Zenith Carburetor Co. v. Stromberg Motor Devices Co.

• Decision Date: 04 January 1921
• Docket Number: 2797,2798.
• Parties: ZENITH CARBURETOR CO. v. STROMBERG MOTOR DEVICES CO. STROMBERG MOTOR DEVICES CO. v. ZENITH CARBURETOR CO.
• Court: U.S. Court of Appeals — Seventh Circuit

270 F. 421

ZENITH CARBURETOR CO. v. STROMBERG MOTOR DEVICES CO.

STROMBERG MOTOR DEVICES CO. v. ZENITH CARBURETOR CO.

Nos. 2797, 2798.

United States Court of Appeals, Seventh Circuit.

January 4, 1921

Walter E. Oxtoby, of Detroit, Mich., and Edward Rector, of Chicago Ill., for Zenith Carburetor Co.

Charles A. Brown, of Chicago, Ill., for Stromberg Motor Devices Co.

Before BAKER, ALSCHULER, and EVAN A. EVANS, Circuit Judges.

EVAN A EVANS, Circuit Judge.

This suit was brought by appellee to restrain appellant from infringing the Ahara patent, No. 684,662, and for damages. A decree sustaining the patent and ordering a reference to determine the amount due for past infringements was duly entered and subsequently modified and affirmed on appeal. 254 F. 68, 165 C.C.A. 478. The position of the parties and character of the two patents, the Ahara and Baverey patent are fully described in the opinion in that case. The accounting before the master followed as a matter of course. While in progress, and before appellee had completed its introduction of evidence, it applied for and obtained an order restraining appellant from--

'* * * disposing of its assets by sending money beyond the jurisdiction of this court or sending to Societe du Carburateur Zenith of France or to any one directly or indirectly connected with said French company, any funds securities, money, goods or assets of defendant of any kind or description, for alleged royalties or to pay alleged debts or to reduce the assets of defendant which will be available to meet the judgment of the court herein, except by paying salaries, wages and material bills, etc., in the regular course of business. Leave is given to defendant to apply for a modification hereof.'

An application was thereafter made to vacate this restraining order, which resulted in a partial modification; appellant being permitted to make certain royalty payments, hereinafter more specifically referred to, under the Baverey license contract. Both parties have appealed from this order.

Appellant is a Michigan corporation, whose stock is owned by a French corporation of a similar name that may be well called the parent or French company, and by the stockholders of such company. It was organized to conduct the Zenith carburetor business in the United States and enjoyed a remarkable growth. From a small corporation, into which the stockholders paid $10,000 in cash in 1911, it has developed into a large and prosperous company. The French company also enjoyed a large business in France and in other European countries, where it manufactured and sold the so-called Zenith carburetor, a carburetor in general use on many of the leading European cars. This company controlled other patents, which it considered extremely valuable. When appellant was organized, a contract was made between it and the parent company, by the terms of which a royalty was agreed upon, for the use of the Baverey and other patents. The trial judge, in modifying the original order said:

'On the 27th day of February, 1919, this court, on application of the plaintiff, restrained the defendant from disposing of assets by sending money beyond the jurisdiction of this court or by remitting royalties to the Societe du Carburateur Zenith of France or from paying alleged debts, or in any way reducing its assets, except by paying salaries, wages, and material bills in the regular course of business. This order was made under quite unusual circumstances.

It appeared that the defendant was owned by a French corporation of the same name, and that a large amount of money had been sent by defendant to the French company in payment of dividends and royalties on the Baverey patent, under which defendant is licensed. * * * Of course, the amount of the possible recovery cannot be determined on this motion. * * * In view of this uncertainty, the injunction should stand for the present, except so far as relates to a 5 per cent. royalty claimed to be due to Baverey. It appears that Baverey took out patents on his carburetor in France, the United States, and various other countries, and in 1910 assigned all these patents to the French company, receiving a royalty of 11 per cent. of the net selling returns, and that defendant was licensed by the French company subject to the same royalty. In 1914 this was reduced to 5 per cent. of the net sales. This royalty is a legitimate expense, and defendant should be permitted to pay it.'

The original cash investment was $10,000, but further sums were paid by the stockholders into the company. In 1918 the capital stock of the company was increased to $320,000, and the French company conveyed to appellant a valuable piece of real estate as well as other tangible assets. When the injunctional order was made, appellant was paying the French company in royalties and dividends approximately $30,000 per month.

Appellant insists (a) that the court possessed no jurisdiction to make the order complained of; and (b) that it was an abuse of discretion to grant the injunctional order. Appellee complains because the court modified the original order.

Contending that the court is without jurisdiction to enter the order, appellant relies on those cases, of which there are many, holding that a plaintiff, who has instituted an action upon a claim, but who has not reduced it to judgment, cannot obtain an order restraining the debtor from disposing of its assets. In all such actions the court requires that the plaintiff's claim be reduced to judgment and that execution be returned nulla bona. The present suit is distinguishable from the class of cases thus referred to in at least three respects:

(a) The instant suit has proceeded to a decree, final so far as the question of liability is concerned. National Brake & Electric Co. v. Christensen, 258 F. 880, 169 C.C.A. 600. True, the amount is still unascertained, and execution cannot issue, because that amount must first be determined. Appellee, nevertheless, is in the position of a creditor the validity of whose claim has been established by a judgment of the court.

(b) A second reason for distinguishing the present suit from the class of cases referred to is found in the fact that this is a suit of which a court of equity originally took

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