Luhrig Collieries Co. v. Interstate Coal & Dock Co.

• Decision Date: 24 March 1922
• Parties: LUHRIG COLLIERIES CO. et al. v. INTERSTATE COAL & DOCK CO. POSTON et al. v. FRANKEL BROS. et al.
• Court: U.S. District Court — Southern District of New York

281 F. 265

LUHRIG COLLIERIES CO. et al. v. INTERSTATE COAL & DOCK CO.

POSTON et al. v. FRANKEL BROS. et al.

United States District Court, S.D. New York.

March 24, 1922

This case comes up on motions to dismiss in whole or part a bill of complaint in equity for various reasons and in various respects, as appears below. The bill was filed by the receivers of the Interstate Coal & Dock Company, who were appointed by this court on September 21, 1921. It is ancillary to a creditors' bill of the usual kind, in which the receivers were appointed, which prayed a sequestration of the assets of the corporation, an injunction against suits by creditors, and distribution among creditors, if it should be found necessary to close out the business.

The original bill depended upon diverse citizenship, and alleged that the plaintiffs therein were creditors of the defendant corporation, which was organized in Wisconsin, and had for a long time been engaged, in New York and elsewhere, in the business of buying and selling coal; that the defendant owned large interests in coal mines and coal apparatus, and a large amount of coal and other property, and that it was indebted to a large number of creditors, whom it was unable to pay that certain of its property had been pledged, and that the pledgees were threatening to sell; that, although its property was large, much could not be quickly converted into cash, and it had not sufficient funds to meet its liabilities as they became due; that creditors were threatening to begin attachments and other proceedings to enforce their claims and that some had already done so, to the detriment and loss of the other creditors of the defendant; that, unless receivers were appointed, a multiplicity of suits of various kinds all over the United States would arise, by which its assets would become subject to waste, to the great injury of its creditors and stockholders; that if receivers were appointed, with leave to continue its business, and its assets were not sacrificed by execution sales, they were enough to pay its liabilities and leave a residue for its stockholders, in the interest of both of whom its affairs should be administered by a court of equity.

To the bill was attached a schedule of assets, which showed that the corporation was insolvent, except for an item carried upon its books at some $3,000,000 for 'intangible assets' and 'development,' the nature of which did not however, appear further. To this bill the Wisconsin company appeared and by answer admitted the truth of its allegations upon which the h receivers were appointed.

The ancillary bill in suit was against Morris George, and Frank Frankel, constituting the firm of Frankel Bros., Ralph J. M. Bullowa, and the Universal Transportation Company. It alleged that one of the two receivers was a citizen of Ohio and the other a 'resident' of New York, that the members of Frankel Bros. were 'residents' of New York, and that the Universal Transportation Company was incorporated under the laws of that state. It then set up the pendency of the original bill, with the appointment of the receivers, and their authorization to bring the ancillary suit; that in April, 1920 an agreement annexed to the bill had been made by the Wisconsin company and Frankel Bros., the substance of which was as follows:

The corporation was able to furnish West Virginia coal for tidewater shipments, which the firm could transport and sell at foreign ports. The parties could therefore jointly purchase, transport, and sell such coal in foreign ports, all the profits from which might be equally divided between them. That in pursuance of that purpose the corporation agreed to deliver at Atlantic ports such coal as might be necessary to fill all export orders obtained by the firm, and the firm agreed to sell the coal so purchased at prices c.i.f. to be agreed upon between the parties. The firm agreed to furnish the necessary vessels and the corporation to pay the mine owners for all coal purchased, together with railway freight charges. The firm also agreed to make collections and see to the delivery of the coal at destination. The profits to be divided were to be computed as follows: From the gross sale price was to be deducted the cost, f.o.b. at the mines, the freights to tidewater, the maritime freights. all incidentals thereto, and actual office expenses. The corporation was to bear all expenses of routing and transportation, and the firm of soliciting and obtaining sales. The parties further agreed to form one or more corporations to assume the obligations of this 'tentative agreement' and to assign it to such corporations when formed.

