Tucker v. National Linen Service Corp.

• Decision Date: 03 March 1953
• Docket Number: No. 14080.,14080.
• Parties: TUCKER v. NATIONAL LINEN SERVICE CORP. et al.
• Court: U.S. Court of Appeals — Fifth Circuit

200 F.2d 858 (1953)

TUCKER v. NATIONAL LINEN SERVICE CORP. et al.

No. 14080.

United States Court of Appeals Fifth Circuit.

January 5, 1953.

Rehearing Denied March 3, 1953.

William G. McRae, Atlanta, Ga., Richard A. Dowling, New Orleans, La., for appellant.

James A. Branch, Max F. Goldstein, B. D. Murphy, Elliott Goldstein, Wm. G. Grant, Herbert J. Haas, Joseph F. Haas, Atlanta, Ga., John Wesley Weekes, Decatur, Ga., for appellee.

Before HUTCHESON, Chief Judge, and HOLMES, and RUSSELL, Circuit Judges.

HUTCHESON, Chief Judge.

This appeal from a judgment dismissing a stockholders' derivative action, brought on behalf of Crescent City Laundries, Inc., formerly Laundry & Dry Cleaning Service, Inc., arises out of and is based on the organization in 1928 of National Linen Service Corporation by Southern Linen Supply Corporation, Atlanta Laundries, Inc., Laundry & Dry Cleaning Service, and Sidney W. Souers, and the distribution of its common stock to the organizers. It is the latest in a series of five such dismissals and appeals.¹

Because each of the actions from which these appeals have come, though not always brought by the same stockholders or against the same defendants, was brought on behalf of Crescent and was in part based on, and sought relief from, claimed diversion and conversion of stock in the National Linen Service Corporation, a preliminary statement as to the pleadings and claims in, and the results of, those suits is necessary.

In the first of the actions, the claim was in general that, by acts of malfeasance, misfeasance, and nonfeasance on the part of Crescent's officers, directors, and others, fraudulently conceived and as fraudulently carried out, Crescent had suffered great losses and deprivations, giving rise to many causes of action.

Among the thirteen causes of action, as summarized and listed in our opinion in Kohler v. McClellan, 5 Cir., 156 F.2d at page 909, were: "8. The transfer of stock in National Linen Supply Company to certain of the defendants without consideration"; and "13. The execution of a plan by B. C. McClellan and associates to default Crescent's bonds and to purchase, at great loss to Crescent and profit to themselves, the assets of Crescent at the consequential sheriff's sale."

Motions to dismiss were filed on various grounds, including among them, (1) the failure of the complaint to state a cause of action; (2) the prescription of one, five, and ten years under the laws of Louisiana; (3) the claim or claims asserted by petitioner in behalf of Crescent belong to and are the property of the New Orleans Laundries, Inc.

The district judge sustained the motions and entered a judgment dismissing the complaint on the merits.

On appeal to this court, upon full consideration we affirmed the judgment as to all the claims and causes of action asserted, except number thirteen, for the reasons set out in the carefully worded opinion, from which we quote:

"The correctness of the ruling below is the question presented here.

"The original and supplemental petitions make it plain that on July 9, 1942, `all the debtor(\')s choses in action and claims of any and every character against any and all persons whomsoever, whether or not shown upon the books of the debtors, and all of the debtor(\')s cash, assets and effects of every name, character and description\' were sold at public outcry by the civil sheriff of Orleans Parish, Louisiana, under a writ of fieri facias issued upon a money judgment against Crescent; that an attorney at law in New Orleans bought in the properties at the auction sale and transferred them to N. O. Laundries, Inc., a Louisiana corporation; and that title to all the claims against the defendants except those against B. C. McClellan and associates for their alleged fraudulent and illegal acts in connection with the sale passed to N. O. Laundries, Inc.

"Appellant, however, argues that the seizure and sale of all of Crescent\'s choses in action and claims under the general description quoted above were made under too vague and indefinite a description to give notice of specific rights and credits seized or specific rights and credits sold; hence, that all choses in action and claims remained, following the seizure and sale, the property of Crescent, and are still its property, including the claims asserted against defendants in this suit. The descriptive words of the property seized and sold clearly show an intent to seize and sell all of the assets of Crescent of every kind and character. As between the parties to the sale, Crescent and purchaser, where it was purposed to seize and sell all assets, a general description broad enough to cover all assets was sufficient. Only upon the seizure and sale of specific property must the description positively identify the property. In the absence of one party to the sale the description will not become any less inclusive. Therefore, in the absence of the owner of all claims of Crescent sold at the sheriff\'s sale, the court below could only adjudicate upon the claims connected with and arising out of the sale itself." 156 F.2d at page 910. (Emphasis supplied.)

