# Appendix — Aiken v. Insull > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA43086415_0884%3A06 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1942 - **Citation:** 315 U.S. 806 ## Text 16 APPENDIX A. Portion of Memoranda of Holdings of District Court dealing with the issue involved in this petition for certiorari (R. 298-299) : Mortons To Dismiss. Allegations re payment of dividends. In the St. Johns case [ Aiken, et al. v. Insull, et al.) this subject is covered by Paragraphs 41 to 45, inelu- sive, of the complaint. Paragraph 43 avers that on January 9, 1932, at a meeting of the Board (all present except two) a resolution was unanimously adopted rati- fying, confirming and approving the action of the Ex- ecutive and Finance Committees, directing the payment of a dividend to stockholders of record December 15, 1931, such dividend being payable January 2, 1932. Taking this allegation most strongly against the pleader, I assume that the ratification and approval of the Board was given seven days after the dividend had been paid. This obviously is an insufficient allegation to charge the directors because the wrong had been consummated before the action of the directors. (Lewis v. Montgomery, 145 Ill. 30; Slater v. Taylor, 241 Il. 102.) Paragraphs 44 and 45 allege that the company had no surplus at any time during the years 1929, 1930, 1931 and 1932, but paid cash dividends during each of these three years (which three I do not know); that the Board of Directors authorized or ratified the action of the Finance or Executive Committee, authorizing such payment of dividends. There are 15 defendants named in this suit and elsewhere in the complaint ap- pears an allegation that each of the defendants was a member of the Board of Directors from January 14, 1929, to April 16, 1932. How many and which ones were present at the meeting where the action of the committee was ratified we are not told by the complaint. 17 The liability under the statute must be predicated upon the individual director having declared or assented to a dividend and it is not enough to say that the ecom- pany or the board or the committee declared a dividend. It would be a dangerous theory of law if an individual director were to be held liable for some misfeasance or malfeasance related to his conduct as a director without the assertion of some fact to show wrong on the part of the specific director involved. The allegations concerning payment of dividends in contravention of Section 23 of the 1919 Corporation Act are insufficient to charge any individual defendant with such responsibility. (Lewis vy, Montgomery, supra.) In the De Mets ease the allegations on this subject are in part similar to the St. Johns case, but not quite so full as the St. Johns case, hence, likewise, obnoxious to the motion. ee In view of the conclusion reached on this allegation of the complaint, it is unnecessary to pass upon the constitutionality of Section 23. Section 23 of the 1919 Illinois Corporation Act provided in full as follows: 18 APPENDIX B. The directors shall jointly and severally be liable for the debts and contracts of the corporation in the following cases: (1) For assenting to an indebtedness in excess of the amount of the capital of the corporation, to the amount of such excess; provided no director shall be liable under this clause (1) of this section if at the time such indebtedness is incurred, the value of the assets of the corporation as a going concern is greater ‘than the amount of such indebtedness, including in such assets the assets acquired with or resulting from the incurring of such indebtedness; but not including in such assets good will or any sum therefor. (2) For declaring or assenting to a dividend if the corporation is, or is thereby, rendered insolvent, or its capital is thereby impaired, to the extent of such dividend; (3) For debts contracted between the time of mak- ing or assenting to a loan to a stockholder or director and the time of its repayment, to the extent of such loan. For the purposes of this section the capital of the corporation ‘shall be considered as the aggregate amount paid in on its shares of capital stock issued and outstanding. Unless a director was absent from the meeting at which such dividend was declared or loan made, or unless his dissent therefrom shall be entered on the corporate records, he shall be conclusively presumed to have assented thereto. ‘DEC 30 ie IN THE SUPREME COURT OF THE UNITED STATES Ar THe Ocroser Tzrm, 1941 Cross-Petitioners, SAMUEL INSULL, JR., et al, | Vs. THOMAS D. AIKEN, et al., Cross-Respondents. CROSS-PETITION. CONRAD H: POPPENHUSEN, EDWARD R. JOHNSTON, FLOYD E. THOMPSON, 11 South LaSalle St., Chicago, WALTER BREWER, EDWARD J. F 231 South LaSalle St., Chicago, Solicitors for Cross-Petitioners. PRINTED BY CHICAGO LAW PRINTING CO. ~ INDEX. “sn actmuitat ER Ae Summary or Argument. I. The complaint did not state a cause of action IT. III. IV. wh against the defendants for alleged wrongful payment of dividends... The complaint fails to allege facts which show that the requisite jurisdictional amount is in- sisardatane EL. el PE The plaintiffs were collusively selected to create an appearance of diversity of citizenship which does not in fact exist. Plaintiffs’ attorneys failed to sustain the bur- den of showing that they had authority to com- mence this suit against former directors of I.U.1. A suit commenced without authority cannot be prosecuted even where plaintiffs ratify the com- mencement of the suit... The second motion for summary judgment should have been allowed. The settlement with and release of the four co-defendant directors against whom exactly the same charges were made as are made against these remaining de- fendants effected a discharge of all defendant directors for all causes of action alleged. The fact that the settlement agreement took the form of a covenant not to sue is immaterial. They paid $50,000.00 for the release, the suit was dismissed and the Statute of Limitations barred commencing another... Prayer for Writ... SavhudenidibauSicnirkiaamemsbtamiceat once. Sachromenccmacyie Se ale 28 ii PAGE TABLE OF Cases. Allis-Chalmers Mfg. Co. v. Chicago, 297 Ill. 444, 449 13, 23 Bell v. Farwell, 189 Ill. 414, 407.0000... ccccccecccccceos--- 11, 29 Board v. Blodgett, 155 Ill. 441, 446.00 13, 24 Carolene Products Co. v. McLaughlin, 365 Tl. 62, 70 21 Cashman v. A. & S. Canal Co., 118 U. 8. 58, 61.......... 12, 27 Cerri v. A. P. Tel. Co., 219 Fed. 285........................---.. 12, 27 Chicago Daily News Co. v. Siegel, 212 III. 617, 629 14,18 Chicago Motor Club v. Kinney, 329 Tll. 120, 134....... 22 Chick v. Fuller, 114 Fed. 22, 29.0000 21, 22 City of Chicago v. Babeock, 143 Tl. a ee 12, 34 Davis v. Va. Ry. & Power Co., 229 Fed. 633, 639........ 23 Dawson v. Columbia Trust Cx, 197 U. S. 178, 180, pene Cede SRAM DLs rata SIU At eRe Le RR CE 12, 27, 28 Detroit v. Dean, 106 U. S. 537, 541... 12, 27 Frye v. County of Calhoun, 14 Ill. 131, 132.0... 11, 29, 31 Graham v. Railroad Co., 102 U. S. 148, 153... 14,18 Gwin v. Breedlove, 43 U. S. 29, 37.00.0000 22 Hall v. Woods, 336 Ti. 134 1K. 22 Hanley v. Waters, 255 Ill. App. 239.0... 24 Hanford v. Davies, 163 U. S. 273, 280... 14, 24 Heiner v. Donnan, 285 U. S. 312, 329... 22 Hutchinson Box Board and Paper Co. v. Van Horn, Ss es cult See eee 25 Kankakee v. K. & I. R. Co., 115 Ill. 88, 92... 11, 29 Lewis v. Montgomery, 145 III. 30, 46, 47....... 11, 16, 18, 22, 23 Loverin v. McLaughlin, 161 Ill. era 22 Lyons v. Reinecke, 10 Fed. (2nd) 3, 7............... 14, 25 Matter of Reisenberg, 208 U. S. 90, 111... 25 Mutual Life Ins. Co. v. Thompson, 27 Fed. (2nd) WE UIE scihantpobithataniciacnai te gate oS 13, 14, 24, 25 National Bank v. Carpenter, 101 U. S. 967, 568........ 13, 23 SEARLE RNR ELE LEE LE INDE OTE LEI DEINE ATI EBA ILE Sra ne LSE a ill PAGE Taste or Cases (continued). New Albany Waterworks v. Louisville Banking Co., ne ts 25 Norton v. Larney, 266 U. S. Se 14, 24 Patterson v. Thompson, 86 Fed. coe, ee 22 People v. Rose, 207 Ill. 352, 361... 22 Petroyeanis v. Pirola, 205 Ill. App. 310, 312.............. 12, 34 Pollard v. Bailey, 20 Wall. Ere 19 Pueblo of Santa Rosa v. Fall, 273 U.S. 315, 319......13, 29, 32 Quincy v. Steel, 120 U. S. 241, 248.00 12, 27 Robson v. Doyle, 191 Ill. 566, 570... 