Johnson v. Riverland Levee Dist.

• Decision Date: 12 March 1941
• Docket Number: No. 11797.,11797.
• Citation: 134 ALR 326,117 F.2d 711
• Parties: JOHNSON et al. v. RIVERLAND LEVEE DIST. et al.
• Court: U.S. Court of Appeals — Eighth Circuit

134 ALR 326, 117 F.2d 711 (1941)

JOHNSON et al. v. RIVERLAND LEVEE DIST. et al.

No. 11797.

Circuit Court of Appeals, Eighth Circuit.

February 14, 1941.

Rehearing Denied March 12, 1941.

Staunton E. Boudreau, of St. Louis, Mo. (Leigh M. Kagy, of East St. Louis, Ill., Ezra T. Fuller, and Mahan & Fuller, all of Hannibal, Mo., Baker, Lesemann, Kagy & Wagner, of East St. Louis, Ill., and Mr. Thomas J. Noonan, of St. Louis, Mo., on the brief), for appellants.

Charles E. Rendlen, of Hannibal, Mo. (F. D. Wilkins, of Louisiana, Mo., and Rendlen, White & Rendlen, of Hannibal, Mo., on the brief), for appellees Riverland Levee Dist. and others.

Harry Carstarphen, of Hannibal, Mo. (E. H. Henning, of Monmouth, Ill., on the brief), for appellee Illinois Bankers Life Assur. Co.

Before STONE, GARDNER, and THOMAS, Circuit Judges.

THOMAS, Circuit Judge.

This is an appeal by the plaintiffs and the intervener-plaintiffs (1) from a final judgment upon the pleadings and (2) from orders sustaining three separate motions to quash summons and service of process on certain absent defendants. In this opinion the parties will be referred to as plaintiffs and defendants.

The plaintiffs say that fundamentally the suit is one for the declaration of trusts and the adjudication and enforcement of liens; for the following of diverted trust assets, the impression of constructive trusts thereon and the enforcement and liquidation of the trusts; and for appropriate relief in equity against the defendants on behalf of all the bondholders of the defendant Riverland Levee District.

The defendants say the complaint primarily sounds in fraud and conspiracy, and that it seeks relief accordingly.

The amended complaint fills more than 70 pages of the transcript of record, and the motions and answers occupy more than 60 pages. Yet in view of the dispute as to the object of the suit and in order to understand the orders and judgment appealed from and the contentions of the parties in this court it will be necessary to set out a summary of the alleged cause or causes of action and the objections and defenses thereto.

The plaintiffs claim that they and others in whose behalf the suit is brought are the owners of $129,500 face value of delinquent and past-due bonds issued by the defendant Riverland Levee District. The Levee District issued bonds in 1916, 1919, and 1921 aggregating $196,000 face value, all of which have been paid except those involved in this suit. The latest maturity was in 1936. The real purpose of the suit is to compel payment of the past-due bonds, and the ultimate question is whether the remedies sought are available in the federal court.

The defendant Riverland Levee District of Pike County, Missouri, is a levee district corporation organized and created by a decree of the Circuit Court of Pike County, Missouri, on September 2, 1914, pursuant to the laws of that state now comprising sections 10902 to 10957 of the Revised Statutes of Missouri of 1929, Mo.St.Ann. §§ 10902 to 10957, pp. 3592 to 3633.

It is alleged in the amended complaint that the steps required by the statute were all legally taken in the organization of the district; that the bonds were issued and the taxes levied to pay them; and that the lien of the taxes attached to the several tracts of land in the district. The installments levied for the years 1930 to 1936, inclusive, however, are wholly unpaid; and it is alleged that the levies for those years constitute a trust and lien for the payment of the bonds.

It is then alleged that the district is insolvent; and that the amount due on the bonds, including accrued interest, is in the sum of $204,500. The several landowners in the district are all made defendants as well as the members of the board of supervisors and the collector of revenue.

The situation existing at the time of the commencement of this suit giving rise to the multiple forms of relief sought is alleged to have been brought about by a fraudulent conspiracy begun some time prior to 1929, the membership of which has changed and enlarged as time passed. The purpose and object of the conspiracy was to defeat the payment of the bonds and to vest finally in the conspirators title to a large part of the lands in the district. The conspirators included the board of supervisors of the district who owned some of the lands, and others. The board levied the taxes annually but refused to pay them and although requested to do so refused to enforce payment. About 61 percent of the lands were sold for taxes and bid in by the district, title being taken in the name of the district and of members of the board in trust for the district.

