Seminole Securities Co. v. Southern Life Ins. Co.

• Decision Date: 03 October 1910
• Docket Number: 316.
• Citation: 182 F. 85
• Parties: SEMINOLE SECURITIES CO. v. SOUTHERN LIFE INS. CO.
• Court: U.S. Court of Appeals — Fourth Circuit

182 F. 85

SEMINOLE SECURITIES CO. v. SOUTHERN LIFE INS. CO.

No. 316.

United States Circuit Court, E.D. North Carolina.

October 3, 1910

Grier &amp Park, Nelson, Nelson & Gettys, Frank Carter, and H. D Chedester, for complainants.

Guthrie & Guthrie and Bramham & Brawley, for defendants Carr and others.

Aycock & Winston, for defendant Southern Life Ins. Co.

CONNOR District Judge.

The original bill herein was filed January 18, 1909, in which it is alleged: That the Seminole Securities Company is a South Carolina corporation. That defendant is a North Carolina corporation. That on December 15, 1908, J. S. Klugh and others, stockholders in plaintiff company, instituted an action in the court of common pleas of Richland county, in the state of South Carolina, against said Seminole Securities Company, John Y. Garlington, president, and certain other defendants whose names are set forth, directors and trustees of said company, alleging certain wrongful and fraudulent conduct in the management and operation of the affairs of said company, resulting in its insolvency. A copy of the record in said cause is attached to the bill. Complainants further allege that, during the month of September, 1910, and prior to the institution of the original action in the courts of South Carolina, the officers and agents of the defendant Southern Life Insurance Company, on behalf of said company opened negotiations with the officers of the plaintiff company for the purpose of effecting a sale of a large block of the stock of said company, to the plaintiff company. That as a result of said negotiation, defendant company sold to plaintiff company 3,000 shares of its capital stock for the sum of $324,000, being $108 per share, which was of the par value of $50 per share, of which sum plaintiff company paid to defendant company $16,000 cash and $155,000 in certificates of deposit, notes, and securities and executed its note for the balance to which the stock so purchased was attached as collateral security. That the real value of the stock so sold to plaintiff company did not exceed the sum of $40 per share. Complainants charge that the negotiations for and purchase of said stock was a fraud upon its stockholders, participated in by its officers and the officers and agents of defendant company, setting forth fully the manner in and agencies by which the fraud was perpetrated. That by the said fraudulent conduct of its officers complainant company had been wrecked, its assets wasted and dissipated, its credit destroyed, and it was 'put out of business.' Complainants prayed that the contract between its officers and defendant company be canceled, that an accounting of the money, securities, etc., received by defendant company be had, restitution made, and for other relief, etc. of common pleas, having jurisdiction in the premises, plaintiffs Frank G. Tompkins, Hugh Sinkler, and E. J. Ethridge were appointed receivers, with the usual powers conferred upon receivers, etc. Thereafter, by further orders in the cause, the other plaintiffs were appointed co-receivers. That leave had been given said receivers to bring and prosecute this suit.

On July 12, 1909, complainants filed an amendment to the bill, setting forth that, as a part, and in furtherance of, said fraudulent transaction, the officers of complainant company executed a note for $68,000, payable to itself or to C. J. hebert, who, it alleges, was the agent of defendant company in the negotiation and consummation of the alleged fraudulent transaction. That to said notes the stock of defendant company attempted to be purchased was attached as collateral. That said notes and stock were in the possession of said C. J. Hebert, a resident of the state of Tennessee. Complainant prayed for relief against said Hebert, etc.

Thereafter, on March 18, 1909, by an order of this court, the complainants, receivers, were appointed ancillary receivers in this state, and leave given them to become parties, in that capacity, to this suit. They qualified as such ancillary receivers by giving bond, etc. An order was made in this cause enjoining and restraining all persons from prosecuting actions against the complainant Seminole Securities Company in the state courts or otherwise than by becoming parties to this suit, etc.

