Hurt v. Cotton States Fertilizer Co.

• Decision Date: 31 January 1947
• Docket Number: No. 11505.,11505.
• Citation: 159 F.2d 52
• Parties: HURT v. COTTON STATES FERTILIZER CO. et al. (two cases). SAME et al. v. ELLIS et al.
• Court: U.S. Court of Appeals — Fifth Circuit

159 F.2d 52 (1947)

HURT v. COTTON STATES FERTILIZER CO. et al. (two cases). SAME et al. v. ELLIS et al.

No. 11505.

Circuit Court of Appeals, Fifth Circuit.

January 3, 1947.

Rehearing Denied January 31, 1947.

COPYRIGHT MATERIAL OMITTED

John L. Westmoreland, of Atlanta, Ga., for appellants.

Charles J. Bloch, and Ellsworth Hall, Jr., both of Macon, Ga., and George P. Whitman, of Atlanta, Ga., for appellees.

Before SIBLEY, HUTCHESON, and McCORD, Circuit Judges.

HUTCHESON, Circuit Judge.

These three appeals are from separate judgments in Causes Nos. 301, 316 and 324 on the docket of the District Court, which, though not consolidated for trial, were tried together, and are here on one record and under an agreement and stipulation making available the whole of the evidence and record wherever pertinent. In deciding the cases and determining the appeals, the whole record was made as free to the district judge and to us as if the cases had been not merely tried together but as one. But we think it conducive to a better understanding of the action of the trial court and of our decision to briefly describe the three cases and trace the course and result of each.

Of the three, only No. 301, the first filed, and, as respects Cotton States, the most important of them, has been here before. Filed June 14, 1944, by S. L. Hurt and Mrs. Virginia L. Hurt (Mrs. Joel Hurt Jr.), on behalf of Cotton States as a stockholder's derivative action, but later dismissed as to Mrs. Hurt, the petition alleged that they were citizens and residents of the State of Florida and the owners of 538.7 shares of the preferred stock of Cotton States Fertilizer Company. It charged the defendants with fraud and mismanagement to the detriment of the company and that two of the officers had paid themselves extravagant and exorbitant salaries, and prayed an accounting.

The defendants, Cotton States Fertilizer Company, Clay and O'Shaughnessey, filed full responsive pleadings to the complaint. Reciting the history of the company from the beginning of their connection with it, they denied specifically each charge of fraud and mismanagement and that exorbitant salaries had been claimed or paid. In addition, defendants insisted that two barriers stood in the way of the suit: (1) that plaintiffs were not the owners of the shares on which they based their claim to sue; and (2) that if they were, they were not owners of them at the time of the actions they complained of.

The cause was heard on July 6, 1944, and determined on these issues against the plaintiffs, and the bill was dismissed. The district judge found that they had not acquired their shares until December 10, 1943, after all of the events complained of, and that, therefore, under Rule 23, Federal Rules of Procedure, 28 U.S.C.A. following section 723c, authorizing stockholders' suits, plaintiffs were not entitled to sue because they were not stockholders at the time of the transaction of which they complained, nor did their shares afterward devolve on them by operation of law.

Of plaintiffs' claims that, as residuary legatees under the will, they were at all times equitable owners of part of the stock to which they acquired full title to in 1943, the court held that, the record showing that there were outstanding debts and that the estate had never been wound up, they were not as residuary legatees, under the rules, stockholders who could bring a derivative action.

Appealed to this court, the judgment was reversed¹ upon the holding that plaintiffs as residuary legatees were at all times with which their complaint dealt, equitable owners of the stock and, therefore, entitled to maintain their suit, their trustee, the executor, refusing to sue.

After the dismissal of Cause No. 301, but before its reversal, plaintiff S. L. Hurt, on August 17, 1944, filed Cause No. 316. In it he alleged his ownership of one-half of 43.6 shares of stock acquired by him December 10, 1943, and this suit was pending when No. 301 was reversed. This suit, brought in the name and seeking relief on behalf of the corporation, contained also a prayer that the company be compelled to transfer the shares to plaintiff on the books of the company. The gravamen of its conplaints as a stockholder's suit were: that Clay and O'Shaughnessey were the owners of all the common stock of the company; that they had pursued a policy of refusing to pay dividends on the preferred stock, and on April 30, 1943, they had caused the corporation to issue to each of them a promissory note in the sum of $27,708; that the note was acquired in fraud of the company's interest; that in addition they had voted themselves excessive salaries and bonuses during the fiscal years ending June 30, 1942 and 1943. Specifically it was charged that, though in the year 1939 the company showed only a small profit and in the years 1940 and 1941 a loss, defendants, Clay and O'Shaughnessey, had caused the corporation to set up on its books as a liability to them for unpaid salaries, and later in 1943, to pay them, $17,000, with the result that in 1943 they required the corporation to pay them in salaries and bonuses a grand total of $35,000. Further alleging that in the latter part of September, 1943, plaintiff had learned of the fact that the defendants over a long period of time had converted to their own use and benefit assets of the corporation, the petition prayed for an accounting and for a mandate directing the book transfer of plaintiff's shares. Defendants moved to dismiss for want of jurisdiction as to amount and because it appeared that plaintiff was not a stockholder when the events complained of occurred. In addition there were full answers.

