Court Opinion

ID: 8804370
Source: CourtListenerOpinion
Date Created: 2022-11-26 14:43:11.16316+00
Date Added: 2024-06-11T17:04:02.160511
License: Public Domain

MAYER, District Judge.
To understand clearly the questions here in issue, it is desirable to divide the controversy into two parts: (1) That relating to the effort to set aside certain license agreements; and (2) that relating to the character in law of certain proceedings following the obtaining of certain judgments by plaintiff’s assignor.
[1] First. Plaintiff is the assignee of one William J. Robinson, Miriam E. Robinson, Hector M. Hitchings, and Irving E. Burdick, of their respective interests in a judgment recovered by Robinson against Vanoscope Company (hereinafter called Delaware Company. It is also the purchaser of whatever right, title, and interest the receiver in supplementary proceedings of the Delaware Company had in and to the assets of the Delaware Company. Defendants Hobbs and Hammond are officers of and stockholders in Vanoscope Company incorporated (hereinafter called New York Company), licensee of Delaware Company, by virtue of two license agreements dated, respectively, May 9, 1914, and April 10, 1915, and also licensee of defendant Continental Motion Picture Company, Incorporated, by virtue of a license agreement dated April 10, 1015. Defendant ¿lease died pending the action, and it has abated, as to him, and defendant Van Riper was never served and did not appear. Defendant Singer is the trustee in bankruptcy of Delaware Company appointed on April 6, 1916, by the referee in a voluntary bankruptcy proceeding pending in the United States District Court for the Southern District of New York in place of a previous trustee who had resigned.
The suit is brought by plaintiff in the dual capacity of assignee of the judgment creditor and as purchaser at the sale by the receiver in supplementary proceedings.
The Delaware corporation was formed to exploit an invention for projecting moving pictures by means of revolving mirrors in such a manner as to do away with the necessity for the shutter to cut off the light between each picture.
*437We are not concerned with the scientific details of the invention; suffice it to say that if the structure should be perfected so as to be commercially practicable, the patent covering the invention and here concerned may prove to be of substantial value.
Van Riper, the inventor, and Robinson, as promoter, entered into a contract, on October 31, 1912, and the Delaware corporation, in which Van Riper was the controlling spirit and Robinson also entered into a contract dated January 13, 1913, the details of which it is unnecessary to set forth, the essential feature being that Robinson obtained the exclusive right to dispose of a certain amount of preferred and common stock of the Delaware Company under certain mutual terms, and the Delaware Company agreed that it would not—
‘•sell, assign or transfer or enter into any contract or agreement of any kind for the sale, assignment or transfer of any of the said treasury stock of said first party (Delaware Company) during the existence of this contract. * * * ”
Both Robinson and Van Riper made various attempts without success to sell stock to Hobbs and Hammond, who had become attracted by the invention. About January, 1914, Robinson commenced to have differences with Van Riper and with the hoard of directors composed of stockholders who had bought stock through Robinson. The condition of the company was most unsatisfactory from a financial standpoint, and it practically did not have any assets except the invention, and the stockholders were not willing to add to their previous investments.
In February, 1914, Hobbs and Van Riper entered into an agreement for the sale of stock owned by Van Riper, but that agreement was surrendered by mutual consent and was never acted upon.
On March 2, 1914, Robinson commenced an action at law in the District Court for the Southern District of New York, against the Delaware corporation and Van Riper, for damages for the breach of his contracts. This action was subsequently severed by order of the District Court so that thenceforth one action was against the Delaware Company and one against Van Riper.
On April 16, 1914, an agreement was entered into between the Delaware Company and a group known as the Hammond-Hobbs-Dyer syndicate, giving them an option upon a license agreement under the patents upon payment of $50,000 prior to May 1, 1914. Under this arrangement Hobbs and Hammond were relying upon Dyer to furnish the capital and upon his failure so to do the option was canceled.
Hobbs and Hammond, however, obtained the co-operation of A. U. Garford of Elyria, Ohio, to take up the Dyer interest in the contract, and Hobbs entered into a new contract with the Delaware Company for an option for the license agreement and paid $10,000 on account of the consideration therefor.
