Mullins v. De Soto Securities Co.

• Decision Date: 06 July 1942
• Docket Number: No. 257.,257.
• Parties: MULLINS v. DE SOTO SECURITIES CO., Inc., et al.
• Court: U.S. District Court — Western District of Louisiana

45 F. Supp. 871

MULLINS v. DE SOTO SECURITIES CO., Inc., et al.

No. 257.

District Court, W. D. Louisiana, Shreveport Division.

July 6, 1942.

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Eugene A. Nabors, of New Orleans, La., and Pyburn & Pyburn, of Shreveport, La., for plaintiff.

Clyde R. Brown (of Shotwell & Brown), of Monroe, La., and L. E. Colvin, of Mansfield, La., for defendants.

PORTERIE, District Judge.

The plaintiff in this stockholders' derivative or representative action is the owner of eighteen shares of preferred stock issued by DeSoto Securities Company, Inc., and the real defendants are the DeSoto Bank & Trust Company in liquidation, Federal Deposit Insurance Corporation, as receiver of DeSoto Bank & Trust Co. and individually, and The DeSoto Corporation. Plaintiff charges that the DeSoto Bank and its predecessor, the Bank of Commerce and Trust Co., as dominant stockholders of the DeSoto Securities Company wrongfully managed the affairs of the DeSoto Securities Company during the period from January 1, 1928, to October, 1936, in order to benefit the banks and The DeSoto Corporation, a wholly owned subsidiary of the banks, and damaged the DeSoto Securities Company in the amount of $92,420.57. It is charged that the officers and directors of the DeSoto Securities Company were also the officers and directors of the banks; that the banks owned all the common stock of the DeSoto Securities Company and entirely controlled and dominated the same. It is further charged that the Federal Deposit Insurance Corporation was appointed receiver of the DeSoto Bank in October, 1936, and that since then it has continued to wrongfully manage the DeSoto Securities Company to the detriment of the interest of the preferred stockholders, and that it has collected from the DeSoto Securities Company unreasonable amounts for rents, attorneys' fees and auditing expenses since October, 1936; that the present officers of the DeSoto Securities Company are agents and employees of the receiver, dominated by the receiver, and that these officers have refused to correct the alleged abuses or bring suit for the damages allegedly inflicted on the DeSoto Securities Company prior to its appointment as receiver, notwithstanding the demands made by plaintiff.

The court has before it now for consideration the defendants' motion for a rehearing on the motion to dismiss for failure to state a claim upon which relief can be granted.

In addition to the pleadings, the court also has before it answers by the defendants to several hundred interrogatories which were propounded by plaintiff and also many exhibits and records taken from the books and files of the DeSoto Securities Company which are made a part of the answer to the interrogatories.

Although these answers to interrogatories do not form a part of the pleadings, yet they are evidence in the record and can be considered by the court either under the Federal or Louisiana practice. See Federal Rules of Civil Procedure, 26 (d) and 56(c), 28 U.S.C.A. following section 723c; Fontenot v. Ludeau et al., 191 La. 540, 186 So. 21.

Defendants urge that the motion to dismiss should be sustained because of the following reasons:

In 1928 and prior thereto, The DeSoto Securities Company was doing business in Mansfield, Louisiana, dealing in securities, principally in notes secured by mortgages on automobiles and real estate. The Bank of Commerce and Trust Company, at Mansfield, Louisiana, as the owner of substantially all of the common, or voting, stock, was in a position to control the selection of the officers of the DeSoto Securities Company. The DeSoto Corporation was incorporated in 1929 as a real estate holding company and was an entirely owned subsidiary of the Bank of Commerce and Trust Company. On June 25, 1929, the charter of the DeSoto Securities Company was amended to provide for the issuance of non-voting preferred shares, providing for dividends of 7% per year, payable semi-annually out of earnings, and $100,000 of preferred stock was issued, of which amount $88,300 is now outstanding, and of which plaintiff owns eighteen shares, or a total of 2.04% thereof. Dividends on the preferred shares have been in default since July 1, 1932. Plaintiff's mother acquired seventy shares of the preferred stock on July 1, 1929, and twenty shares on January 26, 1931. On August 26, 1935, she transferred these shares to her five children, each receiving eighteen shares by direct transfer in partial satisfaction of a liability to her children arising from her administration of their affairs as tutrix.

