Opinion ID: 1504496
Heading Depth: 1
Heading Rank: 6

Heading: Merits of the Order Appealed From.

Text: In its order of August 15, 1931, the trial court said that the vital question involved in the intervening petition, as admitted by both the intervening petitioner and the receiver in bankruptcy, was as follows: Was the Kentucky State Telephone Company at the time of the institution of bankruptcy proceedings against the Municipal Telephone and Utilities Company an entirely separate and distinct entity or was it only an agency and instrumentality of the Municipal Telephone and Utilities Company? The court decided that the Kentucky State Telephone Company was a mere agency and instrumentality of the Municipal Telephone & Utilities Company. Did the court err in so deciding? Let us examine the record. Appellants contend that at the hearing on the interveners' petition in August, the court first assumed that the Kentucky State Telephone Company was but an agent of the alleged bankrupt, and thereby arrogated to itself jurisdiction to adjudicate that very issue. It is true that the receiver appointed by the Kentucky state court was one for the Kentucky State Telephone Company and not for the alleged bankrupt, the Municipal Telephone & Utilities Company; but it must be borne in mind that it was part of the bankruptcy court's record that the Kentucky State Telephone Company and the attorney for the plaintiff in the Kentucky state court suit had appeared before the bankruptcy court, and the former admitted that the Kentucky State Telephone Company was but an agent and subsidiary of the Municipal Telephone & Utilities Company; and upon this theory the receiver in bankruptcy was appointed. There was no showing that the receiver in the Kentucky state court claimed to be holding adversely to the alleged bankrupt at the time the petition for the appointment of a receiver in bankruptcy was filed. When the attorney for the Kentucky State Telephone Company joined in consenting to the appointment of the receiver in the bankruptcy court, it was admitted by him for that company that the proceedings in the Kentucky state court were not adverse, and the bankruptcy court accordingly had constructive possession of the property in Kentucky. That the proceedings in Kentucky were not considered to be adverse to the bankruptcy proceeding in Missouri is further shown by the fact that one of the attorneys for the plaintiff in the Kentucky suit was appointed by the bankruptcy court as attorney for the bankruptcy receiver. These facts were not questioned at the hearing in August on the interveners' petition. The bankruptcy court, at the hearing in August, did not assume that the Kentucky State Telephone Company was a mere agent of the alleged bankrupt, and then proceed to try out that issue. The bankruptcy court had already adjudicated that fact, and the evidence introduced at the hearing in August failed to show any ground for setting aside that adjudication. Many of the allegations of the interveners' petition are widely at variance with the proof. The intervening petition alleges that the principal office of the Kentucky State Telephone Company at the time of filing the intervening petition was in Dover, Del., and its operating office at all times was in Brooksville, Ky. The stipulation of facts states that the principal place of business of the Kentucky State Telephone Company on July 1, 1930, and prior thereto, was in Chicago, Ill., and that on or about said date all of the corporate records of that company including journals, ledger, books of account, minute books, muniments of title, and other personal property of like nature were moved by the Municipal Telephone & Utilities Company, which company had purchased the stock of the Kentucky State Telephone Company, from Chicago to Kansas City. The interveners' petition alleges:    That said Kentucky State Telephone Company has at all times up to at least December 31, 1930, had its own corporate books and books of account; that it employs all of its own agents, operators, linemen and other employees; that it has made its own contracts for the purchase of materials and supplies and has at all times up until the latter part of 1930 been conducted, operated, managed and controlled as a separate and distinct business and corporate entity. The stipulation of facts states that since on or about July 1, 1930, all of the purchases of supplies, materials, and commodities of every kind used by Kentucky State Telephone Company were purchased in the name of and paid for by Municipal Telephone and Utilities Company and shipped for use to Kentucky State Telephone Company. The interveners' petition alleges: That the Kentucky State Telephone Company has authorized 5,000 shares of preferred stock of the par value of $100 per share, of which 939 shares are issued and outstanding and that a large part of said preferred stock, as your petitioners are informed and