Martin v. Brown
| Citation | 294 F. 436 |
| Decision Date | 10 December 1923 |
| Docket Number | 6300. |
| Parties | MARTIN et al. v. BROWN et al. |
| Court | United States Courts of Appeals. United States Court of Appeals (8th Circuit) |
T. J O'Donnell, of Denver, Colo., for appellants.
T. H Devine, of Pueblo, Colo. (J. W. Preston and Todd C. Storer both of Pueblo, Colo., on the brief), for appellees J. S Brown Mercantile Company, J. S. Brown Grocery Company, Shields-Metzler Grocery Company, Franklin T. Metzler, John O. Spicer, James M. Metzler, and William H. Parry.
Henry C. Vidal, of Denver, Colo. (George L. Hodges and William V. Hodges, both of Denver, Colo., on the brief), for appellees J. S. Brown & Brother Mercantile Company, Frederick Sidney Brown, J. Sidney Brown, Carroll Teller Brown, William Knight Brown, and Edward Newton Brown.
Before STONE and LEWIS, Circuit Judges, and VAN VALKENBURGH, District Judge.
It appears from the bill that in July, 1893, the J. S. Brown & Brother Mercantile Company was incorporated under the laws of the state of Colorado. This corporation succeeded to the business of J. S. Brown & Brother, wholesale grocers at Denver, Colo., a copartnership conducted by J. Sidney Brown and his brother Junius Flagg Brown. At the time of the incorporation the said John Sidney Brown appears to have been the sole owner of said business and the corporate stock of the corporation which succeeded the partnership. John Sidney Brown died on the 15th day of January, 1913, leaving surviving him Adele Overton Brown, his widow, and nine children. The plaintiffs Alice Brown Martin and Irene Brown Black and the defendants J. Sidney Brown and Carroll Teller Brown were children of the said Adele Overton Brown. The defendants Frederick Sidney Brown, William Knight Brown, and Edward Newton Brown, together with one Katherine Brown Johanson and one Elizabeth Brown Inglis, not parties to this proceeding, were children of the said John Sidney Brown by a former wife.
By his will John Sidney Brown bequeathed his property to his widow and children, and named his widow and the defendants Frederick Sidney Brown and J. Sidney Brown as his executors. In his will he expressed the wish that the stock and notes of the corporation standing in his name should be partitioned among his heirs, upon which they should receive the income respectively from their holdings for a period of five years. On or about the 19th day of July, 1913, the heirs of John Sidney Brown filed in the county court for the city and county of Denver, having probate jurisdiction, their petition, of too great length to be set out in full in this opinion, praying authority to form a corporation with an authorized capital stock of $1,500,000, to take over the title to all of the said wholesale grocery and jobbing business, including the stock of goods, wares, and merchandise, bills receivable, and accounts receivable relating thereto, then belonging to the said J. S. Brown & Brother Mercantile Company, with the exception of certain accounts receivable of the value of $150,000, to be determined, selected, and set aside by the executors of said estate, and to be otherwise disposed of. This was done for the stated purpose of segregating the said wholesale grocery business and property pertaining thereto from the other business and property of the decedent. As a consideration for the conveyance and delivery of said property to the new corporation, and in exchange therefor, the said J. S. Brown & Brother Mercantile Company was to receive $400,000 of the par value of the preferred capital stock of said corporation, and $350,000, par value, of the common capital stock of said corporation; said preferred stock and said common stock each amounting to $750,000 of the total capital of $1,500,000. The J. S. Brown & Brother Mercantile Company was also to sell $250,000 of said common capital stock of the corporation to be formed, and also to sell $150,000 of the accounts receivable which had been reserved from the transfer to the new company as hereinabove set out; all upon such terms and conditions as the executors might deem best for the best interests of the estate. For the $250,000 of stock of the said J. S. Brown & Brother Mercantile Company and the $150,000 of accounts receivable, to be sold as last aforesaid, J. S. Brown & Brother Mercantile Company were to receive $100,000 in cash and $150,000 in promissory notes payable in installments over a period of five years; the same to be secured by the common stock of the new company. It is unnecessary to consider more in detail the other provisions of the petition.
