Iroquois Iron Co. v. Kruse

• Decision Date: 13 March 1917
• Docket Number: 4737,4738.
• Citation: 241 F. 433
• Parties: IROQUOIS IRON CO. v. KRUSE. PINE TREE MFG. CO. et al. v. SAME.
• Court: U.S. Court of Appeals — Eighth Circuit

241 F. 433

IROQUOIS IRON CO. v. KRUSE.

PINE TREE MFG. CO. et al. v. SAME.

Nos. 4737, 4738.

United States Court of Appeals, Eighth Circuit.

March 13, 1917

George T. Buckingham, of Chicago, Ill. (Edward L. Shannon, of Denver, Colo., on the brief), for appellant in No. 4737.

H. B Fryberger and Oscar Mitchell, both of Duluth, Minn. (Frank B Kellogg, of St. Paul, Minn., on the brief), for appellee in No. 4737.

N. H Clapp and A. W. Clapp, both of St. Paul, Minn., for appellants in No. 4738.

H. C. Fulton, of Duluth, Minn. (H. B. Fryberger and Oscar Mitchell, both of Duluth, Minn., and Frank B. Kellogg, of St. Paul, Minn., on the brief), for appellee in No. 4738.

Before CARLAND, Circuit Judge, and TRIEBER and VAN VALKENBURGH, District Judges.

VAN VALKENBURGH, District Judge.

During the years 1909 and 1910, appellant Iroquois Iron Company, an Illinois corporation, had its business office in the Corn Exchange National Bank Building at Chicago. The Rogers-Brown Ore Company, a Minnesota corporation, occupied a part of the same suite of offices. The principal business of the Iroquois Company was the manufacture of pig iron, and the chief raw material used in this manufacture was iron ore. The Rogers-Brown Company was organized to prospect for and acquire lands containing iron ore, to develop mines upon these lands, and to produce iron ore. The capital stock of the Ore Company was owned by various iron manufacturers, such as Iroquois, who depended upon it largely for their raw material. The Iroquois Company alone owned 29 per cent. of the Ore Company's stock. The directors in the two companies were largely the same; the president and general manager of the Rogers-Brown Company spent most of their time in the Chicago offices, which constituted its administrative headquarters; its operating office was at Deerwood, Minn., on the Cuyuna Range, a district exceedingly rich in iron ore. One Chester D. Tripp, son of an Iroquois director, was general manager of the Rogers-Brown Ore Company. Henry J Kruse, appellee, was its general superintendent in charge of its field operations, with engineers, draftsmen, and stenographers under him. He was stationed at Deerwood, and, except when Tripp, his immediate superior, paid occasional visits from Chicago, had exclusive direction of the Ore Company's affairs on the Range.

The Rogers-Brown Ore Company, acting as the feeding instrument of the different companies which owned its stock, in addition to the activities first above described, on occasion devoted its energies, its organization and tools to the discovery and acquisition of other ore lands and the development of mines thereon for its clients, more particularly the iron manufacturers by whom it was organized and controlled. Generally, it appears, it acted contemporaneously on behalf of these several companies; but at the particular time under consideration, beginning some time in the year 1909 and extending through 1910, the Iroquois Company alone had signified its purpose to acquire other mining properties in this district, desiring a larger ore supply than it could get from the holdings of the Rogers-Brown Company. The field organization of the latter company, including its general superintendent, Kruse, and under the direction of its general manager, Tripp, was, during this period, engaged largely in these operations, which consisted in seeking out promising locations, securing preliminary contracts and options, followed up by such exploration work as was necessary to establish the desirability of ultimate working leases.

At the outset, the parties directly interested may have been known only to the managing officers of the Ore Company, but that company was well understood by its employes, and particularly by the appellee, to be engaged in acquiring desirable properties for itself or its various clients. In December, 1909, two properties, known as the 'Oberg' and 'State' leases, were acquired and drilled for the Iroquois Company. Thereafter, in 1910, negotiations were pending for a number of other properties, including one known as the 'C. M. Hill 40.' This was ultimately taken over by the Rogers-Brown Company for the Iroquois Company on or about July 4, 1910. Indications were that the ore body in this tract extended to the east upon 80 acres of land owned by one Jacobson, for whom one B. Magoffin had acted as agent. Ore had been proved up on both sides of this tract, and it was recognized by Tripp and Kruse as of probable value for mining purposes, and especially in connection with the Hill 40, for which negotiations were pending. On May 21st Tripp wrote to Kruse as follows:

'Magoffin tells me that the 40 to the east (of the Hill 40) has the surface rights invested in some farmer. It would be our idea to control this, not only for the location, but in order to get a half hitch on the ore that will be run off the Mattson (Hill) to the east.'

