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Alpha Farms and Romelia J. Sawdey, as executrix, etc., of O. Gilbert Sawdey, alleges that Alpha Farms is a domestic corporation of the state of New York, and that during August, 1906, and for a long time prior thereto, had had dealings and business transactions with Frederick H. Tuting, and had sold and delivered to him milk and cream, and that August 31, 1906, said Tuting was owing said Alpha Farms therefor the sum of $2,700; that said Tuting was then owing other creditors various debts aggregating about $8,000, and that said debts remain wholly unpaid, and have been proved in the bankruptcy proceedings hereafter referred to; that between the 1st and 14th days of September, 1906, said Tuting paid over in cash and checks said $2,700 to the agent and manager of said Alpha Farms; that the said money and checks were deposited in the First National Bank of Earlville, N. Y., in the account of O. Gilbert Sawdey, in which said personal account of said Sawdey all deposits of the defendant Alpha Farms were made, and that the account of said Alpha Farms and O. Gilbert Sawdey were thereby unlawfully increased in the sum of $2,700. The death of Sawdey and the proof of his will and the appointment and qualification of his executrix are duly alleged.

The complaint further alleges that at the time of such payments by said Tuting he was insolvent within the true intent and meaning of the bankruptcy act, and that said Alpha Farms had at the time. reasonable cause to believe that Tuting was insolvent, and that said payments were intended to and did create a preference in favor of the defendant Alpha Farms, and that the effect of such payments and transfer of money and checks was to secure said Alpha Farms a greater percentage of its debt than that of any other creditor of the same class. The complaint also alleges a demand by the trustee in bankruptcy for said $2,700. The complaint further alleges that September 13, 1906, an involuntary petition in bankruptcy was filed in this district against said Tuting, who thereafter filed a voluntary petition, and that October 22, 1906, said Frederick H. Tuting was duly adjudicated a bankrupt; also, that thereafter, and on the 3d day of December, 1906, the plaintiff, Harold H. Bowman, was duly elected and qualified as trustee of the estate in bankruptcy of said Tuting, and that he entered upon the discharge of his duties as such and now is such trustee.

The defendants demur to this complaint on the ground that this court, the United States District Court of the Northern District of New York, has no jurisdiction of the subject of the action. These transactions occurred subsequent to the amendments of the bankruptcy act, approved February 5, 1903, and the question involved s: Has the United States District Court jurisdiction of an action. brought by the trustee of the estate of the bankrupt to recover a preference paid and given since the amendment referred to?

Subdivision "b" of section 60, as amended, provides as follows:

b) If a bankrupt shall have given a preference, and the person receiving it, or to be benefited thereby, or his agent acting therein, shall have had reasonable fase to believe that it was intended thereby to give a preference, it shall be voidable by the trustee, and he may recover the property or its value from such person. And, for the purpose of such recovery, any court of bankruptcy,

as hereinbefore defined, and any State court which would have had jurisdic tion if bankruptcy had not intervened, shall have concurrent jurisdiction."

It will be noted that the words, "and, for the purpose of such recov ery, any court of bankruptcy, as hereinbefore defined, and any State) court which would have had jurisdiction if bankruptcy had not intervened, shall have concurrent jurisdiction," were added to the subdivision of section 60 by the amendatory act of 1903. This amendment expressly confers jurisdiction upon the court of bankruptcy of an action to recover a preference, unless there is something somewhere in the act which limits the jurisdiction thus conferred. Act July 1, 1898, c. 541, 30 Stat. 562 [U. S. Comp. St. 1901, p. 3445].

Section 23 of the same act reads as follows:

"Sec. 23. Jurisdiction of United States and State Courts.-The United States Circuit Courts shall have jurisdiction of all controversies at law and in equity, as distinguished from proceedings in bankruptcy, between trustees as such and adverse claimants concerning the property acquired or claimed by the trustees, in the same manner and to the same extent only as though bankruptcy proceedings had not been instituted and such controversies had been between the bankrupts and such adverse claimants.

"(b) Suits by the trustee shall only be brought or prosecuted in the courts where the bankrupt, whose estate is being administered by such trustee, might have brought or prosecuted them if proceedings in bankruptcy had not been instituted, unless by consent of the proposed defendant, except suits for the recovery of property under section sixty, subdivision 'b,' and section sixtyseven, subdivision 'e.'

"(c) The United States Circuit Courts shall have concurrent jurisdiction with the courts of bankruptcy, within their respective territorial limits, of the offenses enumerated in this act."

