Gulf Coast Western Oil Co. v. Trapp

• Decision Date: 17 December 1947
• Docket Number: No. 3484.,3484.
• Parties: GULF COAST WESTERN OIL CO., Inc., v. TRAPP.
• Court: U.S. Court of Appeals — Tenth Circuit

165 F.2d 343 (1947)

GULF COAST WESTERN OIL CO., Inc., v. TRAPP.

No. 3484.

Circuit Court of Appeals, Tenth Circuit.

August 21, 1947.

On Rehearing December 17, 1947.

COPYRIGHT MATERIAL OMITTED

Hal Whitten and Joe Whitten, both of Oklahoma City, Okl., for appellant.

Ram Morrison, of Oklahoma City, Okl., for appellee.

Before PHILLIPS, BRATTON, and HUXMAN, Circuit Judges.

HUXMAN, Circuit Judge.

This is another chapter in the long drawn out litigation involving the affairs of the appellant corporation, formerly the Farmers Mutual Royalty Syndicate. Farmers Mutual Royalty Syndicate was a corporation authorized to transact business in Oklahoma. Its corporate name was subsequently changed to Gulf Coast Western Oil Company, Inc., the appellant herein.¹

Farmers Mutual instituted this action against G. T. Blankenship, Daisy O. Blankenship, his wife, M. E. Trapp, E. S. Hansberger, Lou Shepherd, National Bond & Mortgage Company, Royalty Holding Company, Oil Royalties, Inc., and Equal Royalty Company for an accounting. M. E. Trapp filed his motion to dismiss the second amended complaint for the reason that it failed to state facts sufficient to state a cause of action as to him. His motion was sustained and the action was dismissed as to him. This appeal challenges the correctness of that judgment.

The single question presented by this appeal is whether the second amended complaint stated facts sufficient to entitle plaintiff to go to trial. The second amended complaint is long and prolix. It covers approximately twenty-five pages in the printed record. The complaint generally alleged the following facts:

In 1929, G. T. Blankenship, E. H. Hansberger, Dean M. Stacy, and Bert Shepherd entered into a written contract for the organization of a mutual royalty company. By a later contract, B. G. Barnett and Victor M. Locke, Jr., became members of that group. The plan set out in the contract was that the parties thereto were to purchase royalty interests for a company to be formed. Certificates of investment in the company to be formed were sold to the public. The funds realized from such sales were to be used in the purchase of royalty interests. When the company was organized, the certificate holders were to exchange their certificates for stock in the Company. These six members, known as the preorganization committee, were to receive as compensation for their services in the sales of these certificates, purchase of royalties, and for the organization of the company, one-half of its stock. It was agreed that prior to the incorporation of the company the business was to be transacted in the name of the National Bond and Mortgage Company, as trustee, for the benefit of the contracting parties. An extensive campaign was carried on by the preorganization committee for the sale of participating certificates, resulting in the receipt of approximately $778,986.92. The National Bond and Mortgage Company was set up to serve as trustee. It was to receive and hold all funds from the sale of certificates, as well as all properties acquired by the preorganization committee, for the benefit of the corporation to be formed.

The complaint alleged that at all times during the preorganization activities, National Bond was officered and controlled by the members of the preorganization committee. It also alleged, on information and belief, that large numbers of properties and cash were withheld from the Farmers Mutual by the members of the preorganization committee and by National Bond, the description of which was unknown to plaintiff. The complaint contained many charges of misconduct against the members of the preorganization committee which need not be specifically noted.

The charges against M. E. Trapp are contained in subparagraphs twelve to nineteen, inclusive, and twenty-four and twenty-five of Paragraph II; Paragraph III, (d) and (e); and Paragraph IV; and Paragraph VI, (6) and (7).

The complaint alleged that this action was instituted as directed by the court in Case 461, Civil. Case 461 was a stockholder suit by stockholders of Farmers Mutual, filed in the federal court in Oklahoma, in 1940, against many of these same defendants for an accounting, based on the same general allegations contained in the complaint in this case. Blankenship and Trapp were not made parties defendant in that action.

