Syms v. Castleton Industries, Inc.

Decision Date02 January 1973
Docket NumberNo. 71-2326.,71-2326.
Citation470 F.2d 1078
PartiesWilliam J. SYMS, Jr., Plaintiff-Appellee-Cross Appellant, v. CASTLETON INDUSTRIES, INC., Defendant-Appellant-Cross Appellee.
CourtU.S. Court of Appeals — Fifth Circuit

Irving B. Levenson, Miami Beach, Fla., for appellant.

Raymond A. Noble, Newark, N.J., Richard S. Banick, Miami, Fla., Jerome C. Eisenberg, Newark, N.J., for appellee.

Before PHILLIPS,* THORNBERRY and RONEY, Circuit Judges.

Rehearing and Rehearing En Banc Denied January 2, 1973.

PHILLIPS, Circuit Judge:1

On December 15, 1965, the issued and outstanding stock of the Broward County Kennel Club, Inc.2 a Florida corporation, was 24,556 2/3 shares of such stock, William J. Syms, Jr., owned 7,500 shares, Elizabeth V. Syms owned 5,637½ shares and Syms, Jr., and Thomas M. Lynch, III, as trustees of a testamentary trust under the will of William J. Syms, Sr., deceased, owned 5,637½ shares.

Elizabeth was the surviving widow and Syms, Jr., the surviving son of Syms, Sr.

On December 15, 1965, Syms, Jr., and Elizabeth, and Syms, Jr., and Lynch, as trustees under such trust, entered into a contract with Investment Corporation of South Florida,3 a Florida corporation, for the sale by them to the Investment Corporation of the 18,775 shares of stock of Broward owned by them.

On April 22, 1966, Broward was merged into Investment Corporation, and on February 13, 1969, Investment Corporation was merged into Castleton Industries, Inc.,4 a Delaware corporation, which has its principal place of business in Florida.

On December 8, 1969, Syms, Jr., brought this action against Castleton to recover damages in the amount of $309,161.14 for the alleged failure of Broward and its successors to pay federal income taxes which accrued prior to December 1, 1965, and the alleged failure of Broward and its successors to abide by their obligations under such contract of sale.

Jurisdiction was based on 28 U.S.C.A. § 1332 (diversity jurisdiction).

Castleton properly challenged the court's jurisdiction. The court held it had jurisdiction and rendered judgment in favor of Syms, Jr. Castleton has appealed.

Since we hold that the court did not have jurisdiction, we will state only the facts bearing on that issue.

It is undisputed that at the time the action was commenced, Syms, Jr., was a citizen of Colorado and Lynch was a citizen of Florida, and that Castleton had its principal place of business in Florida.

In his deposition taken on January 21, 1970, Syms, Jr., testified that Elizabeth's home was in Federal Towers, Hollywood, Florida. However, in an affidavit made on November 2, 1970, and filed in the instant case on November 6, 1970, he averred:

"* * * to affiant\'s knowledge and belief, his mother was not a citizen of Florida at the time of institution of the instant action but, to the contrary, has been a citizen of the State of New Jersey since 1968."

In her affidavit, made on November 6, 1970, and filed in the instant case on December 3, 1970, Elizabeth averred that some time in 1968 she became a citizen of New Jersey and registered to vote there, and that she considered New Jersey the place of her citizenship and domicile.

We think it was established that Elizabeth was not a citizen of Florida when the instant action was commenced. However, it is obvious from what Syms, Jr., testified to in his deposition, taken on January 21, 1970, that at the time the assignment hereinafter referred to was executed, on May 13, 1969, and at the time the instant action was commenced, on December 8, 1969, Syms, Jr., and his counsel, Jerome C. Eisenberg, believed his mother, Elizabeth, was a citizen of Florida.

On May 13, 1969, Elizabeth, individually, and Syms, Jr., and Lynch, as such trustees, executed a purported assignment, reading in part here material as follows:

"FOR VALUE RECEIVED we, the undersigned do hereby sell, transfer, assign and set over unto WILLIAM J. SYMS, JR., all of our right, title and interest to any claim, suit, demand, damage and recovery against BROWARD COUNTY KENNEL CLUB, INC. and INVESTMENT CORPORATION OF SOUTH FLORIDA, or either of them, arising out of or related to that certain Agreement dated December 15, 1965, wherein the undersigned and said WILLIAM J. SYMS, JR., are designated as `Sellers\', as well as that certain Escrow Agreement entered into pursuant to Section 11 of the afore-described agreement, the said Escrow Agreement having been entered into on April 22, 1969, including, but not limited to, the payment by assignors herein designated and assignee herein designated to Internal Revenue Service on or about December 5, 1967, of the sum of Three Hundred Nine Thousand One Hundred Sixty One and 14/100 ($309,161.14) Dollars for the account of Broward County Kennel Club Inc."

