Jahn v. Champagne Lumber Co.

• Decision Date: 14 January 1908
• Docket Number: 124.
• Citation: 157 F. 407
• Parties: JAHN v. CHAMPAGNE LUMBER CO. et al.
• Court: U.S. District Court — Western District of Wisconsin

157 F. 407

JAHN v. CHAMPAGNE LUMBER CO. et al.

No. 124.

United States Circuit Court, W.D. Wisconsin.

January 14, 1908

This is a bill in equity, in the nature of a creditors' bill filed by Herman F. Jahn as assignee of John Nyback, against the Champagne Lumber Company, a Wisconsin corporation Alexander Stewart, and Walter Alexander, the principal stockholders of said corporation, and the only stockholders thereof resident within the state of Wisconsin.

The bill sets out, in substance, that the defendant corporation was on the 12th day of July, 1892, operating a certain sawmill located at the city of Merrill, in the state of Wisconsin, and engaged in the manufacture of lumber and other like products; that on or about said date Nyback, while employed by defendant in such mill, received serious bodily injuries as the result of the negligence of the defendant corporation; that about April 27, 1896, Nyback commenced suit at law against said corporation in this court to recover damages for such injuries; that the suit was prosecuted with varying results, until on the 26th day of July, 1901, when pursuant to the mandate of the United States Circuit Court of Appeals for the Seventh Circuit, judgment for costs was entered in favor of Nyback against the defendant corporation in the sum of $471.29; that execution was duly issued to the United States marshal, and was returned nulla bona; that thereafter, on the 26th day of February, 1903, a verdict was rendered in the cause in the Circuit Court in favor of Nyback against the defending corporation for $2,000 damages; that thereafter the judgment was affirmed by the Circuit Court of Appeals for the Seventh Circuit; that on the 12th day of March, 1903, Nyback assigned and transferred to the complainant by written assignment under seal all his right title, and interest in and to the judgment and verdict; that final judgment having been entered on the verdict for $2,067.65, execution was duly issued to the United States marshal of this district; that the same was returned nulla bona; that the several judgments, amounting to $2,566.98 remain unpaid, unreversed, and in full force and effect.

The bill further avers that the defendant corporation owned and possessed a large quantity of valuable property, consisting of lands, goods, chattels, choses in action, and effects of great value, more than enough to pay said judgments and all the claims then existing against said corporation; that, while such litigation was in progress, the defendants Stewart and Alexander, as officers of the defending corporation, sold and disposed of all of the property of the corporation, both real and personal, and converted the proceeds to their own use, so that the corporation, although entirely solvent, was deprived of all tangible property upon which an execution could be levied, and was left in a state of suspension, and ceased to be a going concern, in which condition it still remains; that such conversion of the assets of the corporation by the defendants Stewart and Alexander was fraudulent, and was resorted to for the purpose of removing all the assets of said corporation beyond the reach of any execution that might be issued upon the judgment; and that the proceeds of such property remain in the hands of defendants Stewart and Alexander as a trust fund for the payment of the debts of the corporation; that complainant is entitled to an equitable lien upon such fund; and that Stewart and Alexander own a large majority of the shares of the capital stock of said corporation. The bill prays for a full discovery as to the amount of the assets remaining in the hands of said defendants Stewart and Alexander. The bill was brought also in behalf of any other creditors of said corporation who might join in the suit.

The defendants by joint and several answer admit the organization and purposes of the defendant corporation, and that the defendants Stewart and Alexander are the only stockholders of said corporation residing within the jurisdiction of the court. They also admit the rendition of the several judgments at law, and the issuance of the several executions and the return thereof as alleged in the bill; also, that there are no existing claims against the defending corporation, except only the judgments mentioned in the bill of complaint. No discovery having been made by the answer, it was conceded on the argument that the amount of money in the hands of the defendants Stewart and Alexander, derived from the sale of such corporate assets, was more than enough to liquidate such judgments. They allege that the disposition of the assets of the defendant corporation by defendants Stewart and Alexander occurred pursuant to a general purpose of the corporation to gradually close out its business, and to make no further investments in logs and timber; that, as fast as the assets were converted into cash, they were divided by common consent, by means of dividend or otherwise, equitably and in proper proportions among the stockholders solely for the purpose of winding up its business, and deny any fraudulent purpose in the premises. The answer also contains the following averments:

