Vidal v. South American Securities Co., 69.
| Decision Date | 15 August 1921 |
| Docket Number | 69. |
| Citation | 276 F. 855 |
| Parties | VIDAL v. SOUTH AMERICAN SECURITIES CO. et al. |
| Court | U.S. Court of Appeals — Second Circuit |
On Petition for Rehearing, January 11, 1922. [Copyrighted Material Omitted]
The appeal is from a decree of Judge A. N. Hand, entered on March 28, 1916, and from a decree of Judge Mayer, entered on October 30, 1917.
The case was tried before Judge Hand and was decided by him in an elaborate opinion. He, however, directed a reference to a special master to investigate and report on certain facts. The master filed a comprehensive report which came before Judge Mayer, who confirmed it as is hereinafter more fully stated.
The complainant is an alien, being a citizen of Uruguay.
The South American Securities Company, named as a defendant, is alleged to be a New York corporation, and to have its principal office and to be doing business in the Southern District of New York. It is hereinafter referred to as the Securities Company.
The Pan-American Transcontinental Railway Company, another defendant, is alleged to be a Maine corporation, and to have its principal office and to be doing business in the Southern District of New York. It is hereinafter referred to as the Railway Company.
The National Railway Construction Company, also a defendant, is alleged to be a Maine corporation, and to have its principal office and to be doing business in the Southern District of New York. It is hereinafter referred to as the Construction Company.
The defendants, Charles Bright (hereinafter called Bright) Frederick R. Bright, John Jay McKelvey, and Alpheus H. Favour sued individually and as copartners doing business under the firm name of McKelvey & Favour; Charles R. Demarest, Edward L. Thompson, Warren G. Thompson, and Ralph H. McKelvey are all alleged to be citizens of the state of New York; and they are all alleged to be of the city of New York except Warren G. Thompson, who is said to be of North Tonawanda in this state. In his answer Bright denied that he was a resident of the state of New York or that he was served within the Southern District. He admitted himself to be a citizen of the United States and alleged that he was domiciled in the city of Buenos Aires, in the republic of Argentine, where he was engaged in business as a merchant. And Frederick R. Bright in his answer denied that he was a citizen of the state of New York and alleged that he was a citizen of the state of California, but he admitted 'that he now resides in the Southern District of New York.'
The defendant William F. Piper is alleged to be of Tenafly in the state of New Jersey.
The other defendants are alleged to be citizens of foreign states: Thomas B. Holoway is alleged to be a citizen of the Argentine Republic; Fanny Yaureguiberry de Castro, sued individually and as administratrix of Juan Jose Castro, is alleged to be a citizen of the republic of Uruguay, as are the defendants Enrique Castro, Marta Castro, Juan Jose Castro, and Fanny Maria Castro.
The complaint alleges that the Railway Company is the owner of certain rights and franchises under a concession granted by the republic of Uruguay. on July 15, 1909, for the construction of the Interior Railway of Uruguay. It alleges also that the Construction Company is engaged in the construction of the said Interior Railway, under a contract with the Railway Company aforesaid.
The complaint sets out in minute detail the relations of the various defendants to the enterprise, and alleges that the defendant Bright either directly, or indirectly through his agents, obtained possession of a large amount of securities for his services.
The cause of action, briefly stated, is that defendant Bright agreed with the complainant that if the complainant would co-operate with and aid him, Bright, in procuring certain concessions from the government of Uruguay to the Railway Company, he (Bright) would pay to the complainant 30 per cent. of his profits. That the complainant did so co-operate and did obtain the concession as agreed, and that the complainant is entitled to the promised 30 per cent. of Bright's profits.
The relief demanded in the complaint is: The Securities Company and the two Brights filed pleas in which they asserted that the court was without jurisdiction upon the ground that Bright was not a resident of the state of New York and was not served within the Southern District of New York, and that the action was not one to enforce any legal or equitable lien upon or claim to, or to remove any incumbrance or lien or cloud upon title to property within the Southern District of New York.