The ancillary bill further alleged that in pursuance of this contract the corporation bought large quantities of coal, which it shipped to the firm, who in turn shipped it to foreign countries and sold it. The firm from time to time paid money on account of such transactions, but the accounts were never adjusted between them until the 25th of April, 1921, when the corporation at the firm's request delivered three promissory notes, in the face value of about $100,000 payable to the defendant the Universal Transportation Company (all of whose stock was owned by the firm), and released the firm from any liability in respect of any transactions between them. This release was given upon representations made by the firm that the amount for which the notes were given was a proper balance of all the accounts between the parties, and upon the firm's promise to pay the corporation any sums which might on a future accounting be shown to be due. The notes so given are now held by the defendant Bullowa, who was attorney for the firm, and who, with the Universal Transportation Company, 'claims or may claim some interest in said notes.'

The corporation since then has learned that the representations made by the firm, on which the notes and release were given, were false, and known by it to be false when made, and were intended fraudulently to induce the corporation to accept the statement of account and execute the notes and release; that in fact the firm had fraudulently charged in the account many items which were not proper, and made false entries in their books to deceive the corporation, all of which was unknown by it when it made the settlement; that in October, 1920, the firm notified the corporation that they had procured large orders for coal at prices agreed upon, and in pursuance thereof the corporation bought a large amount of coal at such prices, and sent some to tidewater, whereupon the firm refused to accept the same, and the corporation was obliged to pay the cost so agreed upon and to dispose of the coal at a loss, which should be included in the accounting between them.

The bill prayed a cancellation of the accord of April 25, 1921, redelivery of the notes, and a general accounting under the contract.

The motions to dismiss were:

(1) For joining with the suit for an accounting the breach of contract in October, 1920.

(2) Because the bill alleged that the accord of April, 1921, had been accompanied by a promise by the firm to render a future accounting on any other true statement of the accounts; in the alternative to strike out either the allegations of fraud or the agreement to account.

(3) To dismiss so much of the bill as prayed that the firm should account for all sums on the accounting, because they could not be charged with anything more than profits.

(4) To strike out so much of the bill as alleged that the firm had converted money of the corporation.

(5) To dismiss the bill as multifarious, for joining a cause of action on the original contract with a suit for an accounting on the promise to account, which was a part of the settlement of April, 1921.

(6) To dismiss the bill as multifarious, because the two causes of equity mentioned in the fifth motion were joined with the breach of contract in October, 1920.

(7) To dismiss the bill because the contract had never been terminated.

(8) To dismiss the bill for lack of jurisdiction.

(9) To dismiss the bill, because not ancillary to the original bill.

(10) To dismiss the bill, because the corporation had no power to enter into the contract, the same being ultra vires.

(11) To dismiss the bill, because this court had no jurisdiction to appoint receivers of a Wisconsin corporation.

(12) To dismiss the bill, because this court had no jurisdiction to appoint receivers of a foreign corporation on suit of nonresidents.

(13) To dismiss the bill, because the receivers appointed by this court had no power to bring such a suit.

(14) Because the bill was without equity.

(15) To dismiss the bill as to the defendants Bullowa and Universal Transportation Company, because no case was alleged against them.

Walter C. Noyes and Earl B. Barnes, both of New York City, for

Francis K. Pendleton, of New York City, opposed.

LEARNED HAND, District Judge (after stating the facts as above).

I shall begin with the point of jurisdiction, which may for convenience be divided into three parts: First, whether this court had jurisdiction of the original bill; second, whether this is a proper ancillary bill, within the jurisdiction of the court; and, third, whether the receivers appointed herein may sue upon such a claim.

The original bill is in a form exceedingly familiar in this district. It seeks the sequestration of the assets of a foreign corporation in the interest of their preservation. The defendant's chief objections to it are that it is invalid as a bill to wind up the business of the corporation not being in the state of its incorporation, and that to stand at all it must allege insolvency. A suit by stockholders to wind up a corporation must, it is...