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THE B & B NO. 5

March 8, 1947

THE B & B NO. 5 et al. IRA S. BUSHEY & SONS, INC.,
THE B & B NO. 5 et al.

The opinion of the court was delivered by: BYERS

Hearing on Petition to open consent decree of March 8, 1945, in this Admiralty cause of foreclosure of preferred mortgages covering many named barges and vessels, pursuant to the decision of the Circuit Court of Appeals, Second Circuit, reported in 155 F.2d 321 in the case of W. E. Hedger Transportation Corporation et al. v. Ira S. Bushey & Sons, Inc., a Civil cause then designated as Civil 5179 on the calendar of this Court.

The appellate court reversed a judgment of dismissal and directed that the complaint be 'treated as a petition in the foreclosure suit to vacate the decree of foreclosure upon the grounds which it alleges', except as to the allegations of the 67th, 68th, and 69th Articles, as to which the judgment of dismissal was affirmed.

 The complaint will hereinafter be called the Petition. It alleges matters touching the proceedings in the Admiralty cause in which it is now filed, which will be stated, after pausing to observe that the said proceedings were not included in the record before the Circuit Court, as they will be in an appeal from this decision.

 The Court did not pass upon the sufficiency of the Petition as a pleading. See page 325 of 155 F.2d as follows: ' * * * the cause will be remanded with instructions to treat the complaint as a petition in the foreclosure suit to reopen the decree upon the grounds therein alleged, on whose sufficiency, however, we are not to be understood to pass'.

 This cause was begun on February 10, 1945, by the filing of a libel in a cause of foreclosure of preferred mortgages, against 35 named barges, their tackle, apparel, etc., and W. E. Hedger Transportation Corporation (hereinafter to be called Hedger Co.)

 It contains 24 Articles to the effect that the libelant acquired a preferred mortgage executed and delivered by respondent Hedger Co., dated March 21, 1939, and given to secure the payment of its 41 promissory notes totaling $ 600,000 and interest; that, as the result of a series of events which are recited, there was due to the libelant $ 60,700 of principal and $ 3,066.66 of interest, together with reasonable attorneys' fees of approximately $ 10,000, amounting in all to $ 73,766.66.

 Process was prayed against the vessels named, and condemnation and sale thereof, and that the preferred mortgage be declared a valid and subsisting lien prior to other liens, etc., and that in default of payment of the sums found due that all persons, etc., be barred and foreclosed of any right or equity of redemption, and that judgment be had against respondent for the amount of libelant's just claim; and that the Court direct the manner in which notice be given to the Master, caretaker, etc., of the vessels proceeded against. (An order was made pursuant to the latter prayer).

 The respondent claimed the vessels, and filed an answer on February 21, 1945, and the denieals for present purposes may be considered as raising the issue of good, valid and adequate consideration for the notes and the preferred mortgage, and whether the respondent was indebted to the libelant; and that to the extent that the notes were valid obligations, they had been paid.

 Article Twenty-sixth contains the defense, and covers nearly six typewritten pages. It recites in substance the same matters as are comprehended in paragraphs Sixth to Twenty-sixth, inclusive, of this Petition; namely, the history as alleged of the joint adventure entered into about July 30, 1932, by William E. Hedger, and Francis S. Bushey and Raymond J. Bushey, the president and treasurer and principal stockholders of Ira S. Bushey & Sons, Inc., which corporation is named as defendant in the Petition, while the Hedger Co. and William E. Hedger are designated the plaintiffs. (The corporate defendant is the libelant in this cause.)

 The relief prayed in the answer, in addition to dismissal of the libel, is that the proceedings except to appoint receivers be deferred until the conclusion of the accounting action (referred to below) in the State court, and that a joint receiver with William E. Hedger be appointed pursuant to 46 U.S.C.A. § 952, to operate the vessels, the proceeds to be impounded to the amount demanded in the libel; that a Special Master be appointed to take an accounting (if the Court determines to proceed notwithstanding the State court action), and $ 600,000 damages.

 This Petition alleges in paragraph Fifth that on December 21, 1944, the plaintiffs commenced a civil action in the New York State Supreme Court against the defendant corporation, the two Busheys, and certain subsidiary corporations, to compel an accounting of monies and properties of the plaintiff corporation 'delivered to the defendant, its said officers and such subsidiaries, in amount in excess of $ 1,000,000 between the 30th day of July, 1932, and the 21st day of December, 1944, pursuant to an agreement of joint adventure * * * between the plaintiff, William E. Hedger, and the said Francis S. Bushey and Raymond J. Bushey'; and that the action was then (April 3, 1945) pending and undetermined.

