Young v. Bradley

• Decision Date: 21 April 1944
• Docket Number: No. 9618-9622.,9618-9622.
• Citation: 142 F.2d 658
• Parties: YOUNG et al. v. BRADLEY et al. (two cases). TERMINAL & SHAKER HEIGHTS REALTY CO. v. SAME. KOLBE v. SAME (two cases).
• Court: U.S. Court of Appeals — Sixth Circuit

142 F.2d 658 (1944)

YOUNG et al. v. BRADLEY et al. (two cases). TERMINAL & SHAKER HEIGHTS REALTY CO. v. SAME. KOLBE v. SAME (two cases).

Nos. 9618-9622.

Circuit Court of Appeals, Sixth Circuit.

April 21, 1944.

Robert J. Bulkley, of Cleveland, Ohio, for appellant Terminal & Shaker Heights Realty Co.

Robert W. Purcell, of Cleveland, Ohio, and Samuel Spring, of New York City, for all other appellants.

Robert J. Bulkley, James A. Butler and Robert W. Purcell, all of Cleveland, Ohio, on the brief for appellants Young and others.

Samuel Spring, of New York City, on the brief, for appellant Kolbe.

L. C. Wykoff, of Cleveland (McKeehan, Merrick, Arter & Stewart and George William Cottrell, Charles K. Arter, and L. C. Wykoff, all of Cleveland, Ohio, on the brief), for appellees.

Before SIMONS, ALLEN, and HAMILTON, Circuit Judges.

ALLEN, Circuit Judge.

The appellants filed claims in a bankruptcy proceeding asserting equitable title to certain securities of the Higbee Company, a Delaware corporation operating a department store in Cleveland, Ohio, debtor in a reorganization proceeding. The securities in question are 100,000 shares of common stock of the Higbee Company, and three notes of the Higbee Company totaling $1,620,715.39, due March 1, 1934. Appellants Young, Kirby and Kolbe assert that the securities should be impressed with a constructive trust in their favor because of violation of a fiduciary relationship in purchase of the securities by the appellees. The claim of the Terminal and Shaker Heights Realty Company, while based upon different issues of fact, presents a similar contention of law. A suit in the District Court, filed by Young and Kirby, joined Bradley, Murphy and others as defendants and stated a case based upon the same issues as the claims in the bankruptcy proceedings. By agreement of counsel the two cases were heard together, and the two records were consolidated here. The District Court entered a decree finding all issues in favor of the appellees, adopting and confirming the report of the special master, allowing the claims of Bradley and Murphy to the Highbee securities, and dismissing the claims of Young, Kirby and Kolbe and the Terminal and Shaker Heights Realty Company in the bankruptcy case, and dismissing the civil action.

On May 5, 1937, Young, Kirby and Kolbe purchased from George A. Ball or the George and Frances Ball Foundation, hereinafter called Ball, 93% of the stock of the Allegheny Corporation, a holding company which owns the Chesapeake Corporation and various railroad and coal interests, and 93% of the stock of Midamerica, a holding company now known as the Terminal and Shaker Heights Realty Company. Young, Kirby and Kolbe claim that by virtue of their control of the companies they placed Bradley and Murphy in salaried positions in the Allegheny Corporation as president and secretary respectively, and they retained them as non-salaried officers of Midamerica. They contend that Bradley and Murphy undertook to act for Young, Kirby and Kolbe, thus becoming charged with the fiduciary duty to further the private interests of Young, Kirby and Kolbe, and became obligated to purchase the Higbee securities on behalf of the Young syndicate and its individual members. Bradley and Murphy acquired the Higbee securities by a contract of sale made May 15, 1937. The purchase was consummated June 4, 1937, by the execution and transfer of the necessary papers while Bradley and Murphy were employed by Allegheny and during their incumbency as officers of Midamerica. The appellants charge that the purchase placed Bradley and Murphy in a conflicting position and interfered with the performance of their fiduciary duties, and that it was secured through a conspiracy between George A. Ball, Bradley and Murphy by which Bradley and Murphy, in consideration of the sale on easy terms, agreed to further Ball's interest in the Allegheny Corporation.

