Petition for a Writ of Certiorari — Eaton v. Hobson

SUPREME COURT. U. & JAN 27 1909

In THE

Supreme Court of the United States

OctosER TERM, 1968

No. 98 5

ee —

Cyrus 8S. Eaton,

Petitioner,

—_—Vem-

Harotp S. Hosson,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

PERI RE ML (het

Minton V. FREEMAN

WERNER J. KRoNnSTEIN

ArNoLD & PorTER

1229 19th Street, N.W. p

Washington, D. C. 20036 ;

Attorneys for Petitioner

Wiuiam F. Snyper

JAMES J. SCHILLER

MarsHMAN, SNYDER & SEELEY

Of Counsel

LMI MONA RAPE EMILTINER ES CSRS WP

——————————————— ;

tn aR ae

adi. NOM Slat eV etme

we

INDEX

PAGE

Opinions Below 1

_ Jurisdiction 2.

Rule Involved 2

Question Fresented 3

Statement of the Case 3

Previous Litigation 5

Proceedings in District Court ...................s.--cc-cceceeeeeeseeees 5

Opinion of the Court of Appeals 7

Proceedings Upon _—— 7

Reasons Why the Writ Should Be Granted 8

Conclusion 12

Appendix A la

Appendix B 9a

Appendix C 25a

Appendix D 27a

li

TABLE OF AUTHORITIES

PAGE

Cases:

Cleveland Trust Co. v. Eaton, 11 Ohio Mise. 151, 229

N.E.2d 850 (1967) 5

Cross v. Ledford, 161 Ohio St. 469, 120 N. E.2d 118

(1954) 10

Dalehite v. United States, 346 U.S. 15 (1953) .............. “oe

(2d Cir. 1965) 12

Featherstone v. Barash, 345 F.2d 246 (10th Cir. 1965) 12

Kelly v. Everglades Drainage District, 319 U.S. 415

(1943) 8

Leighton v. One William Street Fund, 343 F.2d 565

Schneidermann v. United States, 320 U.S. 118 (1943) ... 9

United States v. El Paso Gas Co., 376 U.S. 651 (1964) 12

United States v. Forness,.125 F.2d 928 (2d Cir. 1942),

cert. denied, 316 U.S. 694 11,12

Statutes and Rules:

28 U.S.C. $1254(1) 2

28 U.S.C. §1332(1) 2

Federal Rules of Civil Procedure, Rule 52(a) ........ 2, 3, 8, 12

Rules of the Supreme Court of the United States,

Rule 19 12

Miscellaneous:

30 American Jurisprudence 2d 344 8

IN THE

Supreme Court of the United States

Ocroser Term, 1968

Cyrus S. Eaton,

Petitioner,

—V,—

Harotr S. Hosson,

Respondent.

- ——e——

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

Cyrus S. Eaton, petitioner herein, by his attorneys, prays

that a writ of certiorari issue to the Court of Appeals for

the Sixth Circuit to review the decision of that Court in

this case.

Opir-ions Below

The District Court entered “Findings of Fact and Con-

elusions of Law” which are not reported but are printed

in Appendix B, hereto, and filed a “Conclusion on Remand,”

which is not reported but printed in Exhibit D, hereto.

The opinion of the Court of Appeals is reported at 399 F.2d

781 and is printed in Appendix A, hereto and a supple-

mental opinion is reported at 399 F.2d 781 and printed in

Exhivit C, hereto.

jurisdiction

Jurisdiction in the District Court was based on 28 U.S.C.

§ 1332(1).

Judgment was entered by the District Court on June 7,

1966, and a timely appeal followed. The Couri of Appeals

on September 20, 1968 entered a judgment affirming the

order of the District Court, and a petition for rehearing

filed by Petitioner was denied on October 29, i968.

The jurisdiction of this Court is invoked under 28 U.S.C.

§ 1254(1).

