Nettles v. Rhett

• Decision Date: 25 April 1936
• Citation: 14 F. Supp. 594
• Court: U.S. District Court — District of South Carolina
• Parties: NETTLES v. RHETT et al.

14 F. Supp. 594

NETTLES v. RHETT et al.

District Court, E. D. South Carolina.

April 25, 1936.

COPYRIGHT MATERIAL OMITTED

R. E. Whiting, of Columbia, S. C., Eugene S. Blease, of Newberry, S. C., and John I. Cosgrove, of Charleston, S. C., for plaintiff.

Mitchell & Horlbeck, Stoney, Crosland & Pritchard, Huger, Wilbur, Miller & Mouzon, Nathans & Sinkler, and Lionel K. Legge, all of Charleston, S. C., for defendants.

MYERS, District Judge.

The plaintiff, Joseph L. Nettles, as authorized receiver of the stockholders' liability of the Peoples State Bank of South Carolina, brought this action in the state court, seeking to enforce stockholders' liability against the stockholders of Peoples Investment Corporation as the true owners of 74,000 shares of the closed bank, issued in the name of said Peoples Investment Corporation. The defendants Bernard M. Baruch and others filed due notice and petition in the state court, and the said cause, having been removed and now duly pending in this court, is before me on plaintiff's motion to remand.

Neither diversity of citizenship nor jurisdictional amount is in question; the sole question being whether, under the cause of action as stated in the complaint, there is a separable controversy or cause of action against the removing defendants which would justify this court in holding jurisdiction.

The plaintiff alleges, first, insolvency of the bank, a $2,000,000 corporation with its principal office in the city of Charleston, with some forty-four branches throughout the state of South Carolina, with insufficiency of the assets to pay in full the claims of its depositors; the authority of the plaintiff as receiver of the stockholders' liability; judgment and nulla bona execution against Peoples Investment Corporation for $740,000, representing the liability on the 74,000 shares of stock in said Peoples State Bank, issued to and standing on the books of the said bank in the name of said Peoples Investment Corporation.

The plaintiff goes on to allege:

"That, as plaintiff is informed and believes, in the year 1929 the said The Peoples State Bank of South Carolina entered upon an extended and expansive program having for its purpose the acquisition and consolidation of a number of smaller banks throughout the State of South Carolina, and that the officers and directors of said Bank, in connection with such program of expansion, organized and had chartered under the laws of the State of South Carolina, on or about March 28, 1929, the above-named Peoples Investment Corporation, with an authorized capital of One Million ($1,000,000.00) Dollars, divided into ten thousand (10,000) shares of the par value of One Hundred ($100.00) Dollars each.

"That, as plaintiff is informed and believes, the purpose and intent of the formation of said Peoples Investment Corporation was that said Peoples Investment Corporation would act as a holding company for the major portion of any stock required to be issued by said bank by reason of its increased capitalization accompanying said expansion program, and, in addition, as an instrumentality for dealing in its shares, therein and thereby securing or attempting to secure for the holders of the stock of said Peoples Investment Corporation freedom from the liability attaching or which would attach to the direct ownership of said bank's stock under the Constitution and statutes of the State of South Carolina.

"That, as Plaintiff is informed and believes, there were associated in the formation and operation of said Peoples Investment Corporation a number of persons, of whom there were at the time of the closing of said The Peoples State Bank of South Carolina, when the liability of the shareholders thereof attached, the defendants hereinabove named who owned the stock of said Peoples Investment Corporation in the amount set opposite their names to wit:

                Name of                                   No. of
                Stockholder                               Shares
                R. G. Rhett                                250
                R. G. Rhett, Jr.                           250
                A. J. Geer                                 150
                C. B. Jenkins                               75
                J. A. Johnston                              50
                K. E. Bristol                              150
                E. R. Croft                                 30
                R. H. Reynolds                              30
                F. E. Towles                                75
                J. Russell Williams                         50
                E. B. Wulbern                              150
                F. W. Scheper, Jr.                          90
                Montague Timber Corporation                140
                Peoples Securities Company                4500
                R. L. Montague                              10
                Albert B. Eastwood                         100
                S. W. Childs                               100
                Jane C. Childs                             100
                Florence Stanton Thompson                  100
                Alice S. Coffin                            100
                Francis C. Wolcott                         100
                John C. Simonds, Jr.                        12
                Samuel Want                                 10
                Edward H. Floyd-Jones                      100
                Bernard M. Baruch                          750
                Blanche R. Billing                          15
                W. H. Cobb & Co.                           200
                Carrie C. Cogswell                          10
                P. F. Gibson, Jr.                            5
                C. F. Prettyman                              3
                Margaret A. Rugheimer                        3
                Anne E. Montague Stoney                     20
                Ann D. Thorn                               100
                Jessie McDuff and/or Mrs. McDuff O'Brien     5
                Kane & Company                             200
                

