# Taylor v. Standard Gas & Electric Co. > Court of Appeals for the Tenth Circuit · April 27, 1938 · 96 F.2d 693 URL: https://www.frixlaw.com/law-library/cases/9636742 ## Case - **Full name:** TAYLOR Et Al. v. STANDARD GAS & ELECTRIC CO. Et Al. - **Court:** Court of Appeals for the Tenth Circuit - **Decided:** April 27, 1938 - **Citations:** 96 F.2d 693; 1938 U.S. App. LEXIS 4722 - **Precedential status:** Published - **Opinion:** Dissent by Bratton - **Judges:** Phillips, Bratton, Williams - **Cited by:** 47 later opinions in the Frix Law Library ## Citator (automated) - **Red flag:** Reversed on other grounds by Taylor v. Standard Gas & Electric Co., 306 U.S. 307 (1939). - Negative treatments: 1 - Distinguished by: 0 - Full citator and citing cases: https://www.frixlaw.com/law-library/cases/9636742 ## Opinion text BRATTON, Circuit Judge (dissenting). The allowance of the claim of Standard in the sum of approximately $5,000,000, and the approval of the plan of reorganization with the claim included as a liability were challenged in the court below and the contentions are renewed here. Appellants argue in connection with the first contention that at all material times Deep Rock was a mere agent, department, or instrumentality of Standard, and hence the latter cannot assert a claim for any amount in this proceeding. Standard and Deep Rock are separate corporate entities, but it is well settled that the fiction of corporate entity should be disregarded when it is necessary to circumvent fraud or uproot a harbor for wrong. Boatright v. Steinite Radio Corporation, 10 Cir., 46 F.2d 385 ; Maloney Tank Mfg. Co. v. Mid-Continent Petroleum Corporation, 10 Cir., 49 F.2d 146 ; Dunnett v. Arn, 10 Cir., 71 F.2d 912 . Standard owned approximately 98 per cent, of the common stock of Deep Rock. That fact alone and apart from other considerations is not enough to warrant the disregard of their separate juridical entities, or to render Deep Rock the agent, department, or instrumentality of Standard. But where the ownership of stock is not used and employed for the purpose of participating in the affairs of the corporation in the normal and usual manner, but for the purpose of dominating and controlling it in such way and to such *708 extent that it becomes the mere agency or instrumentality of the parent corporation, courts disregard the fact that they are separate corporate' beings and treat the subsidiary as the agent or instrumentality of the parent. United States v. Lehigh Valley R. R. Co., 220 U.S. 257 , 31 S.Ct. 387 , 55 L.Ed. 458 ; United States v. Delaware, Lackawanna & Western R. R. Co., 238 U.S. 516 , 35 S.Ct. 873 , 59 L.Ed. 1438 ; Chicago, M. & St. P. Ry. Co. v. Minneapolis Civic Ass’n, 247 U.S. 490 , 38 S.Ct. 553 , 62 L.Ed. 1229 ; United States v. Reading Co., 253 U.S. 26 , 40 S.Ct. 425 , 64 L.Ed. 760 ; Centmont Corporation v. Marsch, 1 Cir., 68 F.2d 460 . A parent corporation may not assume the position of creditor and assert a claim in bankruptcy against its subsidiary which has been dominated and controlled as a mere adjunct, department, or instrumentality, since the assertion of a claim in such circumstances amounts to the presentation of a claim against itself in fraud of bona fide creditors. Forbush Co. v. Bartley, 10 Cir., 78 F.2d 805 ; Clere Cloth- ing Co. v. Union Trust & Savings Bank, 9 Cir., 224 F. 363 ; E. E. Gray. Corporation v. Meehan, 1 Cir., 54 F.2d 223 ; Centmont Corporation v. Marsch, supra; In re Kentucky Wagon Mfg. Co., 6 Cir., 71 F.2d 802 . There was a league of corporations in this instance. Byllesby was the parent, and the others were subsidiaries, affiliates, and associates. In 1921 Shaffer parted with his interest in Shaffer Oil and Refining Company — subsequently changed in name to Deep Rock — and thereafter Standard owned virtually all of its common stock. The extent of common directors in Byllesby, Standard, Engineering and Management, and Deep Rock in- the years 1923 and 1928 appears in the list in the margin. 