Old Dominion Copper Mining & Smelting Co. v. Bigelow

• Decision Date: 20 June 1905
• Parties: OLD DOMINION COPPER MINING & SMELTING CO. v. BIGELOW.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

188 Mass. 315

74 N.E. 653

OLD DOMINION COPPER MINING & SMELTING CO. v. BIGELOW.

Supreme Judicial Court of Massachusetts, Suffolk.

June 20, 1905

COUNSEL

Louis D. Brandeis and Wm. H. Dunbar, for plaintiff.

Alfred Hemenway and John Wells Farley, for defendant.

OPINION

LORING J.

This cause came on to be heard on two demurrers. The defendant filed a demurrer to the whole bill, and what purported to be a demurrer to so much of the bill 'as seeks to have the sale of certain parcels of real estate conveyed to the plaintiff by Leonard Lewisohn rescinded, and to have the defendant ordered to return to the plaintiff the consideration paid by the plaintiff for said conveyance.' On the plaintiff's stipulating that, in case the demurrers or either of them should be sustained on the merits, the bill, or so much thereof as the demurrers apply to, should be dismissed, the cause was reserved for the consideration of the full court.

The case stated in the bill, so far as material here, is, in effect and in substance, as follows: The defendant and one Lewisohn, at some time prior to March 1895, formed the plan of buying the property of the Old Dominion Copper Company, of the city of Baltimore (hereinafter spoken of as the 'Baltimore Company') and four certain mining claims and a mill site standing in the name of one Keyser (hereinafter spoken of as the 'real estate here in question'), with a view to reselling them at a profit to a corporation to be organized by them for that purpose. Their scheme was first to buy all the stock of the Baltimore Company. Having got control of that company through their ownership of all of its capital stock, they were to organize a new company, and before the stock of the new company was issued, and while it was entirely in their control as the organizers of it, they were to sell to it the property of the Baltimore Company and the real estate here in question for a specified number of shares of the new company, the balance of shares in the capital stock of the new company being sold to the public to provide working capital and to build additions. All this was done. The plaintiff was the new corporation. The defendant and Lewisohn got the money with which to buy all shares in the capital stock of the Baltimore Company from a syndicate (hereinafter called the 'Dominion Syndicate') which they organized for the purpose, and to which they agreed to pay two dollars for every dollar paid into the syndicate treasury in case the scheme was a success, with a privilege given to the syndicate members of taking shares at par in the new corporation in place of money. Five-sevenths of the stock of the Baltimore Company were bought of the executors of one Simpson for a sum not more than $613,137.39, and the other two-sevenths, together with the real estate here in question, of one Keyser, and 'other persons to the plaintiff unknown,' for a sum not exceeding $175,182.11; and thereupon the real estate here in question was conveyed to Lewisohn. These transactions were carried through on July 8, 1895. On the same 8th day of July, 1895, the plaintiff corporation was organized by seven persons employed by the defendant and Lewisohn for the purpose, apparently with a capital stock of $1,000, divided into 40 shares of $25 each, which were issued to the incorporators, but were in fact paid for by the defendant and Lewisohn. On July 9, 1895, the incorporators met, chose themselves directors, and increased the authorized capital stock to $3,750,000, composed of 150,000 shares of $25 each. At a meeting of the directors held on July 11, 1895, pursuant to instructions from the defendant, five directors resigned, and the defendant and Lewisohn, together with three members of the Dominion Syndicate, were appointed in their places. Thereupon the defendant and Lewisohn took their seats on the board. The other three new directors were not present. After these changes in the directorate, the directors present at the meeting were the defendant, Lewisohn, one Evarts, 'the attorney employed by said defendant and said Leonard Lewisohn to attend to the incorporation of the plaintiff corporation and to carry out their said plan and conspiracy,' and one Buffam, a person 'selected' and 'employed' by the defendant and Lewisohn 'to act as director and assist them in carrying out said plan and conspiracy.' Thereupon the defendant, through said Evarts, presented to the board an offer to sell to the plaintiff corporation the property of the Baltimore Company for 100,000 shares in its capital stock, and Lewisohn offered to sell to the plaintiff corporation the real estate here in question for 30,000 shares in its capital stock. These offers were accepted, and the stock was in fact subsequently issued in accordance therewith. Of the 30,000 shares issued for the real estate here in question, the defendant received 16,410 and Lewisohn 13,590. Of the 100,000 shares issued for the property of the Baltimore Company, 80,000 were issued to the syndicate, and the other 20,000 were issued to the defendant and Lewisohn for their expenses and services. Of this 20,000, the defendant received 10,940 and Lewisohn 9,060. It is alleged that at this time the fair market value of the shares in the capital stock of the plaintiff corporation was par, and 'continued for a long time thereafter to be of such or greater value.'