"That the plan and design of said Corporation, as a holding company for the shares of said The Peoples State Bank of South Carolina, is and was contrary to the public policy of the State of South Carolina, is and was unlawful, inequitable and unjust, and, if allowed to stand, will work a great wrong and injustice upon the innocent depositors of said bank, who are represented by plaintiff in this action.

"That in justice and equity the shield and fiction of said corporate device should be set aside and declared by this honorable Court to be null and void and of no effect, and the defendants herein named held liable for the full sum of Seven hundred and forty thousand ($740,000.00) Dollars, which has attached under the Constitution and statutes of the State of South Carolina to the ownership of said bank shares."

The prayer is "that the corporate fiction described as Peoples Investment Corporation be set aside, and that the defendants be declared the true owners of said Seventy-four thousand (74,000) shares of stock of The Peoples State Bank of South Carolina"; and for judgment against said defendants for the sum of $740,000, "representing their ownership of seventy-four thousand (74,000) shares of said defunct The Peoples State Bank of South Carolina."

It is conceded that the constitutional and statutory liability of holders of stock in insolvent state banks arises out of contract, as in the case of stock in national banks.

There should be, this court thinks, a distinction in cases arising out of tort and in cases arising out of contract, in the application of the announced principle that, where plaintiff alleges joint or joint and several liability, the nonresident defendant has no right to say that the action shall be separable, and thus deprive the plaintiff of the right to prosecute his own suit to final determination in his own way in the forum of his choice. Where this principle has been announced, standing alone, as in the admirable review of remand cases by the late Judge Cochran of this district in Lynes v. Standard Oil Co. (1924) 300 F. 812, the action is in tort, alleging joint or joint and several negligence or other actionable conduct against the master and the servant, or coemployees, or employee and officials, one of whom sought federal jurisdiction because of diversity of citizenship. See, also, Price v. Southern Power Co. (D.C.) 206 F. 496; Russell v. Champion Fibre Co. (C.C.A.) 214 F. 963. In such cases, it is the plaintiff's theory and allegation of joint liability that controls, where the facts set out give color to the theory, notwithstanding that on trial there may be failure of proof of joint liability, necessitating election of defendant or defendants to proceed against, or resulting in separate verdicts, as may eventuate. In other words, where a joint liability is alleged in a tort case and joint liability may be established on proof of the essential facts pleaded, plaintiff is entitled to make the issue "in the forum of his choice." It is, however, clearly apparent that, in an action arising out of contract, the plaintiff cannot change the essence of the suit by claiming joint liability where the factual allegations reveal a separable controversy. Judge Cochran recognized the distinction in Branchville Motor Co. v. American Surety Co. et al. (D.C.1928) 27 F.(2d) 631.

There is no question here of fraudulent joinder for the purpose of preventing removal as in Sanders v. Atlantic Coast Line Ry. Co. (D.C.) 33 F.(2d) 1010. Nor is there reliance upon specific or separate defenses set up by answer, as in Fidelity Ins., Trust & Safe-Deposit Co. v. Huntington, 117 U.S. 280, 6 S.Ct. 733, 29 L.Ed. 898. It is conceded that no resort to specific or separate defenses could convert an action asserting joint liability into an action of a separable nature.

See Galluchat v. Pittman, 288 F. 917, decided by the late Judge H. A. M. Smith of this district. See, also, Little v. Giles, 118 U.S. 596, 7 S.Ct. 32, 30 L.Ed. 269.

While it is true that the burden is upon the removing defendant to sustain federal jurisdiction (see Carson v. Dunham, 121 U.S. 421, 7 S.Ct. 1030, 30 L.Ed. 992), on motion to remand, plaintiff must nevertheless show that he is entitled on his pleadings to the jurisdiction of the court to which he seeks to have the case remanded. Allegations of joint...