Tower Hill-Connellsville Coke Co. v. Piedmont Coal Co., 3436.

• Citation: 91 ALR 648,64 F.2d 817
• Decision Date: 21 April 1933
• Docket Number: No. 3436.,3436.
• Parties: TOWER HILL-CONNELLSVILLE COKE CO. OF WEST VIRGINIA v. PIEDMONT COAL CO. et al.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

91 ALR 648, 64 F.2d 817 (1933)

TOWER HILL-CONNELLSVILLE COKE CO. OF WEST VIRGINIA v. PIEDMONT COAL CO. et al.

No. 3436.

Circuit Court of Appeals, Fourth Circuit.

April 21, 1933.

John W. Davis, of New York City (E. W. Knight, and Lon H. Kelly, both of Charleston, W. Va., and George E. Alter, A. J. Barron, Thomas Watson, and Robert M. Steffler, all of Pittsburgh, Pa., on the brief), for appellant.

E. C. Higbee, of Uniontown, Pa., and Edwin W. Smith, of Pittsburgh, Pa. (Arthur S. Dayton, of Charleston, W. Va., and Wm. M. Robinson, of Pittsburgh, Pa., on the brief), for appellees.

Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.

NORTHCOTT, Circuit Judge.

This is an appeal from a decree entered in the District Court of the United States for the Southern District of West Virginia, ordering that the business and affairs of the appellant corporation be terminated and wound up; and appointing receivers to sell and convert its properties and assets into money to be distributed among its creditors and stockholders according to their respective rights and priorities.

This case was formerly before this court, and a decision was rendered on July 8, 1929. 33 F.(2d) 703. A petition for rehearing having been filed by appellant, this court on October 15, 1929, handed down a per curiam opinion denying the rehearing. 35 F.(2d) 179. Appellant presented a petition to the Supreme Court of the United States for a writ of certiorari, which was denied on January 13, 1930. 280 U. S. 607, 50 S. Ct. 157, 74 L. Ed. 650.

A statement of the facts of the case up until the time of the former decree appealed from will be found in the opinion of this court, and it will only be necessary to state the facts as to the happenings from that time until the entry, in the court below, of the decree here appealed from.

The case was remanded to the District Court, which entered an order under date of February 25, 1930, authorizing the receivers heretofore appointed to make application to the courts of Pennsylvania or elsewhere for their appointment as ancillary receivers to bring such actions in the courts as might be necessary to protect the rights of the preferred stockholders.

The receivers later presented their petition to the District Court of the United States for the Western District of Pennsylvania, asking that they be appointed ancillary receivers by said court. Under date of March 21, 1930, that court entered an order appointing them ancillary receivers with power and authority to prosecute in the commonwealth of Pennsylvania such suits or actions against Tower Hill of Pennsylvania, its board of directors, or such persons, firms, or corporations as may have had contracts with or may have obtained profits in dealing with Tower Hill of Pennsylvania, to the end that proper decrees be obtained, transferring all money and property from Tower Hill of Pennsylvania to this appellant by way of dividends or otherwise. The ancillary receivers have instituted no proceedings under this order, but appellees claim that they still reserve the right to have the receivers institute proceedings against the officers of appellant personally.

Appellees, on or about July 15, 1930, tendered (but did not formally file until October 26, 1931) an amended and supplemental bill to the District Court of the United States for the Southern District of West Virginia, reaffirming the allegations of the original bill, and, in addition thereto, alleging that, by various acts of fraud, misappropriation, and mismanagement, the assets of appellant had been reduced to a point where little more remained than would suffice to redeem the outstanding preferred stock at par and the accrued unpaid dividends thereon. It was also alleged that the purpose of the corporation had failed. The amended and supplemental bill prayed (1) that appellant be dissolved; (2) that the business and affairs of the appellant be terminated and wound up and its property and assets sold and converted into money to be applied to the payment of its debts and the overplus distributed among its stockholders according to their respective rights; (3) that receivers be appointed to marshal, sell, and convert the property and assets into money to be distributed pursuant to the orders of the court; and (4) for general relief.

Subsequently, on October 15, 1931, appellees presented a second amended and supplemental bill adopting the allegations of the original bill and of the first amended and supplemental bill, and alleging, in addition thereto, that appellant's directors had illegally and fraudulently expended $1,184,000 of the appellant's cash in the purchase of 11,840 shares of the stock of the Emerald Coal & Coke Company. It was alleged that the Emerald stock was practically worthless, and that its purchase was part of a plan and device to oppress, cheat, and defraud the appellees. It was also alleged that the assets had been further diminished by operating losses and were continuing to decrease at such a rate that soon the assets would not be sufficient to retire the preferred stock at par and pay the accrued unpaid dividends. The prayers of the second amended and supplemental bill were identical with the prayers of the first amended and supplemental bill.