By subdivision "b" of section 23 certain actions cannot be brought in the courts of the United States unless by the consent of the proposed defendant. But by the amendment of 1903 to the act and to this section and above referred to, suits for the recovery of property or preferences under subdivision "b" of section 60, and just referred to, are specifically excepted, and hence an action to recover a preference brought under section 60 may be brought and maintained in the court of bankruptcy, the District Court, without the consent of the proposed defendant.

The cases decided prior to the amendment and the decided cases relating to causes of action which arose prior to the amendment have no application. In Gregory v. Atkinson (D. C.) 127 Fed. 183, Judge Adams held that by the amendment Congress conferred jurisdiction on the District Court without the consent of the proposed defendan in cases for the recovery of preferential payments mentioned in sec tion 60, subd. "b," and to set aside fraudulent conveyances mentione in section 67, subd. "e," provided the payments or conveyances wer made within the four months prior to the filing of the petition. H says, "In all other cases I think the law is left as it was prior to th amendatory act." In Parker v. Black (D. C.) 143 Fed. 560, Judg Hazel held that the District Court had jurisdiction since the amendmen of an action to recover a voidable preference. I think these cases we decided, and that the District Court now has jurisdiction. As th District Court is a court of equity, the action may be brought eithe at law or in equity as the facts justify. This demurrer does not rais

where

the question whether the facts here alleged constitute an action at law. That question will not be considered. The money seems to be, under the allegations of the complaint, in the bank account of O. G. Sawdey, all the moneys of Alpha Farms were kept. The action is not brought to reach the specific fund. The action is not brought for an accounting. There is no allegation that the estate of Sawdey claims the money, or that it has appropriated it to its own use. The executrix may be a proper party, but, without deciding the question, I hardly see how judgment can go against the estate on the ground that it acts as custodian of the fund. These are matters that will come up later. As stated, I think this court has jurisdiction of the action, and for that reason the demurrer must be overruled.

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L CORPORATIONS OFFICERS MISAPPROPRIATION OF FUNDS.

Where defendant, an officer and director of a corporation, absolutely dominated its board of directors and induced such board to authorize the purchase of worthless bonds of other corporations in which he was interested, by which he was enabled to make a large individual profit, he was liable to account to the corporation's receiver for the profit so made. [Ed. Note.-For cases in point, see Cent. Dig. vol. 12, Corporations, §§ 1393-1415.]

2 EQUITY-ACCOUNTING-APPOINTMENT OF MASTER-DISCRETION.

In a suit by the receiver of a corporation for an accounting of profits wrongfully made by defendant, an officer and director, by the wrongful use of the corporation's funds, the court, after determining defendant's liability, was not bound to appoint a master to take an account, but could do so or not, in its discretion.

[Ed. Note. For cases in point, see Cent. Dig. vol. 19, Equity, § 866.]

W. B. Bodine, Jr., and F. B. Bracken, for complainant
Herbert H. Ward and George L. Crawford, for defendant.

J. B. MCPHERSON, District Judge. This bill in equity is brought by the receiver of the Bay State Gas Company, a corporation organized der the laws of the state of Delaware, against John Edward Addicks, to compel him to pay over certain profits which he is alleged to have made improperly by using the corporation assets for his individual purposes. The bill, as originally filed, sought to recover profits made in five groups of transactions that were averred to be Legal, but upon final hearing the complainant confined himself to the ne group that is about to be described. From the admissions conained in the pleadings and in the briefs of counsel, and from the evidence laid before the court, I find the facts to be as follows:

(1) On April 24, 1889, the defendant caused to be chartered under the laws of the state of Delaware a corporation named the Peninsular Investment Company; this name being afterwards changed to the Bay State Gas Company (hereinafter called the Delaware Com

pany). The authorized capital was originally $100,000-the shares being $50 each-which was subsequently increased to $1,000,000,000. Of this amount, shares aggregating a par value of $250,000,000 were issued from time to time, purporting to be full paid and nonassessable. How much cash was paid for these shares does not appear in the evi dence. The charter authorized the company to begin business after 100 shares had been subscribed and $2,500 had been paid thereon. From its organization to December 4, 1901, except during the period from November 25, 1896, to September 24, 1897-when he was vice president and a director-the defendant was continuously the president, and also a director, of the corporation.

(2) On February 15, 1893, Henry D. Kirkover, Philo D. Beard, and Henry Altman organized the Queen City Gaslight Company (hereinafter called the Gas Company)-with a capital stock of $50,000, being 500 shares at a par value of $100-for the purpose of manufacturing and distributing artificial gas in Buffalo, N. Y. They laid a few pipes to hold their franchises, but for several years did no business and had no plant. As will hereafter appear, the plant was not built and ready for operation until the end of the year 1897.