believe, and upon such information and belief represent the fact to be, is not owned nor controlled by Municipal Telephone and Utilities Company either directly or indirectly. The stipulation of facts states: All but twenty-one shares of the preferred stock of Kentucky State Telephone Company outstanding are owned by Municipal Telephone and Utilities Company and the twenty-one shares are in the hands of various persons who were prior to receivership connected in some way with Kentucky State Telephone Company or Municipal Telephone and Utilities Company. The interveners' petition alleges:    That since the acquisition by Municipal Telephone and Utilities Company of the common stock of said Kentucky State Telephone Company, said Kentucky State Telephone Company has continued to be operated and to exist as a separate and distinct corporate entity, and the property and business of said Kentucky State Telephone Company has continued to be operated as a business separate and apart from that of Municipal Telephone and Utilities Company or its other alleged subsidiaries. The stipulation of facts states: All of the billing to customers of Kentucky State Telephone Company was done through the Kansas City office of Municipal Telephone and Utilities Company and the employees who did it were paid by that company; the statements to subscribers in such instance being in the name of Kentucky State Telephone Company.    As these collections were made by the local exchange in Kentucky, they were deposited in local banks that were in Kentucky in the community in which the exchange was located, in the name of Kentucky State Telephone Company; a duplicate deposit slip was sent to the office of Municipal Telephone and Utilities Company in Kansas City and as soon as the deposit slip was received there a draft was drawn against the funds which had theretofore been deposited in the Kentucky Bank and deposited in the bank account in Kansas City in the name of Municipal Telephone and Utilities Company. There was deposited in that account in Kansas City, Missouri, in the name of Municipal Telephone and Utilities Company, monies collected from North Central Telephone Company, Associated Utilities Company, Inc., Continental Telephone Company and various other subsidiaries and associated companies of Municipal Telephone and Utilities Company. The interveners' petition alleges:    That numerous persons and individuals, resident in the State of Kentucky, were employed by said Kentucky State Telephone Company and paid by it. The stipulation of facts states: The salaries of all employees of Kentucky State Telephone Company were paid by Municipal Telephone and Utilities Company through the Kansas City bank account hereinbefore mentioned and all other items in connection with the operation of said property were so paid except that the manager of the Kentucky property who was in Kentucky was given a petty cash account from which small items which were of character ordinarily required to be paid in cash were paid. The interveners' petition alleges:    The action of said Kentucky State Telephone Company in appearing by its counsel and consenting to the entry of the order heretofore entered in the above entitled cause appointing a receiver of the property which belongs to Kentucky State Telephone Company was improper and invalid and that the court was induced to enter said order without a full presentation of the facts in issue. This allegation was not sustained by any evidence at the hearing. The stipulation of facts further states: After the date of the acquisition of said stock, the officers and directors of Kentucky State Telephone Company and Municipal Telephone and Utilities Company were the same persons and have continued to be up until this date. After said date, such officers maintained their offices continuously in Kansas City, Missouri, and also resided in Kansas City, Missouri, and all meetings of the board of directors of Kentucky State Telephone Company and of the stockholders of said company were held in Kansas City, Missouri, and all of such offices were maintained and such meetings held at the place where Municipal Telephone and Utilities Company maintained its offices. Mr. Berger, at one time treasurer of the Municipal Telephone & Utilities Company, testified as follows: The subsidiary companies did not have any bank account in Kansas City. All the money went into one bank account, viz., that of Municipal Telephone and Utilities Company. The Municipal Telephone and Utilities Company paid the bills of the various subsidiary companies, that is Arkansas, Oklahoma, Missouri and Kentucky. It issued its own check in payment of the current operating expenses, pay-roll, supplies, repair parts and everything that was necessary for the operation of these properties of the various companies. All of the income of the various companies was put in one bank account and intermingled and intermixed. I had