Garford is a large manufacturer of repute, well known in the business community and having large facilities in the way of tools and machinery for perfecting an invention of the character here concerned. Meanwhile, Hobbs and Hammond had become stockholders in a New York corporation known as Vanoscope Company, Incorporated. Plaintiff contends that this company was formed as a step in a *438conspiracy in derogation of Robinson’s rights, but we fail to find any evidence to sustain that contention. To carry out the proposition of Hobbs for a license agreement, the Delaware Company and the New York Company entered into a license agreement dated May 9, 1914, which was deposited with a trust company in escrow to be held by it until the completion of $50,000 advance royalty to be paid prior to the delivery thereof.’
The District Judge has carefully and fully analyzed this license agreement and we agree with his conclusions in respect thereof. It is true that Hobbs and Hammond knew that Robinson had commenced his lawsuits but, in the circumstances, such a course by Robinson could not prevent the Delaware Company and outside inventors from entering into any legitimate agreement calculated to progress the development and sale of machines covered by the patents owned by the Delaware Company. Robinson, by beginning an action at law, had elected to discard any remedy in equity, if such were available to him. He was suing, not to restrain the Delaware Company, but to.obtain a money judgment for- damages for breach of contract. The Delaware Company was not called upon to sit still and await the result of -the Robinson action, nor were Hobbs añd Hammond in any manner prevented 'from making, any fair business arrangement. The cash advance of $50,000 and the various terms of- the contract as discussed in detail by the District Judge are full assurance of the integrity of the transaction, and we have no doubt as to the validity of this agreement of May 9, 1914.
On March 20, 1915, a verdict was rendered in favor of Robinson against Van Riper upon which a judgment was entered for $100,110.95 on March 26, 1915. On April 7, 1915, the trial of the action of Robinson v. Delaware Co. was begun before Judge Hough and a jury, and that trial resulted on April 12, 1915, in a verdict upon which a judgment was entered on April 16, 1915, for $190,017.98. During the progress of this trial, viz. on April 10, 1915, Hobbs, Hammond, Van Riper, Hathaway, the president of defendant Continental Motion Picture Company, Incorporated, Slease, the attorney for Van Riper and the Delaware Company, and Harding, also one of the attorneys for Van Riper and the Delaware Company, met at luncheon at a club in Broad street and discussed the modification of the agreement of May 9, 1914, and a new agreement (drawn on the evening of April 9, 1915, by Wing & Russell, attorneys for Hobbs and Hammond) was entered into on April 10, 1915. This agreement was authorized by the board of directors of the Delaware Company and duly executed. At the same time a collateral agreement between defendant Continental Motion Pic-' ture Company, Incorporated, and the New York Company was executed for the nominal royalty of $1 per machine.
The agreement of April 10, 1915, between the Delaware Company and the New York Company recited, inter alia, that the Delaware Company was the ownér of the entire right, title, and interest in and to applications for letters patent filed by Magnus Smith under the serial numbers 553,805 and 820,051. The agreement between Con.tinental Motion Picture Company, Incorporated, and the New York *439Company recited that the Continental Company was the owner of a patent issued to Smith No. 1,105,163 and of application serial number 820,051. (Note: No. 553,805 is the serial number of the application which resulted in patent No. 1,105,163.)
In addition to the Smith applications, the agreement between the Delaware Company and the New York Company covered a patent to and various applications for patents by Van Riper.
For brevity these agreements of April 10, 1915, will be referred to as one agreement, as there is no doubt on the evidence that Delaware Company was the owner of the Magnus Smith patent and application. *
Before adverting to the terms of this new agreement, it is necessary to note that liarding testified that the new agreement was to be used only in case that Robinson obtained a verdict against the Delaware Company in the action then on trial. Plaintiff urges that Harding’s testimony is to be accepted, and that it is confirmed by the fact that the parties must have contemplated that Robinson would gain a verdict in view of the successful outcome of the action against Van Riper.
The District Judge dealt with that contention as follows:
"The agreement of April 10, 1015, was made with a fuller knowledge, if possible, of Robinson's rights than its predecessor. The clrounmbmces of its execution lend some color to suspicion that it was made against the possibility of a verdict. I think it was certainly made with that prospect in ntfiml ami to settle the rights which had arisen under the first contract, but Í cannot accept Harding’s statement that it was to ho used only in case of a "verdict. Some new contract was in any case necessary between the parties, and the possibility of such a one is foreshadowed as far back as the proposed contract between the. Now York Company and the Jolms-Manville Company., Moreover, it is most unlikely that the drafting was left till April 10th, as liarding recalls; the contract is elaborate and could not be made hastily out of: the earlier one. It shows evidence of much care in preparation, and bears the indorsement of Hobbs’ lawyers, contrary again to Harding’s recollection. However, while 3 reject the idea that it was, intended only for such use, the time of its appearance justifies a close scrutiny of its terms in comparison with those of the earlier contract.”