Rule Involved

Rule 52(a) of the Federal Rules of Civil Procedure pro-

vides in pertinent part:

“(a) Effect. In all actions tried upon the facts with-

out a jury or with an advisory jury, the court shall

find the facts specially and state separately its con-

clusions of law thereon, and judgment shall be entered

pursuant to Rule 58; .... Requests for findings are

not necessary for purposes of review. Findings of fact

shall not be set aside unless clearly erroneous, and

due regard shall be given to the opportunity of the

trial court to judge of the credibility of the wit-

nesses. ... If an opinion or memorandum of decision

is filed, it will be sufficient if the findings of fact and

conclusions of law appear therein... .”

Question Presented

When a fidaciary ciaims that a gift of trust property

has been made to him by the beneficiary thereof, and the

Court of Appeals has remanded the case for reconsidera-

tion of the evidence because such a gift must be proven

by clear and convincing evidence rather than by the lower

standard of proof erroneously applied by the District Court,

is the accepted course of judicial procedure and Rule 52(a)

of the Federal Rules of Civil Procedure violated when the

Court of Appeals affirms the conclusion of the District

Court, upon remard, that the alleged gift has been proven

by clear and convincing evidence even though (a) the Dis-

trict Court has made no findings of the facts relied upon

by it in reaching this conclusion, and (b) the Court of

Appeals did so without making any such findings itself,

so that in the end there is a complete absence of any indi-

cation of the evidence upon which the courts below based

their decisions?

Statement of the Case

Many years ago—between 1930 and 1935—Cyrus Eaton,

the well known industrialist, and then a director of the

Cleveland Trust Company, loaned certain sums to a vice-

president of the bank, Frank Hobson, who was experienc-

ing some financial difficulties. These loans totaled $27,500

and were advanced in part by Mr. Eaton personally and in

part by a corporation of which he was the sole stockhulder.

(399 F.2d at 782, p. 2a, infra)

In 1936 Frank Hobson died. Following his death Mr.

Eaton assigned the claims againsc the Frank Hobson Estate

wg

ek ee a aie Bl

MOOT PE AO A WN

i i in eee tin

4

arising out of these loans to a minor employee, Harold S.

Hobson, a man no way related to the deceased Frank Hob-

son, for the sole purpose of collecting these amounts from

the Cleveland Trust Company, the executor of Frank Hob-

son’s estate. With respect to the $10,000 advances made by

Mr. Eaton personally, Mr. Hobson signed an acknowledg-

ment that the assignment was for “purpose of collection”

(399 F.2d at 782-783, pp. 2a-3a, infra), and as to all the

advances the “trial judge specifically found that the plain-

tif [Harold Hobson] was originally designated as agent

for collection only.” 399 F.2d at 784, p. 6a, infra.

Thereupon, Harold Hobson filed the claims with the

Cleveland Trust Company as executor of the Frank Hobson

estate and the claims were allowed in September, 1936. In

February 1938, the executor made a partial distribution to

the Estate, issuing a check in the amount of $6,178.58 to

Mr. Harold Hobson. Consistent with his obligations as an

assignee of these claims for collection only, Harold Hobson

disbursed this amount by paying it to Mr. Eaton or on

Mr. Eaton’s account. 399 F.2d at 783, p. 4a, infra.

Further activity in the Frank Hobston Hstate was de-

layed until 1960 when Frank Hobson’s widow, who was en-

titled to income from the remainder of the Estate for her

life, died. (399 F.2d at 783, p. 4a, infra) By this time

Harold Hobson was no longer an employee of Mr. Eaton

and had long since gone into another business. (Tr. 2)?