charge of the drawing of checks on this bank account. After they were authorized they were signed by myself. They were either authorized by Mr. McMahon, Mr. Cheek or Mr. Howsley. Mr. Howsley had charge of the management and control of the subsidiary companies and was in charge of operations. All of the subsidiary companies were managed and operated as one unit from Kansas City and the office in the Pioneer Trust Building. Mr. Snyder testified as follows: I am a certified public accountant    I filed suits to have these companies and their subsidiaries placed in the hands of receivers; that is to say, suits against the Associated Utilities, Inc., Kentucky State Telephone Company, Commonwealth Public Service of Oklahoma, North Central Missouri Telephone Company, Continental Telephone Company, Gas Utilities Company. I don't say that anybody asked me to file these suits. These suits were all filed for claims that I had for work done in auditing the books. I was working actually for the subsidiaries practically all the time. All of these companies owe me in the neighborhood of $4000.00. The attorney for the company put me in touch with the lawyers who brought the suits for me. He took me over there and introduced me. To a certain extent that was a part of my plan or proposed plan of rehabilitating the companies, and getting things straightened out. The rule in this court often announced is: Where the court below has considered a question and made a finding on conflicting evidence, its conclusion is presumptively correct, and it should not be disturbed unless it is reasonably clear that a serious mistake has been made in the consideration of the facts or an obvious error has intervened in the application of the law. Dodge v. Norlin (C. C. A.) 133 F. 363, 371; Cleage v. Laidley, 149 F. 346, 353 (C. C. A. 8); Houchin Sales Co. v. Angert, 11 F.(2d) 115, 117 (C. C. A. 8), and cases cited; Parrish v. City Nat. Bank, 32 F.(2d) 982 (C. C. A. 8); Remington on Bankruptcy (3d Ed.) § 3871; see Quinn v. Union Nat. Bank, 32 F.(2d) 762 (C. C. A. 8). Giving due regard to this rule in considering the foregoing evidence and other evidence of like purport, though some of it is conflicting, and bearing in mind that the rule of independent corporate identity is not a hard and fast one, and that form is not infrequently disregarded when substantial facts so require, we think the finding of the trial court that the Kentucky State Telephone Company was not an entirely separate and distinct entity, but was an agency and instrumentality of the Municipal Telephone & Utilities Company, should not be disturbed, and that the court was right in denying the prayer of the intervening petition to modify the order appointing the bankruptcy receiver in the respects specified. We think these conclusions find support in the following, among other, cases: Chicago, M. & St. P. Ry. Co. v. Minneapolis Civic & Commerce Ass'n., 247 U. S. 490, 38 S. Ct. 553, 62 L. Ed. 1229; Interstate Tel. Co. v. Balt. & Ohio Tel. Co. (C. C.) 51 F. 49; In re Muncie Pulp Co. (C. C. A.) 139 F. 546; In re Rieger, Kapner & Altmark (D. C.) 157 F. 609; In re Holbrook Shoe & Leather Co. (D. C.) 165 F. 973; Clere Clothing Co. v. Union Tr. & Savings Bank (C. C. A.) 224 F. 363; Baker, etc., Co. v. Hunter (C. C. A.) 238 F. 894; In re Looschen Piano Case Co. (D. C.) 261 F. 93; In re Eilers Music House (C. C. A.) 270 F. 915; Fourth Nat. Bank v. Portsmouth, etc., Corp. (C. C. A.) 284 F. 718; Wabash Ry. Co. v. American Refrig. Transit Co., 7 F.(2d) 335 (C. C. A. 8); Edward Finch Co. v. Robie, 12 F.(2d) 360 (C. C. A. 8); Costan v. Manila Electric Co. (C. C. A.) 24 F.(2d) 383; Industrial Research Corp. v. General Motors Corp. (D. C.) 29 F.(2d) 623. We think the relationship existing between the two corporations was of such character, and the intermingling of assets so extensive, that the trial court was right in directing the bankruptcy receiver to take charge of the whole assets pending further action by the court, and that justice to all parties interested will best be done by such procedure. It should be apparent, but it is well to call attention to the facts, that the bankruptcy court has not determined the question whether the Kentucky State Telephone Company should be adjudicated a bankrupt; has not determined that all assets standing in the name of the Kentucky State Telephone Company should be administered for the benefit of the creditors of the Municipal Telephone & Utilities Company to the exclusion of, or in priority to, the creditors of the Kentucky State Telephone Company; has not determined that the interveners, trustees under the mortgage executed by the Kentucky State Telephone Company, may not at a proper time and in a proper court foreclose said mortgage. All of these questions, as well as others, are still open for consideration and determination by the trial court. We think the order appealed from was right, and it is affirmed.