In 1937 the conspirators organized a common-law trust styled the Riverland Realty Company, and by a series of alleged fraudulent conveyances title to the lands which had been bought at tax sales by the district was vested in this trust.

About January 2, 1930, as a part of the alleged fraudulent plan, the conspirators caused a bondholders protective committee to be organized, and the defendant Chicago Title & Trust Company was named depositary of the bonds. A large part of the outstanding bonds were deposited with the depositary, and transferable certificates of deposit were issued to the owners. The committee and the depositary were prior thereto, or at that time became, members of the conspiracy. Some, if not all, of the plaintiffs were fraudulently induced to deposit their bonds with the depositary. The depositary agreement gave to the committee plenary power in the exercise of which they caused the bonds or a part of them to be transferred to the Riverland Realty Company. The result is that this common-law trust controlled by the conspirators holds title to most of the land in the district, to nearly all of the outstanding bonds, and controls the board of supervisors of the district. In this situation the bondholders are alleged to be helpless without the aid of a court of equity; and their predicament is the more perilous because the statute of limitations has already run against actions to enforce the tax liens for some of the annual levies and in a short time all of the levies will be barred.

In the answers filed by some of the resident defendants the existence of a conspiracy is denied as well as all fraudulent conduct charged in the amended complaint.

The prayer of the amended complaint is multifarious and confusing. In brief and in substance it is demanded

First, (1) that the court take and state an account of the amount due the holders of the bonds and that a money judgment be entered against the levee district for the amount due; (2) that an account be taken of the taxes levied and assessed against the lands and appropriated to the payment of the bonds and that the tax liens be foreclosed, a special judgment entered against such lands, that the lands be sold to satisfy the liens, that after payment of costs the proceeds be distributed to the bondholders ratably; and (3) that a deficiency judgment be entered against the levee district.

Second, and in the alternative, (1) that a mandatory injunction issue commanding the board of supervisors of the levee district to enforce and collect the taxes and distribute the proceeds to the bondholders; and (2) to appoint a receiver for the lands to rent the same and to collect and distribute the proceeds to the bondholders.

Third, (1) that the fraudulent conveyances of lands leading to the vesting of title in the Riverland Realty Company be set aside and that a receiver or trustee be appointed to take charge of such lands, sell the same and distribute the proceeds to the bondholders; (2) that the Riverland Realty Company be required to deliver the bonds in its possession to the registry of the court, to a receiver or to the bondholders; and (3) that the Riverland Realty Company be dissolved and its assets distributed to the owners.

Fourth, (1) that the agreement creating the bondholders' protective committee be declared null and void; (2) that the committee and the depositary be required to account to the owners; or, in the alternative, (3) that the committee be removed, the trust dissolved, and the bonds returned to the owners, to a receiver or to the registry of the court for collection; and (4) that the transfer of the bonds by the owners to the depositary be held void and that the Chicago Title & Trust Company be required to return the bonds to the owners, or to the registry of the court, or to pay the face value of the bonds with accrued interest.

Fifth, that the court trace the several trusts described in the amended complaint, declare the same, and require their assets to be restored to the bondholders; and for other relief.

The original complaint was filed January 17, 1939, by Frank R. Johnson, a resident and citizen of Oregon, Josephine Flanner, a resident and citizen of Wisconsin, and H. Graham, a resident and citizen of Washington, as parties plaintiff.

On October 16, 1939, an order was entered by the court granting leave to file an amended complaint and authorizing numerous bondholders to "intervene and join Plaintiffs in said amended complaint".

On the following day, October 17, 1939, the amended complaint was filed by the plaintiffs and interveners jointly against the defendants, in which the interveners were designated "intervener-plaintiffs". Ten of the intervener-plaintiffs are residents of the state of Illinois, two of Michigan, and one of Missouri. Of the defendants fourteen are residents of Missouri, eighteen of Illinois, and one of Kansas.

Process was served on the nonresident defendants pursuant to the provisions of section 57 of the Judicial Code, 28 U.S.C.A. § 118.

The court after a hearing on the motions sustained the motions to quash service upon the nonresident defendants and entered judgment on the pleadings for the defendants and against the plaintiffs. In brief the court based its rulings and judgment upon the following grounds:

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