On the 2d of August, 1913, the prayer of the petitioners was granted by order of the county court. This petition was signed by the plaintiffs in this action. At that time Alice Brown Martin was married and a resident of Seattle, Wash.; the plaintiff Irene Brown Black was unmarried and living with her mother. It is alleged in the bill that neither of the plaintiffs understood the purport of the transaction, but relied entirely upon the representations, particularly of their elder brothers, defendants herein, who exercised a dominating influence in the affairs of the family, and upon whose representation that the step taken was for the best interests of all concerned they implicitly relied. It is stated also that the mother, who was at that time living and had been named as president of the J. S. Brown & Brother Mercantile Company, was likewise unversed in business affairs and was under the same dominating influence and control. In the petition filed with the county court the full nature of the contemplated change was not stated. It was evident, of course, that new capital and other parties were to be brought in through the agency of the new corporation, but the names of such parties and the extent of their control was not stated.
The bill charges that the purpose of this reorganization was, in effect, to shift the management and control of the business of the J. S. Brown & Brother Mercantile Company from the defendant members of the Brown family, in return for which such defendants made transfers of this portion of the estate at a sacrifice and for an inadequate consideration, and were themselves to receive certain disproportionate advantages, interests, and returns as compared with their coheirs, and particularly these plaintiffs, and were to enjoy certain emoluments in the way of salaries and otherwise in the management of the residue of the Brown estate, to the disadvantage and to the loss of plaintiffs; that this was known to those of the defendants characterized in the bill as the Metzler party, to wit, Franklin T. Metzler, John O. Spicer, James M. Metzler, and William H. Parry, who participated with the said defendants of the Brown family in thus perpetrating what is, in effect, alleged to be a fraud upon the plaintiffs. The defendant Edward Newton Brown is practically exonerated from this charge, because he is alleged to be in a measure irresponsible, and the bill prays relief in his behalf as well as for the plaintiffs. The defendant German-American Trust Company is a mere formal, although necessary, party, because made a trustee with power to hold and vote certain shares of the common stock transferred and delivered to it. The defendant the Shields-Metzler Grocery Company of Colorado Springs, owned or controlled by the Metzler party, is charged with participation and as having been made an instrumentality in the furtherance of the project. The defendant the J. S. Brown Mercantile Company is the new company organized pursuant to the prayer of the petition filed with the county court, in which the so-called Metzler party, consisting of the individuals above named, and the defendants of the Brown family, with the exception of the defendant Edward Newton Brown, are in corporate control, and to which the business of the old J. S. Brown & Brother Mercantile Company has been transferred, as aforesaid. In the latter company the defendants of the Brown family, together with Franklin T. Metzler, are in control as officers and directors.
At a later period the defendant J. S. Brown Grocery Company, of Pueblo, Colo., was organized, apparently as a branch and subsidiary of the J. S. Brown Mercantile Company; the stock holdings and commercial transactions of the two companies, and indirectly of the J. S. Brown & Brother Mercantile Company, being interlaced and interdependent.
It is charged in the bill that the defendants of the Brown family, in control of the affairs and remaining property of the J. S. Brown & Brother Mercantile Company, have voted to themselves salaries, and have credited themselves with expenses and distributions, largely disproportionate to the services required in view of the transfer of the substantial business of the company to the new corporation, and to the disadvantage of complainants; that in substance the conduct of the business of the affairs of the John Sidney Brown estate, through the transactions to which reference has been made, as alleged in the bill, discloses, and will, upon hearing, more fully disclose, not only waste in management, but a deliberate plan in the nature of a conspiracy to administer the estate to the personal advantage of the defendants and at the expense and loss of these petitioners. The petitioners, therefore, pray an accounting and for such other and further relief as the ultimate facts may justify. The foregoing is a fair statement of the intendment of the bill, omitting unnecessary reference to incidental matters pleaded largely by way of inducement and with the evident purpose of fortifying and justifying the claims of the petitioners.
The defendants filed motions to strike various paragraphs clauses, and phrases from the bill. These motions were sustained. This action of the trial court...
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