Kessler v. Ensley Co.

• Decision Date: 15 May 1903
• Docket Number: 130.
• Parties: KESSLER et al. v. ENSLEY CO. et al.
• Court: U.S. District Court — Northern District of Alabama

123 F. 546

KESSLER et al. v. ENSLEY CO. et al.

No. 130.

United States Circuit Court, N.D. Alabama, Southern Division.

May 15, 1903

T. M Steger, J. W. Baker, Smith & Smith, and I. K. Boyesen, for complainants.

John B Knox, Jas. C. Bradford, John F. Martin, E. J. Smyer, and William A. Walker, for defendants.

Complainants Alfred Kessler and Gustave Kissel, surviving members of the firm of Kessler & Co., and executors of William Kessler deceased, and Charles K. Beekman, executor of William K Beekman, deceased, who are citizens of New York, who were stockholders of the Ensley Land Company at the time of the grievances complained of, and are still such stockholders, filed their bill against the Ensley Land Company, the Ensley Company, G. B. McCormack, Erskine Ramsay, James Bowron, and Nelson E. Barker, who are citizens of Alabama, and Nathaniel Baxter, Jr., and A. M. Shook, who are citizens of Tennessee. The opinion gives the facts concerning the formation of the Ensley Land Company, its property, and history and vicissitudes of the corporate enterprise, and many other facts necessary to a proper understanding of the case made by the bill, so that it is necessary here only to state the substance of the allegations of the bill, which is quite lengthy. It charges, in substance, that McCormack, Bowron, Baxter, Shook and Ramsay, who at the time of the commission of the grievances complained of constituted the majority of the directors and chief officers both of the Land Company and of the Tennessee Coal, Iron & Railroad Company, which all the while owned a majority of the stock of the Ensley Land Company, formed and executed a plot to obtain the most valuable part of the property of the Ensley Land Company, at Ensley, for their own benefit, and thereby made a large profit at the expense of the Land Company. It is charged that to effect this plot they obtained control of a judgment against the Ensley Land Company, which then owed debts amounting to about $120,000, some of which were in judgment. Upon this judgment, which was rendered in 1893, but had not theretofore been attempted to be enforced, they had execution to issue in December, 1896, and caused all the property of the Land Company to be sold by the sheriff, and a conveyance to be made to Mary T. Warner, executrix, at a time when none of the creditors of the company were pressing it, and when the Tennessee Company, if it had been advised, would have furnished the money to pay the judgment, and thus averted the sale. On the 23d of December, 1897, defendants, who had purchased all the right, title, and interest acquired by Mary T. Warner, had the property conveyed to the Ensley Company, a corporation really, though not nominally, formed by the defendants, and of which they owned all the stock, to enable them the better to carry out their scheme. The Ensley Company was incorporated on the 21st of December, 1897. On the 28th day of December, 1897, the Ensley Company conveyed all the lands to defendants Barker and Bowron, reciting in the conveyance that they had purchased the lands, which recital was false. It is alleged that the money consideration mentioned in this deed was raised on the credit of the Tennessee Company, and that the defendants, at the time of the transaction, stated, to those who inquired, that the object was to enable the Ensley Land Company to redeem. It is charged, further, that this conveyance by the Ensley Company to Barker and Bowron was upon the 'understanding and agreement between defendants McCormack, Shook, Baxter, Bowron, and Ramsay that, as soon as they could arrange to get away from the Ensley Land Company its statutory right of redemption and legal rights in the premises, said lands, or a large part of the choicest and most valuable, should be reconveyed to said Ensley Company. ' At a general meeting of the stockholders of the Land Company on January 25, 1898, Shook, as president, reported the sale under execution on the Warner judgment, and the condition of the affairs of the company, and that it was necessary for the company to relinquish its statutory right of redemption to trustees agreed upon by creditors, in order to hold unto the property, and clothe the trustees with the legal title, which would enable them to sell property from time to time, and thus pay off debts and save the residue of the property for the company. At this meeting the stockholders authorized the company to execute a conveyance to barker and Bowron, releasing and conveying to them the statutory right of redemption to the property, and directed the board of directors to cause Barker and Bowron to execute such declaration of trust as in the judgment of the directors would protect the interest of the company, its creditors and stockholders, and that upon the execution of such