To this Kruse replied by letter of May 23d:

'I shall look into the matter and see if we can tie up the party who owns the surface right to the east.'

The ore body, as distinguished from the surface, was at that time owned by the appellant Pine Tree Manufacturing Company, a Weyerhaeuser corporation. Appellee Kruse testifies that on or about the 21st day of May he talked with the agent Magoffin about acquiring this 80 acres of land. Magoffin told him he could get one 40, but would have to see another party before reporting finally upon the entire 80; that it had been about a year since he had had any negotiations with this party, and that he did not know how to approach him. Kruse said: 'B, I am looking for a home location. You might mention that. ' He (Magoffin) said: 'That is a good idea.' Magoffin said the land would cost from $20 to $25 an acre. Kruse said he would take it for anything up to $30 an acre. It is the contention of Kruse in the present controversy that he had conceived the independent plan of acquiring this surface to be platted for town-site purposes, and not as a mining proposition in connection with the operations of his principal, the Rogers-Brown Ore Company. However this may be, he immediately wrote to Tripp the letter of May 23d, from which quotation has been made. Kruse further testifies that on May 27th Tripp visited Deerwood; that he told Tripp of his conversation with Magoffin and said:

''Mr. Tripp, if the company wants this thing, they are welcome to it for exactly what I bought it at.' Tripp said, 'Kruse, the company doesn't want it at all. I'll tell you what I'll handle it for a half interest; we will go halves on it.' I said, 'All right, Mr. Tripp; go ahead.' I had a talk with him after dinner that day; as I recollect he came into the office about a quarter past 1; was there a very little while, and said, 'Kruse, I have got to split that thing up into thirds before I can handle it.' I said. ' All right, Mr. Tripp; go ahead.' He said, 'I have got to handle it through the Soo Railroad.' Think that he came in the office the next morning, only there a short while and said, 'Kruse, I have got to split this up into fifths before I can handle it.' I looked at him and I said, 'All right; if you can't do anything else, go ahead."

The outcome was that this surface was finally purchased on July 8, 1910, and title was taken by Kruse, who gave his check for $1,652.50 in payment. Shortly thereafter Tripp arranged a sale to the Soo Railroad for $6,400. Kruse made a deed to the railroad, received the full purchase price, deducted the moneys advanced by him, and remitted the balance to Tripp to be employed pursuant to their understanding. Thereafter, or, perhaps contemporaneously, negotiations were carried on with the Pine Tree Manufacturing Company for the lease of the mineral rights beneath the surface. That company was disinclined to give mining leases, and was further hampered in the control and disposition of its ore because it did not own the surface above it. The Soo Railroad was led to acquire this surface in order that it might secure a right of way over it, and, what was of equally great importance, a control of the transportation of ore from the mines the surface, succeeded in procuring a favorable option for lease from when developed. Tripp, exercising the leverage of his control over the Pine Tree Manufacturing Company, upon securing for them title to the surface, subject to the right of way of the Soo Railroad over that surface. The railroad was, of course, to have all ore shipments from the mine or mines thus to be developed. Coincidently, October 27, 1910, Tripp procured from the Pine Tree Manufacturing Company an agreement or contract whereby one-fifth of the net profits received by the latter company from the lands, by lease or otherwise, was to be paid by the Pine Tree Company to him. After the necessary development work, the lease, thus contracted for, was taken by the Iroquois Company, for which company, in fact, it had been intended from the outset. The latter company was, of course, ignorant of the contract for rebate between the Pine Tree Manufacturing Company and Tripp. The royalty named in this lease was 50 cents per ton.

Of these latter transactions between the Pine Tree Company and Tripp culminating in the lease to the Iroquois Company, the appellee claims he had no knowledge. He had turned the entire matter over to Tripp, he says, to work out a scheme for their mutual profit. The general nature of that scheme may be better understood by a brief recurrence to the testimony of appellee Kruse:

'A. I met Mr. Tripp at the station, and we walked over to the office, and when we got in the office I told Mr. Tripp that I got hold of that land, told him that I had the promise of it, and I told him about the value of the property; the Soo was

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