The motion for judgment on the pleadings came before Judge Coxe sitting in the District Court and was disposed of by him in an opinion filed on April 2, 1913. He overruled the motion and permitted the defendants to answer within 20 days.
Thereafter elaborate answers were filed. The answer of Bright occupies 158 printed pages of the record; that of the Securities Company, 67 pages; and that of Frederick R. Bright, 24 pages. The answers all allege that the bill of complaint is wholly without equity and that the court is without power to grant the relief asked for.
The answers interposed by the two Brights and by the Security Company each assert that the complainant by false and fraudulent representations made by him for the purpose induced Charles Bright to enter into the alleged agreement in the words and letters as follows:
The answers also set forth in detail the alleged false and fraudulent representations by which it is asserted that Bright was induced to enter into the pretended agreement, and it is alleged that the complainant knew that they were false.
The answers also deny that the complainant did anything under the pretended agreement which entitled him to the 30 per cent. or any portion of either the securities or the profits realized by Bright from the enterprise referred to in the complaint.
By a cross-bill the Railway Company and the Construction Company sought a decree rescinding and canceling two contracts, both dated February 8, 1910, between the Railway Company and the Securities Company, and between the Securities Company and the Construction Company, providing for the issuance to the Securities Company of certain second mortgage bonds, known as 5 per cent. gold debenture bonds, and certain common and preferred stock of the Railway Company, and certain common stock of the Construction Company. The grounds for the rescission and cancellation as alleged were fraud and failure of consideration on the part of the Securities Company and of Bright.
The Securities Company in its answer also set up a counterclaim in which it alleged ownership of bonds and common and preferred stock of the Railway Company aggregating more than $1,000,000 par value and $9000,000 par of the common stock of the Construction Company, and that it had come wrongfully, fraudulently, and unlawfully into the possession of the defendants McKelvey and Favour who refused to deliver the same to it. It alleged that through its ownership of the stock of the Railway and of the Construction Company its had a controlling interest in those companies, but that it was prevented from voting the stock by the wrongful acts of McKelvey to its great loss. It asked judgment against the defendants McKelvey and Favour individually and as copartners, and that they be directed to turn over to the defendant the securities as described and that they pay in addition the sum of $500,000 in damages.
The defendant John MacDonald Henderson was not named as a party in the original complaint. He petitioned to be made a party on the ground that he was the trustee in bankruptcy in Great Britain of the estate of Bright adjudicated a bankrupt in the courts of that country, and the prayer of his petition was granted.
An injunction was issued on October 16, 1912, pursuant to an order of Judge Learned Hand, restraining the defendants pending the suit from in any manner dealing with or disposing of any of the securities as complained of in the bill which were then held by them or either of them on behalf of Bright or of the Securities Company.
An order was entered on July 18, 1913, by Judge Coxe, sitting in the District Court, appointing a receiver of all stocks and bonds in the possession of the defendants McKelvey and Favour for the account of Bright and for the account of the Securities Company. The receiver was directed to hold the same pending the litigation or until the further order of the court.
It appears that in 1907 Bright employed the defendant John Jay McKelvey to incorporate the Railway Company, and it was in that year incorporated under the laws of Maine. In the same year he incorporated the Construction Company under the laws of the same state. In the following year Bright employed McKelvey to incorporate the Securities Company, and it was so incorporated under the laws of New York. The stock of the Securities Company consisted of 1,000 shares, of which 670 shares stand in the name of Bright and the remaining 330 shares in the name of his brother Frederick. The trial judge found that these 330 shares belonged to Charles who furnished the consideration and that he was the absolute owner of all of the stock of the Securities Company, and that he paid for it by turning over shares of the common stock of the Railway Company having a par value of $500,000, which had been issued to him by a resolution of the board of directors of the Railway Company adopted on September 20, 1907, 'as compensation for...
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