St. Paul Trust & Sav. Bank v. American Clearing Co.

CourtUnited States District Courts. 11th Circuit. United States District Courts. 11th Circuit. Southern District of Florida
Citation291 F. 212
PartiesST. PAUL TRUST & SAVINGS BANK et al. v. AMERICAN CLEARING CO. et al.
Decision Date15 June 1923

Giles J. Patterson, of Jacksonville, Fla., for plaintiffs.

Cooper Cooper & Osborne, of Jacksonville, Fla., and Harmon, Colston Goldsmith & Hoadly, of Cincinnati, Ohio, for defendants.

CLAYTON District Judge.

The plaintiff the St. Paul Trust & Savings Bank, formerly the Van Sant Trust Company, as trustee, and Grant Van Sant as individual trustee, bring this bill on behalf of themselves as trustees and on behalf of the holders of the bonds secured by the deed of trust or mortgage on the property described in the bill, against the American Clearing Company, a corporation, Citizens' Savings Bank & Trust Company of Hamilton, Ohio, a corporation, the First National Bank of Hamilton, Ohio, a corporation, the Citizens' National Bank of Lebanon, Ohio, a corporation, George N. Davis as receiver of the American Clearing Company, A. J. Murrhee as tax collector of Clay county, Fla., R. L. Dollings and H. J Wagener, citizens of Hamilton, Ohio, and M. E. Lamberton, a citizen of Green Cove Springs, Fla., individually and as constituting the board of supervisors of the Walkill stump and land clearing district, and G. F. Osler, a citizen of Cincinnati, Ohio.

The cause is submitted upon the defendants' motion to dismiss the bill for want of equity; therefore, the alleged facts of the bill must be taken as true. See Footnotes, Rule 29 Hopkins' New Fed. Eq. Rules (3d Ed.).

The bill is necessarily long and contains an attack by the plaintiff as trustee upon the validity of certain bonds issued by the defendant Walkill Stump & Land Clearing District and upon the levy of taxes for the payment of the same, on the lands covered by the plaintiff's mortgage; and prays for injunction restraining the collection of such taxes; that the bonds of the clearing district be declared invalid; and for a decree holding void the act under which the district was incorporated.

The allegations of the bill, material in the consideration of the motion, may be summarized so far as practicable as follows:

That the plaintiff during the months of December, 1918, and January, 1919, carried on certain negotiations with Dollings individually and as president of the Walkill Stock Farms Company, looking to the making of a loan upon the properties of the company to be secured by a mortgage or deed of trust, and that as a material inducement to the making of such loan it was understood and agreed that the company would continue to clear its lands for the purpose of cultivation at the rate of 500 acres per year, and that as a result of said negotiations a mortgage or deed of trust was executed to the plaintiff by the Walkill Stock Farms Company on the 18th day of February, 1919, covering the lands of the company, which mortgage was duly recorded in accordance with law, and at the same time there were executed and delivered 370 bonds aggregating the total face value of $175,000, secured by the terms of the mortgage or deed of trust; that it was the purpose of the plaintiff and its understanding that said mortgage constituted a first lien upon the property described prior to all other liens except liens for state and county taxes, and that the plaintiff paid over to the Walkill Stock Farms Company the money upon such bonds as had been theretofore agreed; that it was a material consideration to the making of the loan that the expense of clearing the land would be borne by the company for the purpose of improving the security for the loan; that at the time of the making of the loan the defendant Dollings was president and the defendant Wagener was secretary of the Walkill Stock Farms Company, and the defendant Dollings owned 1,960 shares of the common stock, being all except 40 shares of the common stock which had the exclusive voting power at that time, and that the other 40 shares of the common stock were held by the defendant Wagener 10, Dollings' wife 10, and 20 shares by other parties; that at or about the time of the execution of the mortgage said Dollings and his associates had in their control the right to manufacture and use certain stump pullers which it was understood would be used in the clearing of the lands.

