The opinion
TEWIS, Circuit Judge
(dissenting). The bill seeks equitable relief on the claim of fraudulent conduct by some of the individual defendants. It is a stockholders’ suit. The principal things complained about are, first, the transfer of the grocery business of the J. S. Erown & Brother Mercantile,Company (called Old Company), in which the two complainants are shareholders, to the J. S. Brown Mercantile Company (called New Company), in which they are not shareholders; secondly, sale of stock in the New Company and certain accounts receivable belonging to the Old Company; thirdly, that the board of directors of the Old Company has used some of its funds to buy stock in the J. S. Brown Grocery Company of Pueblo (called Pueblo Co.) and in the Shields-Metzler Grocery Company of Colorado Springs (called Springs Co.); also,— but independently of the three grounds of complaint just noted, — fourthly, that certain of the Brown brothers as directors and officers of the Old Company have been and are receiving salaries in excess of what their services are worth, that they have caused the Old Company to pay excessive office rentals to their individual benefit, that they have made charitable contributions out of the funds *444 of the Old Company, and that they are indebted to the Old Company in large sums, although it is shown that plaintiffs are at times also in-indebted to it but not for as large amounts as the brothers. And the bill prays that a receiver be appointed for the four companies, for in-junctive relief, that an accounting be had between the companies and that the Old Company be wound up, its assets sold and the money distributed.
As to the facts set up, — John Sidney Brown, through many years of industry and close attention amassed a large fortune. He built up a wholesale grocery business. It was owned and carried on by the Old Company. Much of his property not used in or connected with the grocery business was held also in the name of the Old Company. At the time of his death he owned 3,090 shares in that company. Em-ployés-owned 120 shares, other parties not in the family or the company ■ owned 40 shares, and the remainder of .the 5,000 issued shares was owned in unequal proportions by his five sons and his second wife, who survived him for three years. When he died the directing head and controlling hand in the grocery business was gone. What should be done with that business? The widow and all of his nine children, five by his first wife and four by his second, decided within six months after his death not to close it out, but to devise a plan by which it would be segregated from the other assets and continued. That plan was fully set out in a petition to the probate court in which his estate was being administered. The widow and all of his children, including the plaintiffs, signed it and there is appended to it certificates of Notaries Public that each of them, including plaintiffs, was duly sworn and upon their several oaths “depose and say that she has read the foregoing petition, and knows the contents thereofand it was approved by a .probate court order in every particular. The petition recited that the Old Company was capitalized at 5,000 shares, each of the par value of $100, and that John Sidney Brown, at the time of his death was the absolute owner of 3,090 shares, that the company was the owner and in possession of a large and valuable stock of groceries and general merchandise pertaining to the wholesale and jobbing business, also the necessary equipment for carrying on that business, that petitioners were his only heirs-at-law and his devisees and legatees, and that they were desirous of segregating the wholesale and jobbing business and property pertaining thereto from the other business and property of the company, and to vest the title of all of said wholesale and jobbing business and of all the assets pertaining thereto in a new corporation to be formed under the laws of the state of Colorado, except $150,000' of its accounts receivable, to be selected and set aside by the executors of the estate, and to then be disposed of as expressed in the petition, that it was their wish and desire and the desire and wish of all stockholders of the company, and they believed it would be to their best interest and to the best interest of the estate to form a new corporation with an authorized capital of $1,500,000, divided into 15,000 shares, one-half to be common and the other half preferred stock, the preferred to be without voting power but to be entitled to cumulative dividends of seven per centum payable semi-annually for the first ten years of the life of the New Company and six per centum thereafter, and that $400,000 *445 par of the preferred stock and $350,000 par of the common stock be issued to the Old Company in consideration for the conveyance to the New Company of the wholesale grocery business and its assets, that it was their desire, and that they believed it for their best interest and the best interest of the estate that, upon the formation of the New Company and the conveyance and delivery to it of the grocery business the Old Company should sell and dispose of $250,000 par value of the common stock to be issued to the Old Company by the New Company and the $150,000 of accounts receivable to be selected and set aside by the executors, in consideration of $100,000 in cash and $150,000 in promissory notes bearing six per cent., principal payable in five annual installments named, the notes to be secured by the common stock to the extent of the face of said notes plus 25 %; that all of the $350,000 issued common stock be put in the name of a trustee or trustees and to remain in trust for a period of at least ten years, with power in the trustee to vote all of that common stock and to issue to the owners and depositors thereof trustee certificates therefor, and that a contract for that purpose should be made. The petition expressly requested that an order of court be made and entered fully authorizing and empowering the executors of John Sidney Brown’s estate (his widow, one son by his first wife and one by his second) to vote at any special or regular meeting of the stockholders of the Old Company, or at any adjournment thereof, for any or all propositions or resolutions tending to carry into effect the purposes of the petition, and authorizing the Old Company and its officers to form a New Company and to vest it with title to the property of the Old Company pertaining to the wholesale business, in consideration for and in exchange for the $400,000 preferred and $350,000 common stock in the New Company, and thereupon to sell $250,000 par of the common and the $150,000 of the accounts receivable of the Old Company to be selected by the executors, on the temas stated in the petition, and to further make with the purchaser a contract for the placing of all of the $350,000 common stock with a trustee, as stated in the petition.
