Whittaker v. Brictson Mfg. Co.

• Decision Date: 10 September 1930
• Docket Number: 8883.,No. 8844,8844
• Citation: 43 F.2d 485
• Parties: WHITTAKER et al. v. BRICTSON MFG. CO. et al. (two cases.)
• Court: U.S. Court of Appeals — Eighth Circuit

43 F.2d 485 (1930)

WHITTAKER et al. v. BRICTSON MFG. CO. et al. (two cases.)

Nos. 8844, 8883.

Circuit Court of Appeals, Eighth Circuit.

September 10, 1930.

David A. Fitch and William Ritchie, Jr., both of Omaha, Neb. (Holton Davenport and G. B. Braithwaite, both of Sioux Falls, S. D., A. C. R. Swenson and Robert J. Webb, both of Omaha, Neb., and Clarence E. Talbott, of Winner, S. D., on the brief), for appellants.

M. E. Culhane and H. V. Mercer, both of Minneapolis, Minn. (Frank L. Weaver and William M. Giller, both of Omaha, Neb., on the brief), for appellees.

Before KENYON, BOOTH, and GARDNER, Circuit Judges.

KENYON, Circuit Judge.

The appeal in No. 8844 is from a decree of the United States District Court of South Dakota denying the application of appellants et al. to set aside an order of adjudication in bankruptcy as to the Brictson Manufacturing Company and to permit them to intervene and contest the right to such adjudication and to the appointment of a receiver.

Appeal in No. 8883 is from an order of the same court denying the petition and motion of appellants et al. to vacate a decree and judgment entered by default in said court against the Brictson Manufacturing Company on August 3, 1929, in the suit of Frank L. Weaver et al. for attorneys' fees, and to permit them to intervene in said action and make defense on behalf of themselves and the corporation.

Both of these cases were submitted and determined by the trial court at the same time, and as they are intimately connected and the controlling questions in each practically identical, we consider them both in one opinion.

The facts in No. 8844 are as follows: August 3, 1929, one Olaf Eidem filed in the United States District Court for South Dakota, a petition in involuntary bankruptcy against the Brictson Manufacturing Company, a South Dakota corporation, naming as chief creditors, and amounts claimed by them, Frank L. Weaver, William Giller, M. E. Culhane, jointly, $51,000, Olaf Eidem, $3,000, O. A. Brictson, $80,000, and alleging that the assets and property of the bankrupt amounted approximately to $110,000.

Notice was served on George N. Breed, a supposed director of the Brictson Company, a seventy-two year old gentleman living on a farm, who had been so ill for ten months prior to service of notice that it had been impossible for him to move from one place to another without assistance, and who was so little interested in the matter that he did not advise any officers of the Brictson Company of the service of notice. He had been a director, having been given one share of stock by Brictson in 1923. He attended one meeting of the board of directors in 1923, and since that time had received no notice of any directors' meeting and had attended none prior to September 2, 1929.

No defense was made to the bankruptcy suit, and orders of adjudication and reference were entered on August 21, 1929.

On September 4, 1929, appellants filed a petition and motion to set aside the adjudication of bankruptcy and the order of reference and to be permitted to intervene and contest the claim of insolvency. Attached thereto was a proposed answer subsequently amended by permission of the court.

September 24, 1929, one Anderson and a number of other stockholders of the Brictson Company, including appellant Frank J. Taylor, filed a motion to set aside the adjudication in bankruptcy, to which was attached a proposed answer to the complaint, which answer was subsequently amended by permission of the court.

Both of these petitions and motions, which were considered by the court together, set forth that some of those attempting to intervene were creditors and stockholders; that one was temporary receiver of the Brictson Company, appointed in quo warranto proceedings against that company in a state court of South Dakota; another the state's attorney of the county where the quo warranto proceedings had been carried on. The chief complaint of said proposed pleadings was that George N. Breed was not at the time of service of notice a director of said Brictson Company, and that no valid service was had on any officer or director thereof, and hence the proceedings were without jurisdiction on the part of the court.

The proposed answer denied that the Brictson Company had committed any acts of bankruptcy; that the claim of $80,000 alleged to be due Brictson was spurious; that the attempt of Brictson and wife, pretending to act as officers of the Brictson Company, to file a voluntary petition in bankruptcy after October 5, 1929, was of no force and effect as its charter had been forfeited on October 5th in the quo warranto action of the state of South Dakota.