Subparagraph (12) alleged that on August 21, 1931, Blankenship and Trapp purchased a one-sixteenth of the one-eighth royalty interest under 95.5 acres, known as the Tom Bell Tract, from L. W. Stiron and E. J. Koenig. That the full consideration for this purchase was taken from the funds of the Farmers Mutual. That on September 21, 1931, they deeded one-half of this interest to the Farmers Mutual and retained the other half for themselves, notwithstanding it was paid for with funds of the Farmers Mutual, and that they have failed to account to the corporation for the retained one-half interest. Similar charges, in substantially the same language, were contained in subparagraphs (13), (14), (16), (17), (18), and (19), differing only as to dates, descriptions of interest purchased, and the name of the individuals from whom the purchases were made.

Subparagraph (15) alleged that, in addition to withholding one-half of the property described in subparagraph (14), Trapp purchased from the Farmers Mutual the one-half interest in this property which they had conveyed to the corporation for the sum of $599.24; and on the same day transferred such interest, together with the interest which he and Blankenship had originally withheld, to J. L. Koel of Henderson, Texas. It further alleged, on information and belief, that they realized a profit from this transaction, the amount of which is unknown to the plaintiff, for which they have not accounted.²

Subparagraph (24) alleged that Blankenship and Trapp resigned as directors of the Farmers Mutual about November 1, 1937, under an agreement with the board of directors in which they agreed to assign to Farmers Mutual their stockholdings in the company totaling 8855.9 shares; that the value of said stock was set at $8.00 per share; that in truth and fact the stock was not, at that time, worth to exceed $1 per share, which fact was known to Blankenship and Trapp; that by such agreement they were to receive 48,770 shares of stock of the Royalty Holding Company, which shares, at that time, were the property of the Farmers Mutual. It was alleged that the plaintiff was informed and believed the value of this stock was far in excess of the value of the stock of the Farmers Mutual which they surrendered. It alleged that the Royalty Holding Company was officered by Blankenship and Trapp, and that they had peculiar and particular accurate knowledge of the correct financial status of this company, which information they withheld.

Subparagraph (25) alleged that in 1932, and the early part of 1933, Farmers Mutual made arrangements for the purchase by it of a number of tracts of land and first mortgages thereon held by persons residing around Peoria, Illinois. That approximately 338 tracts or mortgages thereon were purchased for which stock of the corporation was given as payment. That the title to these tracts or mortgages thereon was taken in the name of Blankenship, Trapp, E. S. Hansberger, Bert Shepherd, and Victor M. Locke, but that title to the principal portion of said tracts was taken in the name of Blankenship or Trapp, or their representatives who are unknown to the plaintiff.

It was further alleged that these parties used the Bond and Mortgage Company as a medium through which wrongfully to obtain all of the 338 tracts for their own use and benefit, except a portion of the mineral rights under some of them, the exact amount and description of which are unknown to plaintiff but known to the defendants; and that in addition to transferring those stocks for these properties, Farmers Mutual paid all expenses in connection with the transactions amounting to $60,000.

Paragraph III alleged that up to the time of his resignation Blankenship was the dominating force and had control over the operation of the various defendant corporations, parties to this action. It alleged that he transferred to Oil Royalties, Inc., the Royalty Holding Company, and Equal Royalty Company, properties and assets wrongfully obtained by him and belonging to Farmers Mutual; and that Blankenship, in conjunction with Trapp, transferred to themselves properties and assets belonging to Farmers Mutual, the exact description of which properties, or nature of the transactions, are unknown to plaintiff but known to them. It is alleged that plaintiff was informed and believed said allegations to be true by reason of the instances where said transactions had been discovered, and by reason of the great amount of plaintiff's funds expended for which there is no accounting, and which were received by Blankenship and Trapp as reflected by Exhibit Number 7.³

Paragraph IV of the complaint alleged on information and belief, as apparent from the facts that had been discovered, that from properties belonging to Farmers Mutual but standing in the names of Blankenship, Trapp, Daisy O. Blankenship, or the defendant corporations, royalty runs had been received by them which belong to Farmers Mutual, and that petitioner was entitled to a return of such properties and to an accounting for the profits therefrom.

Paragraph VI, (6) and (7) alleged that after the severance of their relationships with Farmers Mutual, Blankenship and Trapp continued to associate themselves together, and continued to cooperate with the other members of the preorganization committee to continue the frauds complained of; that the members of the preorganization committee had at all times operated together in effecting and concealing the frauds and fruits thereof, as set out, and that by reason of such frauds they inflicted numerous other frauds on Farmers Mutual, the exact...