to that effect will be drawn and entered when settled. Same will be settled before me on five days' notice, and each party will submit to the other a proposed order.


(Circuit Court, W. D. Kentucky. July 20, 1903.)


While the capital stock and property of a corporation are regarded as a trust fund for the payment of its debts, they are not a trust fund for the payment of stockholders on dissolution.


Under Gen. St. Ky. § 561, authorizing a corporation, on termination of its charter by lapse of time, to continue its business for the purpose of closing its affairs, the fact that a corporation, just prior to the termination of its corporate existence, for the purpose of liquidation, passed a resolution appointing a certain trust company as a liquidator, and providing for the sale of the corporation's property and assets, in the absence of fraud, did not constitute a ground for the appointment of a receiver at the instance of a dissenting minority stockholder.


Where, in an action by a stockholder in the state court against the corporation, the only relief which could have been granted on the case made by the complaint was an order requiring an inspection of the corporation's books, and after the institution of such action another suit was instituted in the federal court by a creditor of the corporation, alleging its insolvency, and in such action a receiver of the corporation was appointed, who rightfully acquired possession of the corporation's property before a receiver had been appointed by the state court in the stockholder's action, the federal court, having first acquired jurisdiction of the res, would not surrender the property to the receiver appointed in the state court, for distribution.

Humphrey, Burnett & Humphrey, for complainant.
Helm, Bruce & Helm, for defendants.

Dodd & Dodd and Kohn, Baird & Spindle, for petitioner Louisville Trust Company, receiver.

EVANS, District Judge. The Evening Post Company, a corporation, was organized under the provisions of chapter 56 of the General Statutes of Kentucky on the 1st day of May, 1878. By its articles of incorporation it was to continue in existence for a period of 25 years, namely, until May 1, 1903. The complainant, a citizen of Missouri, holding the past-due notes of the company for $6,000, brought a suit at law against it in this court for the recovery of a judgment thereon. The company having confessed the indebtedness and its nonpayment, judgment was rendered accordingly, and soon afterwards an execution of fieri facias which issued thereon was returned nulla bona. This action in equity, in the nature of a cred

13. Conflict of Jurisdiction between federal and state courts, see note to Louisville Trust Co. v. City of Cincinnati, 22 C. C. A. 356.

See Courts, vol. 13, Cent. Dig. § 1407.

itors' bill, was instituted on May 27, 1903; and on the following day, upon the motion of the complainant and by the consent of the defendants, Lewis C. Humphrey was appointed the court's receiver, and was directed, as such, to take possession of all the property of the Evening Post Company, which was accordingly done by him on that day. That property, before the issual of the execution, had been placed in the hands of the defendant the Columbia Finance & Trust Company, as liquidator, under a plan for winding up the affairs of the Evening Post Company, adopted on April 30, 1903, by the almost unanimous vote of its stockholders at a meeting held for that purpose. On the 28th day of June, 1903, the cause was referred to the master, to advertise for, ascertain, and report to the court the debts proved against the company. On the 6th day of July, 1903, the master made a partial report, showing the names of the creditors who up to that time had proved their claims, and the amounts of the latter, which aggregated $119,163.51. The gross indebtedness, when all the claims. shall be proved, will probably increase that aggregate to $120,000

or over.

At this stage of the proceedings in this court, the Louisville Trust Company, alleging itself to be the receiver of the Evening Post Company, appointed by the judgment of the Jefferson circuit court, chancery branch, First Division, rendered June 27, 1903, in the action therein pending of Bruce Haldeman and others, executors of the will of W. N. Haldeman, deceased, against the Evening Post Company and others, presented, and was given leave by the court to file, its intervening petition herein; and, having filed it, the said trust company thereupon moved this court for an order directing its receiver, Lewis C. Humphrey, to turn over to the state court receiver all the property of the Evening Post Company in his hands, and based this motion upon the ground, stated generally, that the state court, in the proceedings therein pending, had first acquired jurisdiction over the assets and property of the Evening Post Company, and the consequent right to adjudicate all questions relating to its administration and distribution among the parties entitled to share therein. The application thus made raises the question of which of two courts of concurrent power shall control the administration and distribution of the assets of the Evening Post Company. Such conflicts are always somewhat embarrassing, not, perhaps, because either court is at all tenacious of its rights, or especially anxious to perform the labors required, but rather because litigants become embittered, or imagine that one court will take a view of the law more favorable to one than to the other of the parties in interest. The courts themselves, with the fullest respect for each other, and with a natural tendency to abdicate rather than to seize upon burdens, must consider merely what are the rights of the court and the litigants under the established principles of law applicable to such cases. With nothing but the highest respect for the state court in this instance, coupled with the fullest determination to yield to it everything that established principles of law demand, Í enter upon the consideration of the very interesting, though perhaps not novel, ques

tions involved.

