In re Higbee Co., 36119.

• Decision Date: 16 February 1943
• Docket Number: No. 36119.,36119.
• Citation: 50 F. Supp. 114
• Parties: In re HIGBEE CO.
• Court: U.S. District Court — Northern District of Ohio

50 F. Supp. 114

In re HIGBEE CO.

No. 36119.

District Court, N. D. Ohio, E. D.

February 16, 1943.

Jones, Day, Cockley & Reavis, of Cleveland, Ohio (Gardner Abbott and Frank E. Joseph, both of Cleveland, Ohio, of counsel), for debtor.

McKeehan, Merrick, Arter & Stewart, of Cleveland, Ohio (C. K. Arter, L. C. Wykoff, and K. A. Taft, all of Cleveland, Ohio, of counsel), for Bradley and Murphy.

Bulkley & Butler and Robert W. Purcell, of Cleveland, Ohio (Robert J. Bulkley and James A. Butler, both of Cleveland, Ohio, of counsel), for Young and Kirby and another.

Samuel Spring, of New York City, for Frank F. Kolbe.

Richard B. Ainsworth, of Cleveland, Ohio, for Securities & Exchange Commission.

JONES, District Judge.

While it is a rule well established that the findings of the Master on disputed facts shall be accepted, unless clearly erroneous (General Order in Bankruptcy 47, 11 U.S.C.A. following section 53; Rules of Civil Procedure, 28 U.S.C.A. following section 723c, rule 53(e) (2); and, although the exceptions do not fully respond to the usual practice of specifically and definitely challenging the Master's findings; yet the fact that this hearing and the decision reached will dispose not only of the issue of ownership of the Higbee securities raised by the claims filed in the Higbee bankruptcy, but also the issues involved in the case of Young and Kirby v. Bradley and Murphy et al., No. 20,828, originally filed in this court May 28, 1941 (amended complaint August 11, 1941), it is deemed advisable to consider and decide the whole matter as submitted upon the merits. However, this treatment will not affect the weight and effect of the Master's findings where they have been made upon conflicting testimony, upon consideration of credibility of witnesses, and where they are consistent with reasonable inferences and conclusions to be drawn from the evidence. The rule, to this extent, must be adhered to, since the Master saw and heard the witnesses testify and was in better position to judge of their candor and the weight to be given their testimony.

It is not thought necessary to re-state the facts and the history of the matters out of which this controversy arose, since they fully appear in the Master's report. The controversy is one over the ownership of the so-called "junior indebtedness" and old common stock of the Higbee Company. Bradley and Murphy have had the legal title thereto since May 15th or June 4th, 1937, by purchase from Ball or the Ball Foundation. They obtained possession of the Higbee notes and stock by payment of the balance of the purchase price to Terminal and Shaker Heights Realty Company (formerly Midamerica) June 4th, 1942. Young and Kirby and Kolbe claim ownership of these securities on the basis of an alleged constructive trust and by reason of a breach of alleged fiduciary relationship with them and with Terminal and Shaker Heights Realty Company. The legality of the Higbee reorganization is not in any way involved. Final judgment and confirmation of the plan of reorganization previously has been entered and reorganization has been substantially effected.

As an initial consideration, I think that if Midamerica (or Terminal) had any claim or interest in the Higbee securities, which under the evidence I think it did not have, the request for and voluntary acceptance June 3rd-5th, 1942, of the balance due on the purchase price of the securities by Terminal, then practically wholly owned by Young and Kirby, and the simultaneous delivery of the securities to Bradley and Murphy, effectively waived and cancelled any equitable claim to the securities such as is now asserted. This voluntary transfer recognized the validity of the Ball sale to Bradley and Murphy and no reservation by Terminal of any further or equitable interest in the securities was made.

But it is urged that Terminal had two rights or claims in respect of the Higbee securities and could exercise either one or both; that in accepting payment of the balance on the Bradley-Murphy note and the delivery of possession of the Higbee securities to Bradley and Murphy, the legal owners thereof, it did not thereby cancel, waive or surrender its right to be declared the equitable owner of the securities. But this seems to me to be a rather tenuous position, since the acceptance of the balance due on the Bradley-Murphy note, and the transfer and delivery of the Higbee securities to the legal owners, constituted, as I think, an act of ratification of the transaction which carried with it any equitable claim to ownership.

But upon a stronger ground I think any claim by Terminal to equitable ownership must fail upon considerations hereafter to be stated. The Bradley and Murphy note pledged for the Higbee junior indebtedness and common stock belonged to and was held by Ball or the Ball Foundation, and not Terminal, since it appears that Ball did not transfer to Terminal the Bradley and Murphy note until March 2, 1942. A claim to the junior indebtedness was filed in the Higbee reorganization by Ball or the Ball Foundation, based upon the unfulfilled obligation of Bradley and Murphy for the balance of the purchase price. Terminal made no claim to the junior indebtedness or the common stock until long afterward (March 26, 1942). When Bradley and Murphy purchased the securities, they bought them from the Ball Foundation and not from Midamerica. Ball took their down payment and held their note and, considering the values of the period, the purchase price constituted, as I think, a rather substantial amount.

It is apparent from the facts that Ball, or the Ball Foundation, whichever it was, wholly owned or controlled Midamerica and all of the securities held by it, and prior to the sale of the stock of Midamerica to Young and Kirby, Midamerica had made a partial liquidation by withdrawing the Higbee securities and transferring them to the Ball Foundation. This being so, it must be conceded that Ball could sell the Higbee securities to whomever he chose since he had made no commitment to the Young and Kirby syndicate. That Young and Kirby fully understood the sole owners of Higbee notes and stock to be Ball, or the Ball Foundation, is clearly reflected in the evidence of the conduct of the negotiations for the purchase by Young and Kirby of the Van Sweringen properties.

In these circumstances, I am unable to accept the principle as applicable here, that Bradley and Murphy, by remaining as directors of Midamerica (Terminal), after the sale of its stock to Young and Kirby on May 5, 1937, placed themselves in such fiduciary relationship to that company as to have disabled them from completing and closing the earlier Higbee negotiations with Ball. As noted above, the Higbee securities had been liquidated out of the Midamerica portfolio before the sale of the Midamerica stock to Young and Kirby. The Higbee securities constituted property which Ball had the right to sell, and I can find no support in the evidence for the claim that Bradley and Murphy were disabled from buying such property for themselves, even though they continued as directors of Midamerica subsequent to May 5, 1937. The acquisition of the securities by Bradley and Murphy, as the result of negotiations commencing in January of 1937, was not in conflict with any duties as directors of Midamerica or adverse to the interests of that company. Midamerica had no real interest, through Cleveland Terminals Building Company, in the Higbee Company or in its store building. See Master's findings...