Heekin Can Company v. Kimbrough

• Decision Date: 17 August 1961
• Docket Number: Civ. A. No. 1559.
• Citation: 196 F. Supp. 912
• Parties: HEEKIN CAN COMPANY, Plaintiff, v. W. Bradley KIMBROUGH and The Lawrence Warehouse Company, Defendants.
• Court: U.S. District Court — Western District of Arkansas

196 F. Supp. 912

HEEKIN CAN COMPANY, Plaintiff, v. W. Bradley KIMBROUGH and The Lawrence Warehouse Company, Defendants.

Civ. A. No. 1559.

United States District Court W. D. Arkansas, Fort Smith Division.

August 17, 1961.

Crouch, Jones, Blair & Cypert, Springdale, Ark., Kyte, Conlan, Wulsin & Vogeler, Cincinnati, Ohio, for plaintiff.

Daily & Woods, Ft. Smith, Ark., Charles O. Butler, Chicago, Ill., for defendants.

JOHN E. MILLER, Chief Judge.

The plaintiff, The Heekin Can Company, is a corporation organized and existing under and by virtue of the laws of the State of Ohio and qualified to do business in the State of Arkansas.

The defendant, The Lawrence Warehouse Company, is a corporation organized and existing under and by virtue of the laws of the State of California and qualified to do business in the State of Arkansas.

At all times material to the issues in this case, the plaintiff was engaged in the business of manufacturing and selling metal containers for the food canning industry, and regularly sold on credit and without security substantial quantities of such containers to the Ozark Packing Company, Ozark, Arkansas, hereinafter referred to as "Ozark."

Likewise, at all times material herein, the defendant, The Lawrence Warehouse Company, hereinafter referred to as "Lawrence," maintained a bonded warehouse on the premises of Ozark.

The defendant, W. Bradley Kimbrough, was the president and manager of Ozark, an Arkansas Corporation with its principal place of business at Ozark, Arkansas, which was engaged in the business of processing and canning beans, peas, potatoes, etc.

On November 30, 1959, the plaintiff filed its complaint against the defendants in which it sought to recover judgment against the defendants for the sum of $20,153.23, with interest thereon from February 24, 1958, a reasonable attorney's fee and its costs.

In its complaint the plaintiff alleged that the warehouse facility was established on the premises of Ozark prior to January 1, 1955; that the said warehouse was at all times operated and managed by and under the complete control of Lawrence, and the duties of Lawrence as operator of the warehouse consisted of "receiving into said warehouse such goods and material of the Ozark Packing Company as said company elected to store therein, of counting and recording the exact amount of the goods and materials so received, of issuing in its name receipts, generally known as warehouse receipts, representing the exact amount of the goods and materials so received, of maintaining accurate records as to all goods and materials received into said warehouse and as to all warehouse receipts issued therefor, of taking all necessary measures and precautions to safeguard and secure all goods and materials stored in said warehouse, and of discharging or releasing from said warehouse any of the goods and materials stored therein only upon the presentment to it of the receipt or receipts issued by it and representing such goods and materials."

That the defendants during the years of 1954-1957, inclusive, conspired to effect and through their concerted actions did effect a scheme to defraud the creditors and prospective creditors of Ozark, among whom was this plaintiff. That the alleged conspiracy and scheme to defraud was effectuated by the defendants in the following manner:

"(a) By issuing warehouse receipts which were not in fact represented by goods received into the warehouse facility maintained on the premises of the Ozark Packing Company.

"(b) By releasing from said warehouse facility goods for which warehouse receipts had been issued and were outstanding, the existence of such warehouse receipts being well known to said defendants, without the presentment of said outstanding warehouse receipts.

"(c) By pledging and hypothecating the spurious warehouse receipts referred to in paragraphs (a) and (b), above, and obtaining therefor cash and credit by which said defendants intended to and did maintain and keep in operation the Ozark Packing Company when said company was, in fact, completely insolvent.

"(d) By procuring the preparation of and causing the issuance of financial statements of the Ozark Packing Company which reflected the aforesaid spurious warehouse receipts.

"(e) By holding the Ozark Packing Company out to the public in general and to its creditors in particular as a solvent, going concern.

"(f) By actively concealing the insolvency of the Ozark Packing Company when it was, in fact, completely insolvent.

