Keene Lumber Co. v. Leventhal

• Decision Date: 23 January 1948
• Docket Number: No. 4303.,4303.
• Citation: 165 F.2d 815
• Parties: KEENE LUMBER CO. v. LEVENTHAL et al.
• Court: U.S. Court of Appeals — First Circuit

165 F.2d 815 (1948)

KEENE LUMBER CO. v. LEVENTHAL et al.

No. 4303.

Circuit Court of Appeals, First Circuit.

January 23, 1948.

COPYRIGHT MATERIAL OMITTED

Harry B. Zonis, of Boston, Mass. (Morris Michelson, of Boston, Mass., of counsel), for appellant.

Lee M. Friedman, of Boston, Mass. (Frank L. Kozol, James A. Burnes, and Friedman, Atherton, King & Turner, all of Boston, Mass., of counsel), for Bertram E. Finley and Finley Wood Products, Inc., appellees.

Abraham L. Levine and Joseph E. Levine, both of Boston, Mass., for Harold A. Leventhal and Prime Business Co., appellees.

Benjamin Goldman, of Boston, Mass., for Hyman Krinsky, appellee.

Samuel Markell and Goulston & Storrs, all of Boston, Mass., for Mitchell Koritz and Federal Studios, Inc., appellees.

Before MAGRUDER, MAHONEY, and WOODBURY, Circuit Judges.

MAGRUDER, Circuit Judge.

This is an appeal from a judgment dismissing a complaint brought by Keene Lumber Company, a New Hampshire corporation, against four individual defendants and three Massachusetts corporations owned and controlled by various of the individual defendants. The District Court's memorandum is reported in Keene Lumber Co. v. Leventhal, D.C.Mass., 1947, 71 F. Supp. 598.

On December 18, 1947, we filed a memorandum opinion pointing out that the allegations of the complaint were insufficient to establish the jurisdiction of the District Court on the basis of diversity of citizenship. This memorandum is reproduced in the footnote.¹ Under 28 U.S.C.A. § 399, we allowed appellant ten days within which to file in this court a motion for leave to amend its complaint so as to show the requisite diversity of citizenship. Appellant elected not to ask leave to amend, evidently preferring to have the present complaint dismissed for lack of jurisdiction without prejudice to its right to start over again by filing a new complaint. However, appellees countered by asking leave to file two motions, the first entitled "Motion by appellees that the pleadings and record be amended by the filing of the annexed admissions and affidavits as responses to the complaint to show diversity of citizenship," and the second entitled "Motion by appellees that the case be adjudicated on the merits." Accompanying the first of these motions were affidavits by the individual defendants, each of whom admitted and deposed that on the date of the commencement of this action, and for a long period of years prior thereto, and at all times since that date "I was, am, and continuously have been a citizen of the Commonwealth of Massachusetts, and at all such times I have maintained my residence, my home and my domicile within said Commonwealth of Massachusetts." Though we have found no judicial precedent for such a motion by the defendants-appellees to cure the defective jurisdictional allegations of a complaint filed against them in a federal district court, such a motion seems to be clearly within the permissive language of 28 U.S.C.A. § 399, which reads as follows:

"Where, in any suit brought in or removed from any State court to any district of the United States, the jurisdiction of the district court is based upon the diverse citizenship of the parties, and such diverse citizenship in fact existed at the time the suit was brought or removed, though defectively alleged, either party may amend at any stage of the proceedings and in the appellate court upon such terms as the court may impose, so as to show on the record such diverse citizenship and jurisdiction, and thereupon such suit shall be proceeded with the same as though the diverse citizenship had been fully and correctly pleaded at the inception of the suit, or, if it be a removed case, in the petition for removal."

The case having been disposed of on the merits below, on motion to dismiss, and having been argued on the merits in the appellate court, if the requisite diversity of citizenship in fact exists either party may have a legitimate interest in obtaining a determination of the controversy in this proceeding, instead of having the complaint dismissed for a merely technical defect. Therefore, it is rational to infer that Congress meant what it literally said when it provided that "either party may amend at any stage of the proceedings and in the appellate court upon such terms as the court may impose, so as to show on the record such diverse citizenship and jurisdiction." The plaintiff having in this case invoked the federal jurisdiction and having pressed its case in the District Court and here on the merits, we see no reason why the plaintiff, because it happens to suit its strategic purposes, should have the exclusive power to make the proceeding go for nought by declining to correct a purely technical defect in the record. Appellant has filed a memorandum opposing the above-stated motions of the appellees, but does not seek to challenge the truth of the factual allegations in the affidavits as to the citizenship of the individual defendants.² Under the circumstances we grant the motions filed by appellees; and, the record as thus augmented now showing diversity of citizenship and federal jurisdiction, we proceed to dispose of the appeal on the merits, as provided in 28 U.S.C.A. § 399.

