Kaufmann v. Annuity Realty Co

• Decision Date: 03 December 1923
• Docket Number: No. 23489.,23489.
• Citation: 301 Mo. 638,256 S.W. 792
• Parties: KAUFMANN et al. v. ANNUITY REALTY CO. et al.
• Court: Missouri Supreme Court

256 S.W. 792

301 Mo. 638

KAUFMANN et al. v. ANNUITY REALTY CO. et al.

No. 23489.

Supreme Court of Missouri, Division No. 2.

December 3, 1923.

Rehearing Denied December 29, 1923.

Appeal from St. Louis Circuit Court; Franklin Ferriss, Judge. Action by August Kaufmann and others against the Annuity Realty Company and others. Judgment for defendants, and plaintiffs appeal. Affirmed.

Curlee & Hay and Charlton A. Alexander, all of St. Louis, for appellants.

Bryan, Williams & Cave, of St. Louis, for respondents Annuity Realty Co., St. Louis Union Trust Co., and St. Louis Union Trust Co., Trustee.

Nagel & Kirby, of St. Louis, for respondent Hargadine-McKittrick Dry Goods Co. and certain other respondents.

WHITE, J.

The plaintiffs, as stockholders in the Hargadine-McKittrick Dry Goods Company, brought this suit on behalf of themselves and any other stockholders of said company who might come into court with clean hands and join in the proceeding. The purpose of the suit is to obtain a decree in behalf of the McKittrick Dry Goods Company, impressing with an equitable lien, for the sum of $2,657,781.17, block 128 in the city of St. Louis, upon which is erected the Railway Exchange Building, on the ground that the funds of the Hargadine-McKittrick Dry Goods Company, by the ultra vires acts of its officers, were invested in the property.

This case is one of the kind that gives rise to the popular notion of the law as a recondite puzzle, which only those initiated in the mysteries of the legal profession can ever solve. The prevailing idea is that difficult lawsuits and tangled problems which present themselves to the courts are due to the obscurity of the law, whose esoteric principles are so mysterious that even the lawyers themselves and the judges of the court do not agree as to what the law is when applied to particular cases. Whereas, the record here shows it is not the law which is mysterious; it is the methods and operations of business men. Difficult cases arise from complicated business transactions. In this case the numerous transactions, the many corporations organized through the same agency and apparently conducted with a view to the same ultimate end, the contracts, deals, interlacing and overlapping schemes and projects which are involved, require long and intense study in order to understand and disentangle the facts so as to apply the law to them. It took several years, and the labor of astute business minds, stimulated by adversity and threatened disaster, to conceive and carry on the various plans and enterprises which appear in the record here. It is not the law of the case, but the facts of the case which are difficult to understand.

Demurrers to the bill filed by some of the defendants were sustained by the trial court, the plaintiffs decline to plead further, their bill was dismissed, and from that judgment they appealed.

The petition, 84 printed pages, alleges that plaintiffs are stockholders in the Hargadine-McKittrick Dry Goods Company, possessing fully paid-up stock of the par value of $66,-000; that the Hargadine-McKittrick Dry Goods Company was incorporated in 1889 with a capital stock of $750,000, which later was increased to $4,000,000. The company was organized—

"to carry on and conduct a general dry goods and mercantile business for the purchase and sale of dry goods and such other goods and merchandise as may be desired."

In 1905, Thomas H. McKittrick, president of the company, conceived the idea of becoming a "captain of industry" and "dry goods King" and began and thereafter carried on, a series of bold speculations, whereby he diverted the funds of the McKittrick Company from their legitimate purpose by ultra vires acts, his enterprises finally resulting in the building of the Railway Exchange Building. The plaintiffs interpolated in the petition a great many statements as to the unlawful, ruthless, surreptitious, and fraudulent character of the numerous acts of which Thomas H. McKittrick was guilty throughout all his deals. Many of those statements are arguments, conclusions, and generalizations made, apparently, in terrorem. However superfluous these may be, as the defendants claim, there remains a tremendous volume of alleged facts which constitute the plaintiffs' alleged cause of action.

