Kent v. Honsinger

• Decision Date: 11 January 1909
• Citation: 167 F. 619
• Parties: KENT v. HONSINGER et al.
• Court: U.S. District Court — Northern District of New York

167 F. 619

KENT v. HONSINGER et al.

United States Circuit Court, N.D. New York.

January 11, 1909

Grant &amp Wager and Powell & Powell, for complainant.

S. L Wheeler, for defendants.

RAY District Judge.

The bill of complaint herein was filed March 5, 1906. The bill on its face purports to be an 'ancillary bill for the appointment of a receiver and other relief. ' Proofs have been taken and a final hearing had.

The bill is filed by Leroy A. Kent, a resident and a citizen of the state of Vermont, also a shareholder in the Vermont Building Company, an Iowa corporation, at all the times mentioned in the bill of complaint, in behalf of himself and all other shareholders similarly situated, against the defendants individually, and also as officers and trustees of said building company, all residents and citizens of the state of New York, upon the following state of fact:

(1) The Vermont Building Company was duly incorporated under and pursuant to the laws of the state of Iowa in September, 1893 having its principal place of business at Sioux City, Western division of the Northern district of said state. It had an authorized capital stock of $95,000, divided into 950 shares of the par value of $100 each, of which 350 shares were issued and denominated 'preferred stock,' and 600 shares were issued and denominated 'common stock,' and all thereof was issued and outstanding prior to December 1, 1904, and is still outstanding. The complainant is the owner of 10 shares of such preferred stock. By the articles of incorporation the holders of preferred stock have a first lien on all the property of the company subject to the mortgage. The said company was organized for the sole purpose of acquiring, erecting, taking over, and maintaining certain premises-- real estate-- in said Sioux City known as the 'Masonic Block,' used for offices, stores, etc.

(2) Willis T. Honsinger, misnamed 'William' in the bill, for the two years prior to the commencement of this action owned 600 shares of the common stock, except 1 or 2 shares transferred to qualify others for directors in the corporation, and 204 shares of the preferred stock of said company, and by reason of such ownership had absolute control of the corporation, the election of its officers, etc., and exercised such control, and the minority stockholders were denied representation on the board of directors.

(3) February 1, 1894, a mortgage of $25,000 was placed on such block, the proceeds being used to pay the construction indebtedness of the company, and such mortgage became and was a lien on such property, which was the only property of said company.

(4) In May, 1903, default was made in the payment of such mortgage, and it was foreclosed, and, pursuant to a judgment of foreclosure and sale entered in September, 1903, the said property was sold October 26, 1903. On such foreclosure sale there was a surplus, after paying the mortgage debt and interest and all costs and expenses of sale, amounting to $9,799.43, which was duly paid over to W. F. lohr, the secretary and treasurer of said Vermont Building Company. There were also accumulated rentals raising the amount in the hands of said secretary and treasurer to $13,117.50, forming the only assets and property of the said company at the time of the commencement of this action.

(5) The complainant owns 10 shares of the preferred stock, and the other minority stockholders 136 shares thereof.

(6) In September, 1904, a stockholders' meeting was held in Iowa at which defendants, Willis T. Honsinger, Henrietta E. Honsinger, his wife, and S. L. wheeler were elected sole members of the board of directors of said company, such board being composed of three directors only, and all of such directors so elected were then residents and citizens of the state of New York, of which state they are still residents and citizens. The minority stockholders were not represented at such meeting, and had no part therein, not having been notified thereof.

(7) Immediately on their election as such directors, said Honsingers and said Wheeler held a directors' meeting, and elected said Willis T. Honsinger president of the company, Henrietta E. Honsinger vice president, and S. L. Wheeler secretary and treasurer.

(8) Thereupon the said defendants obtained possession of such funds belonging to said company, and amounting to $13,117.50, from the secretary and treasurer, Lohr, and obtained possession of all the stock books, minute books, books of account and record, and all other books and papers of said company, and brought said money, books, papers, etc., with them to the state of New York, thus withdrawing and removing the same from the state of Iowa.

