252 F. 900 | S.D. Ohio | 1915
The averments of the amended bill briefly are these:
The defendant corporation was, for 10 years or more prior to July 24, 1914, engaged in the manufacture of oleomargarine. On that date the collector of internal revenue ascertained that it had manufactured, sold, and removed from its factory large quantities of oleomargarine, on which, on account of its false and fraudulent representations, the United States had been induced to accept as a tax one-fourth of a cent per pound, whereas the lawful tax was 10 cents per pound. The c.ollector called upon the defendant to account. The demand was refused. The Commissioner of Internal Revenue estimated the tax due
No further goods and chattels and no real estate standing in the name of the Capital City Dairy Company found upon which levy can be made.
The defendant’s officers and directors, who for more than 10 years past have been its only stockholders, have paid themselves as stockholders large sums as dividends, amounting to more than $2,000,000 (the exact amount of- each of which, the dates when paid, and the amounts paid to each stockholder, for want of exact knowledge, cannot be stated), which dividends were unlawfully paid, and were not paid out of the profits, whereby the officers, directors, and stockholders have unlawfully diverted, converted to their own use, and concealed large sums of property belonging to the defendant, and still continue so to- do, for the purpose of placing it beyond the plaintiff’s reach. The defendant is insolvent, has abandoned the objects and purposes for which it was created, and has no- property on which distraint and levy can be made, or out of which the United States can make the sum due it; the defendant’s property having been diverted, converted, and concealed as above mentioned. The remedy at law has been exhausted, and relief can be had in equity only. A receiver is necessary to pursue and reduce to possession and to take charge of the defendant’s property, money, and assets so wrongfully and illegally diverted, converted, and concealed, that the same may be used, to satisfy the assessment and lien of the plaintiff. The stockholders, directors, and officers all having participated in the wrongdoing, it would be useless to demand that the corporation proceed to recover its aforesaid equitable interest and assets, and if its property is not seized there is great danger of its being placed beyond the plaintiff’s reach.
The plaintiff asks that its lien be declared valid, subsisting, and a first lien upon all the defendant’s property and rights to property; that the amount of such lien, with interest and costs, be allowed to the plaintiff; that in default of its so doing the defendant and all others claiming under it be forever barred and foreclosed of all equity of redemption, and all claim in and to such property and rights to property, which it is asked may be sold to satisfy the lien, and the proceeds arising therefrom be applied to its payment. A receiver is also asked to take possession of all property and interest of every kind and character belonging to the defendant, with power to collect and reduce to possession by appropriate legal proceedings, or otherwise, the right to
In support of the petition are two affidavits. That of the collector recites the action of the Commissioner of Internal Revenue, the proceedings to sell the defendant’s property, the sale, the application of the proceeds arising therefrom, the balance due on the plaintiff’s assessment and lien, the absence of leviable property of the defendant out of which to make such balance, that he has examined the defendant’s books for 10 years past, that such examination convinces him that the officers and directors paid about $2,000,000 in dividends out of funds which should have been paid to the United States as taxes, and that but for such dividends the defendant would have had no profits for distribution. He expresses the belief that, unless a receiver is immediately appointed, with authority to recover, reduce to possession, and preserve the assets and property of the corporation wrongfully diverted, converted, and concealed, there will be a further concealment, diversion, and dissipation of the same by the persons having posseásion thereof, and that the plaintiff will thus be left remediless. The affidavit of the deputy collector repites the levy and sale, his inability after diligent search to find any property belonging to the defendant other than that sold, and his belief, resulting from his investigation, that the defendant is insolvent.
The affidavit of Corbett, filed by the defendant, admits the sale set forth in the bill, denies that the defendant has abandoned the purposes and objects for which it was. created, and that any of the officers, directors, and stockholders are about to- convey assets of the defendant or of their own to place the same beyond the plaintiff’s reach. He also denies that the defendant is indebted to plaintiff. There is an averment in the petition, which is denied by certain affidavits filed by the defendant, that one of their number (Dennis Kelly) conveyed with wrongful intent property worth $350,000. Amplification as to this feature of the case is not, for present purposes, necessary.
Considering how difficult it would be for a judge and jury, in a trial according to the strict rules of common law, where a jury must hastily agree upon a verdict before they separate, to correctly determine the rights of the parties in the present case, the reasons for equitable jurisdiction become apparent. The evidence will necessarily be voluminous. Just deductions from it can be drawn only in a court of equity in which a careful, patient, and extended examination of all such evidence can be made after it is submitted. A court of equity, with its authority to select and appoint a master and refer the cause to him, and with ample power to adapt its proceedings to the requirements of the case as it progresses, is the only tribunal fit to fairly try and justly decide the issues that may be presented in the case. The plaintiff has no adequate remedy at law for the Wrongs of which it complains. It seeks to enforce a lien, to recover misappropriated funds, to set aside a fraudulent diversion of them, and so to restore them as to satisfy its claim and lien. The case falls within the rule announced in Lively v. Picton, 218 Fed. 401, 134 C. C. A. 189 (C. C. A. 6). Miers v. Zanesville & Maysville Turnpike Co., 11 Ohio, 273, is instructive and helpful. See, also, Hayden v. Thompson, 71 Fed. CO, 17 C. C. A. 592 (C. C. A. 8); Fechteler v. Palm Bros. & Co., 133 Fed. 462, 66 C. C. A. 336 (C. C. A. 6): Gunn v. Brinkley Car Works & Manufacturing Co., 66 Fed. 382, 13 C. C. A. 529; Castle Creek Water Co. v. City of Aspen, 146 Fed. 8, 76 C. C. A. 516, 8 Ann. Cas. 660 (C. C. A. 8).
If the fraud charged was perpetrated, the money which arose in consequence of the fraud and was paid as dividends is still the defendant’s money. The transfer was void — -was a nullity — as against
The plaintiff is entitled to the appointment of a receiver.
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