22 Ryerson & Son v. Peden, 303 III. Sees 19 Seegmiller v. Day, 249 Fed. EN Bi 19 Sherman v. Gassett, 4 Gilman kale 22 Smith v. McCullough, 270 U. S. a6, 470... 14, 24 Southern Rity. Inv. Co. v. Walker, 211 U.S. 603........ 12, 27 Springfield Gas Co. v. Springfield, 292 Ill. 236, 243 22 Stanley v. Leahy, 87 III. ae 7, 12, 34 Sutherland v. Int. Ins. Co., 43 Fed. (2nd) 969, 972 13 N. & G. Taylor Co. v. Anderson, 275 U. S. 431, 439 13, 23 United States v. First Wis. Tr. Co., 92 Fed. (2nd) GE I stdin ) Be Mel 13, 23 United States v. Linn, 42 U. 8. Se |: LO Oe 14, 25 Vestal Co. v. Robertson, 277 IIl. ey Wikis. 22 Vigeant v. Seully, 35 Il. SS ae a 12, 34 Wallner v. Chicago Traction Co., 245 Ill. 148, 151...... 12, 35 Watkinson vy. Adams (Okla.), 103 Pae. (2nd) 498, sp he i ei BO COR Ree 17 Western Mtge. & Guar. Co. v. Grey, 215 Calif. 191, 7 ee Se a 17 White-Wilson-Drew Co. v. Lyon-Ratcliff Co., 268 Fed. so ag EF TT SND ae 13, 17, 22 EIR PA RNS RE RNR URN NNR PIR Bae: Soy Se IN Sa. SEERA ESPRESSO IE AI TC iv PAGE TasLe or Cases (continued). L. E. Whitham Const. Co. v. Remer, 105 Fed. (2nd) BFA, BI acscsiccnesewtee nn escennnsva seta: LLL O LS AEN, ELIE EAL BIEN IT 19 for wrongfully declaring or assenting to a dividend, which is what the statute makes actionable. Lewis v. Montgomery, 145 Ill. 30, 47. II. The complaint fails to allege facts which show that the requisite jurisdictional amount is involved. The only paragraphs of the complaint which state any amount are paragraphs 4 and 10. Paragraph 4 consists merely of the general statement that more than $3,000 is involved (R. 3). Paragraph 10 alleges merely that plain- tiff owned notes of the face amount of $20,000 when it filed the complaint (R. 6) but it does not allege what plain- tiff paid for these notes except that it was something of value, nor that plaintiff has been damaged to an amount in excess of $3,000 or in any other amount. There is no allega- tion anywhere in the complaint from which it is possible to determine the amount of any dividend that was declared or paid. In fact it is alleged in paragraph 33, ‘‘the exact amounts of which cash dividends are unknown to the plain- tiff’? (R. 12). An examination of paragraphs 33 and 34, Which are the only paragraphs of the complaint relating to the payment of dividends, will not reveal even a sugges- tion of the amount involved much less that the amount exceeds $3,000. It is not enough that a complaint contain a formal allega- tion of jurisdictional amount. It must allege facts showing that the amount in controversy exceeds $3,000. Smith v. McCullough, 270 U. §. 456, 459; Mutual Life Ins. Co. vy. Thompson, 27 Fed. (2nd) 753, 754; Woods v. Thompson, 14 Fed. (2nd) 951, 952. It must affirmatively and distinctly appear from the facts alleged and not by inference or argument that the necessary amount is involved. Norton AOL A SRK 3 hc cet OREN Y Oy REO Oe een en 20 v. Larney, 266 U.S. 511, 515; Hanford v. Davies, 163 U. 8. 273, 280; Wolfe v. Hartford Life & Annuity Ins. Co., 148 U. S. 389. If the requisite jurisdictional amount does not | appear from the allegations of the complaint the case must be dismissed. Lion Bonding Co. v. Karatz, 262 U.S. 77, 86; Pianta v. Reich Co., 77 Fed. (2nd) 888, 890. The Circuit Court of Appeals does not discuss this point in its opinion in this case but disposes of the point by mere general reference to its opinion in Aiken v. Insull (R. 344). Since that Court refers to the proposed amend- ments in the Aiken case to bolster up the original com- plaint (R. 357) it must have referred to the proposed amendments in this case to get even a suggestion of the amount involved. It is well established that on a motion to dismiss all doubts with respect to the sufficiency of the complaint must be resolved against the plaintiff. Mutual Life Ins. Co. v. Thompson, 27 Fed. (2nd) 753, 754; Lyons v. Reinecke, 10 Fed. (2nd) 3, 7; United States v. Linn, 42 U. S. 104, 111. It is essential that the complaint itself sets forth sufficient facts to show the necessary jurisdictional amount and the Cireuit Court of Appeals was in error when it went outside of the complaint to find the essential allega- tions of fact. Plaintiff alleges that it owned notes when it filed the complaint in 1933 (Par. 10, R. 6) but it does not allege when it acquired these notes, except that it acquired them before maturity which may have been any time before the suit was commenced. There is no allegation that plain-— tiff owned these notes when the challenged declaration of dividends took place. There being no allegation that any wrong was committed by any defendant at any time when plaintiff owned notes, there is no allegation of any injury in any amount to the named plaintiff or to any intervenor or to any present creditor. PRN Oa RO 21 On this ground of failure to allege facts to show jurisdic- tion in a Federal court the complaint was properly dis- missed. CONCLUSION. The Cireuit Court of Appeals has wholly disregarded the Illinois decisions and decisions of this Court on the phase of the case presented by this cross-petition for writ of cer- tiorari. It is therefore respectfully submitted that this case is one calling for the exercise by this Honorable Court of its supervisory powers over the judgments and decrees of the Cireuit Court of Appeals in order that the errors committed by the Cireuit Court of Appeals may be cor- rected. That these cross-petitioners may have the benefit of the rights to which they are entitled under established law, this cross-petition should be granted and this Honor- able Court should review the decision of the Cireuit Court of Appeals and enter its judgment affirming the decree of the District Court in all respects. Respectfully submitted, Conrap H. Poprennusen, Epwarp R. Jounston, Fioyp E. Tuompson, 11 South LaSalle St., Chicago, Joun J. Heaty, 135 South LaSalle St., Chicago, Solicitors for Cross-Petitioners. ee ws eee ee ae Bet oD eRe Nace es et IE ADA a FREER a a APs t Doers, anaes th Office - Supremes Court, U. 5. FLD Ab 24 li? CHARLES ELMSAZE CROPLEY | CLE RA ; IN THE SUPREME COURT OF THE UNITED STATES At THE Octoser Term, 1941 THOMAS D. AIKEN, et at, Plaintiff s-Petitioners, Vs. SAMUEL INSULL, JR., er ax., Defendants-Respondents. SEE Answer to Petition for Writ of Certiorari. Conrap H. Poprennusen, Epwarp R,. JoHnston, Froypy E. Txompson, 11 South LaSalle St., Chicago, Water Brewer, Epwarp J. F ARRELL, 231 South LaSalle St., Chicago, Solicitors for Respondents. PRINTED BY CHICAGO LAW PRINTING CO. INDEX. IE scilecsundiaigditeansa dai epe ee geae ta Rants I. The conclusion reached by the District Court and the Circuit Court of Appeals that the re- lease and discharge of the banks operated to release and discharge the former directors of I. U. I. from all liability for the alleged wrongful pledging is fully supported by the established law and sound logic... aie A. The argument of plaintiffs’ counsel is based on the erroneous assumption of fact that the release of the banks was conditioned upon the reservation of the cause of action against the former di- ctsnancin thins A ee are eee B. The release of the banks from all liabil- ity for their part in effecting a pledge of the assets of I. U. I. in alleged breach of the debenture covenants likewise re- leased the former directors of I. U. I..... C. The rule that the release of one of several joint tort feasors releases all of them ap- plies even where there is a reserved in- tention to look to others for further Nes pe, _ eR EAN RN tay AA RTA D. The rule for which we contend is the only rule which has a foundation in sound logic and established law.............--..-00000.0-.. 12-26 12-14 14-16 16-21 RK sei or AO RR Aly ii Argument (Contd.)— II. The summary judgment motion applies to the liability of defendant directors for pledging of collateral for loans made by the New York banks for the same reason that it applies to the transactions with the Chicago RUE -nirssiersees bse ealetiilicdnadiicbisndaen cies cae 1. No error is assigned on the point.............. 2. Petitioners’ argument is premised on false assumption of facts. The settle- ment included the New York banks as well as the Chicago banks.......00000000000000..... 