Reversing only as to claim number thirteen and as to the defendant McClellan, and sending the cause back for a trial on this claim, we said:

"The allegations dealing with the formation of a plan by McClellan and associates to wreck the corporation and force a public sale of all of its assets so that they could buy the assets at great profit to themselves, and the execution of the plan — the consequential sale of Crescent\'s assets to their alleged agent and the transfer thereafter, at a large profit, of such assets to a corporation organized by them — set forth a cause of action (claim) which was not sold in the sale of Crescent\'s assets on July 9, 1942, and with respect to which the prescriptions pleaded are either not applicable or have not run. Who McClellan\'s associates were in the plan to wreck the corporation and effect a sale of Crescent\'s assets is not shown, and there is nothing in the complaints to connect the other defendants with the plan or with the execution of the plan. In dismissing the suit the court below acted properly as to all claims and all defendants except as to claims against the defendant McClellan arising out of the sale."

The district judge ordering a repleader, Kohler named as defendants only the personal representatives of McClellan and, realleging against them the substance of claim thirteen, prayed for judgment thereon.

After a full trial in which the greatest latitude of proof was allowed, the district judge held: that the suit as repleaded had been converted from a stockholders' derivative action on behalf of Crescent into a suit for a direct personal tort upon plaintiff and other minority stockholders. In the alternative, the plaintiff insisting that the action was still a derivative one on behalf of Crescent, he held that if it was such action, the evidence did not sustain the recovery. So holding, he dismissed the suit on both grounds, and, on appeal to this court, the judgment was, in Kohler v. Humphrey, 5 Cir., 174 F.2d 946, affirmed on the first ground.

Thereafter, the plaintiff in this suit, Mrs. Tucker, taking over the laboring oar, filed on behalf of Crescent, two suits, one in the Northern District of Georgia, one in the Eastern District of Louisiana, against a great many defendants, some eighty in all. These included the ten defendants named in the present suit from which this appeal comes, Crescent City Laundries, Inc., National Linen Service Corporation, Atlanta Laundries, Inc., I. M. Weinstein, J. B. Jacobs, A. J. Weinberg, Sidney W. Souers, and the Trust Company of Georgia, Executor of the Estate of George H. Fauss, T. A. Martin, and Herbert J. Haas.

The complaints, in one case in 412 and in the other in 413 numbered paragraphs, comprised, with their many exhibits, 302 printed pages in one case and 292 in the other. They alleged in detail the facts and circumstances attending the formation in 1928 of the National Linen Service Corporation and the then distribution of the 150,000 shares of its common stock, and set out as exhibits the agreements executed and the resolutions adopted.

Alleging by way of a conclusion that there was a fraudulent diversion of a large number, some 54,000, of the common shares of National belonging to Crescent, and their conversion by the defendants named, it prayed: that the court construe the agreements and the stockholders' resolutions, in the light of all the facts, and determine and declare the equitable interest of Crescent in and to the 150,000 shares of common stock which were, pursuant to the agreements, delivered to the voting trustees; that judgment be rendered in favor of Crescent against the defendants named as for conversion; and that an accounting be had for income and dividends accrued thereon.

The defendants in each of the cases filed motions to dismiss for want of the requisite diversity, and, subject thereto, they filed motions to dismiss on the merits. These motions set up, among other grounds: that the causes of action sought to be asserted had been adjudicated against the corporation in the case of Kohler v. McClellan; that the suit of plaintiff was a suit to attack collaterally the validity of a judgment and sheriff's sale thereunder; and that the complaint showed on its face that Cresent was not the owner of the claims or causes of action sued on but that same had passed by the sheriff's sale to New Orleans Laundries, Inc.

The motion to dismiss for want of jurisdiction was sustained, and the judgments of dismissal entered in both causes were, on appeal to this court, affirmed.

Thereafter, on November 23, 1951, twenty-three years after the claimed frauds had been conceived and perpetrated upon it, Mrs. Tucker, on behalf of Crescent, brought the present derivative action. The complaint in this suit, while still lengthy, consisting of 178 numbered...