Guaranty Trust Co. v. Williamsport Wire Rope Co.

• Decision Date: 14 October 1952
• Docket Number: No. 959.,959.
• Citation: 107 F. Supp. 759
• Parties: GUARANTY TRUST CO. OF NEW YORK v. WILLIAMSPORT WIRE ROPE CO. GEHRON et al. v. BETHLEHEM STEEL CO.
• Court: U.S. District Court — Middle District of Pennsylvania

107 F. Supp. 759

GUARANTY TRUST CO. OF NEW YORK v. WILLIAMSPORT WIRE ROPE CO.

GEHRON et al. v. BETHLEHEM STEEL CO.

No. 959.

United States District Court, M. D. Pennsylvania.

October 14, 1952.

Charles Bidelspacher, Jr., Charles F. Bidelspacher, Lester L. Greevy, Daniel F. Knittle, Williamsport, Pa., for petitioners.

Robert T. McCracken, Philadelphia, Pa., William J. Fitzgerald (of Fitzgerald, Kennedy, Eckersley & O'Brien), Scranton, Pa., for respondent.

For Motions for New Trial and to Amend Findings of Special Master, see 107 F.Supp. 762.

WATSON, Chief Judge.

This is a suit brought by certain stockholders and former stockholders and former bondholders of Williamsport Wire Rope Company, hereafter referred to as Williamsport. It was commenced in 1946 by a petition filed in the above-entitled action, which was a consolidation of a receivership action brought against Williamsport in 1932 by one of its creditors, Guaranty Trust Company of New York, and a mortgage foreclosure action brought against Williamsport in 1936 by the National City Bank of New York and West Branch Bank and Trust Company, as Trustees under a mortgage securing an issue of Williamsport bonds. A decree was entered in this consolidated action directing the sale of all of Williamsport's properties. The properties were sold at public sale to the respondent, Bethlehem Steel Company, hereafter referred to as Bethlehem. The sale was confirmed by decree of the Court. Thereafter, on December 15, 1938, the Receivers were discharged and the consolidated action was terminated.

In the present proceeding petitioners contend, in substance, that the aforesaid decrees of sale and confirmation and the sale of the Williamsport properties under such decree of sale were the result of a fraudulent conspiracy between Bethlehem, Judge Johnson, at that time a Judge in this Court and who granted such decrees, and certain officers of the court appointed by Judge Johnson in the course of the receivership and foreclosure proceedings. The prayer of the petition is that the case be reopened; that the sale of the assets of Williamsport to Bethlehem be set aside; that such assets, together with the improvements and additions thereto, and the issues and profits therefrom, be declared to be the property of all shareholders and former shareholders and former bondholders of Williamsport who may come into the proceeding.

On March 23, 1946, this Court referred the issues raised by the petition and answer to Albert H. Aston, Esquire, as Special Master, a highly competent lawyer and a Referee in Bankruptcy in this District. The Court's order directed the Special Master to make findings of fact and conclusions of law and report the same to the Court together with recommendations.

Pursuant to the order of reference, the Special Master held numerous hearings on the issues raised by the petition and intervening petition¹ and the answers filed thereto. The transcript of the testimony introduced at these hearings contains almost 5,000 pages and there are over 700 exhibits. Upon completion of the hearings, briefs were filed on behalf of the parties, together with detailed requests for findings of facts and conclusions of law, following which oral argument was held on June 26, 1950. On January 24, 1952, the Special Master filed a report consisting of 173 pages, together with the findings of fact requested by the parties and upon which he had ruled. All of which discloses careful study and preparation on the part of the Special Master and full appreciation of the responsibilities devolving upon him.

In his report the Master concludes that a conspiracy to defraud existed and that the conspiracy resulted in the orders by which the sale of Williamsport's assets was made to Bethlehem. The Master, therefore, recommends, inter alia, that the sale be set aside and that Bethlehem hold the assets of Williamsport as constructive trustee for the lawful owners; the Master also finds that the sales of preferred and common stock to Bethlehem from and after July, 1936 were induced by fraud and recommends that Bethlehem hold the stock as constructive trustee for the benefit of the rightful owners. The Master, however, further finds that the sale of the Williamsport bonds to Bethlehem was valid and therefore recommends that the intervening complaint and petition be dismissed as to the former bondholders.

Petitioners and respondents both filed objections to the Master's Report, and oral argument was had before this Court on March 27, 1952.

In considering the Master's Report and the objections thereto, the Court must be guided by Rule 53(e) (2) of the Federal Rules of Civil Procedure, 28 U.S.C., which provides that "In an action to be tried without a jury the court shall accept the master's findings of fact unless clearly erroneous". Therefore, the Master's findings of fact must be treated as correct and binding upon the Court unless they are clearly in conflict with the weight of the evidence upon which they were made.

I

The objections filed by petitioners to the Master's Report, though several in number, are all to the effect that the conspiracy existed throughout the Williamsport Receivership, i. e., from 1932 on, and not from July, 1936, as found by the Master.

Without entering into any discussion of the evidence, the Court finds that the Master's Report and the evidence introduced in the case do not support petitioners' objections, and they must, therefore, be denied.

II

Respondent has filed 73 objections to the Master's findings of fact, as well as other objections to conclusions of law, recommendations, and rulings on proposed findings of fact. They need not be considered separately but may properly be resolved into four general arguments:

A. There Is No Evidence Of Conspiracy From The Beginning To The End Of The Williamsport Case. Having No Proof, The Master Founds His Report On Conjecture.

It is a general principle that fraud is never to be presumed, and he who avers it, takes upon himself the burden of proving it: Budd v. Commissioner of Internal Revenue, 3 Cir., 1930, 43 F.2d 509; and it must be established by clear and convincing proof. Morrison v. Heller, 3 Cir., 1950, 183 F.2d 38. But while fraud is never to be presumed, fraud, like any other fact, may be concluded from circumstantial evidence. Chorost v. Grand Rapids Factory Show Rooms, 3 Cir., 1949, 172 F.2d 327.

In Connolly v. Gishwiller, 7 Cir., 1947, 162 F.2d 428, 433, the court said, "There is no general rule for determining what facts will constitute fraud, but it is to be found or not according to the special facts of each particular case. It is rarely susceptible of direct proof, but must ordinarily be established by circumstantial evidence and legitimate inferences arising therefrom, which, taken as a whole, will show the fraudulent intent or purpose with which the party acted. * * * Conspiracy is a line of endeavor the success of which is not promoted by advertising. Direct proof of the illegal combination is generally locked within the breasts of the conspirators, and the ultimate fact of the corrupt agreement, if proved at all, must be inferred from established facts and circumstances".

The primary issue before the Special Master in this case was whether or not a conspiracy to defraud did exist as alleged by the petitioners, and whether that conspiracy resulted in court orders by which the sale of Williamsport assets was made to Bethlehem. As would be expected, the petitioners failed to prove any formal agreement setting forth this conspiracy. But fraud may be concluded from circumstantial evidence, and there is no lack of evidence to support the Master's findings as to fraud in this case. The...