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Dickinson v. Burnham

decided.: June 24, 1952.


Author: Clark

Before CHASE, MARIS and CLARK, Circuit Judges.

CLARK, Circuit Judge.

The lengthy litigation which should be brought to final termination by the disposition of this appeal began in 1938 with an action brought by the plaintiff in the district court below to impress an equitable lien upon certain stock of Petroleum Conversion Corporation. The defendants then named were Arthur W. Rinke and others constituting a Stockholders' Committee of the corporation; the stock itself stood in the name of defendant Fred B. Lloyd. In 1942 the district court dismissed the complaint, but, on appeal, this court reversed and remanded the action for a new trial. Dickinson v. Rinke, 2 Cir., 132 F.2d 805. It also reversed an order (made after the appeal had been taken) holding certain persons in contempt for removing the stock from the jurisdiction. Dickinson v. Rinke, 2 Cir., 132 F.2d 884. Following remand, the Petroleum Conversion Corporation and E. Lewis Burnham and James A. Vaughan - the latter two suing on behalf of themselves and a class they assumed to represent - intervened. Both interests sought the cancellation of the stock on the basis of fraud in its issuance and, as well, the recovery from Dickinson and Lloyd of $87,310.28 secret profits fraudulently realized some fifteen years previously from a fund established by a number of Petroleum stockholders to aid the corporation in its then financial difficulties. After trial to the court and on October 17, 1946, the district court dismissed the claims of plaintiff Dickinson and defendant-intervener Petroleum Conversion Corporation and, after amending certain findings of fact increasing the amount subject to claim to $176,245.24, entered an interlocutory decree in favor of the class interveners against Dickinson and the estate of Lloyd, then deceased.

This decision settled against them the factual issues as to the conduct of Dickinson and Lloyd. The court, however, deferred final judgment pending notice and opportunity to other members of the class to intervene and share in the judgment. Thereupon some eighty-three motions to intervene were made and granted, of which thirteen subsequently were withdrawn. The court denied the plaintiff's claim, then made for a trial by jury, as well as his request for the taking of depositions as to the new claims and his motion to dismiss the counterclaim for lack of an indispensable party. After hearing the claims of the two original and seventy additional interveners, the court, over vigorous procedural objections by Dickinson, entered final judgment in their favor for $408,949.57, being $176,245.24, plus interest.*fn1

Plaintiff Dickinson, defendant Public Administrator of New York County (acting as administrator of Lloyd's estate), and defendant-intervener Petroleum Conversion Corporation thereupon appealed. Plaintiff's motion to dismiss the Petroleum appeal, denied by this court, Dickinson v. Mulligan, 2 Cir., 173 F.2d 738, was ordered reversed by the Supreme Court, Dickinson v. Petroleum Conversion Corp. 338 U.S. 507, 70 S. Ct. 322, 94 L. Ed. 299. Hence only Dickinson, the Lloyd estate, and the class of interveners have any interest in the case as it comes before us. While the interest of the Lloyd estate is before us on the appeal taken by the Public Administrator (formerly James F. Egan, now Francis J. Mulligan), he has not filed a brief or participated in the argument, but has left this burden to Dickinson.

Dickinson's appeal raises important questions both substantive and procedural. As to the merits of the counterclaim, he has taken issue with a series of the findings by the district court and proffers, instead, an exculpatorily innocent interpretation of the events, skillfully woven from the documentary and uncontrovered evidence, on which he bases a claim of error in the findings. We are unable, however, to find grounds for holding these findings "clearly erroneous" under F.R. 52(a), 28 U.S.C.A.

The relevant facts as stated by the district court are as follows: Knox Process Corporation, the predecessor of Petroleum Conversion Corporation, was organized under the laws of Delaware in 1923 with an authorized capital stock of $3,000,000. It was designed to exploit certain petroleum cracking patents then in the experimental stage and to this end it purchased two parcels of land of about 143 acres in Texas City, Texas, in December, 1923. Shortly thereafter construction was begun on a cracking plant which was completed the following year. The land, the plant - which in fact never proved commercially successful - and the patents were the sole assets of the corporation in the beginning of 1925.

By February, 1925, however, a number of mechanics' liens had been filed against the plant. In order to acquire these liens and free the plant, a capital-raising device was needed which could be kept separate from the corporation. The device finally agreed upon was the "Arthur W. Rinke Agency," organized in the latter half of 1924 and ratified by a resolution of the Knox Board, February 26, 1925. Though Rinke, an attorney interested in the affairs of the corporation, acted as administrator of the Agency fund, its guiding spirit was actually Fred B. Lloyd, a Knox officer.

