921, and agreeing to furnish to the Brotherhood membership such goods as plaintiff might then be manufacturing, or might thereafter manufacture at any time within the next 10 years, at cost of production plus 5 per cent.; also to supply the membership with certain articles of clothing not then manufactured by plaintiff, and other articles which it might thereafter undertake to furnish, also at manufacturer's prices plus 5 per cent.; the Brotherhood agreeing to use its good offices to place the Brotherhood membership in touch with plaintiff, to the end that it might obtain such patronage; that for the purpose of advising the membership as to the articles which could be so purchased, and the facilities for obtaining them, the Brotherhood should set aside one page of its monthly publication for publishing, during the life of the agreement, information necessary for advising the membership in the premises. The Brotherhood accordingly sold and transferred to plaintiff all materials and all manufactured products and proceeds resulting from the operation of the factory from January 8, 1920, at an agreed price, fully paid. Plaintiff executed a release of the balance due on the purchase price of the real estate, in consideration of which plaintiff was to have possession of the factory and the right to operate it until January 1, 1921; assumed and paid all expenses in connection with the operation of the factory from January 8, 1920, to January 1, 1921 (excepting $10,000, which had been furnished by the Brotherhood for that purpose); assumed all outstanding obligations and contracts, and itself operated the factory (obviously on its own account) until January 1, 1921, thereby paying out moneys, relinquishing claims and assuming or relinquishing liabilities or indebtedness in the aggregate of $475,000 above offsets and credits, as well as surrendering its right under the initial contract with respect to the purchase of one-half the merchandise manufactured by the Brotherhood.

To carry out its obligation under this last agreement of June 30, 1920, plaintiff agreed with a shoe manufacturer (operating a nonunion factory) to have distributed among the Brotherhood membership shoes made by such manufacturer, in accordance with the agreement between plaintiff and the Brotherhood. This arrangement was made with the consent and approval of the Brotherhood's representatives, with the understanding that the manufacturer would, if the agreement proved mutually agreeable, unionize his factory-- the shoes meanwhile manufactured by him for distribution among the Brotherhood's membership to have impressed thereon a facsimile of the Brotherhood's Grand Seal, in lieu of the union label. Plaintiff also, through arrangements with other manufacturers, obtained the right to acquire certain articles for distribution among the Brotherhood's membership in accordance with the agreement of June 30, 1920, furnishing the Brotherhood with advertising matter to be published in its journal. In January, 1921, the Brotherhood, through its executive board, sent out and widely distributed among the membership a circular asserting that the agreement of June 30, 1920, did not provide for any investment of Grand Lodge funds for the purchase of materials, supplies or expenses, nor for the maintenance of an office; that it did not create a co-operative department, and did not authorize the use of the Grand Lodge seal on any goods furnished the membership; that on learning that samples of shoes had been sent broadcast throughout the country bearing the imprint of the Grand Lodge seal, but not bearing the union label, and on inquiry of the Brotherhood's Grand President by whose authority the seal was so used, and request that he see that the use of the same on all merchandise was forthwith discontinued, it was advised by that officer 'that the seal was to be used to identify goods as approved by us until the union label was arranged for and put on. ' The circular complained that it found in the December issue of the journal four pages of advertising with respect to the so-called co-operative department, and called the attention of the Grand President to certain announcements therein, set out in the bill, and reproduced in the margin hereof; ^[2] the circular declaring these statements misleading, because the Brotherhood was not operating or controlling any factories, had not so operated for some months past, and that when the members bought articles supposedly from the Grand Lodge under the name 'Co-operative Department' they were in fact buying from the manufacturer; that, instead of having these statements corrected as...