Krouse v. Brevard Tannin Co.

• Decision Date: 05 February 1918
• Docket Number: 1563.
• Parties: KROUSE et al. v. BREVARD TANNIN CO. et al.
• Court: U.S. Court of Appeals — Fourth Circuit

249 F. 538

KROUSE et al. v. BREVARD TANNIN CO. et al.

No. 1563.

United States Court of Appeals, Fourth Circuit.

February 5, 1918

Mark W Brown, of Asheville, N.C. (Clarence E. Sprout, of Williamsport, Pa., and John E. Cupp, of Philadelphia, Pa., on the brief), for appellants.

Duff Merrick and F. A. Sondley, both of Asheville, N.C., for appellees.

Before KNAPP and WOODS, Circuit Judges, and CONNOR, District Judge.

CONNOR District Judge.

Plaintiffs are citizens and inhabitants of the state of Pennsylvania. Defendant Brevard Tannin Company is a corporation chartered pursuant to the laws of North Carolina, January 13, 1903 conducting its corporate business in the Western district of said state. Defendant, Wm. F. Decker, is a citizen and inhabitant of the same state.

Plaintiffs in their bill, allege: That the objects and purposes for which defendant corporation was formed are: To erect and operate factories for the manufacture of tanning extracts and other extracts obtained from trees, bark, leaves, plants, etc. To conduct a general tanning business, manufacturing leather goods and other products made from skins, hides, and peltry of animals. To deal in all kinds of timber, logs, wood, barks, etc., and to manufacture them into all kinds of marketable products and commodities. To manufacture, buy, sell, and otherwise deal in extracts, oils, fertilizers, glue, etc That the authorized capital stock of said corporation is $500,000, divided into shares of $100 each, one half to be preferred and the other half common stock. That, of the authorized issue, 1,750 shares of preferred and 1,250 shares of common stock has been issued. That Edward D. Adams owns 1,100 shares preferred and 620 shares of common stock. That George L. Adams owns 335 shares preferred and 311 shares of common stock. That defendant W. F. Decker owns 100 shares preferred and 100 shares common stock. Plaintiff Chas. C. Krouse owns 42 shares preferred and 41 shares of common stock. Louis T. McFadden owns 49 shares preferred and 41 shares common stock. George L. Adams, Edward D. Adams, and Wm. F. Decker are, and have been since its organization, directors of the company. George L. Adams is, and has been since its organization, president; Wm. F. Decker, secretary and treasurer and manager of the company.

As grounds of complaint, and the basis upon which complainants seek the intervention of the court and relief against the alleged wrongful conduct of the majority stockholders, directors, and managing officers of the company, the plaintiffs, among other things, allege: That they have, at all times, refused to permit plaintiffs to have any voice in the control and management of the company. That Edward D. Adams has never attended a meeting of the board of directors, never visited the plant, or given any attention to the affairs of the company, but has willfully neglected and carelessly absented himself from the meetings of the board of directors. Practically the same complaint is made of Geo. L. Adams, another director, with the result 'that the business is deteriorating' in a number of respects, pointed out in the bill. That the said directors, being also the managing officers, with intention of defrauding the Brevard Tannin Company and the complainants, caused to be issued and delivered to the said W. F. Decker, one of the directors aforesaid, 100 shares of the common stock of the company, for which no consideration passed from the said parties to the company, 'but the same was issued and delivered to the said Wm. F. Decker as a part of an unlawful and fraudulent agreement between the said Edward D. Adams, Geo. L. Adams, and Wm. F. Decker, as hereinafter set out. ' That on the 15th day of March, 1913, the said Edward D. and George L. Adams and Wm. F. Decker caused a deed to be executed of the company to John W. McMinn, for the nominal consideration therein expressed of $10, conveying to said McMinn certain tracts of land described in an exhibit attached for the real consideration of $27,000. That there was no warrant or authority given to the said parties to make such sale, but that it was made at a grossly inadequate price, to the great prejudice of the company. That on October 28, 1912, defendant Wm. F. Decker, director of said company, entered into a contract with one Louis Carr, afterwards assigned to the Carr Lumber Company, by which said Decker was to receive all of the wood usable in making tanning extracts from a tract of land containing 69,000 acres, a part of the Vanderbilt estate. That an interest in the said contract was subsequently assigned by Decker to George L. Adams. That in making said contract Decker was acting for and in behalf of the stockholders of the Brevard Tannin Company, and said contract was in fact made by Decker with Carr, for the use and benefit of the said company. That the contract was made in his own name, and he has refused and neglected, and still refuses and neglects, to assign the same to the company. That the contract was taken in the name of Decker, pursuant to a fraudulent agreement and understanding between said Edward D. and Geo. L. Adams and Decker. That by the sale of the land to McMinn the company was denuded of all woodland which it then owned, and all of its available wood supply in that vicinity taken from it. That the issue of the 100 shares of stock to Wm. Decker was made in consideration of the promise of said Decker to supply the company with wood from the Vanderbilt tract. That he is not now able, nor has he been able since the execution of said contract, to supply the company with wood, except by virtue of the acquiescence of the Champion Fibre Company, to which said Decker has sold all of the wood to be taken from the Vanderbilt tract, to the extent of his capacity to produce during the whole period of his contract with said Louis Carr.