'(3) These defendants allege that up to the time the affairs of the said Champagne Lumber Company were wound up and the property and assets of said company divided among the stockholders, as aforesaid, the said John Nyback had been unable to recover any verdict or judgment against the said Champagne Lumber Company upon his alleged claim for damages against said company, and that the said John Nyback was unable to secure a verdict of a jury in his favor on said claim in his action in the Circuit Court of the United States for the Western District of Wisconsin until the fourth trial of said cause. Upon the first trial of said cause the jury disagreed, upon the second trial a verdict in favor of said Champagne Lumber Company was directed by the Honorable Romanzo Bunn, District Judge, presiding at said cause, and upon the third trial the cause was submitted to the jury and a verdict rendered in favor of the said Champagne Lumber Company, all of which matters and things the complainant herein well knew at the time of his purchase of the judgments aforesaid.

'(4) These defendants are informed, and believe and charge, the fact to be that at the time the said John Nyback obtained a final judgment against the Champagne Lumber Company he had not the means at hand nor at his command nor the ability nor the inclination nor the intention to further prosecute any action or proceedings to enforce the collection of said judgments, and that the complainant herein with full knowledge of the facts concerning such action, and with full knowledge that the said John Nyback could not and would not if let alone further prosecute any action on the said judgments to enforce the collection thereof, and with full knowledge that the Champagne Lumber Company had no assets from which said judgments could be collected, and for the sole purpose of speculating upon the said judgments, solicited and obtained from said Nyback the written assignments and conveyances of the said judgments set forth in the bill of complaint.

'(5) These defendants are informed and believe, and charge the fact to be, that, notwithstaning the recitals in said assignment and conveyance, the complainant herein paid to the said Nyback only a small and inadequate consideration for the said judgments, not exceeding the sum of $15, while the said judgments at the time amounted to upwards of $3,000; that the said assignment was taken for the sole purpose of speculation and upon the chance of forcing a contribution from the various stockholders of the said defendant company.

'(6) These defendants admit the allegations contained in paragraph 2 of said complainant's bill of complaint, except that they deny that the injury received by the said John Nyback on the 12th day of July, A.D. 1892, was because of the negligence of the defendant, Champagne Lumber Company, in the manner and form alleged in the bill of complaint, and they deny that the said Champagne Lumber Company, or its agents, servants, or employes, were negligent in the manner and form alleged in the bill of complaint, and they deny that any negligence of the said Champagne Lumber Company, or its servants, agents, or employes, was a proximate cause of the injury received by the said John Nyback. They allege that the injury received by him was caused solely by his own negligence in failing to use reasonable care for his own protection.

'(7) Notwithstanding said verdict in the action in which said John Nyback was plaintiff and the said Champagne Lumber Company defendant, these defendants are informed and believe, and charge the fact to be, that the said verdict was obtained by the said John Nyback by the commission of perjury by the said John Nyback upon the trial of said action in the Circuit Court of the United States for the Western District of Wisconsin, in this, to wit: the said action was based on the legal proposition and alleged grounds of liability that said Champagne Lumber Company was negligent in maintaining and keeping unguarded adjacent to a place where the said Nyback was instructed to work a hole or chute, and in negligently failing to instruct the said Nyback as to his duties, and how to perform his work, and warn him against the dangers of falling into said hole and becoming injured thereby; that one of the defenses set up by the said Champagne Lumber Company was that the plaintiff Nyback was guilty of carelessness and negligence on his part which directly contributed to the injury received; that on the trial of the said action the said Nyback, being first duly sworn, testified that previous to his falling into the

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