Accompanying the intervening petition of the Louisville Trust Company, the receiver appointed by the state court, is a transcript of the record in the case of Haldeman's executors against the Evening Post Company, the Columbia Finance & Trust Company, trustee of the Evening Post Company, Richard W. Knott, J. M. Atherton, John R. Knott, Eugene Q. Knott, and Laura G. Boyle, defendants, the last five of whom are called in the petition "individual defendants." This suit in the state court was commenced on May 12, 1903. The petition therein is too long to be copied in full in an opinion, but in substance it avers the following facts, and nothing more, namely, that in June, 1898, their testator, W. N. Haldeman, acquired 48 shares of the capital stock of the Evening Post Company, which at his death came to their hands as part of the assets of his estate; that the capital stock of that company-$60,000-was divided into 600 shares, of $100 each, which were claimed to be owned by certain of the defendants, as follows, namely, Richard W. Knott, 427 shares; J. M. Atherton, 65 shares; Laura G. Boyle, 50 shares; John R. Knott, 5 shares; and Eugene Q. Knott, 5 shares-besides the 48 shares owned by the plaintiffs; that under its charter the corporate existence of the company expired May 1, 1903; that the individual stockholders named, other than the plaintiffs, had for years. been the officers and directors of the company, and had operated it as their own private property, without any meeting of the stockholders or election of directors; that being informed about April 25, 1903, that the charter of the company was about to expire by its own terms, the plaintiffs repeatedly demanded, both verbally and in writing, the right, as stockholders, to examine and inspect the books and affairs of the company, but that they were always absolutely and positively refused the right and opportunity to do so; that they demanded repeatedly, and were as often refused, a statement of the assets and liabilities of the company, and full data respecting the same; that a meeting of the stockholders was called by the defendant for April 30, 1903, which they attended, and that over their protest the stockholders adopted a resolution in the following language:

"Whereas, the charter of the Evening Post Company will expire on the first day of May, 1903; and, whereas, it has become necessary to have all the assets of every character of the company sold for the purpose of paying its debts and distributing the surplus, if any, among the stockholders; and, whereas, it is impossible to properly advertise and sell said property by the 1st of May next; therefore, be it resolved: First. That the Columbia Finance & Trust Company be, and it is hereby, appointed liquidator of the affairs of the corporation, with directions to operate for the use of the stockholders the affairs and business of said corporation as they have been operated until the property can be properly advertised and sold, and the possession thereof delivered to the purchaser. Second. That prior to the said sale the liquidator shall cause to be made for the use of the stockholders a comprehensive statement of the assets and liabilities of the corporation, and furnish said stockholders with a copy of said statement. Third. That the said liquidator shall, in its advertisement, specify the nature of the articles to be sold, and shall make such sale for cash, to be paid on the delivery of possession, and shall require of the purchaser that he deposit a certified check for an amount equal to one-third of the total purchase price, which the liquidator shall hold and credit upon the purchase price when the sale is consummated, or, if for any reason it shall be set aside, returu to the bidder. If the said bidder to whom the property is knocked down shall fail at once to deliver to the liquidator the

certified check as herein provided, the liquidator shall immediately resell the property, and refuse to receive bids from said former bidder. Fourth. Said liquidator may, in his discretion, employ an auctioneer or other agent necessary or proper to be used in the sale of the property. Fifth. Until said sale, and during the operation of said property, said liquidator is given full authority and permission to employ such agents and persons as may be necessary to properly, conveniently, and economically operate the property, and keep an account of all its expenses, and take vouchers therefor. And after the property has been fully administered it shall make out a comprehensive account of its acts and doings, and shall furnish a copy thereof to each of the stockholders. Sixth. The said liquidator shall from the proceeds of the sale of the property pay all debts of the corporation, and the balance, if any, shall be distributed among the stockholders according to their legal rights."

