Mullins v. De Soto Securities Co.
| Citation | 56 F. Supp. 907 |
| Decision Date | 11 August 1944 |
| Docket Number | Civil Action No. 257. |
| Parties | MULLINS v. DE SOTO SECURITIES CO., Inc., et al. (HARDEE et al., Interveners). |
| Court | U.S. District Court — Western District of Louisiana |
Pyburn & Pyburn, of Shreveport, La., and Eugene A. Nabors, of New Orleans, La., for plaintiff and interveners.
Clyde R. Brown, of Monroe, La., and L. E. Colvin, of Mansfield, La., for defendants.
Just where are we? The date of the original filing of this case in the state court (then removed to us) was January 31, 1940. As a matter of necessary expediency, we must substitute for a narrative now the narratives of previous opinions. The first opinion by this court, sustaining a motion to dismiss, has a full and elaborately-detailed narrative and is found at 45 F.Supp. 871. The denial of the petition of certain interveners is found at 2 F.R.D. 502. The affirmance in part and the reversal in part by the Circuit Court of our first opinion is at 136 F.2d 55; and for the subsequent granting of the petition of interveners, see 3 F.R.D. 432.
We have reached the status where answers have been filed by all the defendants.
There have been many conferences of the attorneys with the court, and as a result, the original petition of seventy-eight paragraphs has been much reduced, in that numerous admissions have been made, and many paragraphs have been stricken by written opinion. So, in the four years, we have moved quite appreciably toward the objective of decision, because many legal phases of the case have been thoroughly digested, and both sides have meliorated with time allegations which at first were too violently asserted.
All contending parties in this derivative action, the plaintiff as well as the defendants, are in liquidation. That the drastic assertions of injury made by the plaintiff must be discounted philosophically is proved by the fact that even this complaining corporation has paid fifty per cent in dividends—not so bad; the attacked corporation, that is, the perpetrator of the injury, in its liquidation has paid now dividends aggregating seventy-five per cent. So, all in all, since this financial drama occurred during the decade covering our last depression, the clouds are not so black. We believe that the holders of the preferred stock who have instituted the derivative action under the name of the corporate plaintiff have been impressed by what we said in 45 F.Supp. 871, at page 887, supra:
"(b) because the co-owners of the preferred stock had rather make sure that they get their proportionate remittance from the cash assets of the Securities Company (an amount presumably around $50,000, as stated in argument) than to get a court to order a master, authorized to surround himself with auditors, clerks, bookkeepers, stenographers, etc., not to mention lawyers, and who will spend a substantial portion of this $50,000 to establish a very doubtful claim whose only solvent source of collection would be the F.D.I.C."
The Circuit Court in its opinion in partial affirmance has absolved the Federal Deposit Insurance Corporation from liability.
So, if not legally, in the sense of good practice, we are led to understand why each side, now that the stage of issue drawn has been reached, should each rush simultaneously to the standard of a plea of summary judgment. It is to use every means of a decision on the merits without having to incur the costs which a full trial would entail.
This is merely an incidental thought. It is not to mean that the two motions for summary judgment, one from each side, are not sincerely made or are not properly legally premised.
Summary judgments are permitted under Rule 56 of the Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c. But their applicability is seldom, because of the strict requirements necessary.
Acadian Production Corporation of Louisiana v. Land, 5 Cir., 136 F.2d 1, 2, 3.
Is either one of the motions for a summary judgment in the instant case good?
We shall consider first the one made by the plaintiff and interveners.
Paragraph (1) of this motion has no facts as yet in the record to prove it. It would take a trial with preponderant facts produced to substantiate it. The three affidavits, one by Mrs. Mabel C. Williams, the second by Mrs. Sarah Nabors Mullins, and the third by Thomas Hardee, Sr., offer nothing in proof of the allegations of paragraph (1).
Subparagraph (a) has general conclusions of the pleader, and contains not a single fact; so it must be omitted altogether as being proof of anything.
