Kansas City Operating Corporation v. Durwood

• Decision Date: 16 May 1960
• Docket Number: No. 16381.,16381.
• Citation: 278 F.2d 354
• Parties: KANSAS CITY OPERATING CORPORATION, Appellant, v. Stanley Hugh DURWOOD, Marjorie Beth Grant and Richard Mark Durwood, Executors of the Estate of Edward Dubinsky Durwood, Deceased, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

278 F.2d 354 (1960)

KANSAS CITY OPERATING CORPORATION, Appellant, v. Stanley Hugh DURWOOD, Marjorie Beth Grant and Richard Mark Durwood, Executors of the Estate of Edward Dubinsky Durwood, Deceased, Appellees.

No. 16381.

United States Court of Appeals Eighth Circuit.

May 16, 1960.

Albert Thomson, Kansas City, Mo., for appellant.

Terence M. O'Brien, Kansas City, Mo., for appellees.

Before SANBORN, VAN OOSTERHOUT, and MATTHES, Circuit Judges.

MATTHES, Circuit Judge.

This is an action for indemnity in which plaintiff-appellant, Kansas City Operating Corporation, (hereinafter called "plaintiff") claims that appellees' decedent, Edward Dubinsky Durwood,¹ (hereinafter called "Durwood" or "defendant") undertook by written agreement dated May 29, 1939, to indemnify plaintiff from all loss resulting from the termination of two lawsuits which were then pending in the Circuit Court of Jackson County, Missouri.

From a pre-trial order entered on February 6, 1958, it appears that the issues as joined by the pleadings were submitted to the Court on numerous exhibits, pleadings, and stipulations, all appearing of record in this case.

On November 6, 1959, after due consideration, the Court found that plaintiff had no enforceable claim against Durwood and entered an order dismissing plaintiff's complaint. It is from this order that plaintiff has appealed.

The case presents an interesting and somewhat complicated factual background concerning which there is little dispute. Due to the great span of time and the numerous parties, the facts tend to become confusing, but for a proper understanding of the real issue, which depends upon a state court suit instituted in 1933, which did not come to final judgment until 1954, it is necessary to outline the circumstances in some detail. Our task with respect to assembling and understanding the factual situation has been greatly aided by a memorandum and order of the trial judge, which catalogs and details a number of transactions leading up to the filing of this action.

The foundation for all subsequent events is a May 23, 1925 contract whereby J. G. Schneider and wife leased the Colonial Theatre in St. Joseph, Missouri, to Hostettler Amusement Company and Aksarben Theatre Enterprises, Inc., at a monthly rental of $500 for a term commencing December 1, 1927, and ending May 30, 1935, unless sooner terminated, in accordance with other provisions of the lease.²

On May 26, 1928, the lessees assigned the lease to Mid-Continent Theatres, Inc. (hereinafter called "Mid-Continent"), and on October 11, 1928, Mid-Continent assigned the lease to Lincoln Theatres Corporation (hereinafter called "Lincoln"). The consideration for this sale of the lease was the assumption by Lincoln of the underlying rent of $500 per month and the payment to Mid-Continent of an additional sum of $34,666.66 in equal monthly installments of $433.33. Payment of these additional installments was to cease upon a proper termination of the lease.³ On July 4, 1931, Lincoln assigned the lease to plaintiff for the consideration of $10 and the assumption of Lincoln's obligation with respect to payment of the $34,666.66.

Before reciting further facts, it should here be stated that plaintiff was a subsidiary of the Paramount-Publix Corporation, and that, prior to September 17, 1932, Durwood and Paramount had engaged in transactions with respect to the operation of various Paramount theatres. Under a certain settlement contract between Durwood and Paramount (not involved here), Durwood agreed to buy the unexpired lease term of the Colonial Theatre. Since title was in the Paramount subsidiary, a contract was entered into on September 17, 1932, between plaintiff as first party, Durwood as second party, and Paramount as third party, whereby the Colonial Theatre lease was assigned to Durwood, who thereafter took possession, paying the $500 monthly rental as required by the lease, and making payments of $433.33 per month to Mid-Continent.⁴

On May 3, 1933, ostensibly pursuant to the termination clause in the lease, the lessor, Schneider, gave a 90-day cancellation notice to Durwood; on May 5, 1933, Durwood and the lessor entered into a contract whereby Durwood waived his 90-day possession, the lessor waived 90 days' rent, and the parties agreed that the lease be terminated as of May 5, 1933. In addition, Durwood paid the lessor $6,000 for a covenant not to compete for 20 years. Thereafter, no further payments were made to Mid-Continent, and after numerous letters and negotiations, it appears that on December 22, 1933, Mid-Continent filed suit against Lincoln and plaintiff (Case No. 426,581) in the Circuit Court of Jackson County, Missouri, for the purpose of pressing its claim for the balance due on the $34,666.66 sales price agreed upon in the 1928 lease assignment to Lincoln. A second suit was subsequently filed (Case No. 426,877) against Lincoln, plaintiff and Durwood.⁵