"(g) By utilizing the foregoing manifestations of financial soundness to induce persons to extend credit and make sales on credit to the said Ozark Packing Company at a time or times when full payment of the credit so extended was not possible, which fact was known to these defendants.

"(h) By keeping the Ozark Packing Company in business long after said company would, in the normal course of business, have ceased to operate."

The plaintiff further alleged that as a result of the effectuation of the conspiracy and scheme of the defendants, the following representations were made to the plaintiff and to that class of persons of which the plaintiff was a member:

"(a) The records of the Ozark Packing Company and the financial statements prepared therefrom showed the existence of pledged assets, represented in large part by spurious warehouse receipts issued by the defendant, Lawrence Warehouse Company, of many thousands of dollars which did not in fact exist.

"(b) The Ozark Packing Company was enabled to issue and did issue financial statements to this plaintiff showing a financial condition which was totally false.

"(c) The hopeless insolvency of the Ozark Packing Company was actively concealed from this plaintiff, even though it requested financial information from said company; and said company was kept in operation and purchased goods and services on credit from this plaintiff long after it would, in the normal course of business, have ceased to operate.

"Plaintiff further states that all of such representations were made by said defendants pursuant to and as a result of the aforesaid scheme; that said defendants knew that such representations were false at the time or times they were made; and that such representations were made to this plaintiff with the intention that this plaintiff should rely thereon."

That the plaintiff relied upon all of the alleged false representations of the financial soundness of Ozark, and continued to deal with Ozark, "and extended a line of credit to said company, which in the absence of such representations, it would never have done; that the continuance of such course of dealing and the extension of such line of credit was the direct result of, and would not have come about but for the fraudulent scheme of the defendants, acting jointly and in concert; and that such credit extended (on the sale of cans to the Ozark Packing Company) exceeded payments made to it by the Ozark Packing Company by the amount of $20,153.23 on that date in February 1957 when said company ceased its operations."

Prior to the filing of the instant suit, the plaintiff had on May 28, 1958, obtained a judgment against Ozark for $20,153.23, with interest from February 24, 1958. An execution issued on said judgment was returned nulla bona.

Prior to the commencement of the instant suit, the defendant, W. Bradley Kimbrough, had become a citizen and resident of the State of Louisiana and no service of summons was had on said defendant.

On December 24, 1959, Lawrence filed its answer in which it admitted the allegations of citizenship of the parties and that the parties were engaged in the operation of the businesses as alleged by plaintiff, but alleged that the agreement entered into between it and Ozark did not involve the presentment to it (Lawrence) of any receipt or receipts by the holders thereof upon the delivery from the warehouse of any goods or commodities covered by such receipts; that all warehouse receipts issued by it from time to time were nonnegotiable in character, and that under the laws of the State of Arkansas it was not required that said warehouse receipts be surrendered or presented to this defendant by the holders thereof upon the delivery of the goods and commodities covered by such receipts from the warehouse; that it was authorized by law, as contemplated by the warehouse agreement, to deliver goods and commodities covered by said warehouse receipts upon releases duly executed by the holders of said warehouse receipts and that this practice was followed by it at all times in the operation of the warehouse.

All other allegations in the complaint were denied by Lawrence.

On August 5, 1960, the plaintiff, after obtaining leave of court, filed an amendment to the complaint by adding Count II following paragraph 8 of the original complaint, and alleged that Lawrence was negligent and grossly negligent in that:

"1. That the defendant, the Lawrence Warehouse Company, was negligent and grossly negligent in issuing warehouse receipts on goods allegedly owned by the Ozark Packing Company when said warehouse receipts were not in fact represented by goods and materials from the warehouse of the Lawrence Warehouse Company, without demanding and receiving a warehouse receipt therefor.

"2. That the defendant, the Lawrence Warehouse Company, was negligent and grossly negligent in allowing goods and materials of the Ozark Packing Company stored in said warehouse to mysteriously disappear in a manner unknown to the plaintiff but well known to the defendant, the Lawrence Warehouse Company, and was further negligent and grossly negligent in allowing outstanding warehouse receipts to exist on said goods and materials which had disappeared.

"3. That the defendant, the Lawrence Warehouse Company, was negligent and grossly negligent in entrusting its warehouse at Ozark, Arkansas, to the custody and the control of one Hoyt Faught, who continued to work for the

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