Symmes v. Union Trust Co. of New York

• Decision Date: 05 March 1894
• Docket Number: 527.
• Citation: 60 F. 830
• Parties: SYMMES et al. v. UNION TRUST CO. OF NEW YORK et al.
• Court: U.S. District Court — District of Nevada

60 F. 830

SYMMES et al. v. UNION TRUST CO. OF NEW YORK et al.

No. 527.

United States Circuit Court, D. Nevada.

March 5, 1894

The bill, among other things, charges fraud, conspiracy, and a violation of trust and confidence upon the part of the officers and trustees of the Sutro Tunnel Company, with other respondents, to defraud said corporation and its stockholders of their legal rights. The pleadings are too lengthy to attempt any detailed statement of the various allegations contained therein. The contest arises out of the transactions carried on by the respondents in their efforts to procure a settlement and adjustment of a foreclosure suit brought by McCalmont Bros. & Co. against the Sutro Tunnel Company, and the final action taken in regard thereto, the precise nature of which will sufficiently appear from the facts hereinafter stated. The general character of the suit will be understood by quoting simply the prayer of the bill, which contains forty specific allegations, and one general averment in the answer.

The prayer of the bill is: 'To the end, therefore, that the said defendants may answer (but not under oath, such oath being hereby expressly waived, according to the practice of this court) all and singular the premises, and that a full accounting may be had in equity of all the indebtedness of the said Sutro Tunnel Company, and fully of all receipts and expenditures, debits and credits, which ought in equity to be considered upon such accounting; and that the said Union Trust Company be adjudged by the decree of this court to have procured the legal title to the property of said Sutro Tunnel Company in fraud of the rights of these complainants and of the said Sutro Tunnel Company; and that the conveyance thereof to said Union Trust Company be adjudged to be a cloud upon the title of said Sutro Tunnel Company to its property and franchises, which ought in equity to be removed; and that the said Union Trust Company or the said Comstock Tunnel Company holds the said conveyance and title as the constructive trustee of said Sutro Tunnel Company, and as being in equity a mortgage to secure the payment of the just indebtedness of said Sutro Tunnel Company, to be ascertained upon the said accounting, and to be evidenced by bonds of the said Sutro Tunnel Company, to be issued in accordance with the terms of said agreement of November, 1887; and that these complainants and other stockholders of said Sutro Tunnel Company who have not subscribed to said bonds be adjudged to retain and hold all their rights as stockholders of said Sutro Tunnel Company in the property thereof, subject to the payment of said indebtedness secured by the said mortgage and that the said Union Trust Company or the said Comstock Tunnel Company, or either of them, who may hold the legal title to the property of said Sutro Tunnel Company, be decreed to reconvey the same to the Sutro Tunnel Company; and that the trustees of said Sutro Tunnel Company be ordered to issue the bonds of said company and a new mortgage upon its property, as provided by the terms of said agreement of November, 1887; and that if the said Union Trust Company has not conveyed the said property to the said Comstock Tunnel Company, that it be enjoined from so conveying the same pending this suit; and that it be particularly restrained from paying out of the proceeds or income of said Sutro Tunnel property or franchises the sum of $100,000, or any other sum, to Theodore Sutro, or from paying therefrom any part of the sums agreed to be paid by the members of said syndicate, either to themselves or others, as commissions or compensation under the terms of said syndicate agreement; and that said Union Trust Company be further restrained from enforcing its judgment for a deficiency against said Sutro Tunnel Company, or any part thereof; and that your orators may recover their costs herein expended against all of the defendants herein, and may have such further or other relief as the circumstances of this case may require, and as to this honorable court, sitting as a court of equity, shall seem meet and agreeable to equity and good conscience.'