On January 20, 1931, the Bank of Commerce and Trust Company was recapitalized, and $198,000 of additional capital was supplied, after a heavy loss had been sustained through a shortage in the accounts of one of its officers and by depreciation of its assets. In 1933 the Bank of Commerce and Trust Company was closed and liquidated by the State Bank Commissioner of the State of Louisiana; and on March 29, 1933, all of the assets of said bank were sold by the liquidator, with approval of the District Court, to the DeSoto Bank & Trust Company, which assumed all liabilities of the liquidated bank. The last named bank was organized by former officers of the Bank of Commerce, and the directors were substantially the same. The DeSoto Bank acquired in this transfer all of the common stock of the DeSoto Securities Co., Inc. and of The DeSoto Corporation and thereafter continued to operate both corporations, some of the officers and directors of the bank also serving the two corporations.

The DeSoto Bank & Trust Company was closed by the State Bank Commissioner on October 9, 1936, and, as its current deposits were insured in accordance with the acts of Congress, the Federal Deposit Insurance Corporation was appointed and confirmed receiver thereof by the District Court for DeSoto Parish, on November 7, 1936, under Act 180 of 1934. The receiver took possession of the assets of the bank, including title to the common stock of the DeSoto Securities Company and of The DeSoto Corporation, and upon resignation of all officers and directors of the said two companies, agents and employees of the receiver were elected as officers and directors thereof. This arrangement has been continued to the present, and, while the two corporations have been operated as going concerns, no new business has been undertaken, and they are in effect being liquidated. The receiver has been liquidating the DeSoto Bank and has paid to the creditors several liquidating dividends, and this liquidation is being continued.

The receiver of DeSoto Bank, in accordance with law, published a notice calling on all creditors to file claims, and the period for filing claims expired on March 15, 1937. See Sec. 4, Act 300 of 1910; In re Interstate Bank & Trust Co., 188 La. 211, 176 So. 1, 4.

It will have been observed that many of the events and occurrences related above transpired during the period of depression following the general economic collapse in October, 1929. We are familiar with the fact that there was an apparent recovery in general conditions in 1930, followed by another serious reverse in 1931 and 1932, leading to the general banking holidays throughout the nation in 1933. These general economic changes resulted in abandonment by the United States of the gold standard and the adoption by Congress in 1933 of the law providing for insurance of bank deposits.

The period in which it is alleged that the banks damaged the DeSoto Corporation is from January 1, 1928, to October, 1936, and the following summary of events and occurrences is given in order to show the sequence of events as they relate to the development of this suit:

1. July 1, 1929, preferred stock of DeSoto Securities Co. authorized and issued, and mother of plaintiff acquired, seventy shares thereof.

2. January 21, 1931, Bank of Commerce and Trust Co. recapitalized.

3. January 26, 1931, mother of plaintiff acquired twenty shares of DeSoto Securities Co. preferred stock.

4. July 1, 1932, DeSoto Securities Co. defaulted in its dividend on preferred stock.

5. January 16, 1933, Bank of Commerce and Trust Co. closed by State Bank Commissioner and subsequently liquidated under orders of state court.

6. February 7, 1933, order of court authorized the State Bank Commissioner as liquidator to sell assets of Bank of Commerce and Trust Co. to DeSoto Bank.

7. March 29, 1933, DeSoto Bank purchased from liquidators all assets of Bank of Commerce and Trust Co.

8. August 27, 1935, plaintiff acquired from her mother shares of preferred stock of DeSoto Securities Co.

9. October 9, 1936, DeSoto Bank closed by State Bank Commissioner.

10. October 21, 1936, appointment as receiver accepted by Federal Deposit Insurance Corporation.

11. November 7, 1936, appointment of F. D. I. C. as receiver of DeSoto Bank confirmed by order of court dated November 7, 1936.

12. March 15, 1937, time for creditors to file claims with receiver expired.

13. May 26, 1939, notice or demand by Eugene A. Nabors for himself and as attorney for plaintiff addressed to DeSoto Securities Co. and its officers, demanding an action against the DeSoto Bank and certain former officers and directors of the Bank of Commerce and Trust Co. and the DeSoto Corporation.

14. January 31, 1940, present suit filed in state court.

One of the reasons heretofore assigned by the court for suspending action on the motion now being considered with the other pending motions was in order to provide the plaintiff with the information and facts which might be derived from the answers to interrogatories. These answers were filed in this court on April 5, 1941.

It appears that plaintiff had conducted some sort of examination of the books and records of the DeSoto Securities Company prior to December 3, 1938, as on that date the DeSoto Securities Company addressed a letter to her attorney...