On February 2, 1909, the complainant receivers and the defendant company made and entered into an agreement for settlement and compromise of the controversy between them in this suit, the terms of which were fully set forth in a paper writing signed by said receivers and by counsel representing defendant company. The terms of said settlement, so far as they are material to the questions now under consideration, are: The contract for the sale and purchase of said stock is canceled. The defendant life insurance company returns to said receivers the sum of $109,785. The sum of $30,000 is retained by defendant company. The question as to the true amount received by defendant company from the officers and agents of complainant company to be settled by reference, etc. The defendant company obligated itself to save harmless the complainant company from any loss, damage, or harm by reason of the note of $68,000 and that same be delivered up and canceled. That an action then pending in the superior court of Scotland county, N.C., by Watson and others, stockholders, against Seminole Securities Company, be dismissed by a time named. There were other provisions in said agreement not necessary to set out, all of which fully appear by reference to a copy of the agreement filed in the record herein. It was further provided that said settlement be submitted to this court for its approval, and that a decree be drawn carrying its terms into effect. On February 19, 1909, an order was made by Hon. J. C. Pritchard confirming said settlement.

J. S. Carr and J. G. Patterson and J. W. Hudgins on September 22, 1909, instituted actions in the superior court of Durham county against the complainant Seminole Securities Company and levied attachments upon its property in the hands of defendant company. An order was issued in this cause directing said parties to show cause on October 9, 1909, why they should not be enjoined from proceeding in said actions, etc. In response to said order, said parties answered and submitted themselves to the jurisdiction of this court in this cause and asked to be made parties defendant in this suit, 'with leave to answer so much of the original bill and amendments thereto as they may be advised by their counsel they should answer and to file cross-bills in this suit,' etc. Each of said parties filed separate answers to the rule. On said day an order was entered making said J. S. Carr, J. G. Patterson, and J. W. Hudgins parties defendant herein with leave to answer and file cross-bills, etc. Pursuant to said order, defendants J. S. Carr, J. G. patterson, and J. W. Hudgins on November 24, 1909, filed their cross-bill in this suit, alleging that they and each of them are creditors of complainant Seminole Securities Company, and that their relation to said company as creditor arose in the following manner: J. S. Carr alleges that he is the bona fide owner of certificate No. 775 for 1,000 shares of the capital stock of the said company of the par value of $1 each issued to him on June 22, 1908; that he was induced to purchase said stock at the price of $1,500 by the false and fraudulent representations of the agent of complainant company. Said representations are fully set forth and need not be repeated here. That said Carr has received from the complainants in this suit, as receivers of said Seminole Securities Company, on, or about, June 14, 1909, the sum of $200, which he has applied as a credit on his aforesaid claim.

Defendant Patterson alleges: That, under the same circumstances, and being induced thereto by the same false and fraudulent representations of complainants' agents, he became the owner of a certificate of the capital stock of said company for 2,000 shares at the price of $3,000, which sum he paid therefor. That he received June 15, 1909, the sum of $400 from the complainants, receivers, in this suit, which he has credited on said claim, the balance of which he alleges is due him as a creditor of complainant. His allegations in regard to the manner in which he was induced to purchase the said stock are substantially the same as those of defendant J. S. Carr.

Defendant Hudgins alleges: That, under the same circumstances, being induced thereto by the same false and fraudulent representations of the complainants' agents, he became the owner of certificate of a capital stock of said company for 1,000 shares of the par value of $1 each, at the price of $1,500, which sum he paid therefor. That on, or about, June 15, 1909, he received from the complainants, receivers, in this suit, the sum of $200, which he has applied as a credit on the aforesaid claim, leaving the complainant company indebted to him for the balance thereof. The defendants join in the allegation that they are advised by counsel that having been made parties to this suit, by order of this court, at the instance of the complainants, they are parties for all purposes with leave to file their cross-bill, and they pray the court that their rights as attachment creditors be fully preserved and protected. They neither admit nor deny the allegations contained in the original bill and amendments. They allege, upon information and belief: That the full facts disclosed by the pleadings in this suit and in this cause in regard to the dealings between the complainant company and the defendant company resulting in the alleged compromise and agreement between them were purposely and fraudulently withheld and not fully disclosed to this...