159 F. 191 | U.S. Circuit Court for the District of Southern New York | 1908
From the papers before me it appears that in September, 1902, one Elbert A. Brinckerlioff, on behalf of himself and all other stockholders of the Holland Building Association, filed his bill in equity in the Circuit Court of the Eastern District of New York against Robert B. Roosevelt and the Holland Building Association, charging the said Roosevelt as an officer of said Holland Building Association with certain wrongful conduct, etc., injurious to such association and its stockholders, and seeking to charge him with certain sums of money as compensation, etc. The particulars will be referred to hereafter.
This action was tried before Hon. Edward B. Thomas, then District Judge of the Eastern District of New York, ami, on the facts found by him (see [C. C.] 131 Fed. 955), resulted in a decree in favor of the complainant as follows:
“Ordered, adjudged, and decreed, as follows: That the defendant Robert B. Roosevelt withoui authority and negligently proposed, voted for, and procured the cancellation of the bond and mortgage for $100,000 made by the Holland Trust Company to the Holland Building Association without causing or procuring payment to be made to the Holland Building Association of the sum due under said bond and mortgage: that there lias been a breach of the condition of the bond and mortgage whereby the mortgagee was entitled to enforce payment of the sum secured thereby which on account of the worthlessness of the consideration transferred to the Holland Building Association by the Holland Trust Company in return for 33 Nassau street consisting of all the indebtedness due the Holland Trust Company from Brigantine Beach Railroad. Brigantine Company, J. W. Coffin & Co., Moritz Lippmann, Coffin & Mppmann and their kindred companies at Brigantine Beach, with all the collateral belonging thereto, was $100,000 and interest, so far as the same is unpaid; and the Holland Building Association has thereby suffered loss to the extent of $100,000 with all unpaid interest thereon as hereinafter set forth ; and that, the defendant Roosevelt, should pay for the benefit of the Holland Building Association the said sum of $100,000 with interest from August 1. 1901, as hereinafter provided. That the’said defendant Robert B. Roosevelt without authority and negligently voted for and participated in the transfer to the Holland Trust Company of the sum of $3,900.81 belonging to the Hot-laud Building Association; that such payment was unlawful and without consideration, and that said Roosevelt should pay for the benefit of the Holland Building Association the sum of $3,900.81 -with interest from the 21st day of March, 1891. as hereinafter provided.
“It is further ordered, adjudged, and decreed that the defendant Robert B. Roosevelt pay to the Franklin Trust Company of the borough of Brooklyn, which is hereby appointed receiver for the purpose of receiving and administering the fund to be realized from this suit as hereinafter provided, the aforesaid sum of $100,000 with interest thereon from the first day of August, 1901, and the aforesaid sum of $3,900.81, with interest thereon from the 21st day of March, 1891, together with the sum of $1,398.39 as taxable costs, to be taxed by the clerk of this court and inserted in this decree; but if at said time a certain judgment obtained by the defendant Roosevelt against the defendant: the Holland Building Association in the Supreme Court of the state of New York, county of New York, ai\d docketed on the 18th day of April, 1902, for $7,477.18, remains in force, and if the said Roosevelt then tender to the Franklin Trust Company a satisfaction piece and discharge of said judgment, the said satisfaction piece and discharge shall be accepted by the Frank*194 lin Trust Company as part payment of the sums above decreed to be paid by the said Roosevelt to said Franklin Trust Company, and the said Roosevelt shall be required to pay in cash to said Franklin Trust Company only the balance of the sum above decreed to be paid by him to said Franklin Trust Company after deducting therefrom the. sum necessary to discharge the above-mentioned judgment in full with interest.