declaration of trust, upon conditions satisfactory to the board, the president and secretary were authorized to execute such conveyance to Barker and Bowron. At the same meeting resolutions were passed recommending that the trustees 'trade with the Ensley Company on the lines indicated in the proposal submitted by the Ensley Company at this meeting. ' This proposal, which is set out in the opinion, was an offer by the Ensley Company to purchase 220 acres of the company's property, on certain moneyed and other considerations stated in the proposal. It is alleged that the defendants, by reason of their confidential and official relations to the Tennessee Company, knew that it would soon erect a large steel plant at Ensley, which would greatly enhance the value of the Land Company's property, but this was unknown to the public or to the stockholders of the Land Company. The defendants concealed this fact, as well as the actual status of the title at the time, and how it had been brought about, and also that they were interested in the Ensley Company, all of which facts it was their duty to disclose. It is alleged that if the directors had publicly announced the early erection of the steel plant, and then placed lots on the market for sale in the usual way, they could have easily procured money to pay off its debts, and that the defendants purposely concealed the information from the stockholders, that they might be the more readily induced to consent to the scheme complained of. It is also alleged that one of the defendants procured a proxy to vote the stock of the Tennessee Company, by misrepresentations to the trustee under a mortgage given by the Tennessee Company's stock in the Land Company, which was a majority, in his own interest, and thus effectuated their scheme at that meeting; that the trustee had no authority to give any proxy to vote this stock; that the Tennessee Company did not consent to it; and that the voting of the Tennessee Company's stock, under the circumstances, could not authorize the conveyance which the president and secretary of the Land Company made to Barker and Bowron, nor any of the other things which were directed to be done at that meeting. It is further charged that at the time of the transfer, by the purchase of the title acquired under the Warner judgment, to the Ensley Company, one of the defendants having really acquired the title, owing to his fiduciary relations to the Land Company, he held the title in trust of the Land Company, and that the conveyance should have been made to the Land Company, and not to the Ensley Company, and that the defendant and the Ensley Company, in equity, held the lands in trust for the Ensley Land Company; that on the 24th of February, 1898, Barker and Bowron conveyed 220 acres of the choicest and most valuable lands of the Land Company to the Ensley Company, 'which had ever since continued to claim the absolute title thereto'; that subsequently the trustees, Barker and Bowron, conveyed to McCormack and Ramsay 20 more acres of valuable lands of the Land Company, including the most valuable part of the town site at Ensley, and that the property thus sold was worth over $200,000, and could have been sold at that time, by the use of ordinary prudence and care on the part of the defendants, for at least $100,000, whereas it was all sold to the defendants for $16,600, and the promises of the Ensley Company to erect certain buildings and start certain enterprises, as set out in the opinion, most of which promises remain 'utterly unfulfilled.' The bill attacked these transactions, and the legality of the conveyances made to carry them out, not only on account of the fiduciary relations existing between the defendants and the Land Company, and the failure of the defendants to disclose their interest and the other facts recited, but also, inter alia, because the sheriff's sale in 1897 was of the entire property in bulk, instead of by lots and parcels, it having been laid off in town lots, and also on the ground that the stockholders of the Land Company had no authority to sell and convey its property, that power being vested in the directors, and that the stockholders had no authority to relinquish the statutory right of redemption, except by a vote at a meeting called for that purpose, after 30 days' notice. It was also objected that the published call for the meeting in 1898 designated Birmingham as the place of meeting, whereas, under the by-laws of the company, the meeting must be held at Ensley; and that the proxy under which was voted the Tennessee Coal, Iron & Railroad Company stock, which constituted the majority at the meeting in 1898, was illegal, and that the vote of its stock under that proxy was illegal, and did not authorize any of the transactions complained of. Earnest efforts were made by the complainants with the outgoing board of directors in 1901, and at a general meeting of the stockholders of the Land Company on January 25, 1902...