The bill charges: That Wm. F. Decker embezzled and converted to his own use $93.11 of the money of the defendant company. That he forged the name of one John Morris upon a check drawn by said company for $337.75, appropriating the amount to his own use. That said Decker fraudulently appropriated other money belonging to said company to his own use, giving particulars thereof-- all of which acts on the part of Decker were well known, or should have been known, to said Edward D. and Geo. L. Adams. That Decker cut wood from the lands of the company, and sold same, of the value of $456, to the Champion Fibre Company, which he converted to his own use.

That by reason of the negligence, carelessness, and inattention of the business of the said directors and managing officers the stockholders of the company have been damaged, the property allowed to depreciate and decay, its business permitted to be dissipated, so that the company has lost approximately the sum of $50,000 a year during the year 1915, and during the year 1916 the sum of $100,000 per year, etc.

For the purpose of meeting the jurisdictional requirements of equity rule 27 (198 F. xxv, 115 C.C.A. xxv; Hopkins, Eq. Rules (2d Ed.) 172), complainants allege: That they were shareholders of the company at the times of the transactions mentioned, of which they complain. That the suit is not a collusive one to confer jurisdiction on the District Court of the United States for the Western District of North Carolina, of which said court would not otherwise have jurisdiction, but is instituted in good faith for the purposes herein stated. That they brought the transactions of which they complain to the attention of said Edward D. Adams, Geo. L. Adams, and Wm. F. Decker, as officers and directors of said Brevard Tannin Company, so they would have full opportunity to redress said wrongs; but said officers and directors failed and refused so to do, and assumed the same antagonistic and partisan attitude as that theretofore manifested by them towards plaintiffs.

The bill prays that process issue to the defendant company and to Wm. F. Decker. The other directors are not within the jurisdiction of the court and are not joined as defendants. They pray that a receiver be appointed to preserve the property of the company until the final decree, and for such other and further relief as the nature and circumstances of the case require, etc.

Defendants filed joint answer, denying all of the material allegations of the bill, setting out, by way of exhibits, the contracts referred to and the correspondence between complainants and the officers and directors of the company. The record states that, after the bill and answer had been filed, and after depositions had been taken by defendants, on the merits of the suit, and after said action had been set down for hearing, defendants orally moved to dismiss the bill upon the ground that it did not allege facts sufficient to constitute a cause of action, and upon the further ground that it appeared from the bill that Geo. L. Adams and Edward D. Adams were indispensable parties defendant and that they were without the jurisdiction of the court, and if they were made parties defendant the jurisdiction of the court would be ousted, because of the citizenship of the said George L. and Edward D. Adams; and it was upon this motion that the final decree was entered. This statement is signed by the District Judge. The decree dismissing the bill recites the motion and:

'That the court is of opinion that said bill fails to properly allege facts sufficient to constitute the cause of action therein attempted to be set up, and said bill is therefore hereby dismissed.'

The brief, and oral argument of defendants, challenge the right of the complainants to invoke the equitable power of the court, because they have not complied with the requirements of equity rule 27. As this question lies at the threshold...