The answer of the Union Trust Company and all other respondents served with process, except the Sutro Tunnel Company contains 75 allegations of admissions and denials, one of which is here quoted: 'And, further answering, these defendants deny, and each denies, that the complainants, or any of them, are entitled to any relief whatsoever, in this or any court whatsoever, in the premises, and say: That complainants, and each of them, had full knowledge and notice of all of the transactions in this answer set forth, and of the intention to consummate them at the time and before any of said transactions occurred. That the said complainants and each of them, had full and ample opportunity to subscribe for the said bonds, and had the same opportunity to subscribe therefor that the stockholders of said Sutro Tunnel Company who did subscribe therefor had; and that neither these complainants, nor any of them, nor any of the stockholders of said Sutro Tunnel Company who did not subscribe to the said bonds, made or attempted to make any objection, or took or attempted to take any exception to any of the acts or transactions herein set forth; and that neither these complainants, nor any of them, nor any of the stockholders of said Sutro Tunnel Company who did not subscribe for the said bonds, ought in equity, or otherwise, now to be permitted to make any objection or to take any exception thereto, or in any way to affect or invalidate the said acts and transactions; and that the said complainants, and each of them, and all of the stockholders of the said Sutro Tunnel Company, whether they subscribed to the said bonds or not had at all times full and free access to all of the books papers, instruments, and records of said Sutro Tunnel Company, among which were included full minutes of all proceedings of its board of trustees, entered at the time of such proceedings, and the originals or true copies of the said syndicate agreement, and all papers pertaining thereto, filed among said records on or about said August 10, 1888, when said syndicate agreement was approved as aforesaid and showing, in detail, all of the transactions in this answer set forth, stockholders as such; and that the said Sutro Tunnel Company or its stockholders as such; and that the said trustees of said Sutro Tunnel Company, and the officers thereof, and each of them, and particularly the said Theodore Sutro, and also the members of said executive and reorganization committees, were at all times ready and willing to give to any and all of the stockholders of the said Sutro Tunnel Company any and all information in the premises that they, or any of them, might desire, and did so whenever thereto requested. That all the transactions and acts of the trustees of said Sutro Tunnel Company in this answer set forth were had and done in good faith, and in the exercise of the best judgment and discretion of said trustees and of the officers of said company; and that said acts and transactions were the only feasible and possible means whereby the property of said Sutro Tunnel Company could at all be saved in the interest of any of the stockholders of said Sutro Tunnel Company whatsoever, and by which the foreclosure in the sole interest of said McCalmont Brothers & Company, which would have resulted in the exclusion of every shareholder of the Sutro Tunnel Company, could be prevented; and that a large majority of the stockholders of said Sutro Tunnel Company having come forward, together with said syndicate, and having, by their own efforts, and with their own funds, purchased the said McCalmont mortgage, it would not be just nor fair nor equitable that the stockholders of said Sutro Tunnel Company who failed or refused to come forward or to join in the said efforts or to advance any part of said money (the many notices, requests, and appeals on the part of said Theodore Sutro and the trustees of said Sutro Tunnel Company and said executive and reorganization committees, extending over a period of more than eighteen months, hereinbefore set forth, to the contrary notwithstanding), should share in the benefits resulting from the purchase of said mortgage and the success of said reorganization.'

The Sutro Tunnel Company filed a separate answer by Pelham W. Ames, secretary.

If difficult to make a condensed statement of the pleadings covering 182 pages of printed matter, within the limits of an ordinary opinion, what shall be said of the facts when the testimony, independent of exhibits of almost equal length, consists of about 6,000 type-written pages and the printed briefs of counsel over 800 pages? The case cannot be thoroughly understood without full knowledge of all the conditions and causes which led to the acts of parties of which complaint is made. The order in which the transactions occurred is important in determining whether the acts were consistent with fair dealing, or whether the transactions which took place, and the conduct of the parties, were fraudulent in fact, or constitute what is known as 'constructive fraud.' The importance of all the questions involved in the case, and the thoroughness with which they have been argued, demand from the court more than an ordinary statement. A complete statement of the facts is not essential, but a skeleton history, in chronological order, will here be given.

The Sutro Tunnel Company, at the time of the transactions involved in this suit, consisted of 2,000,000 shares of stock of the par value of $10 per share. On the 4th of January 1877, it executed a mortgage or trust deed upon its property situate in Storey county, Nev., to McCalmont Bros. &...