Kohler v. Jacobs, 10610.

• Decision Date: 05 November 1943
• Docket Number: No. 10610.,10610.
• Parties: KOHLER et al. v. JACOBS et al.
• Court: U.S. Court of Appeals — Fifth Circuit

138 F.2d 440 (1943)

KOHLER et al. v. JACOBS et al.

No. 10610.

Circuit Court of Appeals, Fifth Circuit.

November 5, 1943.

John I. Kelley, of Atlanta, Ga., for appellants.

Max F. Goldstein and Herbert J. Haas, both of Atlanta, Ga., for appellees.

Before SIBLEY, HOLMES, and WALLER, Circuit Judges.

SIBLEY, Circuit Judge.

Max N. Kohler and Mrs. Max N. Kohler sued National Linen Service Corporation and J. B. Jacobs for damages for deceit in the purchase by the latter from the former on June 5, 1935, of voting trust certificates for 900 shares of stock in the Corporation. The complaint was dismissed on motions which averred that no claim was set out on which relief could be had, and that relief was barred by the four year statute of limitations. The Kohlers appeal.

The Clerk of the district court sent up as part of the record certain admissions obtained from the plaintiffs by the defendants under Rule of Civil Procedure 36, 28 U.S.C.A. following section 723c, and interrogatories addressed to Jacobs by the Kohlers, with documentary exhibits. In their briefs of argument appellees bring forward portions of these as tending to show the Kohlers have no case. Over objection this may not be done. The admissions and interrogatories are in the nature of evidence, and do not alter the pleadings. They may usually be offered in evidence on the trial, and may be considered on a motion for summary judgment under Rule 56. But a motion to dismiss for failure to state a claim on which relief may be granted is to be heard on the face of the complaint and amendments. Sperry Products v. Association of Am. Railroads, D.C., 44 F.Supp. 660; Dunleer Co. v. Minter Homes Corp., D.C., 33 F. Supp. 242; Bagby v. Cleveland Wrecking Co., D.C., 28 F.Supp. 271. On a motion to dismiss, demurrers having been abolished, and with them the rule of construing the pleadings strictly against the pleader, the allegations ought to be given a fair construction to come at the case intended to be stated, and unless it clearly appears that the facts do not authorize relief, or that relief is barred by some fact alleged, the matter ought to be further examined by summary judgment proceedings or by a trial. DeLoach v. Crowley's, 5 Cir., 128 F. 2d 378; Tahir Erk v. Glenn L. Martin Co., 4 Cir., 116 F.2d 865; Leimer v. State Mut. Life Assur. Co., 8 Cir., 108 F.2d 302.

The complaint here, because of several amendments, is involved and not entirely clear, but we think fairly alleges the following:

Kohler owned 900 shares of stock in the Corporation, which with other stock of the Corporation was put into the name and control of a voting trust, Jacobs being one of the trustees. The trustees issued trust certificates to the stockholders. The trustees elected for the Corporation ten directors, including Jacobs, A. J. Weinberg, and Kohler. Kohler, however, lived in Mississippi and did business in New Orleans, while the offices of the Corporation, its books and most of its business were in Atlanta. Jacobs was executive vice-president and Weinberg vice-president and treasurer, while Kohler was inactive and without much knowledge of the Corporation's affairs. He borrowed $23,000 from Mrs. Kohler on a pledge of 800 of his trust certificates. The Corporation had a branch business in New Orleans, in charge of one Winston. Kohler and Mrs. Kohler wished to sell their certificates, and Kohler in behalf of both requested Winston to get information as to the value of the stock, and to sell the certificates for that value. Winston communicated to Weinberg in Atlanta Kohler's request and Weinberg communicated it to Jacobs. Jacobs, Weinberg and Winston and the Corporation conspired and confederated together to deceive Kohler, and through Winston stated to Kohler that the stock had a value of $1.05 per share, and that Jacobs offered $945 for the certificates. Kohler drew a draft on Jacobs, attaching the indorsed certificates, and sent it to Atlanta, where it was paid. Kohler was without information as to the true financial condition of the Corporation, and could not secure it except from its active officers, Jacobs and Weinberg, who were well informed, but furnished no information from which its business or the value of its stock could be known. There were no financial statements published, or reports to investment journals, but they were deliberately withheld. The stock and voting certificates were not listed on any exchange, and there was no open trading in them. Prior to the sale in 1935 and since to the filing of the petition in 1942, the voting trustees and said officers have carefully concealed from plaintiffs and other stockholders, except those of their own selection, all information and sources of information from which knowledge of the value of the stock and voting trust certificates might have been ascertained. The stock and certificates were at the time worth $16 per share, and Jacobs "while a voting trustee had bought and caused to be bought and sold voting trust certificates, and was familiar with sales made by others and was familiar with the value of said stock, and the voting trustees kept records showing the value thereof, none of which was disclosed to complainants". There was no market price for said stock, "but the actual value thereof on and prior to said time was $16.00 per share or in excess thereof, and so much in excess of the amount paid plaintiffs as to constitute a fraud upon plaintiffs and a fraudulent concealment from them of the actual value. * * * The assets of said Corporation on said date so far exceeded its liabilities, and the business of the Corporation was so profitable and increasing so rapidly that the actual value of said trust certificates was $16.00 per share or in excess thereof". The Corporation as was known to Jacobs, but not to plaintiffs, had been buying up linen businesses in the southeast, issuing stock or voting...