Ruwitch v. Frankel
| Decision Date | 30 January 1934 |
| Docket Number | No. 4981.,4981. |
| Citation | 68 F.2d 52 |
| Parties | RUWITCH v. FRANKEL et al. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Charles P. Schwartz, of Chicago, Ill., for appellant.
Irving Herriott, Walter H. Eckert, Abe R. Peterson, Tom Leeming, A. N. Pritzker, and James H. Deming, Jr., all of Chicago, Ill., for appellees.
Before SPARKS, FITZHENRY, and PAGE, Circuit Judges.
Appellant, a citizen and resident of Michigan, filed her amended bill in equity on behalf of herself and all other bondholders of Straus Bros. and Straus Bros. Investment Company, hereinafter referred to as the Straus firm, against appellees who are all citizens and residents of Illinois, Louis P. Frankel and Gustav Frankel, as individuals and as partners doing business as Frankel Bros., also against Herman S. Strauss, Esbico Management Corporation, Mohawk Finance Corporation, Straus Bros. Holding Corporation, and B. L. Rosset, C. J. Young, A. S. Grover, E. G. Krumrine, H. G. Zander, doing business as Protective Committee for bond issues underwritten and sold by the Straus firm.
Although not disclosed by the record, it is recited in appellees' brief and not denied by appellant that appellees filed their joint written motion to dismiss the amended bill for the following reasons: (1) Lack of sufficient facts to constitute a cause of action; (2) lack of sufficient facts to warrant equitable relief; (3) lack of necessary parties; and (4) misjoinder of causes of action. The record discloses that, after argument of counsel, the amended bill was dismissed by the court at appellant's costs for want of equity, and from that judgment this appeal is prosecuted.
Since the suit was dismissed on the ground of the defects within the bill itself, it becomes necessary for us to set out that bill in some detail. In addition to the jurisdictional grounds, it is based upon the following alleged facts: Appellant irrevocably employed a firm of brokers and investment bankers, operating under the name of "Straus Brothers" and "Straus Brothers Investment Company" to act for her as her agent and fiduciary, in handling her money and investing it to the best of the firm's ability, and to her best advantage. The Straus firm from time to time associated itself with other brokers, architects, and builders in the acquisition of real estate and the issuing of what it termed "first mortgage gold bonds and bond issues, secured by the conveyance of said real estate to the firm or its agents as trustees." While this agency and fiduciary relationship were in effect, the firm distributed to appellant and others a number of first mortgage real estate gold bonds which purported to be secured by conveyances to the Straus firm or its agents, as trustees of real estate improved or about to be improved. Appellant is the owner of certain of these bonds (listing and describing them) in the aggregate principal amount of $22,500, being bonds of seventeen different issues, signed by that many different mortgagors, and secured by the same number of separate and distinct trust deeds, in sixteen of which Herman S. Strauss is named as trustee, while the Phillips State Bank is thus named in the other one.
The bonds, bond issues, and trust deeds were prepared by the Straus firm which reserved to itself, as trustees, agents, and attorneys, broad discretionary powers. Complete audits of the operations of the buildings were to be made to the Straus firm by the owners while the bonds remained outstanding; that firm was to collect and disburse all interest and principal to the bondholders and institute suit to enforce the payment of them in case of default, and it, as trustee, was appointed as agent of all bondholders in all matters pertaining to the trust deeds, including the taking possession of the buildings and properties therein described in case of default.
As a part of the agreement, the Straus firm undertook to, and did at its own expense, supervise the execution and delivery of all necessary documents and title papers and the proper disbursement of the money procured from appellant and others similarly situated. It also undertook to enforce the covenants of the trust deeds in case of default, and to do all proper and necessary things to secure for appellant the benefit of her securities so that her bonds and interest would be paid in full at maturity. The Straus firm promised that upon her demand before maturity it would repurchase her bonds, after deducting 1 per cent. service charge.
The Straus firm had an arrangement with the architects, brokers, builders, and makers of the bonds, with whom it did business, by which it was permitted to and did deduct and appropriate from the money received from the sale of the bonds, large sums as commissions and expenses, and for that reason it had bound itself at its own cost to act as agent and trustee for the bondholders, which facts were well known to appellees, the Frankels.
During June, 1930, many of the bond issues distributed by the Straus firm had declined in value and earning power, due to mismanagement of the buildings and properties held as security for the bonds, and to the further fact that the par values of the bond issues were greatly in excess of the loan values of the securities, and became defaulted or required some form of extension or reorganization. The Straus firm thereupon disregarded its duty and obligation to reorganize the real estate and conduct and manage it for the benefit of the bondholders, and fraudulently and without authority or consent of appellant and the other bondholders entered into a conspiracy with appellees, the Frankels, to defraud appellant. In furtherance of their scheme the control and ownership of the Straus firm was transferred for the sole purpose of avoiding its responsibility and that of its officers, and enabling the Frankels to profit at the expense of appellant and the other bondholders of the Straus firm. In order to carry out the plan the Frankels organized and used certain corporations under their domination and control, viz.: Esbico Management...
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Sutton v. Eastern Viavi Co., 8257.
...averred must be sufficient on their face to disclose that the conduct complained of was, in fact, the result of bad faith. Ruwitch v. Frankel, 7 Cir., 68 F.2d 52, 53, and cases there Not every recipient of a check or other negotiable instrument from a trustee or through a trustee becomes li......