Rock Island Millwork Co. v. Hedges-Gough Lumber Co.

Citation337 F.2d 24
Decision Date14 October 1964
Docket Number17353,17640.,No. 17352,17352
PartiesROCK ISLAND MILLWORK COMPANY and Wholesale Distributing Co., Appellants, v. HEDGES-GOUGH LUMBER COMPANY, V. R. Gough, Margaret H. Gough, June E. Current, Charles E. Hedges, Charles E. Hedges and The Merchants National Bank, Executors of the Estate of Helen L. Hedges, Deceased, and W. D. Willer, Appellees. HEDGES-GOUGH LUMBER COMPANY, Appellant, v. V. R. GOUGH, Margaret H. Gough, June E. Current, Charles E. Hedges, Charles E. Hedges and The Merchants National Bank, Executors of the Estate of Helen L. Hedges, Deceased, and W. D. Willer, Appellees. ROCK ISLAND MILLWORK COMPANY, Wholesale Distributing Company and Hedges-Gough Lumber Company, Appellants, v. V. R. GOUGH, Margaret H. Gough, June E. Current, Charles E. Hedges, Charles E. Hedges and The Merchants National Bank, Executors of the Estate of Helen L. Hedges, Deceased, and W. D. Willer, Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (8th Circuit)

John D. Randall, Cedar Rapids, Iowa, made argument for appellants and cross-appellant Hedges-Gough Lumber Co., and filed brief.

William R. Crary, Cedar Rapids, Iowa, made argument for appellees V. R. Gough and Margaret H. Gough and filed brief with William O. Gray, Cedar Rapids, Iowa.

C. J. Lynch, Cedar Rapids, Iowa, made argument for appellees June E. Current, Charles E. Hedges, Charles E. Hedges, and Merchants Nat. Bank, executors of estate of Helen L. Hedges, deceased, and filed brief with William M. Dallas, Cedar Rapids, Iowa.

Before MATTHES, BLACKMUN and RIDGE, Circuit Judges.

MATTHES, Circuit Judge.

These are appeals from a money judgment in favor of plaintiffs, Rock Island Millwork Company (Rock Island) and Wholesale Distributing Company (Wholesale), against the corporate defendant Hedges-Gough Lumber Company,1 and in favor of the individual defendants on plaintiffs' causes of action and in favor of the individual defendants on the corporate defendant's cross-claim.

A chronological recitation of the proceedings in the trial court will be beneficial in understanding the basis for our ultimate conclusion that diversity jurisdiction is lacking and that the judgment must be vacated.

Rock Island and Wholesale, Illinois corporations which also have their principal offices in that state, instituted this action in the United States District Court for the Northern District of Iowa. Named as defendants were Hedges-Gough, an Iowa corporation having its principal office in that state, and certain individuals, all citizens of Iowa, who were alleged to be officers and directors of Hedges-Gough.

Counts 1 and 2 of the original complaint, in identical language, averred that the defendants were indebted to plaintiff Rock Island in the amount of $12,367.12 (Count 1) and to plaintiff Wholesale in the amount of $14,834.91 (Count 2) "on account of goods sold and delivered". The complaint did not state whether the goods were sold and delivered either to the defendant corporation, the individual defendants, or to both. Upon motions of the individual defendants, the Court directed plaintiffs to allege to whom the goods were sold and delivered. Thereafter, plaintiffs amended their complaint alleging that the goods were sold and delivered either to the individual defendants as partners of Hedges-Gough Lumber Company, a co-partnership, or to Hedges-Gough, a corporation. In both the original complaint and amendments thereto, plaintiffs alleged that the individual defendants had failed to comply with the law in regard to the incorporation of Hedges-Gough; that the net worth of the corporation as shown by corporation papers was "entirely fictitious", and that as a consequence of such conduct, the individual defendants were personally liable to plaintiffs.

The attorney who filed the complaint for plaintiffs, who represented them in all proceedings in the trial court, and who represents them in this court, also appeared for defendant Hedges-Gough in the trial court and represents it in these appeals. This attorney filed an answer on behalf of Hedges-Gough admitting all of the allegations of the complaint which, of course, included the averment that the individual defendants were liable to plaintiffs for the stated amounts. The answer also alleged that by agreement of certain creditors, the corporate defendant was to be given time "within which to pay off the claims, and that it believes that the court should examine and determine whether such action is premature". The answer prayed that the "action be delayed pending the determination of the cross-claim filed herein by this defendant against the individual defendants".

On the day of the filing of its answer to the complaint, the corporate defendant filed a cross-claim against the individual defendants, seeking among other relief a judgment: (1) requiring the individual defendants to make an accounting; (2) requiring defendants Charles E. Hedges and V. R. Gough to pay to Hedges-Gough the sum of $30,000.00 alleged to have been wrongfully paid to them; (3) and that the amount paid by the individual defendants to Hedges-Gough under the court's order be used to pay plaintiffs, and other creditors of Hedges-Gough. Hedges-Gough predicated its claims against the individuals upon the same averments which formed the basis for plaintiffs' cause of action against the individuals, however, additional acts of mismanagement were pleaded in the cross-claim.

All of the individual defendants filed motions to dismiss the complaint and the cross-claim for failure to state claims upon which relief could be granted. The trial court filed an opinion on April 11, 1963, demonstrating why the motions to dismiss should be granted and on February 6, 1964, the court's judgment was entered in favor of Rock Island and Wholesale against Hedges-Gough for the amounts sued for; dismissing plaintiffs' complaint against all individual defendants; and dismissing the cross-claim.2 From this judgment plaintiffs and Hedges-Gough have appealed.3

Although it is apparent that the trial judge entertained grave doubts as to the court's jurisdiction of the subject matter, the judge proceeded to adjudicate the controversies on the merits.4

None of the parties directly raised in this court the question of jurisdiction, but appellees V. R. Gough and Margaret H. Gough suggest in their brief that the plaintiff Illinois corporations controlled Hedges-Gough, the Iowa corporation; that there was no controversy between plaintiffs and Hedges-Gough, and that the individuals were joined as defendants for the purpose of enabling Hedges-Gough to seek an accounting from the individuals by way of a cross-claim. Upon oral argument all attorneys seemingly were aware of a serious jurisdictional question, indeed counsel for plaintiffs and Hedges-Gough, the appealing parties, suggested lack of jurisdiction and that we should consider vacating the judgment and remanding the cause with directions to dismiss.

The threshold inquiry in every federal case is whether the court has jurisdiction and we have admonished district judges to...

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