The District Judge then proceeded to analyze the agreement of April 10, 3915, and to point out that it was difficult to determine whether the agreement of April 10, 1915, as a whole was more or less favorable to the Delaware Company than the agreement of May 9, 1914. Wc agree with his conclusion that if the patent turned out only a moderate success, the change was a benefit to the Delaware Company, but that if the patent turned out successfully, the agreement in the long run would he more favorable to the New York Company and less favorable to the Delaware Company than was the agreement of May 9, 1914.
The situation must be approached from the standpoint of the surrounding and preceding circumstances. The District Judge had the advantage of seeing" and hearing the witnesses, and in so far as the credibility of the witnesses is involved, we accept his conclusion. This conclusion we think was further borne out by -all the circumstances. We are satisfied that up to this time the machines had not been made commercially successful. On this point the testimony of the expert Lowenstein is amply convincing, and the testimony on behalf of plain*440tiff of the expert Berger, who had worked on these machines at the Garford factory, is really confirmatory of this view, because Berger admitted that before the machines could be made commercially useful it was necessary to introduce certain changes which Berger refused to disclose because they represented patentable differences.
The New York Company had previously (about January, 1915), through Hobbs and Hammond, taken up the question of a license arrangement and sales agency with tire H. W. Johns-Manville Company, a large concern in touch with motion picture exhibitors, by reason of. its manufacture and sale of certain other products needed in the motion picture business.
The evidence is fully satisfactory that Hobbs and Hammond were acting in good faith in their own interest in a situation where the future of the patents was very much in doubt, and the past experience had been very discouraging. It may be assumed that they feared that if Robinson obtained a judgment it might be difficult to deal with him, but this view is not an indication of fraud nor of any attempt on the part of the New York Company to hinder, delay, or defraud creditors, provided that the agreement of April 10, 1915, was one which did not put the property of the Delaware Company beyond the reach of Robinson, nor deal with it under such circumstances as to indicate an intent to hinder, defraud or delay.
Once it is found that the contract of May 9, 1914, was legitimate and fair, then it must follow that the modification embodied in the contract of April 10, 1915, was on all the facts and in all the circumstances fully justified; and in this connection it may be observed that there is nothing in this record which indicates that Hobbs and Hammond were in any manner in any scheme or collusive effort to deprive Robinson of any of his rights and that the acts of Van Riper and his associates hereinafter referred to are not brought home to the knowledge of Hobbs and Hammond by any evidence in this record.
The situation was that the only money in sight by which anything whatever could be done to develop the commercial success of these patent machines was forthcoming from Hobbs and Hammond, and in an enterprise which at that time was very doubtful and the future of which was speculative, it is quite plain that Hobbs and Hammond were right in insisting upon such modifications as they obtained by virtue of the contract of April 10, 1915.
We conclude, therefore, that the District Judge was right in determining not to set aside the agreements of May 9, 1914, and of April 10, 1915.
[2] Second. After Robinson obtained his judgment against the Delaware Company, execution was issued to tire marshal and returned nulla bona on May 26, 1915.
The main business of the company had been conducted from its Chicago offices, where Van Riper and others interested in the company resided. One Truett was the president and a director of the Delaware Company, and he could be reached by service of process in New York City.
*441On April 21, 1915, Truett tendered his resignation as president of the Delaware Company, but not as director, and the resignation was accepted at a meeting of the board of directors of the Delaware Company held on April 21, 1915.
On June 5, 1915, Robinson obtained an order for the examination of the Delaware Company in supplementary proceedings, the order requiring that the Delaware Company, judgment debtor, should appear for examination by its president, Truett, on June 11, 1915. This order was served on Truett on June 7, 1915. On June 10, 1915, the copy of the order which had been served on Truett was given to Harding by Slease or Van Riper (Harding did not recall which). Harding appeared with Truett when Truett was sworn, and did not enter any objection to Tmett’s examination on the ground that Truett had resigned, or that he was not president of the corporation, or that he ■(Harding) had no authority to appear generally in the proceeding. Harding had;;not received any information or intimation that he was not authorized to appear upon that examination.