The petition further alleged that on April 30, 1903, the said liquidator qualified as such; that the plaintiffs renewed their demands to it, and that it also has denied and refused to grant any of them; that they do not know and are not advised as to any indebtedness of the company, nor how it was created or secured, nor are they advised of the assets of the company; that they can only obtain such information from the books of the company, which are under the control of the individual defendants, who positively refuse to allow the plaintiffs any access thereto or any statement of their contents; that they are informed and believe that the defendants are still conducting and operating the business of the company, and at great loss and expense; that they have the right to inspect at reasonable times the books and affairs of the company, and to ascertain its financial condition, and that they are wrongfully denied that right by the defendants, who also refuse to give them any statement of the financial condition of the company, or of its assets and liabilities; that the liquidator is advertising and calling upon all the creditors to present their claims, properly proved, by June 1, 1903; that they are advised that the individual defendants have taken over to their own use and are now using all of the property and good will of the company; that in law and in equity and in good conscience they are entitled to an inspection of the books and affairs of the company, but, though often demanding it, they are always refused; that the assets of the company are, or should, in right and law and equity, be of the value of $60,000, at least, and that the maximum liabilities under the charter should not be over two-thirds of that sum, or $40,000; that they do not know and cannot state what either the assets or the liabilities of the company are, other than the capital stock; that, notwithstanding the charter fixed the maximum limit of indebtedness of the company at $40,000, yet the total indebtedness exceeds $109,000, and that the individual defendants constitute all, or nearly all, of the creditors of the company; that the books of the company show, or should show, the extent, character, and origin of the indebtedness, and the nature of the transactions out of which they grew, and that without an inspection of the books and papers of the company they cannot ascertain the facts, nor whether the debts are valid and binding obligations of the company, and that notwithstanding the individual defendants are managing the affairs of the company, and have the custody of its books and papers, they refuse plaintiffs all access to them, and all information from them, and

all right and opportunity to inspect them; that to the end that the affairs of the company may be wound up and liquidated, and that they may be fairly dealt with according to law, an inspection of the books is necessary; that proper information to this end cannot be derived from a mere copy of the books and papers, nor from the conclusions and statements of an accountant or bookkeeper; that the individual defendants claim to be all the creditors of the company, and the complainants know of no one else who claims to be a creditor thereof, and they are all called upon to set up and prove their demands, to the end that the affairs of said company may be liquidated and settled in that suit; that it is impracticable and impossible to have a fair, just and proper accounting and settlement of the business and affairs of the Evening Post Company, except in that suit, and that, in view of the persistent conduct of the defendants therein, the plaintiffs will not and cannot be informed or advised of the assets and liabilities of the company until the defendants are compelled to furnish such information, and to allow the plaintiffs to inspect and examine the books, accounts, and affairs of the company; that the individual defendants are claiming and insisting that there is a great value attached to the good will, name, and the operative plant of the Evening Post Company, including the telegraphic and other correspondence facilities built up, acquired, and established by it, which would be endangered and probably lost if the publication of said newspaper by it were abandoned, and that, in order to preserve it and to get the benefit of it, the defendants' claim that the newspaper should be operated pending the closing up and liquidation thereof, to the end that its good will, name, and facilities aforesaid may be sold to the best advantage, but the plaintiffs state that they are not informed and have no means of knowing as to what the value of the good will, name, and facilities aforesaid are, nor as to whether there is any value thereto, and that they cannot have or form an opinion touching the same without a full and free inspection of the papers, documents, books, and accounts of the Evening Post Company. The prayer of the petition is in this language:

"Wherefore, the premises considered, the plaintiffs pray for a settlement of the accounts of the Evening Post Company, and of the Columbia Finance & Trust Company as liquidator thereof, herein, and that this cause be referred to the commissioner of this court to audit, state, and settle the accounts of the Columbia Finance & Trust Company as trustee or liquidator of the affairs and business of the said Evening Post Company; that a full, true, and correct accounting of the business and affairs of the said Evening Post Company, and of the liabilities against the same, be ascertained and reported, and the assets sold and disposed of, and distributed amongst the parties thereto according to their respective interests. Plaintiffs further pray that pending this action, and until the final liquidation of the affairs of the Evening Post Company, and the sale of its plant and assets, that the court herein determine as to whether or not the affairs of the said Evening Post Company should be continued in operation, and, if so, that the operation of the said plant be conducted under and subject to the orders of the court herein. And the plaintiffs further pray that a mandatory preliminary order be entered herein, commanding and directing the defendants, and each of them, to allow the plaintiffs reasonable access to, and an examination of, the books, papers, documents, and affairs of the said Evening Post Company, including all documentary information in connection therewith which is in the possession of the defendants, or any of them. And the plaintiffs further pray for their costs herein expended, and for all such proper and equitable relief as the nature of the case may demand."

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