Cause No. 324 was filed July 12, 1944, by Frampton E. Ellis, as administrator de bonis non, and Mrs. Willie Martin Hurt, as a creditor of the Estate of Joel Hurt, Sr., against Cotton States Fertilizer Company, S. L. Hurt, and Virginia L. Hurt. These were the issues: Mrs. Willie Martin Hurt, claiming to be a creditor of the Estate of Joel Hurt, Sr. in the sum of nearly $40,000, and Ellis, as the administrator de bonis non, sued: to set aside as fraudulent the sale made to S. L. Hurt and to Mrs. Joel Hurt, Jr., jointly, in December, 1943, by Joel Hurt, Jr., acting as executor; to prevent the corporation from transferring these shares on the books to Hurt; and for a decree declaring the title to the certificate to be in Ellis, as administrator de bonis non, and enjoining defendants from transferring the certificate and the company from transferring it except to Ellis. The defendants answered the petition, denying fraud and that Mrs. Willie Martin Hurt was a creditor, and filed a counter claim against her.

The cases standing thus when No. 301 was reversed, all of them were set down and fully tried before the court without a jury, and full findings of fact and of law were made.

In Cause No. 301, the district judge filed elaborate and detailed findings. He found: that the charges of fraud and of the voting of exorbitant compensation were unfounded; that nothing had been done by the defendants in fraud of the corporation or of the preferred stockholders; that everything that had been done had been done in accordance with the terms of the certificates and to meet the exigencies of the situation in which the company found itself; and that all of these things had been done with the knowledge, acquiescence and approval of Joel Hurt, Jr., the then executor of the estate. He found for the defendants and gave judgment that the prayer of the complaint be denied.

In Cause No. 316, as to the stockholder's action it sought to bring, he found: that plaintiff, at the time the matters complained of occurred, was not the owner of the shares in right of which he brought the action; that the matters having transpired before he bought the stock and he having purchased it with full knowledge of the matters of which he complained, he could not bring a stockholder's suit in respect of such matters; and so finding, dismissed it.

As to so much of the suit as sought to mandamus the officers of the company to transfer the stock into his name, he dismissed it on the ground that considered as an individual suit for a transfer of the stock to him, the stock was not of sufficient value to give the court jurisdiction, but, if it was, a federal court has no jurisdiction to issue a mandamus as an independent writ.

As to No. 324, the court found: that Mrs. Willie Martin Hurt was a creditor of the estate of Joel Hurt, Sr., for more than $35,000; that the sale by Joel Hurt, Jr., as executor, to S. L. Hurt and to the executor's wife for $5 a share was fraudulent and void; that though the stock was worth a great deal more than the amount for which it sold, it was worth a great deal less than the amount of her debt; and that the executor was entitled to an order cancelling the sale and for the delivery of the stock to him as executor.

Plaintiff in No. 301 and defendants in 324 are here seeking a reversal of the judgments. Abandoning No. 316 or regarding it as merged with No. 301, appellant Hurt treats the appeals as though there were two instead of three. His brief, making no reference whatever to the issues or the judgment in No. 316, is devoted mainly to Cause No. 301, but in some small part to Cause No. 324.

As to No. 301, while the brief does contain citations to, and quotations from, many authorities dealing generally with the fiduciary obligations to the company of its officers and directors, it is in substance only a reargument here of the facts argued and determined against appellant in the court below.

Taking up seriatim² the various wrongs alleged and the relief prayed, appellant, arguing both the effect of the undisputed evidence and the credibility of witnesses with particular emphasis on the unworthiness of belief of Clay and O'Shaughnessey, seeks as to each issue to have this court set aside the findings of the district judge and...