Immediately on approval in probate of the plan for continuing the grocery business by the New Company and the sale of the accounts receivable and $250,000 stock in the New Company as it was set forth in the petition, steps were taken to carry it out. The wholesale grocery business was transferred to the New Company, for which the Old Company received $400,000 in preferred and $350,000 in common stock in the New Company. The balance of the stock remains unissued. The defendant German-American Trust Co. took and holds in trust the $350,000 issued common stock, as provided for in the petition and probate order. Defendants Spicer, Parry and the two Metzlers were conducting a wholesale grocery business at Colorado Springs in the corporate name of Shields-Metzler Grocery Co., and the sale of the $250,000 common stock in the New Company and the $150,000 accounts receivable of the Old Company was made to one of the Metzlers on the terms stated in the petition filed in probate. This was all done in August, 1913. The bill alleges that the other seven children, including plaintiffs’ two brothers of the full blood, still approve those transactions and all the other matters of which plaintiffs complain.
*446 It appears that after the death of John Sidney Brown the widow and the four Brown brothers (other than Edward Newton) constituted the board of directors of the Old Company, the widow was its president. At the time the grocery business of the Old Company was turned over to the New Company the board of directors of the New Company was composed of the two Metzlers, Spicer, 'Parry, the widow of John Sidney Brown and two of the Brown brothers, one by the first wife of John Sidney Brown and one by his widow. Franklin T. Metzler was its president. It seems quite evident that the bringing in to the New Company of the Metzlers and their associates was for the purpose of procuring someone who was familiar with the wholesale grocery business and knew how to conduct it; and there was nothing in the transaction itself and the terms on which it was made suggestive of a fraudulent design or intent by anyone connected with it. It was all set forth in the petition to the probate court which was charged with the duty of administering the estate for the best interest of all concerned, and the entire plan in every detail had the express approval of that court. When the transactions called for in the petition were closed the Old Company owned two-thirds of the issued shares of the New Company and Metzlers and associates owned one-third.
This suit was instituted in May, 1922, almost nine years after those transactions were closed, and it seeks to have them annulled and vacated and restitution made to the Old' Company through an accounting, insofar as that is possible; and the ground on which it is claimed that relief should be administered is that those transactions were brought about and consummated by fraudulent conduct between four of the Brown brothers and the Metzlers, Spicer and Parry, also that the plaintiffs signed the petition to the probate court without knowing its contents, one of them, Irene Brown Black, claiming that she relied upon her mother and statements of' one or more of her brothers that they would look after her interest, but that she afterwards learned that her mother was under the control of her brothers. She was 22 years of age, unmarried and resided with her mother and two brothers when she signed the petition. She later married and now resides in the state of Washington. The other plaintiff was married at the 'time of her father’s death and resided in Seattle, Washington. As to her, it is alleged that she came to Denver immediately on the death of her father, and that while in Denver one of her half brothers and one of her full brothers, who with her mother were named as executors in her father’s will, assured her that her interest in the estate would be cared for and protected, that one of her brothers later brought the petition to Seattle and told her that its purpose was to segregate the mercantile business of the estate from its other business and affairs, that all of the other children were in favor of it, and that relying upon those statements she signed the petition, expecting her brothers to look after her interest. It is' alleged that the four Brown brothers made an arrangement with the Metzlers and their associates long prior to the signing of the petition presented in probate, under which the wholesale grocery business belonging to the estate was “to be turned over to them;” and it is charged on information and belief