U.S. Supreme Court HARKIN v. BRUNDAGE, 276 U.S. 36 (1928)

[Page 276 U.S. 36, 46]

There were two parties among the stockholders in the Boone Mills Corporation. Gumbinski and his associates had been ousted in November, 1924, because of charges made public against them of concealment and defalcation and mismanagement. It became a subject of newspaper comment and of great publicity because of the large number of stockholders and the wide distribution of the shares. Byfield and Solomon, who, as already said, had been made in November, 1924, president and vice president, controlled the majority of the stock. Hurwitz as a stockholder, acting for the minority stockholders, filed the stockholder's bill and made the application for receivers to the superior court of Cook county. The application much affected the credit of the corporation, and it was regarded between the stockholders as an important question who should be receiver and by what court he should be appointed.

Mr. Cowan was one of a firm of lawyers that acted for the defendant the Woolen Mills Corporation, and was himself a member of the executive committee of the board of directors of that company. Mr. Byfield admits that he talked with Mr. Cowan some time before and had expressed his opposition to anything but a federal receivership. The application for a receiver in the state court on the stockholder's bill was set for February 16, 1925. When the motion was called on that day, what followed is recited in the record as agreed upon by the parties. We have inserted it in the margin. [Footnote 1]

[Page 276 U.S. 36, 58]

herein prescribed, is not entered in that court and produced in the federal court in a seasonable time, the pending administration in the federal court under the creditor's bill shall continue.

The decrees of the Circuit Court of Appeals and of the District Court are reversed, and the case is remanded to the District Court for further proceedings in conformity with this opinion. Footnotes

Footnote 1 Mr. Gesas: If the court please, this is a bill filed by a stockholder, seeking the appointment of a receiver, for the Boone Woolen Mills, Inc. A notice was served on the company, and Mr. Cowan, who appears here this morning, advises me that the company desires a continuance.

Mr. Cowan: The situation, if the court please, is this, without going into the merits of the bill: Whether or not the bill sets up such

grounds as would warrant this court in entering a receivership. There are certain important matters now coming before the board of directors of this company, which involves some very large amount of finances, and which will be seriously interfered with, if this court undertakes to hear the application for a receivership. I think those negotiations will be concluded within a week, and the rights of the complainant, under this bill, will not be affected in any way at all, by allowing this matter to go over for a matter of a week or ten days. I would prefer not to argue the motion this morning; but, if counsel insists upon it, of course, it will be necessary for me to do it.

Mr. Gesas: I think the first thing the record should disclose is whether or not these gentlemen are appearing here for the company; there is no appearance on file.

The Court: Yes; that is right.

Mr. Gesas: I appear here for the complainant.

Mr. Cowan: I appear for the company, and will file my appearance in due time.

Mr. Gesas: In your individual capacity?

Mr. Cowan: The firm of Barrett & Barrett, with which I am associated.

Mr. Gesas: Now, if the court please, in this matter, without going into the full matters, there has been a considerable fight, as your honor happens to see, from this photographic newspaper, in which it is a fight between the former directors against the present directors and the present directors against the former directors-

The Court: And their compliments were passed back and forth?

Mr. Gesas: Yes, if the court please, and there has been a loss of over $3,000,000 in one year in the operation of this business, which practically has been neglected on account of no action taken by these directors, and if any continuance is granted here at all it must be-well, I think the court has a right to hear this matter; that the issues, if any at all are involved, should be tried by this court, not the newspapers, so that the good will which the stockholders have in this business, and the value of that good will, if there

is any left after this terrible fight, between the old directors and the new directors, should be placed in status quo, and if there is any continuance granted, I think it ought to be done with the understanding that the status will not be changed, and that the issues be not tried in the newspapers, but by this court.

The Court: Yes, but of course, I cannot control the newspapers, you understand.

Mr. Gesas: Your honor can control the status quo.

The Court: Yes, with that understanding; but the suggestion that individuals should not seek publicity, of course-

Mr. Gesas: The situation is this-

Mr. Cowan: Just a minute. Mr. Gesas complains about trying the case in the newspapers; one of the parties, who is charged with fraud in this bill, published half a page of an advertisement, and it was paid for, I assume, by-

Mr. Gesas: Here it is.

Mr. Cowan (continuing): That is something over which we have no control, and which we didn't mail; there has been a $2,000,000 libel suit against the present president of the company, so that I don't think we could be charged with trying our case in the newspapers.

Mr. Gesas: I am not making any direct charge, at this moment, as to either the present directors or the former directors, as to their activities, except to say that both are guilty of seeking this publicity.

Mr. Cowan: Now, the question of publicity-

Mr. Gesas: Just a minute. May I suggest, if the court please, there is a considerable emergency in this way; from what I under-

stand, a form letter was sent out by the present president, in which he advises the stockholders of the terrible condition he finds the company in, at the present time, with the payroll and other expenses which run about one hundred thousand dollars a week; that any great delay in this matter is going to be very harmful to the rights of the parties; of course, we are willing to grant a reasonable continuance, and if this matter goes over to about Friday or Saturday of this week, I should imagine that ought to be a reasonable time, and not have a continuance for one week or ten days. We are here to ascertain our status-

Mr. Cowan: I have no objection to its going over to Friday or Saturday, but personally I think, if you let it go until Monday-

The Court: There is no court Monday; that is what the clerk me. You see Washington's Birthday is on the 22d, and we observe it on the 23d, the day following:

Mr. Cowan: Saturday morning, all right.

Mr. Gesas: Saturday morning, and everything remains in status quo?

The Court: Yes; Saturday morning, without further notice.

Mr. Gesas: And any notices, or affidavits, that you are going to present-

The Court: Yes; have them served on the other side, naturally; either side.

Mr. Cowan: All right, Saturday morning.

The Court: Yes.

Which were all the proceedings had in the above-entitled cause, on this date. Signed and sworn to by the court reporter, Cleary.