On June 10, 1915, another order was made by the District Court for the examination of the Delaware Company in supplementary proceedings, this time requiring Van Riper to appear. This order was served the same day, and it is conceded that the service upon Van Riper as a director was valid service upon the company. The attorney for Robinson continued in his pursuit of the judgment debtor against obvious efforts to obstruct Robinson from collecting his judgment, until he succeeded in obtaining an order on June 21, 1915, appointing a receiver in the supplementary proceedings. It was recited in the order that “the former president and treasurer of Vanoscope Company” (meaning Truett and Van'Riper) had been examined thereunder, and that notice of the motion for appointment of a receiver could not be served oil any officer of the defendant in the state of New York, and that such notice of motion was dispensed with. Under section 2464 of the New York Code, at least two days’ notice of application for an order appointing such a receiver must he given personally to the judgment debtor unless the judge is satisfied that he cannot, with reasonable diligence, be found within the state.
On May 28, 1915, Truett purported to resign as a director, and it is now contended on behalf of defendants that the plaintiff’s argument that the service on Truett was service on the Delaware Company is inconsistent with the affidavit of the attorney for plaintiff and the order made thereon, to the effect that the notice of motion for the appointment of a receiver could not be served within the state. We do not agree with this view. The order of June 21, 1915, stands valid and unassailed. There is nothing to uegative the assertion made in the affidavit of the attorney for plaintiff that it was not possible to serve within the state the notice of motion upon any officers of the Delaware Company. The Delaware Company, by reason of its conduct, cannot be- beard to' assert that some officer could have been served; on the other hand, plaintiff, as the owner of the Robinson judgment, is entitled to urge that the service on Truett was valid service on tfye company. This service upon Truett becomes exceedingly important *442for the reason that the petition of the Delaware Company iñ a voluntary proceeding in bankruptcy was' filed on October 8, 1915. The service on Van Riper, therefore, came within the four months’ period under the Bankruptcy Act (Act July 1, 1898, c. 541, 30 Stat. 544), while the service on Truett took place outside of the four months’ period.1
From the time the judgment was entered the Delaware Company resorted to every means at its disposal to prevent the collection of the Robinson judgment. See record in Re Vanoscope Co., 233 Fed. 53, 147 C. C. A. 123.
On July 15, 1915, a special meeting of the Delaware Company was held at Chicago, the only persons present being Van Riper and one Morhardt, a man closely associated with Van Riper. The minutes of that meeting recite that it was called pursuant to a written request signed by Van Riper and Morhardt and go on to state that all of the directors and officers, with the exception of Satterfield, Morhardt, and Van Riper, had tendered their resignations, and thereupon a new board of directors was elected. The minutes -also recite that the resignations of.the directors-and officers were accepted.
It will be noted that Truett purported to send forward his resignation as director to Morhardt as secretary of the Delaware Company at Chicago on May 28, 1915, just two daj^s after Robinson’s execution against the Delaware Company had been returned unsatisfied. It is an interesting fact that while Truett resigned as president in April, he did -not attempt to resign as a director until after the execution had been returned unsatisfied as above stated. Whether this was an accidental omission in the scheme of Van Riper and his associates to evade collection of the Robinson judgment does not appear, but it would not be strange if, by some mischance, Truett had not been advised to resign as director as well as president.
We are fully satisfied from the record (exhibiting various acts unnecessary to set forth in detail) that the resignation of Truett was merely an obstructive device in fraud of Robinson to prevent service upon an officer and director who could be served within this jurisdiction, the pui'pose clearly being that only those who were nonresidents should remain as directors, thus leaving the difficult task of serving the order in supplementary proceedings to the chance of finding one of the nonresident directors such as Van Riper within this jurisdiction. .
There are cases which hold that in the absence of statutory regulations the resignation of an officer of a corporation takes effect on his *443delivery to the proper officer of his written resignation and before acceptance thereof by the hoard of directors; but in these cases some remedy is sought against the director personally, and the basis of these decisions is that where a director thus resigns, the inaction or refusal of a-board of directors should not impose upon him a future liability or responsibility which he does not desire to undertake. International Bank of St. Louis v. Faber, 86 Fed. 443, 30 C. C. A. 178; Fearing v. Glenn, 73 Fed. 116, 19 C. C. A. 388; Manhattan Co. v. Kaldenberg, 165 N. Y. 1, 58 N. E. 790.