that Metzlers and associates paid or gave to the four Brown brothers “or some one or *447 more of them some consideration, promise or benefit the exact nature of which is to the plaintiffs unknown, to influence and- induce them to make the said deal in the name of the J. S. Brown & Brother Mercantile Company and to bring it about that the business of the J. S. Brown & Brother Mercantile Company should be transferred and turned over to Metzlers and associates in the name of the J. S. Brown Mercantile Company without any actual consideration,” that the said transfer was made “fraudulently, corruptly and collusively for the purpose of gaining some benefit to themselves or some one or more of them, the nature of which is to the plaintiffs at present unknown and with intent and purpose to cheat and defraud the plaintiffs and the J. S. Brown & Brother Mercantile Company.” And then, in .doubt of the truthfulness of that charge, this follows, “or else that the said defendants were guilty of gross and inexcusable negligence.” On information and belief it is alleged that the property turned over to the New Company was worth upward of $1,(XX),000. It is alleged that “from time to time during the times herein mentioned the plaintiff Alice Brown Martin has protested and complained to the defendants Frederick Sidney Brown, J. Sidney Brown and Carroll Teller Brown against the various acts herein complained of,” and as to the plaintiff Irene Brown Black it is alleged that she placed implicit trust and confidence in her brothers that they would protect and care for her interest and that that trust and confidence “continued unimpaired until shortly before the commencement of this suit when the facts herein stated with respect to the transactions between the defendants Frederick Sidney Brown, J. Sidney Brown, Carroll Teller Brown and William Knight Brown and the defendants the Metzler party showing the true nature of such transactions and of the relations existing between the said defendants Frederick Sidney Brown, J. Sidney Brown, Carroll Teller Brown and William Knight Brown and the defendants the Metzler party, and other facts and circumstances herein set out having been learned by her she engaged counsel and started an investigation which resulted in the disclosure of the facts herein set forth, and said plaintiff says that she did not know or understand such facts until that time.” It is álleged, several times, that the plaintiffs did not know until “shortly” before the commencement of this suit the red, nature of the alleged arrangement between the Brown brothers and the Metzlers, Spicer and Parry, but it is admitted that “they understood that a working interest therein (grd-cei-y business) had been sold to the Metzler party for an actual consideration in money.”
It will be observed that both plaintiffs allege that the nature of the fraudulent arrangement under which the transfer to the New Company was made, was unknown to them at the timé they instituted this suit, then the plaintiff Irene Brown Black alleges that she learned the facts and circumstances set out in the bill and the true nature of the transactions and relations between her brothers and the Metzlers and associates before she engaged counsel, and in the same sentence she al-lges that she engaged counsel and started an investigation which resulted in the disclosure of the facts set out in the bill. She adds that she did not know or understand the facts until she engaged counsel. Then as to both plaintiffs it is alleged that they did not know until *448 “shortly’’^before the commencement of this suit the real nature of the arrangement between’ their brothers and Metzlers and associates. It is alleged that the four Brown brothers made an arrangement with the Metzlers and their associates prior to the signing of the petition to turn over the grocery business of the estate to the Metzlers and associates, and that the Metzlers and associates paid or gave to the four Brown brothers “or some one or more of' them some consideration, promise or benefit, the exact nature of which is to the plaintiffs unknown.” Again, the plaintiff Alice Brown Martin alleges that “from time to time during the times herein mentioned” she protested and complained to her brothers against their various acts complained of in the bill. The bill shows that the grocery business was turned over to the New Company by the Old Company in accordance with the terms stated in the petition presented to the probate court, and yet it charges that business was turned over to the “Metzler party” by the four Brown brothers.