1 These years are fairly representative of other years from 1921 to 1933, inclusive. All of the officers of Deep Rock for the years 1923 to 1932, inclusive, were like- ■ wise officers of Standard for the same years, with the exception of Riddle, Moody, Francisco, Kennedy, Dale, and Kerr. Standard elected all of the directors of *709 Deep Rock from 1921 to 1932. Meetings of the board of directors were held at the rate of about one per month. Although the operations of Deep Rock were in Oklahoma, all meetings of the board of directors were held in the office of the president of Standard in Chicago; and the minute books of the meetings were kept in that city. The meetings were not merely consultative in character. Instead, all fiscal matters and matters of policy were fixed and determined at them. No important policies were determined and no substantial expenditures were agreed upon without the approval of the president and vice-president of Standard. Cummins was associated with Byllesby for a number of years; he was a director of Standard for fifteen or twenty years; and he became vice-president and general manager of Deep Rock. Standard employed Gray and sent him to Oklahoma to make a report on the property of Deep Rock. He later became president of Deep Rock. The president of Standard made the contract with Gray under which his salary as president was fixed at $36,000 per year plus a share in the profits. Standard approved the employment of Riddle and he later became vice-president in charge of production. Standard dictated and dominated the transaction in which the Bradstreet properties were conveyed to Kennedy, as trustee; and he was trustee for Standard. In like manner, Standard dictated and dominated the transaction relating to the cracking plant; and Graf was trustee for Standard. The board of directors of Deep Rock did not take any action authorizing or otherwise concerning either transaction, and its officers had scant knowledge of the facts. In addition to the manner in which titles were transferred and vested, Deep Rock was required to pay seventy-five thousand dollars per month for three months and fifty thousand dollars per month thereafter under the subterfuge of rentals, all of which reached Standard. Entries on the books of Deep Rock purporting to reflect the transfer to Standard of the corporate stock of Refining Company were subserviently made in conformity with directions of Standard. Standard furnished large sums of money which Deep Rock needed from time to time in the operation of its business during the period in question. Some of it was used to liquidate obligations, some was deposited in bank to the credit of Deep Rock, and some was used for other purposes. The account on which claim is founded covers a period from 1919 to 1933. It embraces charges aggregating more than fifty-two million dollars, and credits exceeding forty-three million dollars. It discloses that the cash advanced by Standard to Deep Rock during that period was more than seventeen million dollars; that advanced for interest on funded debt exceeded three millions; that advanced for sinking fund requirements exceeded three millions; that advanced with which to pay a note of Deep Rock which Standard had discounted was more than two hundred thousand dollars; that advanced for interest on note of Deep Rock was approximately fifty thousand dollars; that advanced for payment of dividends on preferred stock of Deep Rock owned by the public was approximately two and a half million dollars, while that advanced for payment of dividends on common stock was more than a hundred thousand dollars ; that advanced for redemption of the 8 per cent, notes of Deep Rock due in 1941 was about two hundred and fifty thousand dollars; that advanced for _federal income taxes of Deep Rock Refining Company was about thirty thousand dollars ; that advanced for payment of a note of Deep Rock due Continental National Bank and Trust Company was almost four hundred thousand dollars; that advanced for the purchase of preferred stock of Utility and Industrial Corporation — purchased for Deep Rock — was more than two hundred and seventy-five thousand dollars; and that advanced (by book entries) for payment of compensation for services rendered by Byllesby in procuring deposit of Shaffer notes under an extension agreement was more than one hundred and forty thousand dollars. In addition, the charge made for interest on notes receivable was more than one hundred and eighty thousand dollars; and the charge made for interest on five-year 6 per cent, notes of Deep Rock owned by Standard was more than three hundred and thirty thousand dollars. The debits representing dividends on preferred stock of Deep Rock owned by Standard was slightly more than a million and a half