The bill goes on to allege that no disclosure was made of the profit made by the issue of the 30,000 shares for the real estate here in question to the persons who subscribed for the 20,000 shares issued for working capital, or to the members of the syndicate to which the 80,000 shares were issued (except to the defendant and Lewisohn, members thereof). It is alleged also that from July 11, 1895, to July 4, 1902, the plaintiff corporation was in effect in the control of the defendant and Lewisohn. Thereafter investigations were begun which resulted in the filing of this bill on October 7, 1902. It is alleged, further, that Lewisohn died March 5, 1902, and at the time of his death was a resident and citizen of the city of New York; that the executors of his will are also residents and citizens of the city of New York; that no executors or legal representatives have been appointed or are within this commonwealth; that there is no property within the commonwealth belonging to said estate; and that it is impossible to get service within this commonwealth on the executors of the will of Lewisohn. It is also alleged that the real estate here in question, at the time of the sale to the plaintiff, was 'of substantially no value, to wit, of a value not exceeding five thousand (5,000) dollars, and * * * [was] * * * known by said Lewisohn and by the defendant, when' they acquired the same, and when they offered to sell the same to the plaintiff, 'to be of substantially no value'; and that said 'property has since said conveyance remained undeveloped, and is now in substantially the same condition that it was in at the time of the conveyance' to the plaintiff. The plaintiff alleges that it 'desires to rescind the sale' of said real estate, 'and has offered to convey' it 'to the defendant, or to such person as he may request, upon receiving from said defendant' said 30,000 shares, 'or, if and in so far as said shares have been disposed of, upon the defendant's duly accounting therefor; but said defendant refused to make any such restitution or accounting.' After alleging a continued readiness to convey, the bill concludes with a prayer that the court will declare the sale of the mining claims and of the mill site rescinded, and will direct the defendant to return the 30,000 shares, or, if and in so far as said shares are no longer in his control, to account to the plaintiff therefor, or, in the alternative, in case it is held that the sale is not rescinded and that the plaintiff is not entitled to rescind that sale, for damages. There is also a prayer for general relief. It was stated at the bar that another bill had been brought for relief in respect of the issue of the 100,000 shares, and that the only relief here sought was in respect of the 30,000 shares issued in payment for the real estate here in question. The result of these transactions was that, for the property for which the defendant and Lewisohn had paid not more than $788,319.50, the plaintiff corporation issued 130,000 shares of its capital stock, having a market value of at least $3,250,000--a profit of at least $2,460,000. Of these 130,000 shares, 80,000 (which were worth at least $2,000,000) went to the syndicate, 20,000 (worth at least $500,000) went to the defendant and Lewisohn for services and expenses, 30,000 (worth

at least $750,000) went to the defendant and Lewisohn for the real estate here in question, and the balance, 20,000, to the public (apparently with the exception of the original 40 shares issued to the incorporators and paid for by the defendant and Lewisohn).

The only question now before us is whether the plaintiff is entitled to any relief on these facts. If it is, it is not necessary to determine what the relief is to which it is entitled. An attempt has been made to force a decision on the nature of the relief at this time by demurring 'to so much of said bill as seeks to have the sale of certain parcels of real estate conveyed to the plaintiff by Leonard Lewisohn rescinded, and to have the defendant ordered to return to the plaintiff the consideration paid by the plaintiff for said conveyance.' But there is no part of the bill which seeks rescission. This demurrer is not a demurrer to a part of the bill; it is to the whole bill so far as it seeks rescission. This so-called 'demurrer to a part' is in fact an assignment of causes of demurrer to the whole bill, and will be...