In re Muncie Pulp Co.

• Decision Date: 10 June 1905
• Docket Number: 237.
• Parties: In re MUNCIE PULP CO.
• Court: U.S. Court of Appeals — Second Circuit

139 F. 546

In re MUNCIE PULP CO.

No. 237.

United States Court of Appeals, Second Circuit.

June 10, 1905

Wm Jno. Barr, for petitioners.

Abram I. Elkus, for receiver.

Before WALLACE, TOWNSEND, and COXE, Circuit Judges.

COXE Circuit Judge.

The Muncie Pulp Company is a New York corporation engaged in manufacturing pulp at Muncie, Ind., Henry Blackman being its president and Gustav L. Jaeger its treasurer. The stock is owned by these two men, Blackman being the majority stockholder. In order to supply a cheap motive power for the operation of its plant the pulp company purchased and leased various natural gas and oil wells and lands upon which natural gas and oil wells were drilled. The pulp company finding difficulty in acquiring rights of way from its plant to these wells, a new and independent company, known as the Buck Creek Natural Gas Company, was organized under the laws of Indiana 'to furnish the Muncie Pulp Company with gas or oil. ' For technical reasons a new company, known as the Great Western Natural Gas & Oil Company, was organized to take the place of the Buck Creek Company. Blackman is the president and majority stockholder, holding 53 per cent., in the Great Western Company, Jaeger is the treasurer and minority stockholder, holding 47 per cent. of the stock. To the Great Western Company was transferred the gas and oil well property formerly owned by the Muncie Pulp Company and by it transferred to the Buck Creek Company. The Muncie Pulp Company made various expenditures of its own money for the benefit of the Great Western Company, treating the latter merely as an agent which the law made necessary for the full development of its business. The Great Western Company kept no separate set of books, its entire administrative department being under the control of the Muncie Company. The record fails to show that there are any creditors of the Great Western Company. A petition in involuntary bankruptcy was filed August 3, 1904, an order adjudicating the said company a bankrupt was duly entered. On or about August 3, 1904, a receiver of the pulp company was appointed who, on December 2, 1904, presented a petition to the District Court praying that the Great Western Company turn over to him the above-described property. On this petition an order to show cause was granted and after hearing the parties the court, on December 23, 1904, granted the prayer of the petition indorsing on the papers the following memorandum:

'The proof shows, in my opinion, that Buck Creek Company and the Great Western Company were merely agents of the Muncie Company to hold property for it; that the assets held by the Great Western Company are assets of the Muncie Company. That the stock of the Great Western Company held by Blackman and Jaeger belongs to the Muncie Company and is held by them as trustees for it. Motion granted. Settle order on notice.'

The petitioners maintain that the order entered upon this decision was beyond the jurisdiction of the District Court that they hold the property which they are thus directed to turn over in their own proper right, owning, holding and claiming to own and hold the same adversely to the Muncie Pulp Company and to the receiver of said company, and that the said order is unlawful and violates the constitutional rights of the petitioners in that it takes away their property summarily without trial and without due process of law.

The principal question presented is one of fact; this being determined, there is little difficulty about the law. Indeed, we understood the counsel for the petitioners to concede at the argument that if the Great Western Company were merely the agent of the pulp company the property held by it could be reached by summary proceeding and without the commencement of a plenary suit.

Frank L. Norris, who was secretary of the pulp company until 1903, briefly and clearly states the situation as follows:

'Henry Blackman was at all times, while I was secretary of the Muncie Pulp Company, president thereof, and Gustav. L. Jaeger the treasurer of the Muncie Pulp Company. These gentlemen held the same offices in the Great Western Natural Gas & Oil Company. The Great Western Natural Gas & Oil Company at no time paid to the Muncie Pulp Company any consideration whatsoever for the transfer to it of the various properties owned by it, and its only assets are assets acquired from the Muncie Pulp Company. The stock of the Great Western Natural Gas & Oil Company was issued in part to Mr. Blackman and in part to Mr. Jaeger, and one share was given to the secretary of the Great Western Natural Gas & Oil Company for the purpose of having a resident director in Indiana. All this stock was, however, actually owned by the Muncie Pulp Company, and it was placed in the names of these persons simply as a matter of

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