Phoenix-Buttes Gold Mining Co. v. Winstead

• Decision Date: 09 April 1914
• Citation: 226 F. 855
• Parties: PHOENIX-BUTTES GOLD MINING CO. v. WINSTEAD et al.
• Court: U.S. District Court — Northern District of California

226 F. 855

PHOENIX-BUTTES GOLD MINING CO. v. WINSTEAD et al.

United States District Court, N.D. California.

April 9, 1914

James L. Crittenden, of San Francisco, Cal., for plaintiff.

Frank R. Wehe, of San Francisco, Cal., and W. I. Redding, of Downeyville, Cal., for defendants.

VAN FLEET, District Judge.

This is a bill filed here by the plaintiff, a corporation organized under the laws of the state of Nevada, to quiet its alleged title as against the defendants, residents and citizens of the state of California, to certain mining property situated in the county of Sierra in this state, and to enjoin the defendants and each of them from further asserting an interest in or title thereto. Coupled with matter responsive to the merits, the answer of defendant Winstead sets up a plea or challenge to the jurisdiction of this court and the right of the plaintiff to maintain the action therein upon the ground that the action is collusive, it being alleged, in substance, that plaintiff was organized under the laws of the state of Nevada by its present stockholders, all residents and citizens of this state, and was given a conveyance of the property described in the bill, solely for the purpose of conferring jurisdiction of the action upon this court; that the conveyance of the property was fictitious and had for the purpose of giving color to such jurisdiction as of a case of diverse citizenship, whereas such steps were taken as the result of a conspiracy between said parties for the purpose of securing a trial of their rights to the property away from the locality where it is situated, to give them an advantage over defendants; and that the real jurisdiction of the action is in the superior court of Sierra county.

Without the question of its jurisdiction being brought to the attention of the court for preliminary disposition, the cause was referred to the standing master to take the evidence and report findings of fact and conclusions of law; but, upon the hearing coming on before the master, the plaintiff objected to a consideration by him of that question and asked that it be ignored, upon the ground that that feature of the answer did not conform to Equity Rule No. 31 (old) in force when the pleading was filed, in that it was not certified by counsel or separately verified. The master properly ruled that as the question was raised by the answer, and was one which the court was bound under the statute to take cognizance of independently of a plea, the formal sufficiency of the pleading under the rule was not material. Williams v Nottawa, 104 U.S. 209, 211, 26 L.Ed. 719; Lehigh Mining Co. v. Kelly, 160 U.S. 327, 16 Sup.Ct. 307, 40 L.Ed. 444; Miller Lux v. East Side Canal Co., 211 U.S. 293, 29 Sup.Ct. 111, 53 L.Ed. 189. And, as the order of reference was general and covered all the issues, he should proceed to take the evidence upon that question with the others and include it in his findings. The case proceeded to a hearing and report, and on the question of the jurisdiction the master found:

'Eleventh. That said Phoenix-Buttes Gold Mining Company was formed organized, and incorporated as a corporation by and under the laws of the state of Nevada in good faith by the incorporators thereof, and was not so incorporated for the purpose of giving this court jurisdiction of this action or to defeat, or for the purpose of defeating, the jurisdiction of the said superior court of the county of Sierra.'

The defendants have excepted to this finding as unsupported by the evidence, and, after a careful and painstaking examination of the evidence in the record, I am reluctantly constrained to the conclusion that the exception must be sustained.

The master's findings are accompanied by an opinion embodying a discussion by him of the evidence upon which his findings and conclusions are based, and with reference to the subject of this particular finding, after some preliminary remarks as to the manner of raising the question, he says:

'Prior to the formation of the complainant corporation, it appears that a corporation had been organized under similar name, a corporation of California, by the Kane heirs and others for the purpose of taking over this property; the conveyance was never made, and some months later the complainant corporation was organized and acquired the property in suit. The only evidence which goes to show a fraud on the jurisdiction of the court is that of the witness Daveler, who was president of the first corporation and was left out of the second. He testifies rather indefinitely to a conversation with Wittenmyer, then an attorney for the California corporation, that 'they were going to attempt to organize under the laws of the state of Nevada or some other state in order, if there is a lawsuit, to have it tried in the federal court.' Mr. Wittenmyer does not support him further than to say that he had discussed it with Mr. Daveler but advised against it.'