The bill attempts argumentatively to make it appear that the purchase from the Old Company by Metzler of the accounts receivable and stock in the New Company were separate transactions, by which Metz-ler got $150,000 accounts receivable from the Old Company for $100,-000 cash, to the detriment and damage of the Old Company in the sum of’$50,000. This flies in the face of the real transaction disclosed by the petition in probate, by which Metzler bought the acounts receivable and the stock for $250,000, to be paid for by $100,000 in cash and notes for $150,000. I lay aside the inquiry whether the allegations that have been noticed are so inconsistent and repugnant as to destroy and neutralize each other, and consider them in connection with the question of laches. I find no other allegation that will aid the plaintiffs on that subject. The allegation that when plaintiff Mrs. Martin made complaints ‘and protested from time to time to her brothers they threatened that if she insisted on her rights they would stop payments of dividends to her by the Old Company contradict^ her assertion that she relied on them to protect her interests until shortly before the institution of this suit. Moreover, this claim by both plaintiffs of continued trust and confidence in their half brothers is refuted by the litigation between the two sets of children over the division of the widow’s estate. 69 Colo. 400 , 194 Pac. 943 . They delayed bringing this suit for nine years after the grocery business was turned over to the New Company, and stock in it and accounts receivable belonging to the Old Company were sold to Metzler. They admit that they were informed when they signed the petition that its purpose was to segregate and turn over the grocery business of the Old Company to another company, and they admit that they knew that a working interest in the grocery business had been, sold to the Metzler party. They must have known that a multitude of financial and, business transactions changing and affecting the rights of every one interested in and connected with the Old and the New companies and the grocery business would at once arise, and they must have known that as time went on it would grow more and more difficult to restore the status quo without seriously and disastrously affecting those interests. They have failed, in my judgment, to allege any facts assigning reasons for not acting *449 promptly. The Colorado Statute of limitations applicable to the case reads thus: “Bills for relief, on the ground of fraud, shall be filed within three years after the discovery by the aggrieved party of the facts constituting such fraud, and not afterwards.” Compiled Laws Colo. 1921, § 6403 (Rev. Stat. Colo. 1908, § 4072). This court, in considering that statute in Kelley v. Boettcher, 85 Fed. 55, 62 , 29 C. C. A. 14, 21 , said:
‘•In tlie application of the doctrine of laches, the settled rule is that courts of equity are not bound by, but that they usually act or refuse to act in analogy to, the statute of limitations relating to actions at law of like character [citing authorities]. The meaning of this rule is that, under ordinary circumstances, a suit in equity will not be stayed for laches before, and will be stayed after the time fixed by the analogous statute of limitations at law; but if unusual conditions or extraordinary circumstances make it inequitable to allow the prosecution of a suit after a briefer, or to forbid its maintenance after a longer, period than that fixed by the statute, the chancellor will not be bound by the statute, but will determine the extraordinary case in accordance with the equities which condition it. * * * When a suit is brought within the time fixed by the analogous statute, the burden is on the defendant to show, either from the face of the bill or by his answer, that extraordinary circumstances exist which require the application of the doctrine of laches; and, when such a suit is brought after the statutory time has elapsed, the burden is on the complainant to show, by suitable averments in his bill, that it would be inequitable to apply It to Ms case.”
The Supreme Court, in Wood v. Carpenter, 101 U. S. 135, 140 ( 25 L. Ed. 807 ), held that the rules of pleading in this respect are stringent, and said: .
“A general allegation of ignorance at one time and of knowledge at another are of no effect. If the plaintiff made any particular discovery, it should be stated when it was made, what it was, how it was made, and why it was not made sooner. * * * The fraud intended by the section which shall arrest the running of the statute must be one that is secret and concealed, and not one that is patent or known. * * * ‘Whatever is notice enough to excite attention and put the party on bis guard and call for inquiry, is notice of every thing to which such inquiry might have led. When a person has sufficient information to lead him to a fact, he shall be deemed conversant of it. * * * The presumption is that if the party affected by any fraudulent transaction or management might, with ordinary care and attention, have seasonably detected it, he seasonably had actual knowledge of it.’ * ~ * A party seeking to avoid the bar of the statute on account of fraud must aver and show that he used due diligence to detect it, and if he had the means of discovery in his power, he will be held to have known it.”
In Hardt v. Heidweyer, 152 U. S. 547, 560 , 14 Sup. Ct. 671, 674 ( 38 L. Ed. 548 ), it is said:
“Tested by this rule, it is apparent that this bill must be held deficient in not showing how knowledge of the wrongs complained of was obtained by the plaintiffs. It is alleged that they were ignorant, and now have knowledge; and that they acquired such knowledge within a month prior to bringing the suit; but how they acquired it, and why they did not have the same means of ascertaining the facts before, is not disclosed.”
See also Beaubien v. Beaubien, 23 How. 190, 208 , 16 L. Ed. 484 ; Burke v. Smith, 16 Wall. 390, 401 , 21 L. Ed. 361 ; O’Brien v. Wheelock, 184 U. S. 450, 493 , 22 Sup. Ct. 354, 46 L. Ed. 636 ; Reed v. Dingess (C. C.) 56 Fed. 171 ; Swift v. Smith, 79 Fed. 709 , 25 C. C. A. 154 ; Williamson v. Beardsley, 137 Fed. 467 , 69 C. C. A. 615 ; Redd *450 v. Brun, 157 Red. 190, 84 C. C. A. 638 ; Jewell v. Trilby Mines Co., 229 Fed. 98 , 143 C. C. A. 374 ; Pipe v. Smith, 5 Colo. 146 .