“It is further ordered, adjudged, and decreed that the said Franklin Trust Company collect and receive the sums above stated; and that upon the delivery to the defendant Roosevelt of such of the Brigantine securities originally transferred by the Holland Trust Company to the Holland Building Association in March, 1891, as are now held by said building association, and also all the securities subsequently received and now held by the Holland Building Association in place of securities originally transferred by the Holland Trust Company to the Holland Building Association in March, 1891, to wit, 50 shares of the stock of the Brigantine Building & Improvement Association, transferred to the Holland Building Association in March, 1S91, and 800 shares of stock of the Brigantine Beach Railroad Company transferred to the Holland Building Association in March, 1891, together' with 2G0 shares of preferred stock and 260 shares of common stock of the Philadelphia & Brigantine Railroad Company received by the Holland Building Association upon the reorganization of the Brigantine Beach Railroad Company in place of 71 bonds of $1,000 each of the Brigantine Beach Railroad Company transferred to the Holland Building Association in March, 1891, and, upon the delivery to the defendant Roosevelt of a duly executed assignment of the aforesaid securities, the said Franklin Trust Company shall distribute the money so received from the defendant Roosevelt as follows:
“First, that it pay to Duncan & Duncan, solicitors and counsel for complainants, the sum of twenty thousand dollars to be retained to said solicitors and counsel as reasonable compensation for their services as solicitors and counsel, and that it pay to said solicitors to meet the disbursements incurred on behalf of the complainants the sum of $1,398.39 taxable costs above referred to; that it also pay to Tunis G. Bergen, solicitor and counsel for defendant the Holland Building Association, one thousand dollars as reasonable compensation for his services herein as such solicitor and counsel; second, that said receiver pay and discharge the above-mentioned judgment obtained against said Holland Building Association by the defendant Robert B. Roosevelt in the Supreme Court, state of New York, county of New York, and docketed on the 18th day of April, 3902, for $7,477.18, if the same be in force, unless a satisfaction piece thereof shall have been tendered to said receiver by the defendant Roosevelt, and an allowance made to said defendant therefor as above provided ; third, out of the -balance of said sum said receiver is directed to retain the expenses of said receivership, including the sum of two hundred and fifty dollars, which is hereby fixed as the compensation of said receiver for carrying out its ■ duties herein provided fór; and, further, the Holland Building Association by its solicitor and counsel having consented to this provision of this decree, it is further ordered that the said receiver distribute the balance of said money so received from said Roosevelt, together with interest accrued thereon at the usual rate allowed by said trust company, among the then stockholders of the defendant the Holland Building Association pro rata according to their respective holdings of stock in said corporation in accordance with the stock record books of the Holland Building Association which the receiver is hereby directed to consult for the purpose of obtaining therefrom a correct list of said stockholders of record at the time of the delivery to the defendant Roosevelt of the Brigantine securities as aforesaid.
“And it is further ordered, adjudged, and decreed that upon the said receiver qualifying as hereinbefore provided it recover of said defendant Roosevelt the said sum of $100,000 with interest from the first day of August, 1901, and a further sum of $3,900.81 with interest from the 21st day of March, 1891, together with the sum of $1,398.39 taxable costs, amounting in all to the sum of $127,984.86 less, however, the amount necessary to satisfy and discharge the above-mentioned judgment obtained by the defendant Roosevelt against the Holland Building Association in the Supreme Court of the state of New York, county of New York in ease the defendant Roosevelt tender to the said*195 receiver a satisfaction piece of said judgment as above provided; and that, as said receiver, the Franklin Trust Company have execution against the defendant Robert H. Roosevelt for (lie sums decreed to be paid by said defendant, unless due payment be made within thirty days.
“It is further ordered and decreed that either party hereto may apply to this court for further orders and directions at the foot of this decree as may seem necessary or proper for carrying out the purpose of this decree.
“Edward B. Thomas, U. ¡3. J.
“It is hereby consented that the foregoing decree be amended by inserting on page 3 line 28 after ‘1891’ the words and figures 3510 shares of the capital stock of the Brigantine Company of New Jersey transferred to the Holland Building Association in March, 1891.
“Duncan & Duncan, Solicitors for Complainant.
“Geo. C. Kobbe, Solicitor for It. B. Roosevelt.
“So ordered, Nov. 5, 1904.
“Edward B. Thomas, U. S. J.”
On appeal to the Circuit Court of Appeals, Second Circuit, it appeared that the Brigantine securities referred to in such decree were in the possession of a receiver appointed by the United States Circuit Court, Southern District of New York, in a suit brought by the same complainant against the Holland Trust Company and the Holland Building Association, and which is the same action in which these proceedings are pending and being had, and thereupon the decree of the Circuit Court was affirmed, with suggestions of a modification or modifications, in that it was impracticable if not impossible for the building association to deliver the Brigantine securities to Roosevelt. Thereupon, on tlie coming down of the mandate of the Circuit Court of Appeals, the Circuit Court made the following amendment and modification, viz. r
“Ordered, adjudged and decreed that the decree of this court entered heroin on the first day of November, 1904, and amended by the order of November 5, 1904, be, and the same is, modified and amended by striking out all portions thereof requiring or relating to the delivery or assignment of the Brigantine securities to the defendant or to tile Franklin Trust Company, without prejudice to an application by defendant, upon satisfying this decreet to be subrogated in the suit pending in the United States Circuit Court for the Southern District of New York instituted by complainant herein against the Holland Trust Company, and the complainant herein is hereby enjoined from proceeding in such suit, or- further taking any proceedings in such suit, until the defendant shall have reasonable opportunity to make such application.”
