Veazey v. Allen

• Decision Date: 10 February 1903
• Citation: 173 N.Y. 359,66 N.E. 103
• Parties: VEAZEY v. ALLEN et al.
• Court: New York Court of Appeals Court of Appeals

173 N.Y. 359

66 N.E. 103

VEAZEY

v.ALLEN et al.

Court of Appeals of New York.

Feb. 10, 1903.

Appeal from supreme court, appellate division, First department.

Action by James N. Veazey against Henry Allen and others, copartners under the firm name of Henry Allen & Co. From a judgment of the appellate division (70 N. Y. Supp. 457) affirming a judgment for defendants entered on report of referee, plaintiff appeals. Affirmed.

In this action the plaintiff seeks to compel the defendants to account to him for certain profits alleged to have been made by the latter in speculating in shares of the capital stock of two corporations known as the Distilling & Cattle Feeding Company and the American Sugar Refining Company. The defendants were copartners engaged as stockbrokers under the firm name of Henry Allen & Co., in the city of New York. The plaintiff's claim, briefly stated, is that the defendants, in consideration of his supplying them with information concerning an investigation into the affairs of the corporations referred to, which he was to procure to be made by the United States congress, would sell the stocks of those corporations, buy them again at a lower price,-the decline in price being caused by the congressional investigation,-and divide with him the profits so made. At the end of the plaintiff's case, the referee before whom the case was tried, upon motion of counsel for the defendants, dismissed the complaint on the ground that the contracts set forth therein were void as against public policy. The appellate division has affirmed the judgment entered upon that decision.

