Halladay v. Verschoor

• Decision Date: 16 August 1967
• Docket Number: No. 18491.,18491.
• Citation: 381 F.2d 100
• Parties: Henry HALLADAY, as Acting Trustee Under the Will of Gertrude H. Goodridge, by Appointment of the District Court of the Fourth Judicial District of the State of Minnesota, in and for Hennepin County, Appellant, v. J. J. VERSCHOOR, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

381 F.2d 100 (1967)

Henry HALLADAY, as Acting Trustee Under the Will of Gertrude H. Goodridge, by Appointment of the District Court of the Fourth Judicial District of the State of Minnesota, in and for Hennepin County, Appellant, v. J. J. VERSCHOOR, Appellee.

No. 18491.

United States Court of Appeals Eighth Circuit.

August 16, 1967.

COPYRIGHT MATERIAL OMITTED

Henry Halladay, Minneapolis, Minn., for appellant; Dorsey, Owen, Marquart, Windhorst & West, Minneapolis, Minn., and M. T. Woods, Sioux Falls, S. D., on brief.

Ellsworth E. Evans, Sioux Falls, S. D., T. R. Johnson, of Danforth, Danforth & Johnson, Sioux Falls, S. D., for appellee.

Before VAN OOSTERHOUT, MATTHES and MEHAFFY, Circuit Judges.

MEHAFFY, Circuit Judge.

This action by Halladay, plaintiff-appellant and court-appointed Trustee under the Will of Gertrude H. Goodridge, against J. J. Verschoor, defendant-appellee, seeks damages for the trust estate allegedly resulting from wrongful participation in a series of transactions by Verschoor with one L. E. Melrin, the original Executor-Trustee under the will. Melrin, a Minnesota attorney, was authorized under the will to make distribution of certain assets of the estate to tax-exempt charitable organizations of his own selection. Melrin resigned as Trustee on December 27, 1960 because of his defalcations from the estate aggregating a cash shortage of approximately $350,000.00. Melrin was indicted, tried and convicted of filing felonious, false and fraudulent reports as such Trustee, and sentenced to an indeterminate term in the state penitentiary.

The original complaint in this suit was filed May 4, 1964, and it, as did a first amendment thereto, sought an accounting. The District Court indicated doubt that the complaint and amendment made such clear and specific averments of a complicated account as would justify this type of equity action. A second amended complaint was permitted stating a cause of action at law. The second amended complaint alleged Verschoor's participation and engagement in a conspiracy with Melrin, designating certain asserted wrongful acts, as violative of Melrin's trust and by which Verschoor unjustly enriched himself "at the expense and to the disadvantage of plaintiff's trust estate," at least in the sum of $134,884.00. The court treated Verschoor's motion to strike the second amended complaint as a motion for summary judgment and denied it. Verschoor's answer to the second amended complaint alleged failure to state a cause of action, a general denial of wrongdoing or conspiracy, and set up affirmative defenses including the six-year statute of limitation and laches in the commencement of the action and defect in the complaint by reason of failure to prosecute by the real party in interest.

The trial to a jury commenced on May 2, 1966, resulting in a finding for plaintiff on May 11, 1966 in the amount of $2,167.18. The trial court set aside the jury verdict by entry of judgment n.o.v. based upon "all of the reasons and upon all of the grounds set forth in defendant's motion for a directed verdict." We reverse and remand for a new trial for reasons as will appear.

ALLEGED FRAUDULENT TRANSACTIONS.

The transactions between Verschoor and Melrin, in the main, revolve around Verschoor's acquisition of Central Lumber Company stock, assets of the trust estate, and a note of the Minnesota Screw Company, a concern in which Melrin was financially interested. The charitable institutions involved were St. Joseph's Hospital, Home and Academy at Mitchell, South Dakota, the Presentation Mothers Home at Aberdeen, South Dakota, the Volunteers of America and the Aberdeen Assembly of God Tabernacle at Aberdeen, South Dakota.

From the record, it appears that Verschoor first became acquainted with Melrin when he attempted to buy ten shares of Central Lumber Company stock from the estate for a price of $160.00 per share through one Vander Aarde. Verschoor issued his check for $1600.00, payable to Melrin, Executor, under date of October 1, 1956. The check was not cashed and a few months later Verschoor went from his home in Mitchell, South Dakota to Minneapolis, accompanied by his attorney, and talked to Melrin, learning from Melrin of his power under the Goodridge will to make gifts to tax-exempt charities. Melrin then dispatched through Vander Aarde a letter dated April 30, 1957 returning Verschoor's check for $1600.00 and stating that he could not sell this stock for a price of less than $250.00 a share due to a court order. It is maintained, however, that through the actions of Melrin, assisted by Verschoor, substantial shares of this stock were transferred to charitable institutions as benevolent gifts and then "bought" from said institutions for a substantially lower amount than the $250.00 price fixed by the court, thus effectuating a loss to the trust estate and an enrichment to Verschoor.