In all other respects the decree was affirmed and made the final decree of the Circuit Court.
It seems that the Building Association became the owner of 33 Nassau street February 1, 1890, for $92,500, taking title subject to a mortgage of $82,500, held by one Stuart. March 18, 1891, Roosevelt, as president, and one Van Sicklen, as secretary and treasurer, of said building association executed a deed thereof to the Holland Trust Company, and they, as president and secretary, etc., of the trust company, also executed a mortgage to the building association, but this by agreement was never recorded. There was also transferred to the trust company $3,900.81 then belonging to the building association. There was transferred to the building association as consideration for the deed certain notes of the face value of $140,000. These were indorsed '“without recourse. Holland Trust Company, R. B. Roosevelt, Presi
The long and the short of the story is that Robert B. Roosevelt was guilty of actionable negligence and culpable carelessness in managing the affairs of the building association, and in taking part in wasting the assets of the building association, and trading them off for these worthless notes and securities which became the only property of the trust company when the mortgage was canceled as aforesaid. In the meantime, and in January, 1903, said Brinckerhoff, on behalf of himself and all other stockholders of the Holland Building Association similarly situated, brought suit in equity in the Southern District of New York against the Holland Trust Company and the Holland Building Association, setting out at great length and with all necessary detail the transactions aforesaid; the negligent acts of Roosevelt and of the other officers, and alleging in substance that same was a fraud and a wrong on the building association; that the Brigantine securities and collateral, or others into which some of them had been converted, were in possession of the building association and capable of delivery to the Holland Trust Company, etc., and praying that the transaction be declared null and void and set aside; that the trust company account for and pay over the value of the property obtained by it, on restoration, if required by the court, of such Brigantine securities, etc. This in general is the object and purpose of this suit. It will be noticed that the complainant proceeds on the theory that if restitution is made to the building association the Brigantine securities should be returned.
The cross-bill of Robert B. Roosevelt alleges, with many other things, some of which would seem to be immaterial, that on the entry of the final decree in the suit in the Eastern District of New York he immediately paid the full amount directed to be paid with interest, some $127,984.86, and he claims that he is entitled to the Brigantine securities, so called, and their proceeds, if any, and those into which they or any of them have been changed. It is claimed that he was guilty of no intentional wrongdoing, and that he has not been adjudged guilty of any in such sense or degree as deprives
And I do not think the suit and decree in the Eastern District is res adjudícala on all these questions. The Holland Trust Company was not a party there, and Roosevelt did not represent it, and the court could not properly have made a decree adjudicating the rights of the parties to these Brigantine securities especially as between the
Subrogation is “a remedy which equity seizes upon in order to accomplish what is just and fair between the parties, when the party seeking the aid of the court and the benefit of the rule has been no mere volunteer, and when his action is based upon general equitable rules which it is the peculiar province of a court of equity to enforce.” Peckham, J., in Pease v. Egan, 131 N. Y. 273, 30 N. E. 102. In Sheldon on Subrogation, § 11, it is said, and this has frequently been quoted with approval:
“Tile doctrine of subrogation is tbat one who has been compelled to pay a debt which ought to have been paid by another, is entitled to exercise all the remedies which the creditor possessed against that other, and to indemnity from the fund out of which should have been made the payment which he has made to the creditor. It is a mode which equity adopts to compel the ultimate discharge of a debt by him who in equity and good conscience ought to pay it, and to relieve him whom only a creditor would ask to pay, although as between debtor and creditor the debt may be extinguished, yet, as between the person who has paid the debt and the other parties the debt is kept alive so far as may be necessary to preserve the securities.”
In 6 Pomeroy’s Eq. Jurisprudence (2 Pomeroy’s Equitable Remedies) p. 1496, § 921, it is said:
“Coming also within the class of payments made in performance of a legal duty are payments made by parties- where obligation is imposed, not directly by contract, but by operation of law. Payments by a stockholder in discharge of an individual liability for corporate debts, or by a partner for debts of the firm are within this class, and in both cases the party making the payment is entitled to subrogation.”
See Redington v. Cornwell, 90 Cal. 49, 27 Pac. 40.
The defendant Roosevelt did not himself or with the other directors
“It thus appears that the court has steadily adhered to the general rule that, without its consent given in some act of Congress, the government is not liable to lie sued for the torts, misconduct, misfeasances, or laches of its officers or employes,”
Mr. Justice Harlan is not given to tautology, and hence his use of all these words, and the final holding that negligence “sounds in tort."