Further, that after the loan had been closed the defendant Dollings and his associates procured the passage by the Legislature of the State of Florida at the session of 1919 of a Special Act entitled Chapter 8008, approved June 9, 1919, and that the procurement of such act was for the purpose of enabling the defendant Dollings and his associates to create a prior lien upon the properties described in the bill to the lien of the plaintiff herein, in order to pay for the stumping and clearing of the lands, and that acting under the terms of this act Dollings and his associates organized a corporation under the laws of Delaware known as the American Clearing Company, the preferred stock of which was sold to the extent of $750,000, and such company was organized for the purpose of clearing and stumping lands and for the purpose of utilizing the stump pullers above referred to; and that Dollings transferred to the American Clearing Company the common stock of the Walkill Stock Farms Company which he then held; that under the terms of the act defendants Dollings, Osler, and Wagener instituted proceedings in the circuit court of Clay county, Fla., by filing a petition seeking the incorporation of the Walkill stump and land clearing district, and that all the lands in the proposed district were the property of the Walkill Stock Farms Company and included within the terms of the mortgage to the plaintiff, though deeds had been executed to defendants Wagener and Osler and to the defendant Lamberton, who was a stenographer in the office, for the purpose of qualifying them as landowners.

Again, that on December 16, 1919, the judge of the circuit court of Clay county, Fla., entered a decree incorporating the properties described in the petition into the Walkill Stump & Land Clearing District which was declared to be a public corporation to exist for a period of 35 years, but in the decree the court did not find that the same would be for the public benefit, convenience, or welfare, a copy of the decree being attached to the bill; that notices were then published in accordance with the act by the clerk of the circuit court, addressed to the individual defendants and the Walkill Stock Farms Company, calling a meeting for the election of a board of supervisors, and the defendants Wagener, Dollings, and Osler were chosen manager, president, and secretary, respectively, and members of such board, being at the same time secretary, president, and attorney of the Walkill Stock Farms Company; that on January 24, 1920, a 'plan of stumping and clearing' was filed in the office of the clerk of the circuit court of Clay county by Wagener as district manager and certified to as having been adopted by the board, which plan specifically recommended the clearing of the lands by contract, and a petition was also filed praying for the appointment of commissioners for the purpose of assessing the benefits and damages resulting to the property in the district; and that such commissioners were appointed by order of the court January 29, 1920; and on February 5, their report was filed, estimating the total benefits to accrue to the 8,516 acres of land equal to the sum of $510,960, and estimating the cost of clearing such lands in accordance with the report of the manager at $324,480, or at the rate of $38 per acre; and this report was subsequently confirmed by decree of the circuit court March 17, 1920; that the defendants Dollings, Wagener, and Osler continued to serve as the supervisors of the district and as officers and agents of the Walkill Stock Farms Company and of the American Clearing Company during all the times mentioned in the bill.

The bill then alleges that these individual defendants as supervisors authorized the issue of $300,000 of bonds for the purpose of paying for the clearing of the lands and then made a contract for such clearing with themselves as officers of the American Clearing Company. The terms of the contract were not stated in the bill, but discovery of the same is sought, and it is charged that the contract was exhorbitant and unreasonable; that the American Clearing Company agreed to accept such bonds in payment for the clearing work and did engage in such clearing, but only about 2,500 acres of the lands were cleared; that notwithstanding this fact the said Dollings, Osler, and Wagener issued and delivered to themselves in some capacity all of the bonds of the district, a large portion of the bonds being conveyed to them shortly before the filing of the bill under the guise of an illegal contract for the purchase of machinery and equipment owned by the American Clearing Company by the district; and the bill alleges that such purchase and sale was not in good faith, but was for the purpose of enabling them to realize money from the bonds; that the bonds were thereafter pledged or conveyed to various defendants named in the bill and other persons unknown to the plaintiff.

Furthermore that in 1921 Dollings, Wagener, and Osler, presuming to act as members of the board of supervisors, attempted to spread a tax levy for the year 1921, same being presumably an installment of what was under the act to be a total tax, but no certificate of the total tax or list of the same was ever filed in the office of the clerk of the circuit court as required by section 17 of chapter 8008, nor was any certificate evidencing the lien of the same filed as required by section 22 of chapter 8008; and that said taxes for the year 1921...

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