Staten v. Louisville Trust Co.

• Decision Date: 20 July 1939
• Citation: 28 F. Supp. 301
• Parties: STATEN v. LOUISVILLE TRUST CO. et al.
• Court: U.S. District Court — Western District of Kentucky

28 F. Supp. 301

STATEN v. LOUISVILLE TRUST CO. et al.

District Court, W. D. Kentucky.

July 20, 1939.

B. M. Steiner, of Chicago, Ill., and Wilbur O. Fields, of Louisville, Ky., for complainant.

Squire R. Ogden, of Louisville, Ky., for defendant Louisville Trust Co.

MILLER, District Judge.

The defendant the Louisville Trust Company has moved to dismiss complainant's bill in equity for (a) lack of jurisdiction and (b) failure to state an equitable cause of action.

The complainant Ida M. Staten is a resident of Chicago, Illinois; the defendant The Louisville Trust Company is a Kentucky corporation with its principal place of business in Louisville, Kentucky; the defendant William B. Fahey is a resident of Louisville, Kentucky. Federal jurisdiction is claimed by the complainant by reason of diversity of citizenship and the necessary amount in controversy. The motion of the defendant The Louisville Trust Company to dismiss for lack of jurisdiction is based on the ground that its co-defendant Fahey is in reality a complainant in the action rather than a defendant, and that upon a realignment of the parties by the Court making Fahey a complainant diversity of citizenship does not exist.

Prior to November 5, 1931, Fahey owed the Trust Company $30,000 evidenced by a note secured by a pledge of 756 shares of the capital stock of the Kentucky Central Life and Accident Insurance Company. He was induced by officers of the Trust Company to purchase 500 shares of stock of the Banco Kentucky Company for the sum of $12,500 which amount he borrowed from the Trust Company, evidenced by his note for that amount and secured by the 756 shares of insurance company stock above referred to. Fahey claims that the purchase of Banco Kentucky stock was by reason of false and fraudulent representations made to him. Thereafter the Trust Company called on Fahey for additional collateral to secure the two loans and threatened to sell the insurance company stock if the collateral was not furnished. Fahey induced the complainant, who was his sister, to execute a note on November 5, 1931, to the Trust Company for $15,000, to secure which she pledged a $15,000 note secured by mortgage on Chicago real estate. Complainant's note was renewed from time to time until on January 5, 1934, the renewal note was executed in the sum of $18,154.08, representing principal and accrued interest. To protect the complainant in the transaction Fahey assigned to her all of his interest in the 756 shares of insurance company stock, subject to any interest which the Trust Company had therein to secure the indebtedness of Fahey to the Trust Company. Complainant claims that in the execution of the original note and its renewals she acted as surety for Fahey, and that by reason of being a married woman she was not liable on the instruments under Section 2127 of the Kentucky Statutes. Thereafter the note to the complainant secured by a mortgage on the Chicago real estate became in default and proceedings were instituted in Illinois to foreclose. As part of these proceedings a master's certificate of title was issued to the Trust Company.

During the year 1934 a dispute arose between the parties regarding their respective rights and liabilities, the complainant denying liability on her note to the Trust Company by reason of her alleged suretyship for Fahey, and Fahey denying liability for the $12,500 borrowed from the Trust Company to pay for the purchase of stock of the Banco Kentucky Company which had become worthless by reason of the company being forced into receivership. On September 12, 1934, a written agreement was entered into between complainant and the Trust Company by which the complainant executed her note to the Trust Company for $15,000 and the Trust Company surrendered to her as cancelled her existing note for $18,154.08. The $15,000 represented by this note was applied to the Fahey indebtedness to the Trust Company. The master's certificate secured in the foreclosure proceedings in Chicago was pledged as security on complainant's $15,000 note to the Trust Company with the agreement that the Trust Company would hold it until May 1, 1935, for redemption by the complainant. As a part of that transaction the Trust Company credited Fahey's note with the sum of $16,370.33, being the principal and accrued interest of the $12,500 borrowed by Fahey to buy the Banco Kentucky Company stock. Fahey executed a new note to the Trust Company for $14,074.51. The complainant charges that because of many payments made on Fahey's obligation to the Trust Company, in addition to the credits granted by the Trust Company, the correct amount of this indebtedness was $10,767.50 instead of $14,074.51.

When complainant's note for $15,000 matured it was not paid and the Trust Company advised complainant on May 15, 1935, that the master's certificate representing its interest in the Chicago real estate had been sold for $5,000 and the proceeds therefrom credited on complainant's note, leaving a balance of $10,000 and interest. It is alleged, however, that a master's deed conveying the property to the Trust Company was issued on May 23, 1935, and recorded on October 5, 1935, and that the Trust Company assumed ownership and control of the Chicago real estate by virtue of this deed; that thereafter about August 10, 1937, the Trust Company conveyed the Chicago real estate to John H. Hardwick for a valuable consideration who took without notice of any rights of the complainant in the real estate. Complainant charges that the deed of May 23, 1935, conveying the property to the Trust Company merely gave the Trust Company legal title to the real estate to secure the indebtedness of the...