Appellant objected to the filing of both the amended and supplemental bills and moved to dismiss. On October 26, 1931, the court below entered an order overruling appellant's objections to the filing of the amended and supplemental bills and denying appellant's motion to dismiss. Thereupon, appellant filed answer to both amended and supplemental bills and the case was heard. The trial judge filed a memorandum decision, and on August 25, 1932, entered a decree to the effect that the business and affairs of the appellant should be terminated and wound up; that its property and assets be sold and converted into money; that distribution thereof be made to its creditors and stockholders according to their respective priorities; and that receivers designated in the decree be authorized to take such proceedings as would put into effect the decree.

On July 30, 1929, almost immediately following the decision of this court upon the former appeal, all the property and assets of the Eastern Coke Company, in which corporation the Tower Hill of Pennsylvania owned all the stock, were transferred to the Tower Hill of Pennsylvania, as a liquidating dividend. January 8, 1930, while the mandate of this court was still stayed pending appellant's petition, to the Supreme Court of the United States, for a writ of certiorari, the directors of the Tower Hill of Pennsylvania authorized and the directors of Tower Hill of West Virginia accepted the transfer of all the properties and assets of the former to the Tower Hill of West Virginia as a liquidating dividend. The Tower Hill of West Virginia was the sole stockholder of the Tower Hill of Pennsylvania. The Tower Hill of West Virginia thus came into possession of all the property and assets of the Eastern Coke Company and of the Tower Hill of Pennsylvania.

On July 30, 1929, the Tower Hill of Pennsylvania, pursuant to the action of its board of directors, sold to the Redstone Coal & Coke Company, a subsidiary of what is known as the Weirton Steel Company, 48.5 acres of its unmined coal at $2,000 per acre. At the same time Tower Hill of Pennsylvania exchanged approximately 178 acres of unmined coal, together with an electric substation and equipment, for an equal area of unmined coal and the mining facilities constituting what was known as "Thompson No. 1. plant." On September 19, 1930, the Tower Hill of West Virginia leased to the Weirton interests 151.35 acres of its remaining unmined coal at 25 cents per ton, on the basis of an agreed tonnage of 9,000 tons per acre, and sold to Weirton certain personal property connected with the area of the leased coal. It is contended by appellees that these transactions with the Weirton interests were not to the advantage of the Tower Hill of West Virginia, but were made for the personal advantage of the so-called Hillman interests. The evidence shows that, at the time the exchange was made involving the "Thompson No. 1 plant," the Hecla Coal & Coke Company, a majority of the stock of which company was owned by J. H. Hillman & Sons Company, sold certain properties to the Weirton interests. Evidently the taking over of the "Thompson No. 1 plant" by Tower Hill of Pennsylvania was involved in the Hecla-Weirton transaction. This exchange was to the distinct disadvantage of the Tower Hill interests, which parted with property of great value, acquiring property it did not need. The "Thompson No. 1 plant" was not, under the evidence, of great value to Tower Hill. This exchange could only have been advantageous to the Hecla Company.

The record shows the complete domination of the Tower Hill of West Virginia, the Tower Hill of Pennsylvania, and the Eastern Coke Company by the Hillman interests. The owner of the controlling stock of the Hecla Company is J. H. Hillman & Sons Company, a corporation of which J. H. Hillman, Jr., is president. He is also president of the Hecla Coal & Coke Company, the Fayette Investment Company, the Thompson Connellsville Coke Company, Tower Hill of Pennsylvania, Eastern Coke, and Tower Hill of West Virginia. The Thompson Connellsville Coke owns in the neighborhood of 28,000 shares of the common stock of the Tower Hill of West Virginia. All these companies have interlocking directorates clearly shown by the record to be under the complete domination of J. H. Hillman, Jr. Since May 3, 1920, J. H. Hillman, Jr., has been president, Thomas Watson, secretary, and R. W. Flenniken, treasurer, of Tower Hill of West Virginia, Thompson Connellsville, Fayette Investment Company, Hecla, and J. H. Hillman & Sons Company. It is impossible to read the record of this cause and not be impressed with the fact that since the acquisition of control by the Hillman interests, on ...