Court Opinion

ID: 6834985
Source: CourtListenerOpinion
Date Created: 2022-07-23 20:02:49.862696+00
Date Added: 2024-06-11T16:04:40.341427
License: Public Domain

WOOLLEY, Circuit Judge
(dissenting).
While I have the utmost respect for the views of my associates in this ease, the judgment of the court is so important and, if wrong, it will work so grave an injury to one of the litigants that I am impelled by a sense of duty to dissent. In briefly giving my reasons I shall first attempt, conforma-bly with our Rule 24, to find and state the precise question involved. It may be well to note preliminarily that this is not an action on a contract; nor is it an action in deceit; nor an action, civil or criminal, in which the appellee is on trial for wrongdoing. It is an action in equity based on duress charged against the appellant. The question of duress is one purely of fact and that question is a singularly narrow one. In substance it is this: Confessedly having at hand all the machinery of duress, did the appellant use it, or, using it, did the appellee know it and yield to it?
“Cujusque rei potissima pars prineipium est.” Therefore, I shall give, though in merest outline, the genesis of this controversy, referring to the opinion of the learned trial judge (D. C.) 13 F.(2d) 932, for the facts in adequate detail and to the opinion of the Chancellor of Delaware in a case bearing the same title (Del. Ch.) 131 A. 165, and (Del. Ch.) 136 A. 140, for the facts at greater length.
One Frank T. Piekrell and his associates had acquired oil leases on about 10,240 acres of unpromising land in Texas. They sunk a well and in May, 1923, struck oil of high quality in commercial quantities. They were required by the terms of the leases to drill additional wells. After starting two of them they became financially embarrassed and sought assistance of L. M. Benedum of Pittsburgh, Pa. The well that was first sunk continued to flow in a way to convince geological observers that it was drawing from a large pool nearby. Benedum had the property scientifically explored. The reports were so encouraging that he and his associates entered into an arrangement with the Piekrell group whereby two corporations were formed; the first, the Big Lake Oil Company, with an organized capital of 400,-000 shares of the par value of $10, which acquired the Piekrell leases in consideration of 'one-quarter of its shares, the return to the Piekrell group of the moneys they had expended upon the property (about $200,-000) and the assumption of their lease obligations to complete the two wells started and to drill four additional wells (under a plan which centered full liability in the Benedum group) at an estimated cost of about $250,000, making total obligations about $450,000, the remaining three-quarters of the stock to be held by the Benedum group. The second corporation, the Plymouth Oil Company, one of the defendants in this suit, acquired the remaining three-quarters of the shares of the first corporation and against them, as capital assets, issued 1,200,-000 shares of its own stock of which 150,000 were preferred, convertible into common, and the remainder, 1,050,000, were common. Shares of both classes had 'a par value of $5.
The Benedum group, spoken of throughout the litigation as the promoters, of which Farquhar, the intervener in this suit, was one, proceeded to finance the undertaking in the by no means novel way of selling preferred stock of the Plymouth Company at $3 per share with one share of common as bonus, donated by the promoters for the purpose. Farquhar (charging no commissions) sold *109the shares mainly to his friends, among whom were William M. Henderson, the plaintiff in this suit, F. B. Lockhart, A. R. Budd, and W. J. Wilson. To these gentlemen, covering the period from November, 1923, until June, 1924 — new wells coming in all the time — he sold shares varying in amounts and prices (stated in round numbers) from 6300 to Wilson (who bought the smallest number) at $1.50 a share (reckoning the bonus shares) to 64,000 to Henderson (who bought the largest number) at $1.35 a share. In addition, Farquhar gave Henderson 5,000 shares of his own on Henderson’s insistence that he be permitted to share in the promotion stock, and to the first three he gave 2,772 shares of his own to adjust a misunderstanding on their part that Plymouth owned all instead of three-quarters of the stock of Big Lake. The shares were then selling at $10. It may be well here to state the value of these shares, not to make an alluring background but to show what probably moved Henderson and his associates to conduct in June, 1925, on which this case turns.
In a suit which Henderson and others instituted against the Plymouth Oil Company in the Court of Chancery of Delaware (supra) for the cancellation of 700,000 shares of the common stock of that corporation held by the Benedum group as promotion shares, that court decided the property of the corporation against which fit issued its stock was worth the par value of its shares. Indeed, the Big Lake property in question was appraised by reputable and competent appraisers to be :worth nearly $80,000,000, and on that estimate the stock of the Plymouth Oil Company was worth about $76 a share. The market price quickly rose to $57 a share. Of course everyone converted his preferred stock into common with the result that, reckoned on their shares purchased at figures ranging from $1.50 to $1.35 a share and salable at the market price, Wilson, the purchaser of the smallest number, had a paper profit of $341,000 and Henderson, the purchaser of the largest number, had a paper profit of $3,573,000; the other two had profits for. amounts intermediate these, and all had profits close to or in excess of these sums which at current market prices they could, had they chose, immediately turn into money.