In July, 1905, the Hargadine-McKittrick Dry Goods Company, through result of negotiations of Thomas H. McKittrick, became the half-owner of the business of William Barr Dry Goods Company, which occupied a building covering the east half of block 128 in the city of St. Louis. Soon afterwards, in order to gain absolute control of the McKittrick Company, he procured from the stockholders of that company a voting trust agreement, whereby they surrendered their stock to the St. Louis Union Trust Company, defendant herein, as trustee, and received in return certificates of such company for like amounts. The plaintiffs and other innocent stockholders had confidence that the business would be properly managed, but the purpose of McKittrick was to keep the stockholders in ignorance of the moves which he had in contemplation. In January, 1906, the McKittrick Company bought the remaining half of the Barr Dry Goods Company business.

Then, "under the guise and ostensible purpose of providing a home for the Barr business," Thomas H. McKittrick proceeded to organize six "dummy corporations," which corporations proceeded to obtain long-time leases from the owners thereof on different tracts of land in block 128. Those dummy corporations had no assests, and were entirely controlled by Thomas H. McKittrick, who concealed from the stockholders in the McKittrick Company the nature of his plan which was to get control of the entire block 128 and to erect a monumental building thereon. Likewise, each of the owners and lessors of the different tracts presumably was unaware of the deals made with the others. As a condition for obtaining the leases McKittrick and his associates were required to guarantee the erection of a building on the several tracts, and the guaranties were supported by McKittrick and others depositing bonds and executing other obligations. The McKittrick Company was unlawfully made liable on those obligations. At the same time McKittrick contracted with the May Department Store Company to erect a building on block 128, to lease it to the Ally Department Store Company. Said building was to cost the sum of $4,000,000.

The leases were required to be carried for several years before any return could be had from the building to be erected. In taking said leases, liability for large sums of money was incurred for rentals and other expenses incidental to procuring the leases, and were paid by money fraudulently and secretly taken from the treasury of the Eargadine-McKittrick Dry Goods Company. The money so diverted amounted in all to $1,827,792.50. All of these acts were alleged to be ultra vires, and beyond the power of the company as contemplated in its charter. The petition, however, says that the leasehold estates when acquired were worth all they cost, and that the McKittrick Dry Goods Company, by reason of the money so expended, became seized and possessed of an equitable lien on the said leasehold estates, in the sum mentioned.

After Thomas McKittrick had thus laid the foundation for carrying out his monumental scheme, he was confronted with other difficulties. To build so large a structure as contemplated required a large sum of money, which had to be raised in some way. In order to secure the money, it was important to show that it would be a paying investment, and that he had prospective tenants who would occupy the building when it was completed. Therefore he made arrangement with different railway companies to lease portions of the prospective building, and in turn was obliged to secure them against liability on leases which they already had in other quarters.

In carrying out these schemes which resulted in the erection of the Railway Exchange Building, one of the largest office buildings in the world, Thomas EL McKittrick betrayed a business sagacity, a boldness of enterprise, and a resourcefulness in projecting and carrying forward plans contributing to his ultimate purpose that seemed to justify his alleged ambition to be known as a "captain of industry." The petition compliments him in the conduct of his enterprises by saying, in effect, that he was entirely without scruple or consideration for anybody except himself and his immediate associates; that he carried through this plans in utter disregard of the rights of plaintiffs and the other stockholders whose interests he hazarded; that he perpetrated frauds of great magnitude, and concealed them with great ingenuity and success.

It is entirely unnecessary to state the numerous plans, transactions, and schemes in which McKittrick engaged as he fought for years to accomplish the construction of the Railway Exchange Building. It is sufficient to state the final condition of the property and the interests of the defendants as they appear at the time this suit was brought. In 1911 Thomas H. McKittrick, Robert McKittrick Jones, John D. Filley, the St. Louis Union Trust Company, and others formed what was called the Building Syndicate, which constituted Robert McKittrick Jones and John D. Filley as syndicate managers.

The appellants in their brief have thus interpreted some of the allegations of the petition as to subsequent transactions:

"In November, 1911, said syndicate managers entered into a contract with the St. Louis Union Trust Company, as trustee, and the subscribers to the annuity certificates and the subscribers to the bonds, in which the details of the plans are set out. The important features of this contract appear in the petition on page 31 of the record. In this contract Jones and Filley agreed to acquire from Thomas H. McKittrick the leasehold estates to all of block 128, said leaseholds to be taken in the...