The plaintiffs knew that the grocery business was to be transferred to a new company in the summer of 1913, when they signed the petition, and they also knew at that time, or were negligent in not knowing, that 250,Q00 shares of common stock in the New Company and $150,-000 of acounts receivable belonging to the Old Company were to be sold for $250,000. They were barred by their laches from questioning or repudiating those transactions at the. time they instituted this suit.
There is another Colorado statute. Section 6404, Compiled Raws 1921 (section 4703, Rev. Stat. 1908). It reads thus:
“Bills of relief, in case of the existence of a trust not cognizable by tbe courts of common law, and in all other cases not herein provided for, shall be filed within five years after the cause thereof shall accrue, and not after.”
Its relevancy rests on the assumption that the relation between plaintiffs and their brothers was one of trust, contemplated by the statue. See Morgan v. King, 27 Colo. 539 , 63 Pac. 416 . But the facts disclosed in the bill also fail, in my opinion,' to excuse the plaintiffs of their laches in not acting within the time limited by that statute'. So much for the first and second matters about which complaint is made.
As to the third matter complained about, the articles of incorporation of the Old Company gave to it express power “to acquire by purchase, or otherwise, shares of the capital stock in other corporations, and to receive such stock in payment for any property which the company may sell, lease or otherwise dispose of, and to vote upon any and all of the capital stock of other corporations which this company may acquire, own or hold, absolutely or in pledge, or hold as collateral security ; and generally to do and perform all such things and acts as the Board of Directors may deem desirable or expedient in the transaction of the company’s business.” The complaint is that funds of the-Old Company were used to buy shares of' the capital stock in the Springs Co. and the Pueblo Co. That power and right, as seen, was expressly vested in the Old Company, and the plaintiffs seek to avoid those transactions on the claim that they were a -part of the general scheme by which the so-called Metzler party, and perhaps also the four Brown brothers, were to obtain control, management and use of the Old Company and its funds and grocery business; and further, the bill attempts argumentatively to show oh that subject that the Springs Co. and the Pueblo Co. are both insolvent. For the purpose of this dissent I need only say that in my opinion there are no facts and circumstances set up in the complaint showing, or tending to show that such a fraudulent scheme existed or was ever concocted; and as to the second, the facts stated show that both of those companies are solvent. They each have a surplus of assets and each has been paying dividends on the issued stock ^t substantial rates.
In this state of the case the district judge sustained separate demurrers to the bill, which let out of' the case all of the defendants except the Old Company and its board of directors, and entered an order that the demurrers of the Old Company and individual defendants constituting its board of directors would also be sustained unless the plaintiffs, *451 within a time stated, reformed their pleading and by amended bill charged and. sought relief against the Old Company and its board of directors only as to the matters about which complaint was made against them. This left the plaintiffs free to go on with their case on their charges that their brothers had been paying themselves excessive salaries out of the funds of the Old Company and otherwise disposing of those funds, as heretofore stated, without benefit or compensation to it. In that regard the facts set up made a case. They could be stated in brief space. They had no relation to the other facts which have been considered. It was a proper order to put all matter extraneous that subject out of the case. But the plaintiffs were not willing to restrict their bill and confine the relief sought to that subject; so they stood upon the original bill, and under the order it was dismissed as to the remaining defendants. For reasons stated I think the court was right in both respects.
Counsel for plaintiffs argues earnestly that the bill is good and should stand for purposes of discovery in all of the transactions complained of. But the bill expressly waives answer under oath, and for that reason it could not be availed of as a bill of discovery under the prior practice; nor have the plaintiffs attached interrogatories, as now required by Equity Rule 58, for that purpose. Ruten v. Camp (D. C.) 221 Fed. 424 , and cases cited.
I regret the length of this dissent. But allegations without proof and proof without allegations are equally fatal; and to require answer and trial, which will evidently be greatly burdensome and very expensive, on such vague and contradictory charges of fraud, with no facts relieving the plaintiffs from the bar on account of their laches, is, it seems to me, unjust and contrary to settled principles.