The Rinke Agency began immediately to solicit subscriptions among the Knox stockholders. The first three of its campaigns were carried on under agreements with the subscribers wherein it was stated that the purpose of the Agency was to acquire the liens on the Texas City plant; the last two series of agreements authorized Rinke to apply the funds to the acquisition of any property of Knox Process - which had meanwhile been reorganized in 1926 as the Petroleum Conversion Corporation, also a Delaware company. The subscribers were promised repayment in the form of shares of Knox, later and after it was reorganized Petroleum Conversion, in an amount of a par value equivalent to their subscriptions.

By November, 1926, some $600,000 had been collected from interested investors fearful that the venture would lose its most important asset, the plant. Though Rinke has never been able to account for all the funds, it appears certain that about a third were paid directly to Lloyd and Dickinson. Sometime prior to the reorganization of Knox in 1926 the latter had decided to exploit the lien threat to their own advantage through the Rinke Agency. The plan was simple enough: Dickinson was to purchase the plant at the lien foreclosure sale for one-half the face amount of the liens, $87,310.28, and resell it for the full amount of $174,620.56.

Hence in December, 1925, when the lien creditors secured a judgment in their favor and an order of sale of the plant and its fifty acres of land, Lloyd submitted a bid of $87,310.28, plus 18,000 shares of Knox stock at $5 par, or $90,000 par value, on behalf of Dickinson. And when the latter paid the stated price in cash - apparently the stock was never issued or received by the lien creditors - he received the deed to the plant from the master. Needless to say, ownerership of this strategic property put Dickinson in a commanding position; and so the Rinke Agency, under Lloyd's aegis, proceeded to reimburse him. Between January 25 and September 7, 1926, he received the first $87,310.28, plus interest, and, from September 14 to December 10, 1926, a similar amount, which he divided with Lloyd. Neither the fund subscribers nor the corporation's officers were aware of these disbursements until 1938.

Rinke, meanwhile in early 1926, had also been appointed agent for the knox Bondholders Protective Committee and acquired the remaining 93 acres of real estate and the patent rights that comprised the rest of the Knox Corporation assets. On December 7, following the formal organization of Petroleum Conversion, Lloyd, now acting on behalf of the corporation, offered to purchase the patents and land held by Rinke for $590,000 shares of Petroleum stock, $5 par.He concurrently offered Dickinson 609,600 shares in exchange for the cracking plant and fifty acres of land.Dickinson had continued to hold the deed in spite of the disbursements from the Rinke Agency fund to him and thus was able to consummate the transaction. Lloyd, however, continued to hold 140,000 shares, as well as the stock designed for the Rinke Agency under the offer to the latter, until he disappeared in 1936.

The district court held Dickinson liable to the Rinke Agency subscribers for the full amount of the payments received by him therefrom. It also held the Lloyd estate jointly and severally liable with Dickinson, a judgment practically collectible only from the latter. Plaintiff objects strenuously, however, that this conclusion is against the weight of the evidence. Though tacitly accepting the facts that the subscribers were informed that the fund was to be used to acquire either the liens or the Knox assets, that instead it was used to pay him, that the subscribers did not concurrently receive the stock to which they were entitled, and that he nonetheless continued to hold the plant until the Petroleum stock-exchange offer, he nevertheless contends that the transaction was carried on in a way entirely fair to those who subscribed to the Agency. For this proposition he cites the financial experience of those who claimed to have been duped and the failure of the alleged conspirators to cover their tracks by destroying checks and records. He contends that the subscribers had notice of his purchase of the plant. And finally he argues that the transaction was equitable in that he profited solely for risking his capital at a time when the Knox investors were unable to do so, and hence that the subscribers somehow received their due under the agreements.

These assertions are insufficient to overturn the district court's findings. Especially in litigation where the issues are singularly complex and the evidence adduced unusually voluminous ought the determinations of the trial court serve as direction and guidance for appellate review. As a matter of fact there seems little of substance, aside from what Dickinson says as to his own contemporary state of mind and the claimed equity of the transaction to all concerned, that points at all to a contrary interpretation of the facts. That dickinson and Lloyd conspired to secure the plant for themselves, that they thereafter paid themselves from the fund, that its subscribers were without notice of this payment and in fact had subscribed under agreements specifying other uses to which their money was to be put, and that they received no benefit, seems quite certain from all the evidence. Under the now firmly established interpretation of the "clearly erroneous" rule of F.R. 52(a), we are clear that the findings on the merits must be ...

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