Sydney v. Mugford Printing & Engraving Co.

• Citation: 214 F. 841
• Decision Date: 27 May 1914
• Docket Number: 1383.
• Court: United States District Courts. 2nd Circuit. United States District Court (Connecticut)
• Parties: SYDNEY v. MUGFORD PRINTING & ENGRAVING CO. et al.

214 F. 841

SYDNEY v. MUGFORD PRINTING & ENGRAVING CO. et al.

No. 1383.

United States District Court, D. Connecticut.

May 27, 1914

Henry &amp McGraw, of Cleveland, Ohio, and Joseph L. Barbour, of Hartford, Conn., for plaintiff.

Perkins Wells & Scott and Elmer H. Lounsbury, all of Hartford, Conn for defendants.

THOMAS District Judge.

This matter is now before the court on the plaintiff's motion to strike out the 'equitable defense, set-off, and counterclaim' which the defendants have appended to and filed in court in connection with their answer.

The plaintiff has brought suit against a corporation, its officers, directors, and certain of the stockholders, on the ground that it and they made certain false statements as to the amount of business which the said corporation was doing the amount of dividends earned and paid by it on its stock, and its otherwise general successful financial condition, to one H. C. Mills, plaintiff's agent, as an inducement to her making purchase of certain shares of stock in said corporation; and that, as a result, plaintiff (who was an undisclosed principal), after making careful inquiry of the defendants, and inspecting the company's plant while in operation, and also its other properties, the true condition of which the defendants were all the time concealing from plaintiff and her said agent, did invest $4,000, of her own money, in the purchase of 160 shares of the capital stock of the said corporation; that after she had ascertained the actual condition of the defendant corporation's business and its financial affairs, and had thereby learned that the statements which defendants had made were false, she had tendered back said shares of stock and certain dividend checks which she had received, to the defendant corporation and certain officers thereof, and had made request for the return of her money which had been refused; and that she then placed the certificates, with a proper power of attorney for the transfer of the same, and all the dividend checks which she had received from the said corporation, in the registry of this court, thereby making tender of the same to the defendants, wherefore she claims, 'by way of equitable relief, a rescission of said sale by the order and decree of this court, together with such other and general relief as may to the court seem just and equitable.'

The defendants in their said 'equitable defense, set-off, and counterclaim- ' allege, in substance, that said Mills made purchase of the said 160 shares of stock of the Mugford Company in his own name, and at no time disclosed that he was acting for the plaintiff or any person other than himself; that he falsely claimed to be a man of considerable financial means and willing to become connected with the defendant corporation as a stockholder therein, provided the corporation would engage him as superintendent and manager of its photo engraving department; that he likewise falsely stated that he had had some 20 years of experience in the business of photo engraving, was thoroughly competent to work at that business, and of sufficient ability to manage its said department; and that, if employed, he would so manage its said department as to cause it to be of a much larger source of profit than it had theretofore been; that the defendant corporation was induced thereby to engage said Mills as superintendent and manager of its said photo engraving department, after he had first obtained its promise thereto as a condition precedent to his purchasing the said 160 shares of stock; that said Mills was the superintendent and manager of its photo engraving department from November 19, 1912, to May 6, 1913, during which time it paid him a salary of $40 per week, but, because of his incompetency and his negligent or unwise methods during said time, he had succeeded in disorganizing the said part of defendants' business and caused it to lose a very large number of customers, and had caused an increased cost in the work of said department to the corporation, with the result that the said corporation sustained a large amount of damage and loss thereby, and was therefore entitled to an equitable counterclaim of $10,000 against plaintiff, for which the said corporation has prayed judgment.

The pleadings in this case are not by any means what might be called 'models of the legal draftsman's art,' as they are so drawn as to be somewhat confusing; one reading the bill is at a loss to know just which of the defendants, other than the corporation, the plaintiff can expect to hold in view of its prayer for equitable relief. The bill is, in effect, the ordinary complaint for damages arising from a conspiracy to deceive and defraud, and the original claim for relief, which was for damages only, tends to bear out the conclusion that it was originally intended as such. The counterclaim, on the other hand, may be said to have been drawn with a view of benefiting but one of the defendants (the Mugford Printing & Engraving Company), although it purports to have been filed in behalf of all the defendants. However, the court is now called upon to render a decision on the situation which has been presented, by the filing of the counterclaim and the motion to strike out.

By the motion to strike out, plaintiff's attorneys have raised questions which would ordinarily be expected to be raised by a demurrer, were it not for the provisions contained in sections 29, 30, and 33 of the rules of practice for the courts of equity of the United States, promulgated by the Supreme Court on November 4, 1912, and which became effective February 1, 1913, and by which all the rules theretofore prescribed for the regulating of the practice in suits of equity in the Federal Courts, were abrogated. In re Jones (D.C.) 209 F. 717.

It is the duty of the court, therefore, to inquire as to what would have been legally sufficient facts to plead in a set-off or counterclaim before the said new rules were adopted, for the court does not apprehend that any one will seriously question the statement that rule 30 (198 F. xxvi, 115 C.C.A. xxvi) of the new rules was not intended to, nor did it as a matter of fact, in any way effect or change the substantive law relating to what could be pleaded as a set-off or counterclaim, as the same obtained prior to the taking effect of said rules. It seems to the court that the law on this subject remains unchanged and as before. Adamson v. Shaler (D.C.) 208 F. 566.

As was said by Judge Geiger in Adamson v. Shaler, supra:

'If rule 30 be given the broad construction permitting a defendant in effect to file an original bill by way of counterclaim, we would have a system whereunder the defendant could answer fully all of complainant's original causes of action, but complainant could in no event assert his right to affirmative relief upon a defendant's original cause of action set out by way of counterclaim. If the rules be considered in the light of the former practice which was foundationed upon the principle that complainant's bill determines the scope of the exercise of jurisdiction, there appears to be no reason for giving to rule 30 any larger office than that requisite to bring about the change so obviously indicated, i.e., that of incorporating in an answer: (1) The matters formerly included in answers proper; (2) matters formerly the subject of auxiliary or cross remedies through cross bills.'

The court is aware that the opinion of Judge Chatfield, in Marconi Wireless...