There may also be cases of which Continental Wall Paper Co. v. Lewis Voight & Sons Co. (C. C.) 106 Fed. 560, is an example, where an officer or director of a foreign corporation, who intends to visit another jurisdiction, may resign in order to avoid service of a summons in a foreign jurisdiction. But the case at bar falls in that class of cases in which the courts have expressed their condemnation of proceedings by which resignations of officers or directors of a corporation are attempted in order to effectuate a fraud.
In Zeltner v. Zeltner Brewing Co., 174 N. Y. 247, 66 N. E. 810, 95 Am. St. Rep. 574, it was held that where all the officers, except the secretary, and ail the directors of an insolvent corporation resigned for the express purpose of instituting an action to procure the appointment of a receiver under the New York Code, such resignations are neither legal nor effective. See, also, Ehret v. Ringler, 144 App. Div. 480, 129 N. Y. Supp. 551.
The fact that Truett’s resignation as a director was to take effect immediately, and that acceptance under the by-laws of the Delaware Company might not be necessary, does not change the situation, although it appears from the minutes of the special meeting of July 15, 1915, that Van Riper and Morhardt thought that it was necessary formally to accept the resignations of the directors. But whether or not this would be so in a legitimate transaction is immaterial here; for mere forms of procedure will be disregarded if those forms are utilized to perpetrate a wrong.
We need not be concerned with a consideration of the effect of the resignation of Truett as president if he was still a director on June 7, 1915; for whatever may have been the result of his resignation as director, as between him and the Delaware Company, in their relations with each other, that resignation was futile and of no effect as avoiding the service of the order in supplementary proceedings made on June 7, 1915; and we hold that service valid as against the Delaware Company.
On October 14, 1915, the receiver in supplementary proceedings sold his right, title, and interest in and to the property of the Delaware Company, and in the list of that property were the various patents herein referred to. The purchaser at the sale was this plaintiff, and by this sale the plaintiff became the owner of the patents subject to the license agreement of April 10, 1915, and subject to the execution and delivery of such instruments as were necessary to perfect the title to the patents.
*444[3] About a year later, on September 27, 1916, after a meeting of creditors had been called by the referee in bankruptcy, the trustee in bankruptcy was authorized, over the objection of plaintiff, to sell all his right, title, and interest in and to the same property which the receiver in supplementary proceedings had sold. Hathaway, the president of defendant Continental Motion Picture Company, Incorporated, was the purchaser at the trustee’s sale, paying the sum of $1,000, and thereafter Hathaway released to the defendants the cause of action against them. The trustee, however, had nothing to sell, because whatever there was had previously been sold by the receiver. It is true that patents are not subject to seizure and sale on execution. Ager v. Murray, 105 U. S. 126, 26 L. Ed. 942, and there is authority to the effect that a receiver, such as one in supplementary proceedings, does not, by virtue of his appointment, acquire title to patent rights. It is, however, well settled that a court of equity may order or decree that the proper person shall execute such assignment or other instrument as may be necessary to vest the title of the patent in the person entitled thereto. Ager v. Murray, supra; Gillette v. Bate, 86 N. Y. 87.
After the sale by the receiver, there remained with the trustee only the duty of executing and delivering any and all formal instruments necessary to perfect the title of the purchaser at the receiver’s sale. No demand was made by plaintiff upon the trustee so to do, but under, the bill of complaint and the issues made, the court has full power to-order the trustee to fulfill these formal requirements.
If there should be .any question as to the necessity of the execution of such instruments by Hathaway, plaintiff is at liberty to institute such action or proceeding in that regard as it may be advised.
The result of the foregoing is that the decree of the District Court must be modified so as to decree that the trustee shall execute and deliver to plaintiff any and all assignments or other instruments necessary to vest in plaintiff the title to all property sold -by the receiver in supplementary proceedings subject to the license agreement of April 10, 1915.
As thus modified, the decree is affirmed, without costs in this court or in the District Court, and the District Court is directed to make its decree in accordance herewith.