 A copy of the complaint in that action was to be offered and produced in the trial of the civil cause (in which the Petition was filed as a complaint).

 Thus it appears that the purported facts as to the financial relations of the parties, and upon which the petitioner in part now relies, were known to it as early as December 21, 1944, or about 52 days prior to the filing of the libel for foreclosure of the preferred mortgage; that is, the alleged facts did not come to light after the entry of the consent decree of March 8, 1945.

 The order on mandate was signed December 10, 1946, and pursuant to a provision thereof, on December 18, 1946, a matter appeared upon the calendar of Judge Kennedy holding the Motion Term, entitled 'Hearing on petition to vacate decree of foreclosure'. The Petition bears this endorsement: 'Respectfully referred to Judge Byers. Dated December 18, 1946. Harold M. Kennedy, U.S.D.J.', which was appropriate since the consent decree was signed, and the court proceedings in connection therewith were conducted, by him as the Judge holding the Admiralty part in the month of March, 1945.

 This motion was argued and submitted on January 13, 1947, and both sides were given until the 23rd to submit briefs, later extended to February 10th.

 On that day, briefs were filed, and in that of the Hedger Co. the following occurs: ' * * * (it) therefore objects to any disposition thereof (the Petition) in this informal manner upon the ground, among others, that this proceeding does not constitute due process of law', which follows the assertion 'that there is no motion before the Court addressed to the bill of complaint which the Circuit Court of Appeals has directed be treated as a petition in the admiralty action'.

 The duty of complying with the direction of the Circuit Court is a sufficient reason for this Court to act, sua sponte if need be.

 The present inquiry is directed to the sufficiency of the Petition as a pleading, not to the propriety of signing the consent decree, which disposes of any question of the possible disqualification of the Judge, if that had been urged at the argument, which it was not.

 It is alleged, however, that the case should not have been called for trial at all. If, for the moment, the soundness of that contention be conceded by way of argument, it would not affect the present question of law, which requires initial decision in the Court of instance.

 The necessary averments of such a pleading have been discussed in cases, and by text-writers, and are the subject-matter of Rule 60(b) of the Federal Rules, as amended in December, 1946, 28 U.S.C.A.following section 723c.

 In the latter, it is said that relief may be had from a judgment or order for (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b) (10 days); (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; or * * * (6) any other reason justifying relief from the operation of the judgment.

 While the foregoing is not now in effect, it may well be consulted since it embodies the latest informed view as to the requirements of an adequate showing for relief under 'a bill of review' in equity, which is said by the reviewing Court to be the analogue of a libel of review.

 The following have been consulted also on this subject: Restatement -- Judgments, Sec. 121(b); Moore's Federal Practive, Vol. III, Secs. 60.02, 60.04; and Thompson v. Maxwell, 95 U.S. 391; 24 L. Ed. 481, to the effect that a bill of review will not lie where the decree was on consent, in the absence of fraud. That case has been cited with approval in many later decisions, and the only modification of its principles seems to be noticed in the presence of subsequent changes in conditions in a case where a continuing injunction has been granted; in such circumstances, appropriate action will be taken, United States v. Swift & Co., et al., 286 U.S. 106, 52 S. Ct. 460, 76 L. Ed. 999. Manifestly no such condition is pleaded in this Petition. See also, as to the general requirements of such a Petition, The New England, Fed. Cas. No. 10151 (Mr. Justice Story); The Columbia, D.C., 100 F. 890; Hall v. Chisholm et al., 6 Cir., 117 F. 807.

 The inquiry required under the authorities is whether the Petition alleges facts well pleaded which constitute fraud (since newly discovered facts are not relied upon), or errors of law apparent on the fact of the proceedings.

 The Petition will be analyzed for (a) allegations of manifest errors of law, and (b) allegations of fraud on the part of the libelant or its proctors.

 The first 27 Articles have to do with the parties, pending litigation for an accounting in the Supreme Court of New York, and the background of this controversy which arose from a relation of joint-adventure established about July 30, 1932. The next seven Articles recite the incidents of this litigation, and such as are material to this decision will be hereinafter discussed. For the purpose denominated (a) above, the following require consideration:

 Thirty-fifth -- That on the return day of process, February 28, 1945, the Court ex parte (at libelant's request) adjourned the return of process to March 2, 1945, 'for the alleged purpose of fixing an immediate date for the trial * * * although no motion therefor had been noticed * * * '.

 Since the adjournment can scarcely be called an error law, it did not become such because granted ...

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