We refer to two of the transactions which occurred as illuminating the connection between Verschoor and Melrin and as indicative of the alleged conduct constituting the basis for this litigation.

On July 31, 1958, Verschoor called Sister M. Steven, who was then Acting Supervisor and Administrator of the St. Joseph's Hospital, Home and Academy at Mitchell. Sister Steven was preparing to leave that day at noon for a retreat and advised Verschoor of her plans, but said that she could see him that morning prior to her departure from the city. Verschoor met with Sister Steven and advised her that he had been visiting with friends in the Twin Cities and that one of them, whom he was not at liberty to name, was trustee of an estate and had available funds that could be used for educational and nonprofit purposes, and inquired of her whether her organization could use funds in the event he could obtain them. She naturally replied affirmatively and, also, since he mentioned educational institutions, discussed with him the Presentation Sisters College at Aberdeen. Following this conversation, Sister Steven left for the retreat at Aberdeen, South Dakota, and upon her return to Mitchell learned that Verschoor had been calling her. She again met with him and Verschoor advised that he had been successful in securing two hundred shares of Central Lumber Company stock, and would like to give one hundred shares to St. Joseph's Hospital and one hundred shares to the Holy Family Church in Mitchell. He suggested the necessity of a resolution which he dictated to her and which, inter alia, constituted a receipt for the stock. The resolution was recorded in the minutes and authorized the sale of one hundred shares of stock to Verschoor for $10,000.00 and provided that the other one hundred shares be given to the Holy Family Church. Sister Steven accepted Verschoor's check for $10,000.00, but never saw any stock certificates. Nonetheless, she signed a receipt for two hundred shares which receipt was later filed by Melrin in his accounting of the Goodridge estate matters with the Minnesota District Court. In December, 1959, Verschoor obtained from Sister Steven's successor a new resolution authorizing transfer of the two hundred shares to himself.

Verschoor pestered Melrin for more stock and shortly after Christmas in 1958 received a letter from Melrin enclosing a check for $76,000.00, payable to the Presentation Mothers Home signed by Melrin, Trustee. (There were not sufficient funds in this account to cover the check.) On December 28, 1958, Verschoor went to Aberdeen, called on the Mother Superior of the Presentation Home and obtained her endorsement on the $76,000.00, check, as well as a receipt for the $76,000.00. At that time he gave her fifteen crisp, new one hundred dollar bills. Verschoor explained to Mother Carmelita of the Presentation Home about the Central Lumber Company stock being in the Goodridge estate and advised that the estate had not been liquidated and it would be embarrassing to ask for payment of the $76,000.00 at that time. He said that if he were permitted to return the check to the estate it could use the funds to help liquidate the Lumber Company and he was sure interest would be paid on the money in the interim. He also said that the $1500.00 was in partial payment of the $76,000.00. Later, in June of 1959, he returned to the Convent with a check for $1,000.00 which he said was interest on the money. Verschoor took the $76,000.00 check to Northwestern National Bank in Minneapolis, opened a new account with it, wrote a check to Melrin on that account in the amount of $74,634.00, and delivered it to Melrin along with the receipt for $76,000.00 from the Presentation Home. He there received from Melrin a note of the Minnesota Screw Company in the amount of $74,634.00.

Thus, based on the above and other transactions, the plaintiff alleged in his second amended complaint that it was his information and belief that the "defendant Verschoor engaged in a conspiracy with Melrin in breach of trust, or participated in breaches of trust with Melrin and participated with Melrin in a scheme and plan to conceal then current or prior breaches of trust or defalcations by Melrin, and other improper transactions, in consideration of which defendant acquired at a discount, a substantial stock interest in a Minnesota corporation known as Central Lumber Company, and certain notes and a mortgage on the assets of a Minnesota corporation known as Minnesota Screw Company, and other benefits and advantages of value."

Verschoor's thesis at trial and in brief was that he was an innocent purchaser for value, that he was not guilty of any wrongdoing, and that, rather than being enriched, he ultimately sustained a loss in his dealings with Melrin.

THE LEGAL ISSUES.

I. Right of the Trustee of a Charitable Trust to Maintain Suit Against a Third Party to Recover Damages for Wrongs Against the Trust.

This initial issue involves the question of whether the Attorney General of Minnesota has the preclusive right to...