Subparagraph (b) falls under the same comment.
Paragraph (2) contains generalizations and a legal conclusion unsupported by any facts. It avails nothing to the plaintiff under a motion for a summary judgment.
In paragraph (3) it is asserted that one of the defendants in liquidation, the De Soto Bank and Trust Company, has paid its depositors an aggregate of seventy-five per cent in installments, "and will pay its depositors a substantial additional dividend," and further it is alleged that the De Soto Securities Company, the plaintiff in this derivative action, "will liquidate at a sum approximately equivalent to fifty per cent of the par value of its outstanding preferred stock and, therefore, if no relief is granted to its preferred stockholders they will receive a smaller payment in liquidation than the creditors and depositors of the De Soto Bank & Trust Company." These allegations are innocuous.
Paragraph (4) consists of the general conclusions of the pleader, and contains not a single fact; so it must be omitted altogether as being proof of anything.
Paragraph (5) falls in the same category as paragraph (4)—there being nothing but argumentative legal conclusions unsupported by a single fact in the whole record. It would take a trial on the merits, with a number of harmonious facts, to warrant the conclusion.
We should itemize more in detail the various controverted questions of fact which cause the motion for summary judgment by the plaintiff to fall.
It is stated in brief that the motion for summary judgment is grounded upon three general bases of fact:
(a) That prior to October, 1936, the Securities Company was dominated by the banks, and that a majority of the directors of the Securities Company were also directors of the banks.
(b) That the preferred stockholders of the Securities Company were deprived of an independent board of directors to properly discharge the fiduciary relationship.
(c) That plaintiff is entitled to judgment due to the policy of the self-dealing fiduciary in making repayment of debts and in transferring stock and other securities of doubtful value, and in operating the Securities Company with inadequate capital, and in pyramiding its assets and over-extending its credit.
The main objective of the motion is that judgment should be rendered for the plaintiff and interveners in the amount of $34,550, allegedly wrongfully repaid, partly to the De Soto Bank, and later partly to its receiver, out of the assets of the Securities Company. Alternatively, it is urged that the corporate fiction be ignored because the Securities Company was really an agency operated by the banks for their own benefit; that the preferred shares of the Securities Company are in truth a claim against the De Soto Bank and Trust Company in receivership. It is also argued in the brief, though not forming an integral part of the motion, that the preferred stock of the Securities Company now owned by the receiver should be subordinated to the other stock.
We find that many of the facts on which the motion is grounded are controverted and may not be resolved until after a trial on the merits:
(a) It is admitted that a majority of the directors of the Securities Company were from time to time also directors of the two banks, but there is no admission or proof that these directors violated any breach of trust. It is averred that the plaintiff and interveners were familiar with all previous facts when they acquired their stock and, directly or indirectly, familiar with the facts at all times thereafter. For chronology of events, see Mullins v. De Soto Securities, supra, particularly 45 F.Supp. at pages 876-878.
(b) There is no admission that the Securities Company was deprived of an independent board of directors; and the answer in respect to all intercorporate transactions is that these directors acted fairly and impartially.
(c) It is denied that there was a policy of self-dealing between the banks and the Securities Company. The answer admits a few instances of intercorporate transactions between the Bank of Commerce and the Securities Company prior to 1933, but the total amount involved was less than five per cent of the total assets held by the Securities Company and much less than the total investment by the Banks in common stock and preferred stock of the Securities Company. Repayment of the indebtedness can not be sustained as a wrong unless the charges of mismanagement are sustained. No such proof exists now. The questions as to whether or not the Securities Company was operated with inadequate capital, its assets pyramided, and its credit over-extended are, so far, matters of pure opinion.
Certainly the court can make no conclusion without testimony and a full understanding of the conditions under which the Securities Company was operated, of the type of business it conducted, and of the nature of its lending business.
In the brief it is...
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