The master made extended findings in favor of Bradley and Murphy. These findings were in all respects confirmed by the District Court, which also added findings of its own in favor of the appellees. Decision here, therefore, is governed by the familiar rule that such findings of fact cannot be set aside except for clear mistake.

To warrant the imposition of a constructive trust, evidence that the fiduciary relationship existed and was breached must be clear and convincing. Pratt v. Shell Petroleum Corp., 10 Cir., 100 F.2d 833, 837. Here the material allegations of appellants' various claims cannot be said to have been proved even by a preponderance of the evidence. On the whole record, the finding of the court that Young, Kirby and Kolbe never asked or expected Bradley and Murphy to act for them, that Bradley and Murphy were not individual employees of Young, Kirby and Kolbe and did not undertake to act for them or for the syndicate, is amply sustained. The testimony as to the numerous transactions is in sharp controversy between the various protagonists, but, as found by the master, swings conclusively in favor of Bradley and Murphy, on consideration of the testimony of disinterested witnesses and of various letters which passed between the parties. Young, Kirby and Kolbe assert that they did not know that Bradley and Murphy were negotiating for the Higbee securities. Bernard, Ball's attorney, stated that he told them of that fact, and Kolbe conceded that Ball stated to him in March, 1937, that the Higbee securities were not for sale to a syndicate which Kolbe represented, because they were being purchased by two Cleveland men connected with the Van Sweringen organization. Bradley and Murphy, to Kolbe's knowledge, were both Cleveland men who had been connected with the Van Sweringen group. It is conceded that Ball at no time negotiated with the Young syndicate for the sale to the Syndicate of the Higbee securities.

Young stated that on May 13, 1937, he informed Bradley that he intended to contact Ball and try to purchase the store, but Bradley denied this. A letter which Young testified he wrote to Ball proposing the purchase was produced, but it does not mention the Higbee securities. As found by the master, it tends to discredit other testimony of Young. Young asserted that on July 8, 1937, having learned through a newspaper that the Higbee securities had been sold to Bradley and Murphy, he denounced Bradley in his hotel apartment, and demanded that the securities be sold to the Young syndicate. While Kolbe and Young's cousin, McKinney, corroborated this statement, Bradley denied it, and several disinterested witnesses remembered no such conversation. Not until May, 1941, was any claim of a constructive trust in the Higbee securities asserted on behalf of Young, Kirby and Kolbe, in spite of sharp controversies existing between Young, Bradley and Murphy, growing out of the corporate affairs of Allegheny and Chesapeake. In numerous letters written by Kolbe to Murphy from March, 1937, to June, 1941, there was no mention of a breach of fiduciary relationship or of any claim of constructive trust in the Higbee securities. Young and Kolbe concede that at no time did the syndicate offer either to Ball or to Bradley and Murphy any price whatever for the securities. In fact the entire record shows by convincing evidence that not until after the Higbee Company had become a very profitable enterprise was the present claim asserted.

The charge to the effect that Bradley and Murphy purchased the securities under a secret understanding with George A. Ball is equally unfounded. It is based on the proposition that the consideration paid by Bradley and Murphy was $60,000 cash and the balance in a note secured by the Higbee securities as collateral, that is, secured simply by the value of the properties themselves. It is asserted that this was a lower price than Young, Kirby and Kolbe would have paid, and that Ball sold the securities to Bradley and Murphy at a sacrifice with the understanding that they would support George A. Ball's interests in the Allegheny Corporation. Young stated that Bradley, in the course of a controversy in the Allegheny Corporation, declared that he was working for George A. Ball. Bradley denied this. The sum paid for the Higbee securities, in view of the financial collapse of the Van Sweringen interests, as found by the District Court, was adequate and substantial. The assertion that Ball sold the securities to Bradley and Murphy at a sacrifice and that the Young syndicate would have paid much more, is completely negatived by the conceded fact that no offer was ever made to Ball to purchase these securities on behalf of the Young syndicate. Kolbe's original conversation with Ball was with reference to a syndicate which included certain General Motors officials who were interested in the Van Sweringen empire, and the Young syndicate never offered to buy the securities from Ball or Bradley at any price.

The above circumstances...