In November 1961, on requisition of Frank H. Hobson,

Jr., the beneficiary of the Frank Hobson Estate, the claim

1 References to the — of the record in the District Court

are cited herein as “Tr. ——

5

asserted against the estate by Harold Hobson was rejected

because of the known interest of Mr. Eaton therein. (399

F.2d at 783, p. 4a, infra)

Previous Litigation

Thereupon, Harold Hobson brought an action in the

United States District Court for the Northern District of

Ohio against the Cleveland Trust Company as executor,

as well as against the beneficiaries of the Estate. In Octo-

ber 1962 a settlement of that case was concluded pursuant

to which Mr. Harold Hobson was to receive approximately

$45,000, payable in a series of installments. Mr. Eaton

was not a party to this action or otherwise advised of its

pendency,? and when he learned of it, he brought an action

in the Court of Common Pleas in Cuyahoga County to

enjoin Cleveland Trust Company and Frank Hobson, Jr.

from making any further payments to Harold Hobson pur-

suant +o this settlement agreement. 399 F.2d at 783, p. 4a,

infra.

Proceedings in District Court

Harold Hobson then brought the present action for a

declaratory judgment that he, and not Mr. Eaton, was the

beneficial owner of the claims against the Frank Hobson

Estate. 399 F.2d at 783, p. 4a, infra.®

2 There is other litigation pending between Mr. Eaton and the

Cleveland Trust Company which may have significant impact on

the control and management of the Cleveland Trust Company, see

a96T) Trust Co. v. Eaton, 11 Ohio Misc. 151, 229 N.E.2d 850

1 :

® Mr. Eaton filed a counterclaim in which he sought to have the

settlement agreement declared null and void.

6

At the trial of the case Mr. Hobson based his entire case

on his testimony that:

(a) on either the day of the assignment of the claims to

him for purposes of collection only or on the day there-

after, Mr. Eaton called him into his office and said, “You

take these two claims as a salary bonus.” This conversa-

tion is conveniently said to have taken place outside the

hearing of any witnesses (Tr. 22, 123-126, 399 F.2d at 781,

pp. 3a, 17a, 18a, infra).

(b) he paid the proceeds of the distribution of part of

the Frank Hobson Estate in 1938 to Mr. Eaton because,

again conveniently, out of the hearing of any witnesses,

Mr. Eaton asked him to “turn over the dividend that was

coming from the Frank Hobson estate” but stated “the

balance of it, of course, is yours. You may get something

out of it some day.” (Tr. 39-42, pp. 18a-19a, infra)

These two conversations were, of course, denied by Mr.

Eaton at trial. (p. 19a, infra)

The District Court in its Findings of Fact and Conclu-

sions of Law, held that:

“It is my conclusion and judgment that plaintiff,

Hobson, has proved by a preponderance of the evidence

that he is the true and beneficial owner of the claims

. . . [against the Frank Hobson Estate].” (p. 24a,

infra)

7

Opinion of the Court of Appeals

The Court of Appeals remanded the case to the District

Court on the ground that the District Court had applied

the wrong standard of proof, i.e., the preponderance of

evidence rule. (399 F.2d at 785, p. 8a, infra) It held that

under Ohio law there was “a presumption that the benefi-

ciary of a trust does not make a gift of trust assets to his

fiduciary, that is, his agent or trustee” and that evidence

to overcome this presumption must be “clcar and con-

vincing.” (399 F.2d at 784, pp. 6a-7a, infra) The Court

of Appeals remanded the case to the District Court “with

instructions to the trial judge to reconsider the evidence

in the light of the applicable rule of clear and convincing

evidence and report his conclusion to this Court,” and re-

tained jurisdiction over the appeal. (399 F.2d at 785, p. 8a,

infra)

Proceedings Upon Remand

On remand, the District Court, without making any fur-

ther findings, simply submitted to the Court of Appeals a

document entitled “Conclusion on Remand” which stated

the court’s finding and conclusion that “the plaintiff

Harold S. Hobson has proved by clear and convincing evi-

dence that he was the recipient of a gift from the defen-

dant, Cyrus S. Eaton, of the beneficial interests in the

claims involved herein.” (p. 28a, infra)

Thereupon, the Court of Appeals issued a supplemental

opinion in which, without any further statement as to the

evidence relied upon by it, it affirmed the judgment of the

District Court. (399 F.2d 785, p. 26a, infra)

Reasons Why the Writ Should Be Granted

This case raises important questions relating to the ad-

ministration of justice and the proper application of Fed-

eral rules, especially Rule 52(a) of the Federal Rules of

Civil Procedure.