In 1891 the Distilling & Cattle Feeding Company was organized. This corporation was commonly known as the ‘Whisky Trust.’ Its chief business was the manufacture and sale of alcoholic liquors. It appears from the record that this company, instead of manufacturing these liquors by the ordinary processes, made them by mixing white spirits with various essences, sirups, oils, and other deleterious substances, in such a way that liquor of any kind, color, and apparent age could be produced upon demand. Its business was soon extended over a great part of this country, being transacted through distributing agents located at various commercial centers. These agents sold the products of the company on what was called a ‘rebate plan,’ which consisted in selling to customers on an agreement that, if they would not deal in goods of any other concern which competed with the Whisky Trust, they would receive a rebate or discount upon the price paid at the end of six months. This manner of transacting business soon became a serious menace to the business of those concerns which dealt in what was known as ‘straight goods'; that is, manufacturers of alcoholic liquors manufactured and disposed of in the ordinary way. Its effect was also to throw many traveling men employed by independent competitors out of employment. In the language of the plaintiff, ‘it had driven many men off the road.’ At that time the plaintiff was employed as a traveling salesman by the firm of Tullidge & Co., of Cincinnati, who were manufacturers of ‘straight’ whisky. He and his employers were interested in checking the growth of the business of the Whisky Trust and shutting it out of the market. Plaintiff had been connected with the whisky business for a number of years, and had also been in the essential oil business, and was thoroughly conversant with the details of both. Almost from the inception of the so-called Whisky Trust he had been agitating the question of how to check its encroachments upon the business of the dealers in ‘straight goods.’ He had consulted with many persons upon the subject, and had been considering the plan of going to Washington to see if he could accomplish his object through the federal authorities. In 1892 the plaintiff became acquainted with Judge Veazey, a member of the interstate commerce commission, and his son-in-law, Walton. During that year plaintiff discussed with Walton the subject of a congressional investigation into the affairs of the Whisky Trust, and the probable effects of such an investigation upon the price of the stock of that corporation. Walton suggested to plaintiff that there might be some pecuniary benefit to plaintiff from such an investigation, and that he could introduce him to some persons in New York who could help him. In pursuance of this suggestion, the plaintiff went to New York, and was there introduced by Walton to a lawyer by the name of Flagg. The latter told plaintiff that there would probably be an opportunity to make considerable money out of the decline of the Distilling & Cattle Feeding Company's stock, providing that the representations he made in regard to that company and its methods were true; that they should be exposed; and that he thought it would be well for the plaintiff to consult some broker in New York. Soon after this conversation, which took place at Flagg's house, and on January 5, 1893, the latter introduced the plaintiff to the defendant Allen at the New York Club. Plaintiff told Allen that he thought he would bring about a congressional investigation into the affairs of the Distilling & Cattle Feeding Company, and that he would furnish him with all information in connection with that investigation that would tend to affect the stock of that company. Allen asked for information concerning the company, and plaintiff told him about its operations. Allen replied that if the facts regarding the operation of the business of the trust were as represented by the plaintiff, and proven and publicly developed, it would undoubtedly result in seriously affecting the market value of that stock on the stock market; and he suggested that there would be an opportunity for the plaintiff to make some money, in giving him information relative to the possible action taken in Washington. Allen requested plaintiff to furnish him with any information he had, or that might come to his knowledge, affecting or tending to affect in any way the value of the stock of the Distilling & Cattle Feeding Company. Plaintiff thereupon asked Allen how he proposed that plaintiff should make any money. Allen replied that if the plaintiff would furnish him with information regarding that matter, when they proposed to introduce the resolution, and any subsequent steps that were taken in that matter in Washington, he would sell 3,000 shares of the stock of that company when they were ready to begin investigation over there, without requiring plaintiff to put up any margin, and that Allen would return to the plaintiff the profits which would accrue from the sales of such stock. Plaintiff accepted this proposition, and testified that Allen stated to him that in making it he was acting on behalf of the firm of Henry Allen & Co. Plaintiff thereupon proceeded to Washington, where he was introduced to Mr. Burrows, a member of the house of representatives, through Judge Veazey and Walton. He succeeded in interesting Mr. Burrows in the matter by fully informing him of the methods employed by the Distilling & Cattle Feeding Company in conducting its business, and demonstrated to him, by actual experiments, its method of producing different kinds of liquors by the use of the deleterious essential oils and compounds above described. Plaintiff talked with other members of congress, and through his efforts Mr. Burrows, on January 13, 1893, introduced a resolution in the federal house of representatives calling for an investigation into the affairs of the Distilling & Cattle Feeding Company. This resolution was finally referred to a subcommittee of the judiciary committee of the house, before which hearings were had, commencing on February 4, and continuing at intervals until February 27, 1893, when the last hearing was had. Plaintiff appeared as a witness before the subcommittee and there gave testimony in connection with which he again demonstrated by actual experiments the methods employed by the Distilling & Cattle Feeding Company in producing its goods, and described its mode of conducting its business. He not only appeared as a witness himself, but suggested the names of other witnesses, attended during nearly all the hearings, supplied information to the committee from time to time, and did what he could to promote and continue the investigation. He was in fact the prosecuting witness, and was referred to as such by the chairman of the subcommittee.

Subsequent to the introduction of the resolution authorizing the congressional investigation, it was amended so as to give the committee power to investigate the affairs of all ‘trusts' doing business in restraint of trade, and under this amendment the affairs of the American Sugar Refining Company were inquired into somewhat, and plaintiff suggested witnesses and took some part upon this branch of the inquiry. In a letter written June 27, 1893, to the president and governing committee of the New York Stock Exchange, the plaintiff stated that, pursuant to his agreement with Allen, he had instituted this investigation, and, at his own expense and by his own efforts, had furnished the testimony for the investigation, with the result that there was an immediate fall in price of the stock of said corporation. In the same letter the plaintiff stated that after January 17, 1893, he and Allen agreed to proceed upon the same basis against this stock; that further efforts were made by him, resulting in a further decline of the stock; and that on the 1st of February, 1893, the arrangement was continued as before. Again, in the same letter, the plaintiff stated that during the month of February, 1893, a heavy decline occurred in said stock, and that Mr. Allen then desired him, in addition, to aid in breaking the market in sugar, and would give him one-half the profits which might result from the effort; that, pursuant to this agreement, he set such measures at work as were...