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CHERRY v. HOWELL

August 31, 1931

CHERRY et al.
v.
HOWELL et al.



The opinion of the court was delivered by: CAMPBELL

CAMPBELL, District Judge.

This is a motion made by the defendant Clark Howell, the only defendant served, for an order dismissing the complaint herein, upon the ground that said complaint does not state facts sufficient to constitute a cause of action.

The action is stated to be brought by the plaintiffs on behalf of themselves and of all others similarly situated who shall come in as parties plaintiff and contribute to the expense of the suit.

 The subject of the action is the affairs of the Southern Guarantee Loan Company, a Georgia investment corporation now in the hands of receivers.

 The complaint alleges as follows:

 That plaintiffs bring this action on behalf of themselves and all others similarly situated who shall come in and be made parties and contribute to the expense of this action.

 On information and belief that the Southern Guarantee Loan Company was incorporated prior to the year 1904, under the laws of the state of Georgia, and at all times thereinafter mentioned was a Georgia corporation, having its only office and place of business in the city of Atlanta, in that state.

 That the plaintiffs are holders of the company's class D installment bonds, and that they acquired their bonds in 1920 and 1922, on a monthly payment plan; a copy of the form of bond being annexed to the complaint and marked Exhibit A.

 On information and belief that the defendants Clark Howell and Albert Howell were stockholders and directors of the said company, and that said defendant Cark Howell was the chairman of the board, and that said defendant Albert Howell was the vice president and general manager.

 On information and belief that the said company, to the knowledge of the defendants and its officers and directors, from December 21, 1918, to April 1, 1929, failed to maintain reserve and redemption funds required by the terms of the class D bonds and of the laws of Georgia.

 On information and belief that said company failed to comply with the Georgia law, in that it omitted: (a) To file annual statements with the comptroller general; (b) to obtain annually a license authorizing it to do business in Georgia; (c) to keep on deposit $25,000 at a designated state depository; and (d) to obtain fidelity bonds from its officers having custody of funds.

 On information and belief that the company was, to the knowledge of defendants and of its other officers and directors, insolvent and operated at a loss from December 21, 1918, to April 1, 1929.

 On information and belief that, with knowledge of such insolvency and that its business had been operated at a loss, the redemption and reserve funds had not been maintained, and that its business was conducted in violation of Georgia law, the defendants and other officers and directors of the company caused and permitted the company to continue in business from December 21, 1918, to April 1, 1929.

 On information and belief that for the purpose of inducing its then bondholders to continue to pay the installments due upon their bonds, and of inducing others to purchase bonds, the defendants and other officers and directors caused and permitted the said company from time to time falsely and fraudulently to represent to its bondholders and to the investing public, including the plaintiffs, that the company was solvent and ...


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