This was the situation before the controversy broke out at a stockholders’ meeting of the Plymouth Company on June 23, 1925. There Henderson discovered that its outstanding common ' stock was 1,050,000
shares. He immediately charged Farquhar with having falsely represented to him and his associates that the outstanding capital of the company could never exceed 350,000 shares — 150,000 convertible preferred and 200,000 common. Farquhar flatly disputed this assertion. I pause to observe that the true situation as to capitalizing and financing the Big Lake and Plymouth companies was readily available to anyone interested and was generally known to other purchasers of the stock. Moreover Henderson and his associates knew the amount of preferred stock issued (150,000) and they knew a bonus of one share of common was given with each share of preferred purchased (150,000 shares), for they had acquired their shares on that plan, leaving, on their understanding, only 50,000 shares of promotion stock for the Benedum group which was developing the property and had assumed the Pick-rell liabilities of $450,000. The very improbability of such a thing in the light of modem financing should, I think, have put the Henderson group of business men on inquiry. However, Henderson and his associates have testified that in making their purchases they relied on Farquhar’s representations and the trial court, on a sharply controverted issue of fact, has found that these representations were made by Farqu-har and were false. It is quite unnecessary on this appeal of a case in equity to recite and review the testimony on that issue, for these findings by the trial court on an issue peculiarly within its province, made on evidence sufficient to sustain them are, in the absence of plain and manifest error, conclusive upon this appellate court. Keeton v. Jefferson Standard Life Ins. Co., 5 F.(2d) 183, 186 (C. C. A. 4th); Hazelwood Brewing Co. v. United States, 3 F.(2d) 721, 722 (C. C. A. 3d).
On these facts, as later found, Henderson and his associates had a valid grievance and this is true wholly without regard to the wealth Farquhar had brought to them. But injuria non exeusat injuriam. Conceiving they had been defrauded of a share of the amazing value of the Texas property represented by the difference between what their holdings bore to 350,000 shares and what they bore to 1,050,000 shares, they immediately set about to recover it. They estimated this difference at 250,000 shares of the Plymouth Company. They knew Farquhar had 50,000 shares, then worth about $2,-000,000, and demanded them of him and also demanded that he procure from the Benedum group, on an intimation of crim*110inal proceedings against them, the remaining 200,000 shares, then worth about $10,000,-000. The members of that group had nothing to do with Farquhar’s sales and representations. For reasons easy to imagine the Benedum group refused to yield up their stock. ■ However, Henderson and his associates still demanded that Farquhar give them his 50,000 shares and that he get the remaining 200,000 somehow. These demands were not preliminary to civil proceedings but were made upon Farquhar at several meetings where Henderson and his associates were guided by counsel, with a constable sitting in another room with a warrant (one of two they had previously sworn out) for Farquhar’s arrest in his pocket. I shall not, for reasons presently shown, discuss these. interviews beyond saying that one of Henderson’s associates present revealed their character by admitting that he and Henderson and the others intended to use the warrant if Farquhar failed to “come across” with the stock. (R. 343.) He came across — part way — by indorsing his certificates for 50,000 shares — all the property he had in the world — and handing them to Wilson. But, even then, Henderson and his associates refused to assure him that by this act he would be saved from prison. Henderson and his associates maintain that, though intending to employ criminal process against Farquhar and having him surrounded by all the machinery of duress, they did not close it in on him, but on the contrary Farquhar, in complete ignorance of all that was happening, was moved by his conscience and signed and delivered the certificates of his own free will.
What followed is pertinent on the issue of duress as bearing on what was done and showing what thereby was intended. When Farquhar failed to procure and surrender the remaining 200,000 shares, Henderson and his associates had him arrested on a criminal charge, held in excessive bail which later was reduced, prevailed upon the district attorney to send a bill of indictment to the grand jury which was promptly ignored, and thereafter sought political influence to coerce the district attorney to send another bill of indictment to another grand jury, which the district attorney refused to do.
As I stated at the beginning, this is not a case where Farquhar is on trial for his wrongdoing; it is a case of duress on the part of Henderson. The issue is one of fact and a narrow one, and this issue, reduced to precise terms, is: Confessedly having at hand all the machinery of duress, did Henderson and his associates use it, or, using it, did Farquhar know it and yield to it?
On this issue I would find that Farquhar parted with his shares under duress imposed upon him by Henderson and his associates. For my grounds I refer and subscribe to all findings of fact and the entire reasoning of the Honorable W. H. S. Thomson, the learned trial judge, as they appear in his opinion reported in (D. C.) 13 F.(2d) 932.