Court Opinion

ID: 8819238
Source: CourtListenerOpinion
Date Created: 2022-11-26 15:27:42.272679+00
Date Added: 2024-06-11T17:04:34.604876
License: Public Domain

GIIyBERT, Circuit Judge
(dissenting). There is no question of res judicata in the case. In denying the motion for the appointment of a receiver and for an injunction on the original bill, Judge Dooling denied the motions with leave to renew the same upon filing an amended bill, and said:
“The motion to dismiss will be granted unless plaintiffs within 20 days file an amended bill stating a ground for the granting of equitable relief.”
No order was made dismissing the bill, and no judgment was entered. Under permission of the court an amended hill was filed. Whether that bill was in substance the same as the original bill, as the appellants contend, is unimportant. It was the bill which the appellants answered and on which, together with a supplemental bill and the answers thereto, the case went to trial, and those two bills are the only bills before this court for consideration on the present appeal, except that the original bill, having been introduced in evidence, may be referred to for whatever it may contain in the way of admissions on the part of the appellees. The general rule of law which prevails in all courts is succinctly stated in Post v. Pearson, 108 U. S. 418, 2 Sup. Ct. 799, 27 L. Ed. 774, where it 'was held that an order sustaining a defendant’s demurrer and giving the plaintiff *407leave to amend does not preclude the plaintiff from renewing or the court from entertaining the same question of law at the subsequent trial on an amended declaration. No case is found which sustains the contrary view. The decisions in C. S. M. Co. v. V. & G. H. Sawmill Co., 3 Sawy. 685, Fed. Cas. No. 2990, and Plattner Implement Co. v. International Harvester Co., 133 Fed. 376, 66 C. C. A. 438, hold only that it would lead to unseemly conflicts if the ruling of one judge upon a question of law should be disregarded or be opea to review by another judge in the same cause. There was no question of res judicata in those cases. It was solely a question of the propriety of judicial conduct. There was no denial of the power of one judge to overrule the prior decision of another judge of co-ordinate power in the same court and in the same cause, but it was held that to do so would be unseemly, not that it would be reversible error. The rulings in those cases might have been presented to Judge Van Fleet as a reason why he should decline to rule otherwise than had his predecessor if identical questions had been presented to both, but it has no place here in an appellate court in aid of the proposition that Judge Dooling’s decision constituted res judicata. If Judge Dooling had entered a final judgment dismissing the suit, which he did not, the judgment would of coürse have been res judicata as to a second or a concurrent suit on the same grounds as were disclosed in the original complaint, but not if the judgment was for the omission of an essential averment which was supplied in the second suit. Gould v. Evansville & C. R. Co., 91 U. S. 526, 23 L. Ed. 416; Wiggins Ferry Co. v. O. & M. Ry. Co., 142 U. S. 396, 12 Sup. Ct. 188, 35 L. Ed. 1055; and see the decision of this court in Miller v. Margerie, 170 Fed. 710, 96 C. C. A. 30. There is no res judicata in any case in which the court, in sustaining a demurrer or a motion to dismiss, grants leave to amend, and an amended complaint is filed and further proceedings and final judgment are had thereon. None of the cases cited for the appellants holds otherwise. In point of fact the amended bill contained a number of new averments of fact tending to establish a constructive trust in W. S. Noyes, such as the allegation that the expenses incurred by him in connection with acquiring control of section 5 were paid by the Presidio Mining Company, as well as the fact that the surveying and testing of the ores from section 5 during the existence of the options which Noyes obtained were performed by the officers and employes of the Presidio Mining Company at the expense of that company.
The court below reached 1he following conclusions as to the facts: (1) That the original acquisition of control of the corporation by the appellants was through a fraudulent manipulation of the Osborn stock; (2) that the Osborn shortage came to the knowledge of Noyes as early as December, 1912, and that he took advantage of it, to secure from Osborn his stock without any real compensation whatsoever, and that this was accomplished by the use of funds which belonged to the company, but in a manner that never resulted in the shortage being made good to the company, that the circumstances which culminated in control of the corporation in the hands of W. S. Noyes indicated *408that it was not a just and fair transaction; (3) that W. S. Noyes acquired section 5 by virtue of his control of the company and its board of directors; (4) that it was in substance an acquisition of that property by funds of the corporation; (5) that Noyes and his superintendent Gleim were the only persons connected with the company fully cognizant of the character of section 5 and its value; (6) that Noyes knew at the time that he had potential control of his corporation; .(7) that he could have procured the means or funds from the corporation with which to pay for the land, and that the course he pursued brought about that result, and that the bonus resolution was with that object in view, first, to secure the means by which to manipulate the control of the Osborn stock, and, second, the bonus resolution brought about a situation which enabled him to secure the funds of the company, and that the subsequent lease of section 5 to the corporation enabled him to procure the means with which to pay the consideration which was paid for section 5; (8) that the entire transaction after Noyes got control by getting a board of directors which was absolutely under his domination shows a persistent manipulation of its affairs, in fraud of the minority stockholders, and which redounded solely to the interest of said Noyes.