In Gilbert v. Finch et al., 173 N. Y. 455, 459, 461, 66 N. E. 133, 61 L. R. A. 807, 93 Am. St. Rep. 623, the directors and incorporators not only wasted the funds, etc., but they took the money and converted it to their own use, and hence became joint tort-feasors in such a sense and to such a degree that equity would not afford relief. Haight. J., in giving the opinion of the court more than once emphasizes this fact.
The ground of recovery against Roosevelt was negligence in managing the affairs of the building association. That association as an association was not a joint tort-feasor with Roosevelt, nor was the trust company. In Gilbert v. Finch, supra, Judge Haight well savs (page 462 of 173 N. Y., page 134 of 66 N. E. [61 L. R. A. 807, 93 Am. St. Rep. 623]):
“Indeed, we had supposed the policy of the law to be to leave wrongdoers without aid in equity from the burdens of the position in which they have placed themselves. The rule is well settled that, as among themselves, equity would not compel contribution or enforce subrogation.”
He cites Peck v. Ellis, 2 Johns. Ch. (N. Y.) 131; Miller v. Fenton, 11 Paige (N. Y.) 18; Thorp v. Amos, 1 Sandf. Ch. (N. Y.) 26, 34 ; Pierson v. Thompson, 1 Edw. Ch. (N. Y.) 212, 218, and other cases. But here, as already said, subrogation is not sought by one tort-feasor against another joint tort-feasor.
In Kolb v. National Surety Company, 176 N. Y. 233, 68 N. E. 247, the surety for one of several joint tort-feasors paid the whole of the
In Drake v. Paige, 127 N. Y. 562, 28 N. E. 407, F. and P. were executors of one L,., who devised one-fourth part of his real estate to F. There was a power of sale, etc. Certain moneys of the estate came into the hands of the executors, and this was turned over to F. who desired to misappropriate same, and who did misappropriate same to his ■own use. This was all done with the knowledge of P. In reality he assented to the devastavit. F. mortgaged his interest in the property to one Drake. P. claimed subrogation, and to be entitled to reimbursement from the share of P. as against Drake, having been held liable for the devastavit, and compelled to make same good. The Court of Appeals held (see pag-e 574) that P. had an equity as against F., but that it was subordinate to that of Drake, the mortgagee. Here, again, is the doctrine recognized that equity will do equity even as between those guilty of a wrong each in some degree, but the one much more in the wrong than the other.
An agent who is negligent in the management of the property of his principal and who is compelled to reimburse him, nevertheless, will be subrogated to the rights of the principal against the one primarily causing the loss. Murrell v. Henry, 70 Ark. 161, 66 S. W. 647; Stoller v. Coates, 88 Mo. 514; Nichols v. Wadsworth, 40 Minn. 547, 42 N. W. 541; Hough v. Etna Life Ins. Co., 57 Ill. 318, 11 Am. Rep. 18. So a fire insurance company bound by its policy to make good a loss caused by a fire resulting from the negligence of a third party is entitled to be subrogated to the rights of the insured against the negligent party. Hart v. Western R. R. Co., 13 Metc. (Mass.) 99, 46 Am. Dec. 719. See, also, 2 Pom. Eq. Rem. § 921, p. 1495. It is unnecessary to cite cases holding that the doctrine of subrogation does not necessarily rest upon contract express or implied. Says Peckham, J., in Pease v. Egan, 131 N. Y. page 273, 30 N. E. page 105:
“In the cases of Gans v. Thieme, 93 N. Y. 225, and Arnold v. Green, 116 N. Y. 566, 23 N. E. 1, while not particularly in point here, are yet evidences of the rule that no contract need subsist upon which to base the right of subrogation.”