(9) Since September, 1904, said company has not had any officer or director or agent residing in or having an office in said state of Iowa, and there has not been any meeting of directors or stockholders in said state, or office of such company therein.

(10) October 27, 1903, and after the money had been paid over to Mr. Lohr, then the secretary and treasurer of said company, an agreement was made and entered into between said Lohr, as secretary and treasurer, and Eric A. Burgess, duly representing seven or eight of the minority stockholders holding preferred stock to the amount of $14,600, as follows: Burgess, who then contemplated and was about to commence a proceeding to wind up the corporation and place its affairs and property in the hands of a receiver for distribution to creditors, stockholders, etc., agreed not to institute or prosecute such a suit, and both agreed that matters should be left as they were until the year allowed for redemption under the Iowa statute should expire. Lohr, in consideration thereof, agreed that he would deposit the money in an Iowa bank in Sioux City, bearing interest, and retain the funds in said state until October 26, 1904, and would notify Hubbard and Burgess, representing the minority stockholders, of any stockholders' meeting or of any contemplated change in the board of directors or in the management of said company. Relying on this agreement, no proceedings to wind up the corporation or procure the appointment of a receiver, etc., therefor were instituted. Lohr at that time refused Burgess permission to examine the books of the company.

(11) It was also agreed and understood between Burgess and Lohr that a dividend of the said money would be made to the stockholders of the company and its affairs closed up.

(12) Demands were duly made by the said minority stockholders on the officers of the company for a dividend and a distribution of its funds according to law, but no attention was paid thereto.

(13) From the evidence in the case it fully appears that the election of Willis T. Honsinger as president, Henrietta E. Honsinger as vice president and of S. L. wheeler as secretary and treasurer of said company in September, 1904, was in violation of such agreement, and intended to be; was a scheme to obtain the possession of the funds and property and books and papers of the said company, and remove them from the state of Iowa and from the jurisdiction of the courts of that state, and prevent the proper distribution of the funds to the stockholders entitled thereto under such laws.

(14) Since removing such property to the state of New York, the said defendants have taken no proceedings to wind up the affairs of such company or to properly distribute its remaining property to the parties and stockholders entitled thereto.

(15) The defendants have ignored the rights and interests of such stockholders, and have ignored their demands duly made for a proper and legal disposition of such funds under the laws of the state of Iowa.

(16) On the 9th day of December, 1904, Leroy A. Kent, then owning 10 shares of the preferred stock of said company, filed a bill in equity in the Circuit Court of the United States in and for the Western division of the Northern district of the state of Iowa, of which district said corporation was a resident, and in which district its said real estate was situated, and where it did business in said state so long as business was done there, for the liquidation and winding up of the affairs of said Vermont Building Company, the payment of its debts, if any, and the distribution of its surplus assets to the stockholders thereof according to law and the articles of incorporation. In said suit the said Vermont Building Company, said Willis T. Honsinger, Henrietta E. Honsinger, and S. L. Wheeler were defendants.

(17) The said company at that time had no place of business in said district or state, and no director or officer thereof resided in or was in said state or district, and its property, books, and papers had been so removed to the state of New York by the defendants, where they were held by them as aforesaid.

(18) In such suit, on the filing of such bill, a writ of subpoena in chancery was duly issued by the clerk of said court under the seal thereof, and annexed thereto was the following order and notice, also under the seal of said court and duly signed by the clerk, viz.:

'Memorandum. The within named defendants are notified that unless they enter their appearance in the clerk's office of said court at Sioux City aforesaid, on or before the day to which the above writ is returnable, as above stated, the complaint will be taken against them as confessed, and a decree entered thereon accordingly.

'(Seal.)

A. J. Van Duzee, 'Clerk U.S.C.C., Northern District of Iowa, 'By J. H. Bolton, Deputy.'

This subpoena and notice or order was delivered to the United States marshal of said district for service December 9, 1904, and such marshal made due return, duly signed, that the defendants could not be found in said district.

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