3. Even as to the suits tried before Judge Mack plaintiffs still had pending claims III. The former directors of I. U. I. (respond- ents here) and the settling pledgee banks acted jointly in the pledging of the assets of I. U. I. and consequently all contributed to the consummation of the wrong to the creditors of I. U. L, if wrong was done. The District Court and the Circuit Court of Ap- peals, in sustaining the motion for summary judgment, were right in applying the well established rule of release of all by the re- lease of one or more of several alleged joint SI oicincisiinctrecini detiaeesnsidiigentedadebilonds RU ona steer a a TABLE oF Cases. Abb v. Northern Pae. Ry. Co., 28 Wash. 428, 68 Pac. sdk asp vi PAGE TasLe or Cases (Contd.). Quincy v. Steel, 120 U. S. 241, 248.....................----.2--- Russell v. Stansell, 105 U.S. 303, 304.........0.00......2------- Rust v. Schlaitzer, 175 Wash. 331, 27 Pac. (2nd) 571, URES ARTES SESE RVG Ne EN Secor ee er ENO UE 5, 7, 10, 25 Sircey v. Hans Rees Sons, 155 N. C. 296, 71 S. E. a acpi sasatatee oe cascade ctheptcrcerrlctircntretas 4, 5, 24 Smith v. Mann, 184 Minn. 485, 239 N. W. 223, 224....4, 25, 31 Spiess v. Sommarstrom Ship Bldg. Co., 272 Fed. I. SI sichacctchuaeicsinsdaviicigieatieauttcheletnnontnbesaeitiniesivesasnnsnicnes 5, 31 Southern Realty Investment Co. v. Walker, 211 U. S. RIES ERY 2 RR Re re aC Oe aT De 8 Stanley v. Leahy, 87 Ill. App. 465, 467............... 7, 10, 15, 16 Sterling Gas Co. v. Higby, 134 Ill. 557, 568............... 9 Sutherland v. Internatl. Ins. Co., 43 Fed. (2nd) 969, gare pecatoiccceiansc icin staid saisbiahaicioreghitnediasestacannnglasiennn 9 Thompson v. Fox, 326 Pa. 209, 192 Atl. 107, 109............ 7 Town of Kankakee v. Kankakee & Indiana R. Co., BE cates ancincta hic biciniepecsemsntadeetiaelniceonntpistlnienyincent 9 Van Weel v. Winston, 115 U. S. 228, 237, 245.................. 5, 9 Veasic v. Wittams, @ U. BS. 134................................. 32 Vigeant v. Seully, 35 Ill. App. 44, 46, 47....4, 15, 20, 22, 31, 33 Wagner v. C. & A. R. Co., 265 Ill. 245, 251... 7 Wallner v. Chicago Traction Co., 245 Ill. 148, 151........ 4,15 Webb v. Cash, 35 Wyo. 398, 250 Pac. 1, 8...................... 5 Welty v. Laurent, 285 Ill. App. 13, 14........................ 4,7,15 Whitford v. Reddeman, 196 Wis. 10, 219 N. W. 361.... 6 Wright v. Griffey, 47 Ill. App. 577, 578........................ 29 MISCELLANEOUS. Restatement of Torts, Sec. 886......0.......0..00. eee 18 Supreme Court Rule 38(5) _.-.u............c.sscecieeesseoees 36 eee . IN THE SUPREME COURT OF THE UNITED STATES ‘ At THE Ocroser Term, 1941 r No. 821 f k THOMAS D. AIKEN, er at., Plaintiffs-Petitioners, Vs. SAMUEL INSULL, JR., er at., Defendants-Respondents. a Poses ld ea Ae a hon nt aa Cer Le aaa Answer to Petition for Writ of Certiorari. OR Oe To the Honorable The Supreme Court of the United States: The petitioners have not made an accurate statement of the case. The statement that Insull Utility Investments, Inc. was organized by present defendants (respondents here) (Pet. 3) is not supported by the record. The allegation of the complaint (Par. 5, R. 3-5) is that the company was organized by Samuel Insull, now deceased, in the fall of 1928. Thereafter, in 1929, present defendants were elected directors of the company. Par. 8, R. 5. ‘, e& & ; s. % BS E The record does not support the statement that the public utility companies of the Insull Group, in the shares of which I.U.I. made substantial investments, were ‘‘under the direction and management of the defendants’’. (Pet. 3.) There is no allegation anywhere in the complaint that respondents, H. L. Stuart or Stuyvesant Peabody, had anything to do with the operation of any of these public utility companies at any time. In stating the covenant of the debentures, (Pet. 3) peti- tioners omit the exceptions to the restrictions on pledging which are that ‘‘the Company without so securing this de- benture (a) may at any time mortgage or pledge any of its property for the purpose of securing loans to the Company contracted in the usual course of business for periods not exceeding one year, and (b) may in order to secure the purchase price or part thereof of any prop- erty which it may hereafter acquire, mortgage or pledge any or all of such acquired property.’’ R. 8-9, 14. It is not true that ‘‘shortly after I.U.I. was organized, the defendant directors caused I.U.I. to pledge substan- tially all its assets to secure loans.’’ (Pet. 4.) LUI. was an investment company organized ‘‘to acquire, dis- pose of, underwrite and deal in securities, and do a gen- eral investment business’’, (R. 3,) and borrowing money to make investments was in the usual course of its busi- ness. The facts alleged in Paragraph 30 (R. 24-32) show that the first loan was made April 14, 1930, when $2,500,000 was borrowed from the Continental Bank, and that the last loan was made December 22, 1931, when a loan of $500,000 was made by the General Electric Company. All the loans were for short periods and there were many renewals. It is alleged in Paragraph 34 (R. 32) that as late as May 15, 1931, the value of the assets of I.U.I. was approximately $193,000,000 and its outstanding ob- ligations were approximately $98,000,000. It is clear from the allegations of the complaint that when the original loans were made they were small when compared with Karas ET ERLE S SENN OE TOE LRG ANE IE SEN A LSE DT SOA ROTA C SERIA A the assets of the company and that the drastic decline in market value of securities brought about by the cata- clysmic world-wide economic depression and not the origi- nal borrowing and pledging caused the bankruptey of LU.I. After I.U.I. went into bankruptcy a score of suits were filed against the banks by the trustee in bankruptcy and by different groups of debenture-holders. (R. 116-128.) By their suits the debenture-holders sought decrees against the banks to compel surrender of all notes of I.U.. and of all collateral pledged and for an accounting. (R. 112.) After negotiation it was agreed that all claims of the debenture-holders and the trustee in bankruptey be com- promised and settled. (R. 137.) A decree was entered in chancery confirming in the banks title to the collat- eral pledged with them, free from all claims asserted or assertable by the debenture-holders or the trustee aris- ing out of or in any manner connected with the pledging, (R. 175,) and permanently enjoining the debenture-holders from instituting or prosecuting any suits against the banks on account of such pledgings. (R. 177.) An order was entered in bankruptcy reciting that the settlement had been fully carried out by the payment by the banks of $3,435,088.07 and the performance of other terms of the settlement ‘‘in full settlement and compromise of all claims involved”’ in all of the pending suits, (R. 196,) and ordering that the acts of the trustee in bankruptcy in carrying out the settlement be approved and that he deliver releases to all of the banks. R. 197. It is not true that the banks agreed that the cause of action against the former directors of LU.L should not be affected by the settlement. (Pet. 5.) The debenture- holders as petitioners made the assertion in their petition for approval of the settlement that the release of the banks should not release former directors of the company (R. | ea go Spee 143) but this attempted reservation of a cause of action against the former directors was not made a condition of the effectiveness of the release of the banks. 