The cross-bill of Ropsevelt alleges that at the time the directors of the Holland Building Association passed the resolution of January 30, 1894, pursuant to which the unrecorded mortgage on 33 Nassau street was canceled, it was recited therein, among other things, “whereas,
Assuming these allegations to be true it would seem that the trust, company in consideration of the release became indebted to the building association or its stockholders to the amount of its capital stock and paid thereon at least $19,600, aside from dividends. If this indebtedness had been paid in full and accepted, it would seem the stockholders would have had no cause of complaint. The officers of the building association were certainly negligent in not obtaining the consideration or security therefor. The trust company became unable to pay, and because of the negligence each director became liable. Roosevelt was sued and held liable because of his negligence. He fully reimbursed the building association. In effect he paid the indebtedness of the trust company to the stockholders of the building association when he paid the judgment or satisfied the decree of the court in the Eastern District. Here, again, we have Roosevelt pleading facts which could not have been set up in the suit in the Eastern District, facts which, if true, give him equities against the trust company which had the real estate and its proceeds without paying anything therefor except the $19,600. Whether or not this agreement was made by the trust company is a question which could not have been adjudicated in
The decree in that suit is not res adjudicata. That suit did not directly or necessarily involve the questions presented here, but rather led up to them and made their presentation necessary and proper in some suit where the trust company was a party. Questions of contribution and subrdgation properly arose after Roosevelt had been held liable, and after he had discharged the obligation. Now, the court is asked to pass on the rights of the parties here in view of what Roosevelt has been compelled to do and has done, not in view of what he. might or might not do. The issues there were not the issues here. The cause of action there was negligence; the cause of action here is the right of- equitable subrogation and contribution involving another party because of what the complainant in the cross-bill, defendant in that suit, was compelled to do by its decree in the way of satisfying a claim of the building association’s stockholders for which the trust company whs liable. It is claimed that the fact that Roosevelt and Brinckerhoff were stockholders in both the association and trust company made the trust company a party by representation, but this claim is without merit. No stockholder can speak for a corporation. The rules applicable are quite succinctly stated in 23 Cyc. 1527, 1528, as follows:
“Identity or Privity of Parties. A plea of former adjudication must aver that the parties are the same in the two suits, or allege facts which show that the relation of the pleader to the former action, was such as to make the judgment conclusive in his favor, or that the party against whom the estoppel is alleged, if not directly a party to the former suit, vtas so connected with it in ■ interest as to be bound by the result.
“Identity of Cause of Action. In pleading a former judgment in bar, it is necessary tó show clearly and distinctly that the cause of action in the former suit is identical with that on which the present suit is based; and if the prior judgment is pleaded as a conclusive adjudication upon some point or question in .issue, the plea must make it clearly appear that the same point.or question*205 was actually litigated and decided in the former suit, or that it might have been litigated and determined under the issues in that suit.’’
This brings us to a consideration of the, question whether or not the cross-bill presents grounds of relief as against the trust company. Assuming the allegations of the cross-bill to be true, as we must, as qualified by the allegations of the pleas and new matters therein set forth, the trust company became obligated to the building association and its stockholders. Through the negligence of Roosevelt and the other directors of the association this obligation and liability was not paid or secured to be paid. As a consequence, a cause of action arose in favor of the association enforceable at the suit of a stockholder against Roosevelt or Roosevelt and the other directors, the measure of damages being the value of certain real estate which had been lost to the association, but the consideration for which was the liability of the trust company referred to. It was so enforced, and Roosevelt by compulsion paid the said consideration which the trust company had agreed to pay for such real estate, but by way of damages for his negligence in not securing it when he ought to have done so. Can he look to the trust company ? Having in effect paid the debt or satisfied the obligation of that company to the association by compulsion; is he entitled in equity to he subrogated to the rights and remedies of the association as against the trust company? It is said that he is not because he was a wrongdoer, and does not come into court with clean hands. He says that he acted in good faith; that he was not willfully negligent; that he committed no intentional wrong, and that in no event has it been adjudicated that he has as between himself and the trust company; that the trust company as such was not a tort-feasor; that he was not in any sense or to any degree that deprives him of the right to equitable relief; that as the trust company had the full value of the real estate in cash, and has not paid for it, and he has been compelled to do so, that lie in equity is entitled to reimbursement from it; that this right is superior to rights of the creditors of the trust company, inasmuch as the creditors in clue course have already had the value of the property he was compelled to pay for. The right of subrogation is not confined to cases of surety-ship or contract. If one is compelled to pay the debt of another he is entitled to subrogation unless his conduct has been such that he is not entitled to the consideration of a court of equity. Cole v. Malcom, 66 N. Y. 363, 366; Arnold v. Green, 116 N. Y. 566, 571, 23 N. E. 1; Harris on Subrogation, § 1; Barnes v. Mott, 64 N. Y. 397, 401, 21 Am. Rep. 625; Smith v. Foran, 43 Conn. 244, 21 Am. Rep. 647; Stevens v. Good-enough, 26 Vt. 676.
I am of the opinion that in this suit Roosevelt’s executors are entitled to show, if they can, that Roosevelt acted honestly and in good faith; that his negligence was not intentional; that he neither sought not received personal gain or advantage; that he intended to act for the best interests of both the companies; that he relied on the solvency of the trust company and its promise to pay all the stockholders of the building association the full value of their stock, etc.; and hence was not guilty of such wrong as disentitles him to the consideration of a court of equity. I am fully conscious of the rigid and wise rules that
Accordingly the motion is denied, and the pleas are overruled, and defendants will answer within 15 days.