We state in summary form the allegations of the complaint, not inaptly described by appellant's brief as "perhaps inartistically" drawn: For some time prior to December 1, 1943, plaintiff had been doing business with Davenport-Brown, Inc., a Massachusetts corporation, by selling to it lumber on terms of credit. Becoming apprehensive of the financial standing of Davenport-Brown, Inc., the plaintiff refused it further credit. Defendants conceived a general scheme to defraud Davenport-Brown, Inc., and its creditors, including the plaintiff. As part of the scheme, defendant Koritz, in November, 1943, "spoke" to plaintiff's treasurer, "stating that he had come into Davenport-Brown, Inc., as a partner; that he had invested in the business $50,000 and that he had unlimited funds to invest in the business of Davenport-Brown, Inc., if and when needed." He asked plaintiff's treasurer to make further sales of lumber to Davenport- Brown, Inc., on terms of credit, stating that the bills would be paid as and when due. Such representations were false, were known by Koritz to be false, and "were made with the intention to deceive the plaintiff and to cause the plaintiff to extend credit terms to Davenport-Brown, Inc., and thus enhance the value of the assets and property of said Davenport-Brown, Inc." before certain foreclosure sales about to be mentioned. In reliance on the said representations, plaintiff, during the period November 17, 1943, to January 20, 1944, sold and delivered to Davenport-Brown, Inc., on credit, lumber to the value of $7,809.76. Meanwhile a series of chattel mortgages had been acquired on the stock in trade, machinery, fixtures and other business property of Davenport-Brown, Inc., in the name of the defendant Federal Studios, Inc., and in the name of the defendant Prime Business Company. At least one of these chattel mortgages is alleged to have been executed by Davenport-Brown, Inc., without consideration. "In each of the said mortgages was a clause covering property therein named, together with any and all after-acquired property and in each of them provision was made in event of default, for sale by public auction." The mortgagor "had many creditors, including the plaintiff, and was indebted to them for much money, all of which was known to all of the defendants." In further pursuit of the conspiracy by defendants to take over the business and property of Davenport-Brown, Inc., and the property of the plaintiffs "without paying adequate consideration therefor," defendants went through an elaborate pretense of foreclosure sales at public auction on January 20 and 21, 1944, at which the purported auctioneer sold the properties to various of the defendants at rigged and prearranged prices amounting in the aggregate to "less than one-fourth of the fair value." Prior to these "sales," defendant Leventhal had lulled Mr. Paeff, president of the mortgagor, Davenport-Brown, Inc., into acquiescence by assuring him that the procedure "was a mere matter of form necessary as protection against creditors and that Paeff was not to be concerned with them, and advised Mr. Paeff not to proceed to raise money to pay off these mortgages, or any of them, or to attempt to raise capital for the purpose of buying in the property at the proposed foreclosure sales." In fact there "were no sales by public auction as provided for in all of the aforementioned mortgages." Immediately after the purported sales, and again as had been agreed upon in defendants' scheme to defraud, further conveyances of the property were made to defendant Finley Wood Products, Inc., a corporation wholly owned and controlled by defendant Finley. Davenport-Brown, Inc., was adjudicated bankrupt in March, 1944, "having no assets except a chose in action against some or all of the named defendants for alleged wrongful foreclosure of the mortgages as hereinabove stated." Plaintiff has not been paid any part of said sum of $7,809.76, and has suffered damage to that extent by reason of the various acts of the defendants in pursuance of the fraudulent scheme aforesaid.

To the complaint, above summarized, the several defendants filed motions to dismiss upon the ground that the complaint failed to state a claim upon which relief could be granted. In support of the motion, defendants urged a defense under Mass.Gen.Laws (Ter.Ed.) c. 259, § 4, the section of the Massachusetts Statute of Frauds patterned after Lord Tenterden's Act, 9 Geo. IV, C. XIV, par. VI (1828). Since it appeared from the face of the complaint that the alleged fraudulent representations of defendant Koritz were oral, this defense was properly raised by motion to dismiss. Kahn v. Cecelia Co., D.C., S.D.N.Y., 1941, 40 F.Supp. 878, cited with...