4 Reasons for Denial of the Writ. 1. The decision of the Circuit Court of Appeals with respect to the release of the alleged cause of action against the former directors of 1.U.I. arising out of the alleged pledging of assets by I.U.I. in violation of debenture cove- nants, by virtue of the release of the banks for their par- ticipation in said pledging, follows the decisions of the courts of Illinois. Under the settled law of Illinois the release of the settling banks released the former direc- tors of I.U.I. as to all causes of action asserted or which might have been asserted by the debenture-holders for or on account of the alleged wrongful pledging of the assets of I.U.I. as collateral to the bank leans. Wallner v. Chicago Traction Co., 245 Ill. 148, 151; Welty v. Laurent, 285 Ill. App. 13, 14; Guth v. Vaughan, 231 Ill. App. 143; Killham v. Chaloupka, 195 Ill. App. 182, 185; Gore v. Henrotin, 165 Til. App. 222, 224; Vigeant v. Scully, 35 Tl. App. 44, 46; Chapin v. C. d E. I. Ry. Co., 18 Ill. App. 47, 50. This rule that where two or more persons each con- tribute to cause a single injury the release of one releases all is not only the settled law of Illinois but it is the law of most if not all American jurisdictions. Farmers’ Sav- ings Bank vy. Aldrich, 153 Ia. 144, 183 N. W. 383; Smith v. Mann, 184 Minn. 485, 239 N. W. 223, 224; Muse v. DeVito, 243 Mass. 384, 1387 N. E. 730, 731; Lanasa v. Beggs, 159 Md. 311, 151 Atl. 21, 25; Abb v. Northern Pacific Ry. Co., 28 Wash. 428, 68 Pac. 954, 955; Chetwood v. California National Bank, 113 Cal. 414, 45 Pac. 704, 706; Sircey v. Hans Rees Sons, 155 N. C. 296, 71 S. E. 310, 311; McBride v. Scott, 182 Mich. 176, 93 N. W. 248, 244; Gholson v. Savin, (Ohio.) 31 N. E. (2nd) 858, 863; Bronson v. Fitzhugh, 1 — en UPLIFT RRR sscideliiientimetinennatteniattnidinindiaaadmaidaebemtitaninns - 5) Hill (N. Y.) 185; Kaplowitz v. Kay, 70 Fed. (2nd) 782, 783; Spiess v. Sommarstrom Ship Bldg. Co., 272 Fed. 109, 111. Furthermore the settling debenture-holders released the cause of action against the former directors of I.U.I. by an election of substantive rights in making their settle- ment with the banks. Birdsell Manufacturing Co. v. Ogle- vee, 187 Ill. 149, 153; Gibbs v. Redman Fireproof Storage Co., 68 Utah 298, 249 Pac. 1032; MacDonald v. Hornblower & Weeks, 268 Mich. 626, 256 N. W. 572; DeCock v. O’Con- nell, 188 Minn. 228, 246 N. W. 885, 887; Fowler v. Bowery Savings Bank, 113 N. Y. 450, 21 N. BE. 172. Parmelee v. Lawrence, 44 Ill. 405, and other cases relied on by petitioners are clearly distinguishable because they apply only to joint obligor cases where there is the right of contribution. 2. The rule of release established by the Illinois deci- sions and applied by the Circuit Court of Appeals in this case is founded on sound public policy and is a salu- tary rule of law. Chapin v. C. & E. I. Ry. Co., 18 Ill. App. 47, 50, citing Brown v. City of Cambridge, 85 Mass. 474, 475; Farmers’ Savings Bank vy. Aldrich, 153 Ia. 144, 133 N. W. 383, 386; Rust v. Schlaitzer, 175 Wash. 331, 27 Pace. (2nd) 571, 573; Sircey v. Hans Recs Sons, 155 N. C. 296, 718. E. 310, 311; McBride vy. Scott, 132 Mich. 176, 93 N. W. 243, 245. 3. The former directors of LU.I. did not stand in the relation of trustees to the debenture-holders, People vy. Superior Court, 359 Ill. 612, 619; Becker v. Billings, 304 Ill. 190, 198; Gottlieb v. Miller, 154 Ill. 44, 50; Briggs v. Spaulding, 141 U. S. 132, 147; Van Weel v. Winston, 115 U. S. 228, 245; Webb v. Cash, 35 Wyo. 398, 250 Pae. 1, 8; Hart v. Evanson, 14 N. D. 570, 105 N. W. 942, 943, 6 But if I.U.I. stood in the relation of a trustee to the debenture-holders and if it violated its duty by pledging its assets, then all who acted with I.U.I. in breaching its trust are liable jointly and severally for the wrong, and so the release of one would release all. First & Merchants National Bank v. Bank of Waverly, 170 Va. 496, 197 S. E. 462, 465; Farmers’ Savings Bank v. Aldrich, 153 Ta. 144, 133 N. W. 383, 385; Braswell v. Morrow, 195 N. C. 127, 141 S. E. 489, 491; Whitford v. Reddeman, 196 Wis. 10, 219 N. W. 361; DeCock v. O’Connell, 188 Minn. 228, 246 N. W. 885, 887; Gibbs v. Redman Fireproof Storage Co., 68 Utah 298, 249 Pac. 1032, 1034. 4. The decisions in Kelly v. Central Hanover Bank & Trust Co., 11 Fed. Supp. 497, and in 85 Fed. (2nd) 61, are based on a failure of proof after a trial and can have no application to the case at bar which presents entirely different issues on different pleadings. We have here the effect of a comprehensive and unconditional release of some of several alleged joint wrongdoers. The legal effect of the release of the settling banks cannot be explained away nor can the debenture-holders, after accepting the benefits of the settlement, make the excuse that the banks were not in fact wrongdoers. Chapin v. C. & E. I. Ry. Co., 18 Ill. App. 47, 51; Guth v. Vaughan, 231 TH. App. 143; C. C. C. & St. L. Ry. Co. vy. Hilligoss, 171 Ind. 417, 86 N. K. 485, 488; Martin v. Setter, 184 Minn. 457, 239 N. W. 219, 222; Kirkland v. Ensign-Bickford Co., 267 Fed. 472, 475. d. The Cireuit Court of Appeals does not hold that the banks and the former directors of 1.U.I. were jointly liable as tort feasors and it is the settled law of Illinois that the application of the rule of release of all by the release of some of several alleged joint wrongdoers is not con- fined to cases where the alleged wrongdoers are jointly liable. The rule applies where all contributed to the same injury even though they acted severally. Chapin v. C. & 7 E. 1. Ry. Co., 18 Til. App. 47, 50; Welty v. Laurent, 285 Til. App. 13, 14; Wagner v. C. & A. R. Co., 265 Ill. 245, 251; Gibbs v. Redman Fireproof Storage Co., 68 Utah 298, 249 Pac. 1032, 1034; Farmers’ Savings Bank v. Aldrich, 153 Ta. 144, 133 N. W. 383, 385; DeCock v. O’Connell, 188 Minn. 228, 246 N. W. 885, 887; Muse v. DeVito, 243 Mass. 384, 137 N. E. 730, 731. 6. The separate point with respect to the release of the New York banks is an afterthought. It was not pres- sented to the District Court for decision and there is no assignment of error on the record which presented the point to the Cireuit Court of Appeals. Furthermore, the assumed facts from which the argument is made are not supported by the record. 7. The statement that the decree approving the settle- ment with the banks was entered on the express condition that the cause of action against the former directors of I.U.I. would be preserved is directly contrary to the facts. It is immaterial that the settling debenture-holders who petitioned for the decree intended to release only the banks, There is no dispute among the authorities that where there is an absolute and unconditional release of one of several alleged wrongdoers it operates to release all who partici- pated in the same act. Stanley v. Leahy, 87 Tl. App. 465, 467; Petroyeanis v. Pirola, 205 Tl. App. 310, 312; Bee y. Cooper, 217 Cal. 96, 17 Pac. (2nd) 740, 741; McBride vy. Scott, 132 Mich. 176, 93 N. W. 243, 244; Rust v. Schlaitzer, 175 Wash. 331, 27 Pae. (2nd) 571; Thompson vy. Fox, 326 Pa. 209, 192 Atl. 107, 109; Ducey v. Patterson, 37 Colo. 216, 86 Pac. 109; Gholson v. Savin, (Ohio,) 31 N. EB, (2nd) 858, 863. In addition to the grounds assigned by the District Court and the Circuit Court of Appeals in sustaining the motion for summary judgment there are other equally well-sup.- a ae iene 8 ported grounds why a decree for defendants must be en- tered with respect to the alleged cause of action grounded on the pledging of assets of I.U.I. as security for bank loans. 8. The complaint fails to allege facts which show that the requisite jurisdictional amount is involved. This is not a true class action, (Ayer v. Kemper, 48 Fed. (2nd) 11, 14,) and the amounts of the separate claims of the plaintiff debenture-holders cannot be combined to create the necessary jurisdictional amount. (Pinel v. Pinel, 240 U.S. 594, 596; Clay v. Field, 138 U.S. 464, 479.) The com- plaint must affirmatively and positively allege facts which show that the jurisdictional amount is present and the alle- gations cannot be helped by presumptions or argumenta- tive inferences. (Norton vy. Larney, 266 U.S. 511, 515; Hanford v. Davies, 163 U.S. 273, 280.) There is no alle- gation in the complaint that any plaintiff was a creditor at the time of the alleged wrongful borrowings and pledg- ings, and so there is no allegation of any injury in any amount to any plaintiff. (Graham vy. Railroad Co., 102 U.S. 148, 153; Chicago News Co. v. Stegel, 212 Ill. 617, 629.) A spurious class suit must be dismissed as to each plain- tiff who does not individually and severally allege affirma- tively and distinctly that he has a claim in excess of $3,000. Ogden v. Armstrong, 168 U.S. 224, 232; Russell v. Stansell, 105 U.S. 303, 304. 