On May 29, 1939, while the Mid-Continent suits were still pending in the state court, a new agreement, which is the basis of the present action, was entered into between Durwood and Paramount, wherein, after reference to the September 17, 1932 contract, Durwood agreed to indemnify and save harmless Lincoln Theatres, plaintiff, Paramount and all of its subsidiaries, from all loss, costs, expenses, etc., accruing since September 17, 1932, arising out of (a) "the * * * leases * * * covering respectively the Colonial, Electric and Missouri Theatres * * * and/or all guarantees in connection with said leases, and (b) including, without limiting the generality of the aforegoing, the two actions, to-wit, the action pending in the Circuit Court of Jackson County, Missouri, * * * No. 426877 and * * * No. 426581." It further appears, by instrument of the same date, that Durwood was released of the balance due and owing to plaintiff arising from his purchase of the unexpired lease term.

Case No. 426,581 was not tried in the state court until March 19, 1945; Durwood's deposition was introduced in that trial. On June 29, 1954, some 9 years thereafter, "Findings of Fact and Conclusions of Law" were entered by the state court and judgment was rendered in favor of Mid-Continent and against plaintiff for $23,859.74. The state court found that the cancellation of the lease had been improperly induced by Durwood, plaintiff and Paramount for the purpose of defrauding Mid-Continent.

In June, 1955, while appeal from that judgment was pending, plaintiff was able to settle and compromise both suits for $15,040.60.

In October, 1955, the present suit, a diversity action, was filed in the United States District Court for recovery of this sum, plus attorneys fees and expenses, the total claimed amounting to $19,624.46.

The first issue considered and disposed of by Judge Ridge in the lower court was, "what is the proper interpretation to be given to the indemnity agreement contained in Exhibit J,"⁶ (indemnity contract of May 29, 1939 here in issue). Judge Ridge resolved this question by finding that Durwood bound himself to indemnify plaintiff from all loss in connection with the two state court actions. However, in the same memorandum the court directed that the final judgment be stayed until a further pre-trial conference was held regarding the bona fides of the settlement of the circuit court judgment and litigation.

After this order was entered, and on October 29, 1959, Durwood filed an amendment to his answer in which he alleged that the findings of fact, conclusions of law and the judgment in Case No. 426,581 (Woolf, Trustee, v. Lincoln Theatres Co. and Kansas City Operating Corporation) show that in the transactions which resulted in the loss for which indemnity is sought, plaintiff and Durwood were guilty of illegal conduct, fraud and conspiracy; that plaintiff and Durwood were in pari delicto and therefore plaintiff is barred from recovering in this action.

Thereafter, and on November 6, 1959, the trial court filed a supplemental memorandum which brought into focus the issue presented by the amendment to Durwood's answer. From this memorandum it is quite apparent that Judge Ridge carefully reviewed the findings of fact and conclusions of law made by the state court in Case No. 426,581, and from this consideration Judge Ridge found:

"The only conclusion to be reached therefrom is that Judge Cook⁷ rendered judgment in favor of the plaintiff in that action and against the Kansas City Operating Corporation and Lincoln Theatres Corporation, defendants therein, on the theory that the cancellation of the Schneider lease was brought about by a conspiracy between Paramount-Publix, Edward Dubinsky Durwood, and Kansas City Operating Corporation, to defraud the statutory trustees of Midland Theatre and Realty Company (Mid-Continent) out of the fruits of a bargain."

After an analysis of what Judge Ridge considered to be the applicable legal principles, he declared the law to be:

"That the judgment here considered being entered by the Circuit Court of Jackson County, Missouri, and based on conspiracy and fraud, as to which plaintiff and defendant here were found by that Court to be in pari delicto, plaintiff in this action has no enforceable claim against defendant, and plaintiff\'s complaint should now be dismissed."

In determining whether plaintiff has a right to enforce its indemnity contract, we are guided by well established principles of law which form the legal framework of this case. Generally, anyone who engages in a fraudulent scheme forfeits all right to protection, either at law or in equity. This rule was succinctly set forth long ago by Lord Mansfield in Holman v. Johnson, (1 Cowper 341, 343), 98 Eng. Reports Reprint 1120, 1121, in this language:

"The objection, that a contract is immoral or illegal as between plaintiff and defendant, sounds at all times very ill in the mouth of the defendant. It is not for his sake, however, that the objection is ever allowed;

...