Interstate Refineries v. Barry

• Decision Date: 04 August 1925
• Docket Number: No. 6896.,6896.
• Citation: 7 F.2d 548
• Parties: INTERSTATE REFINERIES, Inc., et al. v. BARRY et al.
• Court: U.S. Court of Appeals — Eighth Circuit

7 F.2d 548 (1925)

INTERSTATE REFINERIES, Inc., et al. v. BARRY et al.

No. 6896.

Circuit Court of Appeals, Eighth Circuit.

August 4, 1925.

J. M. Johnson, of Kansas City, Mo. (C. O. French and Donald W. Johnson, both of Kansas City, Mo., on the brief), for appellants.

E. A. Neel, of Kansas City, Mo. (A. L. Cooper and Whitson Rogers, both of Kansas City, Mo., on the brief), for appellees.

Before SANBORN, LEWIS, and BOOTH, Circuit Judges.

WALTER H. SANBORN, Circuit Judge.

This is an appeal of Interstate Refineries, Inc., a corporation of Delaware, and Interstate Refineries, a corporation of Virginia, from an order of the court below, made on October 4, 1924, whereby it granted the motion of the complainants, certain stockholders and creditors of the Delaware corporation, to amend its bill in equity, and denied the motions of the corporations made on August 8, 1924, to dismiss the bill, to dissolve the temporary injunction issued on August 7, 1924, and to vacate the order made on the same day appointing Leon H. Schwald receiver of the property of the corporations situated in the Eighth judicial circuit.

This case is unique in this, that the bill was filed on August 7, 1924, that the order challenged by the appeal was made on October 4, 1924, and that it is not assailed on this appeal on the ground that any of the averments of the facts contained in the bill were not true. As those facts necessarily condition the exercise by the court below of its judicial discretion in issuing the injunction, appointing the receiver and making other orders, they are here briefly stated.

Until it conveyed its property to the Virginia company, a short time prior to the commencement of this suit, the Delaware company owned the legal title, and still owns the entire equity in about eight acres of land, an oil refinery equipment and office thereon, and nine leases of separate tracts of land on which it had oil filling stations in the county of Jackson, Mo.; an oil refinery, several tracts of land, and interests in two oil and gas leases in Eastland county, Tex.; an oil and gas lease and two filling station leases in the state of Kansas; and oil and gas leases in the state of Oklahoma. It owed $117,450, $53,450 of which would be due on August 2, 1924, and $52,000 more on November 2, 1924. For the purpose of placing the property of the Delaware company beyond the reach of its stockholders and creditors and of any judgments or decrees they might obtain against it, its officers and directors organized the Virginia corporation, under a name so similar to that of the Delaware corporation that the Virginia company would generally be taken to be the Delaware company, caused the Delaware corporation to convey all its property without consideration to the Virginia corporation, and caused the latter to make and record a mortgage on all this property to James N. Johnson, trustee, to secure notes of the Virginia corporation to the amount of $250,000, dated May 10, 1924, maturing on or before May 10, 1925. Ralph R. Langley was and is the president of each corporation. The members of the board of directors of the Virginia corporation are Ralph R. Langley, A. H. R. Atwwod, J. B. Obey, and George Worrall. Langley, Atwood, and Obey were and are members of the board of directors of the Delaware corporation. The officers and directors of the two corporatins selected and used the similar name of the Virginia corporation to conceal from the creditors and stockholders of the Delaware corporation and the public the transfer of the title, possession, and operation of the property from the Delaware corporation to the Virginia corporation. Since that transfer, the Delaware corporation has had and has no property standing in its name. Langley, the president of each corporation, and the other officers and directors of each of the corporations, conceived and executed the scheme, evidenced by the acts which have been recited, to defraud the complainants of their rights to and interests in the property and business of the Delaware corporation. To effect this purpose, the Virginia corporation issued and placed in the hands of various parties without consideration its promissory notes for $150,000 of the $250,000 described in its mortgage, and, when the bill was filed and the injunction and receivership prayed, it was issuing and delivering such notes to diverse parties for the alleged consideration of raising money by the sale of the stock of the Virginia corporation at unreasonable rates. The officers and directors of the companies were neglecting to operate the refinery at Ranger, Tex., failing to pay taxes on it, neglecting to pay the rents on the leases so that they were becoming defaulted, misdirecting the business, squandering the property of the companies, attempting to reduce all the corporate property in Missouri to cash and to remove all the portable property of the companies beyond the jurisdiction of the court below. In addition to these facts, the complainants alleged that, unless the defendant corporations were enjoined from disposing of the property and a receiver was immediately appointed to take it and conduct the business of the corporations, numerous suits would be brought, judgments obtained, the property seized thereunder, and irreparable loss and damage would result to the complainants who brought this suit in behalf of themselves and all other creditors and stockholders similarly situated.

Upon these facts, the court below, taking proper bonds, by its order appointed the receiver and enjoined the corporations from disposing of the property, expressly reserving in the order its power to modify all directions made therein and to make such other orders as should seem to it to be necessary.

This is the order challenged by this appeal. Counsel for the defendants contend that the court below had no jurisdiction to issue the injunction or to appoint the receiver, because (a) there was a lack of the requisite diversity of citizenship when the bill was filed; (b) the court still lacked jurisdiction after the amendments to the bill were made; (c) the complaining creditors were simple contract creditors and could not maintain the suit without judgments and return of executions nulla bona; (d) the stockholders could not maintain the suit because the amended bill does not "set forth with particularity" the requirements of equity rule 27; (e) the bills in effect ask for the dissolution and winding up of the affairs of the corporations; (f) the bills seek no other equitable relief than the appointment of a receiver.

There are in this case an original bill filed August 7, 1924, and an amended bill filed on motion of the complainants, pursuant to an order of the court permitting its filing on October 4, 1924. The complainants in the original bill were six stockholders and six creditors of the Delaware company, who alleged that they were, at all times mentioned in the bill and at the time of its filing, citizens and residents of Missouri, and that the Delaware company was a corporation of the state of Delaware and the Virginia corporation was a corporation of the state of Virginia. They made Langley, Kealy, Dodge, Pederson, Atwood, Teil, Obey, Sullivan, Liken, and Baker defendants, and alleged that they were officers or directors of one or both of the defendant corporations, and made James N. Johnson, the trustee in the mortgage made by the Virginia company, a defendant, but did not allege the citizenship or residence of any of them, but they prayed for no accounting, recovery, or relief against any of them personally. The only relief they sought against them was the prevention of their disposition of the property of the defendant companies, and this they sought by the injunction and the receivership. They also prayed for the ultimate avoidance of the conveyance of the property to the Virginia corporation and the latter's mortgage of that property. On the next day after the bill was filed, on August 8, 1924, the defendants moved to dismiss it because it did not show on its face that the suit was between citizens of different states. Thereupon the complainants moved to dismiss the suit as to the individual defendants. The court granted the complainants' motion and denied the defendants' motion. The suit then proceeded against the two corporations.

There were six creditors among the complainants; three of them were Kaw Valley Investment Company, Penn Lubric Oil Company, and Standard Steel Works. While there was an averment in the bill that each of the complainants was a citizen and resident of the state of Missouri, it did not contain any averment that either of these three parties was either a corporation or a copartnership. Counsel for the companies insist that this fact is fatal to the jurisdiction of the court. They also earnestly contend that, even if the court below had jurisdiction to allow the amendments to the bill, which it permitted on October 4, 1924, it had no jurisdiction of the case, and was without power to order the issue of the...