dollars; and the debits representing dividends on common stock exceeded a million and nine hundred thousand dollars. Finally, the charge for cash advanced as sundry expenditures was more than a million dollars. Credits were made from time to time. They exceeded forty-three million dollars, and reduced the balance due ac *710 cording to the face of the account to $9,342,642.37 — the amount of the original claim. Virtually all of the transactions between the two corporations were evidenced solely and exclusively by debits and credits on the books. Many other pertinent facts appear in the long record before us, but it would not serve any useful purpose to detail them. The question whether a proposed compromise of a disputed claim against a debtor shall be approved rests very largely in the sound discretion of the trial court, and its action should not be disturbed on appeal in the absence of a clear showing of the improper exercise of such discretion. But here the facts and circumstances and the inferences reasonably and fairly to be drawn from them, considered together, are convincing that at all times after C. B. Shaffer made disposition of his interest in 1921 Standard owned virtually all of the common stock of Deep Rock; that Standard elected the directors of Deep Rock from year to year; that the- directors of Deep Rock' who were not directors of Standard and the officers and agents of Deep Rock were plainly biddable and subservient to Standard in every respect and were without any measure of independence or freedom; that while Deep Rock was not organized in the first instance as an agency-, department, or instrumentality of Standard, that relationship was assumed in 1921 and it was continued until the intervention of receivership in 1933; that Standard took advantage of the relationship thus existing in effecting the transactions concerning the Bradstreet property and the cracking plant; that such transactions were not effected for the benefit of Deep Rock; that the interest of Standard was the dominant motive; that Standard was very substantially enriched through them and they constituted unjust infringement upon the rights ■of Deep Rock; and that" the allowance of the claim in any sum amounts to Standard asserting a claim against itself in legal fraud of others having interest. in Deep Rock. Advancements made in these circumstances do. not constitute an indebtedness which can he asserted as a claim in a bankruptcy proceeding. Forbush Co. v. Bartley, supra; E. E. Gray Corporation v. Meehan, supra; Centmont Corporation v. Marsch, supra; In re Kentucky Wagon Mfg. Co., supra. Whether a proposed plan of reorganization shall be approved rests in large measure in the sound judicial discretion of the trial court. But, assuming that the claim of Standard should not have been allowed in any sum, it follows as the night the day that the approval of this plan with the untenable claim included as a liability of the corporation constituted a grave prejudice to the rights of others in interest. It is respectfully submitted that the claim should have been disallowed in toto; that the proposed plan of reorganization with the claim included should have been disapproved; and that for these reasons the orders should be reversed. 1923 Engineering Byllesby and Standard and Management Deep Rock Co. Directors Directors Corp .Directors Directors H.M.Byllesby H.M.Byllesby H.M.Byllesby H.M.Byllesby G. N.Moore R.J.Graf R.J.Graf R.J.Graf R.J.Graf A.S.Huey A.S.Huey A.S.Huey A. S.Huey J.J.O’Brien J.J.O’Brien F.W.Stebr J.H.Briggs J.J.O’Brien J.J.O’Brien W.R.Francisco F.W.Stehr J.H.Briggs H.O.Oummins M.A.Morrison H.C.Cummins M.A.Morrison B.W.Lynch H.C.Cummins M.A.Morrison B.W.Lynch H. C.Cummins M.A.Morrison B. W.Lynch R.K.Huey W.H.Cannady A.S.Cummins A.S.Cummins A.S.Cummins A.S.Cummins 1928 J.J.O’Brien J.J.O’Brien J.J.O’Brien J.J.O’Brien R.J.Graf R.J.Graf J.L.Gray R.J.Graf R.J.Graf J.L.Gray M.A.Morrison M.A.Morrison M.A.Morrison M.A.Morrison H.C.Cummins H.C.Cummins H.C.Cummins H.C.Cummins A.S.Cummins A.S.Cummins A.S.Cummins A. S.Cummins W.R.Francisco J.H.Briggs J.H.Briggs J.H.Briggs J.HBriggs B.W.Lynch B.WXyneh F.W.Stehr B.W.Lynch B. W.Lynch R.K.Huey F.W'.Stehr L.B.Riddle R.G.Hunt R.G.Hunt O.G.Corns R.G.Hunt R.G.Hunt O.G.Corns J.H.Roemer J.H.Roemer J.H.Roemer --- Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9636742. Public record. Not legal advice.