The Court of Appeals held that, under Ohio law, there

is a presumption against a gift of trust property to the

fiduciary, that such gift must be proved by clear and con-

vincing evidence; and remanded the case for reconsidera-

tion of tle evidence in the light of that rule.

However, the significant protection which the “clear and

convincing evidence” rule should provide against fraud by

fiduciaries was severely diluted by the failure of the courts

below, after remand, to make any findings indicative of

the evidence regarded by them to constitute clear and con-

vineing proof of the alleged gift. The procedures followed

by the courts below would, if generally followed, erode and

render meaningless the many judicial decisions requiring

in certain situations clear and convincing evidence to pre-

vent fraud.*

This Court had consistently held that under Rule 52(a)

of the Federal Rules of Civil Procedure that “there must

be findings, in such detail and exactness as the nature of

the case permits of subsidiary facts on which the ultimate

conclusion . . . can rationally be predicated.” Kelly v.

Everglades Drainage District, 319 U.S. 415, 420 (1943).

* Examples of other situations where the courts have required

clear and convincing evidence are to establish a parol trust in real

or personal property, where reformation or cancellation of a

written instrument is sought, or to impeach an acknowledgment.

30 American Jurisprudence 2d 344.

9

See Dalehite v. United States, 346 U.S. 15, 24 n.8 (1953);

Schneidermann v. United States, 320 U.S. 118, 129-131

(1943)

However, in response to the Court of Appeals’ remand

of the case “to reconsider the evidence in the light of clear

and convincing evidence rule,” the District Court prepared

a “Conclusion Upon Remand” which did nothing more than

state in the most conclusioiary terms that “upon a. careful

and thorough reconsideration of the evidence... the Court

finds and concludes that the Plaintiff Harold S. Hobson

has proved by clear and convincing evidence that he was

the recipient of a gift, from the Defendant Cyrus S.

Haton....” (p. 28a, infra)

Upon receipt of the Conclusion on Remand the Court

of Appeals issued a supplemental opinion, simply stating,

without any further discussion of the evidence that:

‘“‘We have considered the report of the trial judge to-

gether with the briefs of the parties with regard

thereto and conclude that the supplemental finding of

the trial judge is supported by the evidence and is

not clearly erroneous.” 399 F.2d at 785, p. 26a, infra

As noted above, while the Court of Appeals may weil have

expected a “report” from the trial judge, the trial judge’s

characterization of what he did as a “Conclusion on Re-

mand” is far more accurate. Nor, of course, could “the

briefs of the parties” deal in a meaningful manner with

the District Judge’s report with any indication of what evi-

dence it had relied upon as being clear and convincing.

Neither do the “Findings of Fact and Conclusions of Law”

or the original opinion of the Court of Appeals refer to

any evidence which could reasonably be assumed to have

eS

10

been relied upon, sub silentio, by the lower courts as clear

and convincing proof of the alleged gift.°

(1) The only affirmative evidence referred to in the Find-

ings of Fact and Conclusions of Law to establish the al-

leged gift is the self-serving testimony of Harold Hobson.°

(2) The opinion of the Court of Appeals contains a fairly

detailed statement of facts, but the only evidence of the

alleged gift to which it refers is the uncorroborated testi-

mony of Harold Hobson.’

Accordingly, the net result of these judicial proceedings

below is as follows:

Neither the Court of Appeals nor the litigants know what

evidence was considered by the District Court, upon re-

mand, to constitute clear and convincing proof of the al-

leged gift to Mr. Harold Hobson. The litigants have no idea

whether the Court of Appeals’ affirmance of the District

5 Clear and convincing evidence is defined as “ ‘that measure or

degree of proof which will produce in the mind of the trier of facts

a firm belief or conviction as to the allegations sought to be estab-

1904) ” Cross v. Ledford, 161 Ohio St. 469, 120 N.E.2d 118, 123

1954).