The District Court issued orders against the said Eidem et al. to show cause why the prayers of the petition and motion should not be granted. A hearing was had in connection with similar claims in case No. 8883, and the court denied the petition and motion.

In case No. 8883, the short facts are these: Frank L. Weaver, William Giller, and M. E. Culhane brought action in May, 1928, in the United States District Court for South Dakota, against the Brictson Manufacturing Company claiming that they had been attorneys for said company in litigation extending over a period of six years; that they had paid out $1,000 for its benefit, and that the reasonable and fair value of their services rendered to it, for which it had agreed to pay, was the sum of $50,000; that the company owed to C. A. Brictson for salary at the rate of $10,000 per year since August 1, 1921; that the debts were greater than the assets, and asked that to prevent irreparable injury a receiver be appointed for the Brictson Manufacturing Company. George N. Breed was served with notice and the return of service stated that he was a director of the defendant company. The facts as to Breed have been referred to heretofore. May 10, 1929, judgment was taken upon default. The final decree filed on August 3, 1929, gave to said Weaver, Giller, and Culhane a judgment for $51,000 against the Brictson Manufacturing Company, which was made a lien upon all the assets of the company, and a permanent receiver was appointed.

So these cases intertwine, for on August 3, 1929, the date of the filing of the final decree by default in case No. 8883, the bankruptcy petition of Olaf Eidem against the Brictson Manufacturing Company in case No. 8844 was also filed, and one of the grounds of bankruptcy was the appointment of the receiver in case No. 8883, while the Brictson Company was insolvent. The other ground for the appointment of a receiver was that the Brictson Company committed an act of bankruptcy by making an assignment to O. A. Brictson of its right, title, and interest to the sum of $9,516.16 with interest, which was in the hands of one West in Nebraska, who was receiver of said Brictson Company under appointment of the United States District Court at Omaha, Neb., and who had been ordered by said court to send the same to the Brictson Company in South Dakota. We may add that our attention has been directed to a decision since this case was submitted of District Judge Munger in the United States District Court for the District of Nebraska 43 F.(2d) 869 holding this assignment ineffective.

September 4, 1929, William Whittaker, who claimed to be a creditor, and others (being the same parties who filed petition to intervene in case No. 8844), filed petition in case No. 8883 asking to be permitted to file a petition of intervention and a motion to set aside the judgment and the appointment of a receiver. To the proposed petition in intervention was attached an answer to the original complaint, which was subsequently amended.

September 24, 1929, Anderson and other stockholders filed motion to set aside judgment, and asked to be permitted to file petition in intervention. A proposed answer was attached thereto. Practically the same grounds for setting aside the judgment and permitting intervention were stated by Whittaker et al. and Anderson et al. as were stated by them in case No. 8844. The service on Breed was attacked and the tendered answers set forth the various proceedings in quo warranto in the circuit court of Tripp county, S. D., where the court held the Brictson Manufacturing Company had forfeited its charter; the quo warranto action in the district court of Douglas county, Neb., in January, 1924, where a decree was rendered ousting the Brictson Company from the state of Nebraska, on the ground that it was a fictitious and fraudulent corporation, conceived in fraud, and since its birth had been used by Brictson to defraud the public by selling worthless stock of the company. The decision of the United States District Court in Nebraska that these same attorneys were not entitled to a lien upon the funds of the Brictson Manufacturing Company was also set forth. These pleadings asserted that the action was commenced with the knowledge of Eidem and the consent of Brictson for the purpose of avoiding the effect of decrees in the quo warranto proceedings; that the appointment of a receiver in case No. 8883 was fraudulent and was done for the purpose of having an act of bankruptcy upon which to predicate the involuntary petition in bankruptcy; that the suit in bankruptcy and the suit for attorneys' fees were schemes to defraud not only the interveners, but the United States District Court of Nebraska and South Dakota, the district court of Douglas county, Neb., and the circuit court of Tripp county, S. D., and to unjustly and deliberately secure all the property of the Brictson Company for Eidem, Brictson, Weaver, Giller, and Culhane to the damage of the creditors and stockholders. The grave charges made in these various motions to set aside the judgments and in the proposed petitions of intervention are of such nature that it would seem some court of competent jurisdiction should pass thereon.

Motions to dismiss the appeals in this court were presented...