9. The plaintiffs were collusively selected to create an appearance of diversity of citizenship which does not in fact exist. No debenture-holder who resided outside Tlli- nois was consulted respecting the institution of this suit or the selection of the plaintiffs in whose names the suit was instituted. This ground of lack of jurisdiction sup- ports the decree dismissing the suit. Southern Realty In- vestment Co. v. Walker, 211 U.S. 603; Detroit vy. Dean, 106 9 U.S. 537, 541; Quincy v. Steel, 120 U.S. 241, 248; Cerri v. Akron-People’s Telephone Co., 219 Fed. 285. 10. The authority of plaintiffs’ attorneys to institute and prosecute this suit was appropriately challenged and they failed to sustain the burden of showing that they had authority to commence this suit against the former direc- tors of I.U.I. Their only authority was to sue to collect moneys due upon the debentures. No named plaintiff knew that the suit against these fefendants had been com- menced until after the complaint had been filed. A suit commenced without authority cannot be prosecuted even where plaintiffs acquiesce or attempt to ratify the com- mencement of the suit. Frye v. County of Calhoun, 14 Til. 131, 132; Town of Kankakee v. Kankakee & Indiana R. Co., 115 Ill. 88, 92; Bell v. Farwell, 189 Til. 414, 417; Pueblo of Santa Rosa v. Fall, 273 U.S. 315, 319; Sutherland v. Inter- national Insurance Co., 43 Fed. (2nd) 969, 972. 11. The facts alleged in the complaint do not state a cause of action against the former directors of I.U.I. or any of them on account of the alleged violation of the de- benture covenants in pledging assets as security for bank loans. The complaint states mere conclusions as to those matters which are essential to state a cause of action for wrongful pledging. (Van Weel vy. Winston, 115 U.S. 228, 237; Sterling Gas Co. v. Higby, 134 Ml. 557, 568; Bosworth v. Van Lanningham, 293 Fed. 875, 877.) There is no alle- gation that any of the indebtedness for which a pledge was made was created after the debentures were issued, Renewals of notes are merely extensions of time of pay- ment and not the creation of new indebtedness. Kelly vy. Central Hanover Bank & Trust Co., 11 Fed. Supp. 497, O04; Griffin v. Long, 96 Ark. 268, 131 S.W. 672, 673; Phoenix Bank v. Martin, 219 Ky. 579, 293 S.W. 1064, 1067; Pough- keepsie v. Quintard, 136 N.Y. 275, 32 N.E. 764. 10 12. Plaintiffs became creditors of I.U.I. by purchas- ing its debentures. In each debenture was a provision that all liability of the directors for the payment of the debenture was waived and released by the holders of the debentures. This no recourse provision precludes any recovery by plaintiffs against defendants as former di- rectors for the payment of the debentures or any part thereof. Continental Corp. v. Gowdy, 283 Mass. 204, 186 N.E. 244, 246; Marfield v. Cincinnati D. & T. Traction Co., 111 Ohio 139, 144 N.E. 689, 691; Babbitt v. Read, 215 Fed. 395, 417, affirmed in 236 Fed. 42. 13. In addition to the settlement with the banks, plain- tiff debenture-holders settled with four co-defendant di- rectors and dismissed the suit as to them after the Statute of Limitations barred the commencement of a new suit. This settlement with and release of some former directors, who were charged with identically the same wrongs as are charged against present defendants, effected a discharge of all former directors for all causes of action alleged. The fact that this settlement agreement took the form of a covenant not to sue is immaterial. Petroyeanis v. Pirola, 205 Ill. App. 310, 312; Stanley v. Leahy, 87 Til. App. 465, 467; Bee v. Cooper, 217 Cal. 96, 17 Pae. (2nd) 740; Lanasa v. Beggs, 159 Md. 311, 151 Atl. 21, 25; Rust v. Schlaitzer, 175 Wash. 331, 27 Pac. (2nd) 571, 573. 14. These respondents may sustain the decree of the District Court upon any ground warranted by the record, though they may wish to show that the District Court might have based its decree on different and additional grounds and that the Cireuit Court of Appeals might have affirmed on different and additional grounds. (McGold- rick v. Compagnie Generale Transatlantique, 309 U.S. 430, 434; Langnes v. Green, 282 U.S. 531; Mattingly v. North- western Virginia R. Co., 158 U.S. 53, 57; Hitlmer v. Chr cago Bank of Commerce, 375 Ill. 266, 272.) It is the con- en 11 sidered opinion of counsel for respondents that the grounds assigned by the District Court as the basis for its decree and the grounds assigned by the Circuit Court of Appeals as the basis for its judgment in so far as it affirmed the decree of the District Court are sound, and that the peti- tion should be denied for the reasons assigned in Points 1 to 7, supra. In addition to the sound reasons assigned for the decision in favor of respondents, there are other reasons equally sound which require that the petition be denied, which reasons are set forth in Points 8 to 13, supra. ree. | OE AAR ION NES TIS SRE NTE EE MLE ae PRY LIS 12 ARGUMENT IN OPPOSITION TO PETITION FOR WRIT OF CERTIORARI. I, The conclusion reached by the District Court and the Cir- cuit Court of Appeals that the release and discharge of the banks operated to release and discharge the former directors of I.U.I. from all liability for the alleged wrong- ful pledging is fully supported by the established law and sound logic. A. The argument of plaintiffs’ counsel is based on the erroneous assumption of fact that the release of the banks was condi- tioned upon the reservation of the cause of action against the former directors of I.U.I. An examination of the proceedings of the United States District Court and the settlement papers which appear as exhibits to the motion for summary judgment will dis- close that the assumption of fact made by plaintiffs’ coun- sel that the release of the banks was conditioned on the reservation of some cause of action against the former directors of L.U.1. is without foundation and that the whole argument resting on this false premise falls of its own weight. After deseribing the score of suits pending in the Fed- eral courts of New York and Illinois against the New York and Chicago banks by the debenture-holders and the trustee in bankruptey of I.U.1. (Pars. 1-6, R. 116-122; Pars. 8-10, R. 125-126), and the extensive negotiations be- tween the attorneys for the creditors and the trustee and 13 the attorneys for the banks (Par. 25, R. 136), the peti- tion states that the debenture holders had agreed to com- promise and settle their claims which had been asserted or which were assertable against the banks in the various pending equity suits as well as the claims of the trustee in bankruptey in the several pending preference suits. (Par. 26.) There is no suggestion here that the settle- ment was other than absolute and unconditional. (R. 137.) The whole argument of plaintiffs’ counsel rests upon their construction of Sub-Paragraph K of Paragraph 26. There is not a suggestion in this paragraph or in anything that precedes it that the attempted limitation of the effect of the release of the banks should be a condition of the settle- ment with the banks. The paragraph is just an announce- ment of the hope of the petitioners that the release of the banks would not be construed as a release of former officers or directors of I.U.I. (R. 143.) There is nothing in the record to show that the banks agreed to this attempted reservation as a limitation of the effect of the release to be given to them upon the consummation of the settlement arrangement. The banks were not parties to the petition. There was no answer to the petition by the New York banks, and the Chicago banks by their answer merely ad- mitted that the allegations of the petition that a settlement had been reached were true. Ex. D, R. 162-165. The decree approving settlement (Ex. F, R. 172-174), the decree in chancery confirming settlement (Ex. G, R. 174- 194), and the order in bankruptcy confirming settlement (Ex. H, R. 195-199), were obviously agreed orders, They must have been drafted by plaintiffs’ counsel and approved by the banks’ counsel. The Court will search these de- cretal orders in vain for even a suggestion of the reserva- tion of the alleged cause of action against the former di- rectors of I.U.J. Obviously, the banks would not have permitted this attempted reservation to be made a con- OBR lag ANE Aa A DE EAI Ma Sm ARRAS F TEC ee 14 dition of the effectiveness of the release given to them. The final decree in chancery and the final order in bank- ruptey