(3) Meanwhile it became necessary to look about for capital, and to devise some scheme out of which the promoters might hope to reap a profit; and accordingly, as the first step in this direction, Kirkover and Beard, having acquired Altman's interest, agreed with the defendant to transfer the stock of the Gas Company to a construction company to be formed by him to construct a plant for the Gas Company; and in return for this transfer they were to receive a onefifth interest in the construction company. At or about this time E Stein-who had brought the defendant and Beard and Kirkover together and Silas W. Pettit became associated in the enterprise.

(4) The defendant, on December 27, 1894, or thereabouts, caused the Queen City Construction Company (hereinafter called the Construction Company) to be formed as a limited partnership under the laws of Pennsylvania, with a capital stock of $300,000; the stock having a par value of $100. One share was issued to him for $100 in cash, one share to E. Stein. for $100 in cash, and 2,998 full-pai shares, of the par value of $299,800, to W. Harry Miller for 450 shares of the stock of the Gas Company, leaving 50 shares of the Gas Company in the hands of Kirkover and Beard. The managers o the Construction Company were the defendant, Stein, and Miller; th defendant being chairman, and Miller being secretary and treasurer Miller never had any real financial interest in the company, but mere ly allowed the defendant to use his name. He was the secretary of th Delaware Company from March, 1890, to December, 1896; its treas urer from November, 1895, to the time when the receiver was ap pointed; and a director from February, 1895, to November, 1895, an afterwards from October, 1900, to the date of the receivership.

(5) In accordance with the agreement concerning the distributio of the Construction Company's stock, Miller transferred 600 share or one-fifth of the total number, to Silas W. Pettit on December 21 1894. On the same day, or soon afterwards, Pettit transferred 15 shares to Kirkover, 150 shares to Beard, and 250 shares to Lewis M

Mintess, a clerk in the interest of the persons whom Pettit represented, namely, Pettit himself and Stein. When Kirkover and Beard received their shares in the Construction Company, they transferred the remaining 50 shares of the Gas Company's stock to the Construction Company, thus making the Construction Company the sole owner of the Gas Company's stock and making their interests identical. The corporate organizations continued to be separately maintained, but this was a mere formality, the Gas Company being absolutely owned by the Construction Company, and the Construction Company being completely owned and controlled by the defendant.

(6) There was some agreement, probably in 1896, before the month of July-but the date and details of it are not clearly proved, the written contract having apparently been lost-that the Construction Company should build a small plant for the Gas Company, in order to comply with the requirement of the latter company's franchise; and perhaps, also, that a larger plant should be afterwards built. For one or both of these reasons it was necessary to raise money, and, as neither the Gas Company nor the Construction Company had more than a small sum, if any sum at all, in its treasury, the defendant in the year 1896, from July or August to December, caused the Delaware Company, at various times, to lend the Construction Company, at 4 per cent., without security, sums of money aggregating $110,000. Out of this money the Construction Company built a small plant for the Gas Company, which was finished about December 1, 1897. As hereinafter stated, this loan of $110,000 was afterwards fully repaid to the Delaware Company by the Construction Company. Some other money was probably borrowed elsewhere by the Construction Company for the same purposes, but the amount does not satisfactorily appear. It is safe to say, I think, that at the most no more than $180,000 was ever invested in the Gas Company's affairs.

Between September 11, 1897, and November 15, 1897, the defendant caused the Delaware Company to agree to buy at par from the Gas Company $1,000,000 of its 5 per cent. bonds, to be afterwards issted. On September 11, 1897, the purchase of $250,000 of these bonds was authorized, and on September 13, 1897, the Delaware Company drew a check for $250,000 in favor of Beard, who was then the treasurer of the Gas Company. He indorsed the check, and at the defendant's request it was deposited by Miller, the treasurer of the Construction Company, in the bank account of the latter company. On September 18th the purchase of another $250,000 of these bonds was authorized, and on the same day three checks, aggregating $250,000, were drawn by the Delaware Company to Beard's order, as treasurer of the Gas Company, which were indorsed by him and deposited by the defendant in the bank account of the Construction Company. On November 15th the purchase of $500,000 more of these bonds was authorized, and on the same day the Delaware Company drew a draft in favor of Beard, as treasurer of the Gas Company, on Brown, Riley & Co., who were brokers in Boston, and as such brokers had sold large quantities of the Delaware Company's stock, and had in their hands that amount of money belonging to the Delaware Company. Upon receipt

153 F.-25

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