The following facts in my opinion fully justify the decision of the court below: W. S. Noyes, during the 30 years of his connection with the company, sustained a highly fiduciary relation to it. Until the year 1913 he had the general management of the mining operations. On January 29, 1913, he was made director, vice president, and general manager. His duties, as he testified, remained about the same that they had been before. He said, that the mining property “had been for years under my charge with full discretion down there.” In his answer to the amended bill he stated that since 1882 he had been in the full charge of all the mining operations conducted by the corporation, keeping in constant touch with all the mining, milling, and reduction work carried on, and acting as consulting engineer for the corporation as well as general manager of all its mining operations. At the time when he acquired section S and entered into the contracts of lease, and obtained the bonus resolution, he had complete control of the directorate of the company. The lease of section 5 to the mining company was made on January 25, 1913. Noyes made the terms of it, and he was in effect both'the lessor and the lessee. It reserved to him a royalty of 50 cents per ton of the ore to be taken from section 5. Three weeks thereafter he procured the bonus resolution of the corporation, which provided for payment to him of $45,000, of which $11,000 was to be paid forthwith. 'By the terms of the resolution the bonus was given solely for services and money expended by Noyes in obtaining the lease. But he testified that in fact it was given to secure him the rental which had been agreed upon, which instead of 50 cents per ton of ore was in fact to be one-half the net profits of the ore. A resolution of the corporation passed in November following adopts that construction of the bonus resolution.
*409In his answer to the amended complaint Noyes alleged that he was forced to buy section 5 without knowledge of or opportunity for investigating its value, and that it would have been a hazardous venture for the mining company in the absence of knowledge of the ores contained in that section to undertake to buy the property. This was wholly untrue. Noyes had had opportunity to know the value of the property. He had examined it and he had made numerous assays of its ores, and the mining company had borne the expense of the examination. He had discovered, as he subsequently admitted, that ore of the net value of $50,000 was then in sight. He knew that within a few months in milling in the cyanide plant then to be installed in the mining company’s property the ore already developed in section 5, there would be realized, net, double the amount of the purchase price of the section. Before he even took options on the property he had made arrangements to borrow on his personal credit the money to purchase the same. If he made any suggestions to the officers or stockholders of the company that they buy section 5 for the company, there is no pretense that he ever disclosed to them the knowledge which he had acquired of the property or its value. Knowledge of all those facts was withheld. Again, it is not credible that upon the credit of the company the money could not have been obtained to buy the property. About that time Noyes had obtained on the company’s credit money to install a cyanide plant at a cost of $44,000 and to make other improvements aggregating $70,000, and immediately after the execution of the lease, he had the bonus resolution passed requiring the company to pay him $45,000, a sum almost double the purchase price of section 5, and under the bonus resolution and the lease, he received within 33 days $11,000, and within ten months he received from the mining company a total of $26,503.60, a sum more than sufficient to pay the purchase price, and more than sufficient to meet his obligations for the money which he had borrowed to make the purchase of section 5. By December 31, 1915, he had received $63,000 cash, and the mining company still owed him, so he testified, $49,000. In addition to this he was paid his yearly salary of $5,400. Further facts may be adverted to as confirmatory of the view that Noyes was conducting the company’s business for his individual benefit rather than for the benefit of the corporation, such as the confessed fact that he received from Bowers, who had a contract for hauling and furnishing supplies for the mining company, monthly payments out of Bowers’ profits amounting to $3,195 between 1908 and 1914, for which payments Noyes admitted that there was no specific consideration “other than Mr. Bowers’ friendship for me.”
Noyes incurred no risk to himself in buying section 5. Before he became obligated to pay the purchase money he had ascertained that the value of the property was far in excess of the purchase price. When in November, 1913, he had received from the company sums sufficient to reimburse him for all of his outlay with interest thereon, he was in duty bound to transfer the section to the company. Instead of discharging that obligation, he took advantage of the fiduciary relation *410which he sustained to the company to obtain for himself profits which in equity belonged to his corporation, and for which he should be held to account to the appellees, and he retained title to property which in equity should be impressed with a constructive trust for their benefit. Koehler v. Black River Falls Iron Co., 2 Black, 715, 17 L. Ed. 339; Wardell v. Railroad Co., 103 U. S. 651, 26 L. Ed. 509; Seacoast Railroad Co. v. Wood, 65 N. J. Eq. 530, 56 Atl. 337; H. C. Girard Co. v. Lamoureux, 227 Mass. 277, 116 N. E. 572; Meeker v. Winthrop Iron. Co. (C. C.) 17 Fed. 48; Morgan v. King, 27 Colo. 539, 63 Pac. 416; Ross v. Quinnesec Iron Co., 227 Fed. 337, 142 C. C. A. 33; Trice v. Comstock, 121 Fed. 620, 57 C. C. A. 646, 61 L. R. A. 176; Iroquois Iron Co. v. Kruse, 241 Fed. 433, 154 C. C. A. 265.