Martin v. Development Co. of America

• Decision Date: 13 February 1917
• Docket Number: 2822.
• Citation: 240 F. 42
• Parties: MARTIN v. DEVELOPMENT CO. OF AMERICA.
• Court: U.S. Court of Appeals — Ninth Circuit

240 F. 42

MARTIN v. DEVELOPMENT CO. OF AMERICA.

No. 2822.

United States Court of Appeals, Ninth Circuit.

February 13, 1917

Francis M. Hartman and Edwin F. Jones, both of Tucson, Ariz., for appellant.

Everett E. Ellinwood, John M. Ross, and Leslie C. Hardy, all of Bisbee, Ariz., and Selim M. Franklin, of Tucson, Ariz., for appellee.

The plaintiff, Martin, trustee in bankruptcy of the Imperial Copper Company of Arizona, brings this bill in equity against the Development Company of America, a Delaware corporation owning property and transacting business in Arizona. The bill alleges that the defendant Development Company held a contract for the purchase of certain mining properties in Pima county, Ariz., for the sum of $515,000, and that thereafter, on or about May 11, 1903. the defendant created and caused the said Imperial Copper Company, a corporation to be organized under the laws of Arizona for the purpose of consummating said purchase for the use and benefit of defendant Development Company; that all of the incorporators directors, officers, etc., of the Copper Company were at all times employes of the Development Company, and until on or about March 31, 1915, owned all of the capital stock of the Copper Company; that until the latter's adjudication as a bankrupt, in 1911, it elected all the directors, officers, etc., of the Copper Company from its own (Development Company's) employes, directors, etc., and transacted all the business and handled and appropriated to its own use all the moneys derived from the operation of the said mining properties, and caused the title to the mining properties involved to be taken in the name of and operated by the Copper Company for the use and benefit of the Development Company in order to facilitate the business of the latter in developing the mining properties; that F. M. Murphy, of Arizona, was president of the Development Company, and is now, and has been since November 9, 1909, the president of the Copper Company, and that the Development Company created and used the Copper Company as an auxiliary, subsidiary, branch, agent, and instrumentality in carrying on its mining business; that the Development Company in 1903 caused the Copper Company to execute a first mortgage or deed of trust upon all the mining property referred to, to secure a $2,000,000 bond issue of the latter, for the use and benefit of the Development Company; that all such bonds were issued and delivered to the latter company, which used the proceeds of their sale in its business of operating mining properties, and also used the capital stock of the Copper Company, of the par value of $5,000,000, to the same purpose; that the Development Company, in 1903 and 1904, also caused to be organized under the laws of Arizona two 'dummy corporations,' known as the Arizona Southern Railroad Company and the Southern Arizona Smelting Company, elected all their officers, directors, etc., and at all times controlled their affairs as departments of its own business, and caused all the shares of the capital stock to be issued to and held in the name of the said

Copper Company, and then (in 1904) caused all the shares to become subject to the lien of the Copper Company mortgage as additional security for the before-mentioned $2,000,000 bond issue.

It is alleged on information and belief that on July 3, 1911, the Development Company, being then a holder of the majority of the bonds and capital stock of the Copper Company, instituted a suit in the district court of the First judicial district of the territory of Arizona to foreclose the mortgage or deed of trust on all of the mining properties and on the shares of stock of the Railroad and Smelting Companies; that on December 28, 1914, it obtained a decree of foreclosure and order of sale; that the Development Company then caused all of said mining properties and shares of stock to be sold under the foreclosure, and to be bid in, in the name of Leo Goldschmidt, at the Price of $90,000 for the mining properties and $12,000 for the Railroad and the Smelting Company stock, all this for the use and benefit of the Development Company and Murphy, its president, and that they (Development Company and Murphy), as the real parties in interest in the purchase at the foreclosure sale, are now negotiating for the sale of all the above-mentioned properties and stock to the American Smelting & Refining Company of New Jersey, which company is now in possession of and working the mining properties; that on July 5, 1911, a petition in bankruptcy was filed against the Copper Company by certain creditors, and on July 25, 1911, it was adjudged a bankrupt; that the total of allowed claims in said bankruptcy proceeding is $1,280,686.22; that at the first creditors' meeting, held on August 12, 1911, M. P. Freeman was elected trustee, and acted as such until July 2, 1914, at which time he resigned, and plaintiff was elected and qualified as such trustee.

Plaintiff then proceeds to allege, on information and belief, that there was some character of agreement between the Development Company and Murphy, its president, on the one hand, and the...