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March 21, 1951


The opinion of the court was delivered by: KNIGHT

This proceeding seeks equitable relief and is based on a petition and supplementary petition by the defendants for an injunction restraining plaintiff and his attorneys from all proceedings to enforce or collect a judgment on cognovit notes for $ 183,671.82, with interest thereon from the 12th day of December, 1949, at the rate of 1/30 th of 1% per day, taken and entered on the 30th day of December, 1949, in the U.S. District Court for the Northern District of Ohio, Eastern Division, in favor of the plaintiff and against each of the defendants jointly and severally. To avoid confusion, the parties will be referred to as they are designated in the action wherein the judgment was obtained.

On or about the 16th day of January, 1950, the Clerk of this Court received an exemplified copy of a journal entry of the judgment with instructions from the attorneys for the plaintiff to file the same in the Clerk's Office. Defendants first learned that the plaintiff had obtained the judgment on January 20, 1950.

 The original verified petition of defendants for an order to show cause and for a temporary restraining order staying the proceeding to enforce the judgments, verified January 20, 1950, among other things, alleges that there are several defenses to the notes, including fraud and duress. The judgment debtors seek relief in the equity side of this court from the claimed void judgment.

 In the defendant's verified petition, dated October 2, 1950, upon which the order to show cause containing the stay and preliminary injunction was granted October 3, 1950, it is alleged: 'That there exists to the knowledge of your petitioners absolute defenses to the notes in question which are alleged to have been cognovit notes consisting of matters which would invalidate said notes, viz.: duress, practiced upon the corporation and the individual defendants at the time of the execution of said notes, and fraudulent misrepresentations of facts which would likewise invalidate said notes and constitute absolute defenses thereto; that the said notes were obtained from the individual defendants by Manufacturers Trading Corporation, its officers, directors, by misrepresentation of material facts, fraudulent representations made, knowing the same to be false, upon which the individual defendants relied in making the said cognovit notes, and endorsements thereon; that there have been extensions of liability and compromises made by the plaintiff without consent or knowledge of the individual defendants and the corporation defendant, which would release the individual defendants from any and all liability upon said notes; that there have been modifications of the loan agreements between Manufacturers Trading Corporation and its trustee and Rumsey Products, Inc. and Chicago Pneumatic Tool Corporation and other corporations and persons which would invalidate liability and responsibility of the individual defendants; all of which would be subject matters to be determined by this court in a proceeding in which proof would be introduced before the said Court to determine whether or not the judgments obtained as aforesaid against the defendants were in fact and in law void, fraudulent, and tainted with invalidity and illegality as a result of fraud, duress, misrepresentation and fraudulent withholding of matters important to the validity of the said notes and endorsements thereon, and constitutes actual fraud in fact and in law and deceit practiced upon the individual defendants.'

 To the petition several exhibits are attached. In Exhibit B, a letter from defendant Rumsey Products, Inc. to plaintiff Hon. John A. Hadden, dated October 7, 1949, in which receipt is acknowledged of a letter from the plaintiff, dated October 5, 1949, it is stated that plaintiff, among other things, intends:

 '(3) To endeavor to collect all sums owing to you by this Company and the individual guarantors.

 'We have carefully reviewed your letter, and desire to go on record as being opposed to each of the three intended actions you propose to take, and are serving notice upon you as the Trustee of Manufacturers Trading Corporation, that we will, within all legal bounds permitted us by the law governing our type of loan agreement, resist any claims that you may hereafter advance against this Company, in the event that you do take the threatened action referred to in your letter of October 5th., 1949. * * *

 'This letter will also serve as notice to you that Rumsey Products Inc. will assert absolute defences (sic) to the validity and consideration and enforceability of the loan agreement with the Manufacturers Trading Corporation.

 'I have reviewed the views expressed herein and discussed the same with Albert Averbach, John Balch, Theodore C. Bonney, and David M. Hayman, to whom you addressed copies of your letter of October 5th. 1949, as endorsers and guarantors, and I am authorized on behalf of each of them individually, to state that the views herein expressed are concurred in by them, and that each of them will be willing to discuss this matter in person, as such endorser and guarantor, with you, or a representative of your Company, either in Seneca Falls or New York, at any time in the immediate future, and that each of the aforesaid, and the writer, who is also an endorser and guarantor, to whom your original letter was addressed, will resist any attempt to collect upon the guaranty or endorsement agreement for the reasons above stated, and any other defenses that may be available to them on said guaranty or endorsement.'

 In Exhibit C, a letter to the President of Manufacturers Trading Corporation from the defendant Averbach, dated December 2, 1949, it is stated: 'I desire to call your attention to the letter of Rumsey Products, In. dated October 7, 1949 in answer to your letter of October 5, 1949, in which I concurred, expressing therein fully our views on this general subject matter.'

 It is further alleged in the Supplementary Petition verified and filed October 10, 1950, that the law firm of McKeehan, Merrick, Arter & Stewart, stated by plaintiff's counsel to be 'one of the largest and most distinguished law firms in Cleveland', were attorneys for the said John A. Hadden, disinterested trustee, and also for the Manufacturers Trading Corporation and Eliott E. Berkwit; that notwithstanding said notification of the existence of such absolute defenses, the said firm of McKeehan, Merrick, Arter & Stewart did, on the 30th day of December, 1949, cause and permit a member of said law firm, to wit, George P. Bickford, to file an answer as attorney for the defendants consenting to the entry of the judgment requested in the petition for judgment filed on behalf of the plaintiff by the said law firm.

 It is also alleged in the petition and admitted by the plaintiff that George P. Bickford, the attorney who made, verified and filed the answer pursuant to the warrants of attorney annexed to the cognovit promissory notes, by which he waived the issuance and service of process and confessed judgment against all of the defendants in favor of the plaintiff for the amount hereinbefore stated, with costs, and released all errors and waived all rights of appeal, stay of execution and right of appraisal of real estate and personal property on behalf of the defendants and each thereof, was a member of the firm of attorneys representing the plaintiff John A. Hadden, disinterested trustee.

 An order to show cause was returnable in this Court on the 30th day of January, 1950, and was adjourned from time to time. On October 3, 1950, an order to show cause was granted returnable October 10, 1950. Exhibit A attached to petition filed October 3, 1950, which is a letter from Saperston, McNaughtan & Saperston, counsellors at law, to Averbach & Bonney, attorneys (defendants), undated, states: 'We wish to inform you that we have been retained by the Trustee of Manufacturers Trading Corporation to represent them in connection with the entry of the judgment and the collection of the judgment. We will be prepared to appear in Federal Court on October 10th.'

 On the return day of the order to show cause, October 10, 1950, Howard T. Saperston, Esq. appeared for the plaintiff judgment-creditor, and Averbach & Bonney, Esqs., defendants, appeared for the defendants. At the opening of his remarks, Mr. Saperston stated 'If the Court please, we appear specially for ...

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