At the trial, Syms, Jr., testified that the assignment was prepared by Eisenberg, his attorney, and that Eisenberg advised him to execute such assignment.

In a letter dated January 28, 1969, from Eisenberg to Marion E. Sibley, the attorney for Investment Corporation and Castleton, Eisenberg said in part:

"Pursuant to our conversation at the informal conference at your office on Friday, January 24, 1969, we herewith make formal demand upon your clients, Investment Corporation of South Florida (being the Buyer under an agreement bearing date December 15, 1965) or the Broward County Kennel Club, or both, on behalf of and for payment to our clients, William J. Syms, Jr., his mother, Elizabeth V. Syms, and William J. Syms, Jr., and Thomas M. Lynch III, Trustees under the will of William J. Syms, Sr. (being the Sellers under that agreement and hereafter referred to as such, for convenience) of the sum of $309,161.14, and interest thereon from December 5, 1967."

Thus, it will be seen that as late as January 28, 1969, Eisenberg was representing all of the sellers.

On February 25, 1969, Sibley responded, and for reasons set out in his letter which related only to the merits of the asserted claim, stated that the demand placed the claim beyond any possibility of adjustment or settlement. It was not until then that Syms, Jr., and Eisenberg realized that to enforce the claim of the sellers, resort to litigation would have to be made.

It is significant that shortly thereafter Eisenberg made his next move, which was to prepare the assignment dated May 13, 1969, and advise all of the sellers to sign it.

It will be remembered that at that time Syms, Jr., believed Elizabeth was a citizen of Florida, and it is fair to assume that Eisenberg also believed that.

Thereafter, the present action was instituted, naming only Syms, Jr., as plaintiff. It alleged that

"On or about April 22, 1969, plaintiff received an assignment from Elizabeth V. Syms; and from Thomas M. Lynch, III, and William J. Syms, Jr., as trustees, of all their rights, title, and interest to any claim, suit, demand, damage, and recovery against Broward or its successor corporations arising out of or related to the agreement entered into between them and Investment Corporation of South Florida. * * *"

As we shall hereafter show, such allegation was not true.

Eisenberg appeared as attorney for Syms, Jr., in the action.

It will be noted that the assignment recited:

"FOR VALUE RECEIVED we, the undersigned, do hereby sell, transfer, assign and set over unto WILLIAM J. SYMS, JR., * * *."

Syms, Jr., further testified at the trial that the assignment was true and correct in all of its statements and recitals, yet he later admitted on cross-examination that he did not pay Elizabeth, nor Lynch and himself, as such trustees, anything for the assignment, and that he did not get anything by the assignment.

The contract for the sale of the stock provided that the sellers should indemnify Investment Corporation against all claims, liabilities, assessments, or deficiencies against Broward, which were not reflected on its balance sheet of August 31, 1965, excluding any liability for income tax on receipts for the period commencing December 17, 1965. It further provided that $500,000 of the purchase price of such stock should be placed in escrow with the Bank of Hollywood, Hollywood, Florida, to secure such agreement to indemnify.

On March 22, 1966, the Internal Revenue Service assessed a total deficiency against Broward for taxes for the years 1963, 1964, and 1965 of $577,716. The deficiency was settled for $218,161.14 and that amount and $91,000 attorney's fees were paid out of the escrow fund. Forty per cent of the escrow fund belonged to Syms, Jr.; 30 per cent belonged to Elizabeth; and 30 per cent belonged to Syms, Jr., and Lynch, as such trustees. Hence, Syms, Jr., paid $87,264.45; Elizabeth paid $65,448.34; and Syms, Jr., and Lynch, as such trustees, paid $65,448.34 of the amount of the tax settlement. Syms, Jr., so admitted in his testimony.

He further admitted in his testimony that if there was a recovery by him in the action, 30 per cent thereof would go to Elizabeth; 30 per cent to such trustees; and 40 per cent to him.

Hence, it is perfectly clear that Syms, Jr., gave no consideration to the assignors for such assignment, and that notwithstanding the language of the assignment, it was the intention of Syms, Jr., Elizabeth, and Syms, Jr., and Lynch, as such trustees, that Elizabeth should not part with, but would retain 30 per cent of all the right, title and interest of the sellers "to any claim, suit, demand, damage and recovery"5 against Broward Investment Corporation, or Castleton, or "either of them," arising out of the stock sale agreement of December 15, 1965; out of an escrow agreement entered into on April 22, 1969, pursuant to paragraph 11 of such stock sale agreement; out of the payment from the $500,000 deposited in escrow, of $218,161.14 in settlement of the tax deficiency and $91,000 for attorney's fees incurred in resisting such deficiency and securing settlement thereof; and out of the...

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