And after referring to the testimony of the incorporators of plaintiff, in substance that they incorporated under the laws of Nevada on the advice of their attorney so that the stock could be made nonassessable, he briefly concludes:

'It is apparent that these ladies incorporated in good faith under the laws of another state for reasons which their attorney deemed proper, and as they had a right to do, and not to defeat the jurisdiction of the state court in Sierra county.'

While the finding of the master is not to be lightly set aside or disregarded, and his views as expressed in his report are justly entitled to great respect, these considerations should not deter the court from correcting manifest error in his conclusions, either of fact or law. In this instance the statement by the master of the purport and effect of the evidence upon which he bases his finding does not, in my judgment, fully or adequately present the case. It fails to take account of some of its most material and serious aspects directly affecting the question involved in the finding, and indicates that the master has unconsciously permitted his mind to give undue effect to declarations largely of a negative character by interested witnesses, to the exclusion of very significant facts and circumstances, largely uncontroverted, growing out of the relations of the parties to the property and to each other at and prior to the taking of the steps which constitute the subject of inquiry and which are, I think, of a nature that cannot justly be ignored in passing upon the bona fides of the transaction. This will be better appreciated, perhaps, from a more full and complete statement of the facts disclosed in the somewhat voluminous record.

August C. Busch was for some years the owner of all the property in suit, consisting of valuable mines and mining claims, quartz mills and other buildings, flume, water, and water rights connected therewith. Busch got into financial difficulties while working the property, and liens were asserted against it by the miners, and litigation to enforce them followed. As a result, the property passed under foreclosure into the hands of a trustee for the benefit of the lienholders, and Busch went into bankruptcy. After repeated efforts of the trustee to dispose of the property at a higher figure, it was finally taken over by James Kane for a consideration of $4,000. Kane had been a close and warm friend of Busch and his wife for many years in Sierra county, and there is evidence tending to show that Kane, who had removed to San Francisco, bought the property, not so much for his own benefit as to help Busch, and that the latter or Mrs. Busch was to have an interest in anything that could be realized from a sale or disposition of the property over the amount paid by Kane. While the deed was taken in his name, he never worked the property nor personally took it into his possession. He sent the deed to Busch, who took over the possession from the trustee, and Kane left the property in the possession and care of Busch up to the time of the latter's death, who did some work upon it and expended his own money in keeping it in repair. Up to the time of Busch's death in 1905, repeated efforts were made by Busch and Kane to find a purchaser for the property, but without success.

On the death of Busch, the defendant Winstead, a foster son of Busch, who had been raised in his family, took possession of the property in behalf of the claimed rights of his foster mother, to whom Busch had deeded his rights, and without apparent dissent or interference of Kane continued the care and protection of the property, doing some work in keeping the property in order and generally looking after it. During the life of Kane the latter and Winstead made further efforts to dispose of the property, and in these efforts, while claiming that he was the sole owner of the property Kane's acts and declarations tended clearly to indicate that he was desirous of disposing of the property, not only for sufficient to get back the money he had invested in it, but to leave something for Mrs. Busch. Kane died in 1907, leaving no will, and the legal title to the property standing in his name devolved upon his next of kin, certain sisters, nephews, and nieces, who may be designated herein, as in the master's report, as the 'Kane heirs,' or Kane interest. Mrs. Busch subsequently died, leaving onehalf of her asserted interest to Winstead, and he became her executor. Winstead continued to care for the property after the death of Kane and Mrs. Busch, and on two occasions relocated the water rights to keep them from being jumped. After the death of Kane, his heirs, finding Winstead in possession of the property and claiming an interest, with knowledge of the circumstances entered into negotiations with...