6 The District Court’s holding that Mr. Hobson had proven his

case by a “preponderance of the evidence” is based solely on events

nearly thirty years ago by which Mr. Eaton allegedly concealed from

his creditors his ownership of claims against the Frank Hobson

Estate. The allegation of such concealment was made by counsel

for Mr. Harold Hobson below to support a contention this pre-

cluded Mr. Eaton as a matter of law from now asserting his owner-

ship in the claims. It seems quite obvious, however, that even if

Mr. Eaton did conceal his assets this would be added proof that

Mr. Eaton was the owner thereof and he has not given them to

Mr. Hobson. (pp. 20a-23a infra)

7™The Court of Appeals does not even mention in its opinion the

alleged concealment of assets from creditors which had formed the

basis for the District Court’s finding.

il

Court’s Conclusion on Remand was based on the same un-

stated evidence upon which the District Court relied, or

upon some totally different evidence which the Court of

Appeals found to be sufficient to meet the clear and con-

vincing test. Not one of the four opinions rendered in this

case contains any finding of the “clear and convincing” evi-

dence supposedly proving the purported gift.

This raises, we think serious questions in the administra-

tion of justice.

(a) In the total absence of any indication by the courts

below of the factual basis of their decision, the beneficiary,

whose fiduciary claims a gift of the trust assets, is likely to

be left with a deep, abiding feeling that he has been de-

frauded, and that the courts below have not given proper

consideration to his case and have failed to protect his

rights. We submit that to assure the proper respect for

the courts, their processes and the rule of law, there must

be at least a minimal disclosure of the factual basis of the

courts’ rulings in such cases.

(b) The higher standards of proof required by the courts

to avoid fraud in some situations will become uncertain

and arbitrary in their application if they are applied not

on the basis of facts but merely on the personal feelings and

whims of individual judges.

(c) In the absence of findings there can be no assurance

that the courts below have reviewed the record, in light of

the clear and convincing evidence rule, with the care re-

quired to prevent possible fraud by a fiduciary.

As Judge Frank stated in United States v. Forness, 125

F.2d 928, 942 (2nd Cir. 1942), cert. den. 316 U.S. 694,

“For as every judge knows, to set down in precise words

the facts as he finds them is the best way to avoid

12

carelessness in the discharge of that duty; often a

strong impression that on the basis of the evidence,

the facts are thus-and-so gives way when it comes to

expressing that impression on paper.” Cf. United

States v. El Paso Gas Co., 376 U.S. 651, 656 (1964).

No judge had expressed on paper the facts which are said to

constitute clear and convincing evidence of the alleged gift.®

CONCLUSION

For the reasons stated above, we submit that this case

represents such a departure “from the expected and

usual course of judicial proceedings . . . as to call for

an exercise of this Court’s power of supervision,” (Rule

19, Rules of the Supreme Court of the United States),

and that therefor the writ ‘ould be granted.

Respectfully submitted,

Mitton V. FREEMAN

WERNER J. KRoNSTEIN

ArNnoLpD & PorTER

1229 19th Street, N.W.

Washington, D. C. 20036

Attorneys for Petitioner

WituraM F. SNYDER

JAMES J. SCHILLER

MaRSHMAN, SNYDER & SEELEY

Of Counsel

8 One of the most important purposes of findings of fact, pursu-

ant to Rule 52(a), is to “evoke care on the part of the trial judge

in ascertaining the facts.” Leighton v. One William Street Fund,

Inc., 343 F.2d 565, 567 (2d Cir. 1965); Featherstone v. Barash,

345 F.2d 246, 249 (10th Cir. 1965) ; United States v. Forness, 125

F.2d 928, supra at 942.