confirming the settlement show that the settlement with the banks was unconditional and that the release given to the banks was absolute and contained no attempted reservation of any pretended cause of action against any officer or director of I.U.I. The Court will notice that the final orders entered February 24, 1938, not only released the banks of all claims, demands and causes of action which had been asserted against them in the scores of suits pending in the Federal courts of New York and Illinois, but they released all claims, demands and causes of action which might have been asserted against the banks by de- benture-holders or the trustee in bankruptcy of I.U.I. re- specting liability of the banks for making loans to and receiving collateral from the corporation in violation of the debenture covenants. (R. 175, 197.) To make the release of the banks doubly certain, all debenture-holders and the trustee in bankruptcy and all parties claiming through them were permanently enjoined from ever in- stituting any action against said banks on account of any matter involved in the bank suits or upon or in con- nection with the debentures. R. 177. The release of the banks from all liability for their part in effecting a pledge of the assets of I.U.I. in alleged breach of the debenture covenants likewise released the former directors of LULL. We do not believe that anyone will seriously contend that the settling banks could not plead the settlement and release in bar of any action which might be brought against them for alleged breach of the covenants of I.U.I. deben- tures in connection with the deposit of collateral as secu- rity for the loans made by the banks to the corporation. 15 It is so held by the District Court (R. 293) and the Circuit Court of Appeals. (R. 357.) This being established, it follows as night the day that the release of the banks also released the former directors of the corporation for their participation in the commission of the alleged wrong. There is not a case in I}linois which departs from the rule that if there is an actual release of the cause of action against one or more of several joint wrongdoers the cause of ac- tion is released against the others. A few of the Illinois cases are Wallner v. Chicago Traction Co., 245 Ill. 148, 151; Mooney v. City of Chicago, 239 Ill. 414, 423; City of Chicago v. Babcock, 143 Ill. 358, 366; Emory v. Addis, 71 Ill. 273, 277; Welty v. Laurent, 285 Ill. App. 13, 14; Killham v. Chaloupka, 195 Ill. App. 182, 185; Stanley v. Leahy, 87 Ill. App. 465, 467; Vigeant v. Scully, 35 Ill. App. 44, 46; Chapin v. C. € E. I. R. Co., 18 Ill. App. 47, 50. It is uni- versally held that the absolute release of one or more of several joint wrongdoers releases all the rest of them and that an unconditional and consummated settlement with one or more of such wrongdoers is a bar to a suit against any of the rest of them. In applying the Illinois decisions to the case at bar, we must keep in mind the fact that there was an absolute and unconditional discharge of the banks from all asserted or assertable liability. Certainly, in the light of the final orders entered by the District Court in chancery and in bankruptcy, these plaintiffs or any of the other debenture- holders could not revive any of the many suits against the banks. If any debenture-holder attempted to prosecute any of these suits against the banks, the banks could plead the release as a bar and the debenture-holder would sub- ject himself to prosecution for contempt of court for vio- lating the injunction permanently restraining prosecution of the suits against the banks. This situation was brought about by the action of plaintiffs and the debenture-holders aie | ‘ethiniels neon Tad LE Picasa ee chk ig ic omMeCe ae oe a cea 16 represented by them in the bank suits. They asked the Court to approve the compromise which released and dis- charged the banks. They asked the Court to restrain all debenture-holders from prosecuting any suit against the banks for their part in the transactions which they as- serted had resulted in a great loss to them. These de- fendant directors had no part in releasing the banks from this alleged liability and they were not consulted about it during the negotiations for settlement nor were they before the Court in the proceedings which concluded the settlement with and discharge of the banks. Plaintiffs created the situation which they now seek to avoid. Cc. The rule that the release of one of several joint tort feasors releases all of them applies even where there is a reserved in- tention to look to others for further compensation. Plaintiffs’ counsel, in their petition (p. 27) challenge us » ‘‘to cite a single case of the Supreme or Appellate Courts of Illinois deciding that in spite of a clause in a release reserving the cause of action against the other joint tort feasors, the reservation clause will be given no effect and the other joint tort feasors will be released.” We have met the challenge in the group of cases cited under the preceding point and we could cite many more cases an- nouncing the same rule. The Illinois courts, without ex- ception, state that ‘‘the release of one alleged joint tort feasor releases all,’’ and they attach no provisos to the rule. If the joint tort feasor is released, he is released; and the fact that the settling claimant tells the settling defendant that he proposes to sue someone else notwith- standing he is releasing the settling defendant does not limit the legal effect of the release. Stanley v. Leahy, 87 Ul. App. 465, 467, states directly and in unequivocal language that it makes no difference that 17 the settling claimant intended to release only some of the alleged wrongdoers. Plaintiffs’ counsel undertakes to dis- tinguish this case by saying that it involved the sufficiency of a pleading in which plaintiff said merely that she did not intend to release all of the accused when she released some of them, but said nothing to indicate that she ex- pressed this intention to the settling tort feasors. The Court places no such limitation upon its language. It recognizes that neither logic nor law would support a conclusion that makes the rule of release dependent upon a self-serving arrangement by the settling claimant. All of the argument of counsel cannot change the fact that the Illinois Court in this ease held squarely and unequi- vocally that it was altogether immaterial whether the set- tling plaintiff intended to release all of the wrongdoers by releasing some of them, because it recognized that under the settled law of Illinois all joint tort feasors were re- leased upon the release of one regardless of the intention or agreement of the settling parties to release only some of them. City of Chicago v. Babcock, 143 Tl. 358, makes the situ- ation as to the law in Illinois perfectly clear. There the Court says (p. 366) that ‘A release to one of several joint tort feasors is a release to all, and an accord and satisfaction With one of them is a bar to an action against the others.”’ The Court then points out that a covenant not to sue is different from a release and does not operate as a dis- charge of anyone. As far as Illinois law is concerned, the situation comes down to this: if one is released, all are re- leased; if all are not released, then none is released. The banks being released, (as the District Court (R. 293) and the Circuit Court of Appeals (R. 357) squarely hold,) then all who acted with the banks in the commission of the al- leged wrong are released. a | —— 18 Another Illinois case which holds squarely that the re-— lease of one joint tort feasor releases all, notwithstand- ing the instrument of settlement is cast in the form of a covenant not to sue, is Petroyeanis v. Pirola, 205 Il. App. 310, 312. There the Court seemed to apply the rule which is stated in Section 886 of Restatement of Torts: “The discharge or satisfaction of a judgment against one of several persons, each of whom is liable for a single harm, discharges each of the others from liability therefor.” We think that this rule of the Restatement is applicable to the case at bar. The legal effect of the court proceed. ings which carried out the settlement was a finding by the Court that the banks should cancel their claims and the claims of others filed against the bankrupt estate, aggre- gating $71,979,083.95, and that they should pay $3,435,088.07 as compensation to the debenture-holders and the bank- rupt estate. (R. 138-141.) The final decree entered Feb- ruary 24, 1938, found that the settlement as outlined in the petition had been fully consummated and that the banks had paid the settlement fund and it enjoined the prosecution of any claim against the banks. (R. 177.) The order in bankruptcy entered on the same date found that the banks had paid the amount agreed to be due “in full settlement and compromise of all claims involved,” in all the suits against the banks. (R. 196.) The situation is exactly the same as if the case had been tried and the Court had made a finding which resulted in a decree against the banks to cancel their claims and to pay the amount agreed to be paid to the debenture-holders and the trustee in bankruptcy of 1.U.1., and the banks had paid the amount decreed and carried out the other terms of the decree. There seems to be no exception to the rule, as stated in Restatement of Torts (Sec. 886), that the discharge or satisfaction of a judgment against one of several persons, each of whom is liable for a single harm, discharges each of the others from liability therefor. The comment on the S60 an palermo oe - 19 section says that the payment of the judgment by one of the wrongdoers, which is accepted by the claimant, dis- charges the other wrongdoers, even where no judgment has been obtained against the others. We do not understand that plaintiffs’ counsel claim that the debenture-holders could sue the banks again or that their claims against the banks remain in any respect unsettled or unsatisfied. All we understand the claim of plaintiffs’ counsel to be is that, the banks having had notice that plaintiffs did not intend to release the former directors of I.U.I. by the release of the banks, the cause of action against present defendants is in some way preserved. We have exactly this situation in Brown v. City of Cambridge, 85 Mass. 474, quoted with approval in Chapin v. C. & E. 1. R. Co., 18 Ill. App. 47. The Supreme Judicial Court of Massachusetts, in disposing of the contention of plaintiff in that case that his release of the Cambridge Water Works did not release the City of Cambridge for an alleged wrong, to which both corporations had contributed, because he had told the attorneys for the Water Works that his release of the Water Works did not release the City, said respecting the evidence of this attempted reservation (p. 475): ‘It did not prove that the plaintiff reserved a right to sue the Cambridge Water Works again, or that his claim against them remained in any respect unsettled or unsatisfied. It amounted merely to this: that the plaintiff's counsel at the time of the settlement asserted an intention to sue the City of Cambridge for the tort, and the counsel of the Water Works made no objection to his doing so. ‘The defendants contend that the legal effect of this transaction is to discharge them also, and we are of opinion that it has that effect. It is an ancient doe- trine that a release to one joint trespasser, or a satis- faction from him, discharges the whole. * * * If it eee. | Ra ay Lo TS a BEL PN LE 20 were not so, a party having a claim against several persons on account of a single tort might sue one and settle the suit, receiving damages; he might then sue another and settle in the same way, and repeat the proceeding as to all but one, and then sue him and recover the whole damage, as if nothing had been paid by the others. A door would thus be opened to a class of speculations that do not deserve encourage- ment. The rule of law which makes one satisfaction or release a bar to further claims for the same tort is founded in good reason.’’ Ellis v. Bitzer, 2 Ohio 89, 15 Am. Dee. 534, 537, cited with approval in Vigeant v. Scully, 35 Ill. App. 44, 47, says on this subject: ‘*That a release of one of several joint trespassers operates a discharge of all, is a position too clear to admit of doubt. * * * Each joint trespasser being liable to the extent of the injury done by all, it fol- lows as a necessary consequence that satisfaction made by one for his liability operates as a satisfaction for the whole trespass, and a discharge of all con- cerned. * * * The accord and satisfaction mentioned in the third plea operated in law as a discharge of these defendants from liability for the injury ecom- plained of by the plaintiff, and it was not in the power of other persons to deprive them, by any agreement of theirs, of the benefit of this legal discharge."’ The law of Illinois is squarely against the contentions of petitioners’ counsel. We are supported in this view by the decision of two distinguished Illinois lawyers who served for many years on the State bench prior to their appointment to the Federal bench,—Hon. Charles G. Brig- gle of the United States District Court for the Southern District of Illinois, formerly Judge of the “ireuit Court 21 of the Seventh Judicial Circuit, and Hon. Otto Kerner of the United States Circuit Court of Appeals for the Seventh Cireuit, formerly Judge of the Circuit Court of Cook County and by appointment by the Supreme Court a Judge of the Appellate Court for the First District of Illinois. The rule for which we contend is the only rule which has a foundation in sound logic and established law. The rule applied by the Illinois courts in situations like the one at bar is neither technical nor harsh. It is founded in reason and justice. A tort claim against several joint wrongdoers is indivisible. All joint tort feasors are liable severally and jointly. There is no right of contribution. When the claimant by compromise agrees with one or more of the joint wrongdoers upon the value of his claim and accepts payment and gives a release, the cause of action is gone. It is the same as if no wrong had ever been done. The claimant has no unsatisfied claim upon which he can recover against anyone. While the courts in Illinois have accepted the well estab- lished rule of release of all upon the release of one joint tort feasor, they have never found it necessary to write a treatise in any opinion in defense of the rule. It is only in recent years that there has been any challenge of the soundness of this long established rule. We submit that it is wholly illogical and unjust to make legal rights of one dependent on the agreement of others. By what process of reasoning can it be said that this settlement with and discharge of the banks with Paragraph K excluded re- leases the former directors, but with Paragraph K included it still releases the banks but does not release the former directors, notwithstanding the former directors were never consulted and had no part in making the settlement. This just does not add up. 22 The Illinois Appellate Court, in Vigeant v. Scully, 35 Ill. App. 44, in support of the general rule followed in Illinois, quotes from Bronson v. Fitzhugh, 1 Hill N. Y. 185, 186, and adopts in part this paragraph: ‘‘The reason of the rule seems to be, that the deed, being taken most strongly against the releasor, is con- clusive evidence that he has been satisfied for the wrong; and after satisfaction, although it moved from only one of the tort feasors, no foundation remains for an action against any one. A sufficient atonement having been made for the trespass, the whole matter is at an end. It is as though the wrong had never been done.’’ In the same case the Illinois Appellate Court also adopts the language of the Supreme Court of Maine and quotes with approval from Kilpatrick v. Hunter, 24 Me. 18, as follows: ‘“‘The difficulty in maintaining the suit against the other is, that the law considers that the one who has paid for the injury occasioned by him, and has been discharged, committed the whole trespass and has oc- easioned the whole injury, and that he has therefore satisfied the plaintiff for the whole injury which he received.’’ With all deference due those who hold an opposite view, we cannot see how an argument can be made that the rule of release in joint obligor cases should be the same as the rule in joint tort feasor cases. The difference in the two situations is so obvious and is so well grounded in law and logic that we are surprised that the subject should present any problem. In the joint obligor cases the claim is for an established amount and there is the right of contribu- tion, but in the joint tort feasor cases the claim is unliqui- dated and there is no right of contribution. If A and B owe C $100 on a note and A pays the $100 he has the right LES TEE IEEE TLE ERIS PRISE ERO SSE TEs a 8 23 to a contribution of $50 from B. If A pays only $50 and C accepts it in discharge of half of the debt and retains his claim against B for the other half, B’s position is not adversely affected by the settlement between A and C. However, if A and B are liable to C for an assault, there is just one liability for which both A and B are fully re- sponsible with no right of contribution. If A and C agree on the amount of A’s liability and A pays the amount agreed upon, and C accepts the sum and A is released by C for all liability, there remains no unsatisfied claim on which C can recover from B. C has fixed the value of his claim and sold it. His cause of action is gone. It cannot be revived as to B by an act of C wholly repugnant to his settlement with and discharge of A. The situation after the settlement is the same as if no wrong had ever been done. . Even in joint obligor cases, if the settling defendant re- ceived an absolute and unconditional release, it operates to discharge his co-obligors. (Parmelee v. Lawrence, 44 Ill. 405, 410.) The Cireuit Court of Appeals holds, as we think it must hold under the facts, that there can be no real controversy about whether the banks were absolutely and unconditionally released. (R. 357.) Under all Illi- nois cases it follows that this discharge of the cause of action against the banks constituted a discharge of the cause of action against the former directors of I.U.I., who acted with the banks in the consummation of the alleged wrong, and is a bar to the prosecution of the instant suit against present defendants. The just and logical rule that the release of one joint tort feasor releases all, which is so thoroughly estab- lished by Illinois law, is not a rule peculiar to Illinois courts. It is the rule applied in the great majority of American jurisdictions. ‘‘There is scarcely any dispute among the authorities that, where there is an absolute — 24 release of one, it operates to release all tort feasors who participate in the same act.’’ (Abb v. Northern Pactfic Ry. Co., 28 Wash. 428, 68 Pac. 954, 957.) ‘‘The rule as to the effect of a release may at one time have been somewhat technical; but it has been observed and acted upon, not as a technical rule of the common law, but for reasons of sound policy. A claimant should not be allowed to settle with one of the persons liable to him for his entire claim, if it is valid, and then, having re- ceived all he has been able to exact from such party, proceed to speculate by litigation with others, who were no more liable than the first.’’ (Farmers’ Savings Bank v. Aldrich, 153 Ia. 144, 133 N. W. 383, 386.) ‘‘We can- not agree with the learned counsel that the plea of a release is technical and does not present a meritorious defense. Plaintiff thereby acknowledged full satisfac- tion of his claim, and he is entitled to have no more. Nor can we assent to the suggestion that a plaintiff should be allowed two satisfactions for one and the same demand. Such a doctrine would shock the moral sense and violate a cardinal maxim of the law, if not the defendant’s con- stitutional right.’’ (Sircey v. Hans Rees Sons, 155 N. C. 296, 71 S. E. 310, 311.) ‘‘Under all the authorities, accept- ing payment from one or releasing one wrongdoer from payment releases all. * * * The theory underlying the statement of the rule is that the claim is one obligation both joint and several, and whenever the obligation is satisfied as to one it is necessarily released as to the other.”’ (Gibbs v. Redman Fireproof Storage Co., 68 Utah 298, 249 Pac. 1032, 1035.) ‘‘It is an ancient and well established rule, almost without exception in England and America, that for a single injury there can be but one recompense. * * * Having had a reparation from one who was responsible for all the damage and released him, all others who were jointly or jointly and severally liable are also released.’’ (C.C.C. & St. L. Ry. Co. v. Hilligoss, "TCE ERIE HS RB Ne te —— SIO L NEI I ITT ORE PE ENE I ANY SESE LE SIN RES! RARE BCI 25 171 Ind. 417, 86 N. E. 485, 487.) ‘‘However, the injured person has freedom to contract for satisfaction. * * * Compromise, accord and satisfaction are open to him, and he may waive his cause of action. * * * And, when the cause of action is destroyed as to one tort feasor, it falls as to the others, even though it is attempted to preserve the liability of the others.’? (MacDonald vy. Hornblower & Weeks, 268 Mich. 626, 256 N. W. 572.) ‘“‘The effect which the law attaches to a release discharg- ing the liability of a wrongdoer is the release of other tort feasors who are jointly liable for the injury. This rule apparently is based upon the nature of their liability, which is one and indivisible. Accordingly, if one of them is discharged, or satisfies the cause of action, there re- mains no foundation for an action against anyone.’’ (Muse v. DeVito, 243 Mass. 384, 137 N. EF. 730, 731.) ‘*Plain- tiff’s general release operated not only in personam on the releasees and their liability, but also in rem on the re- leasor’s cause of action. * * * The entire cause of action being gone, no one can remain liable.’’ (Smith v. Mann, 184 Minn. 485, 239 N. W. 223, 224.) ‘Once paid for the injury he has suffered, by any one of the joint tort feasors, his right to proceed further against the others is at an end. * * * If it [the payment made] be accepted in satisfaction of the cause of action against the one, it is in law, a satisfaction of the claim against them all.’’ Chetwood v. California Natl. Bank, 113 Cal. 414, 45 Pac. 704, 707. This rule of release applied by the Illinois courts through- out the history of the State is ‘‘the better rule,’’ (McBride v. Scott, 132 Mich. 176, 93 N. W. 243, 245,) is ‘‘founded in good reason’’, (Brown v. City of Cambridge, 85 Mass. 474, 476,) and is ‘‘a salutary rule of law’’. (Rust v. Schlaitzer, 175 Wash. 331, 27 Pac. (2nd) 571, 573.) We ask this Honorable Court to consider that these defend- ants are not asking for the application of a harsh and 26 technical rule but for the application of a just and logical rule which was thoroughly established by the courts of Illinois and of most, if not all, of the States of the resi- dence of the debenture holders at the time this settlement was made and the banks were released. The very lan- guage of Paragraph K of the petition for approval of the settlement indicates that plaintiffs’ counsel were thor- oughly familiar with this rule when they advised their clients to accept the settlement with the banks and dis- charge them from all further liability. The present situ- ation is their own creation. A discharge is a fact which cannot be explained away as against one whose interests may have been affected by it. II. The summary judgment motion applies to the liability of defendant directors for pledging of collateral for loans made by the New York banks for the same reason that it applies to the transactions with the Chicago banks. There are at least three conclusive answers to the ar- gument made by plaintiffs’ counsel under Division II. (Pet. 31.) First: This effort of plaintiffs’ counsel to distinguish between the effect of the settlement as to the transac- tions with the Chicago banks is an afterthought. This point was not made on the hearing in the District Court and so there was no ruling on the point and nothing is preserved for review respecting the point. Furthermore, there is no assignment of error on the record which pre- sented the point to the Circuit Court of Appeals for decision. An examination of the assignment of errors (R. 324-327) will disclose that there is not even a sug- gestion of this claim of plaintiffs’ counsel, advanced for the first time when they filed the brief of appellants in SESE IYO IGS MORSE NENT LOL LIE INIT OB VET BOR 27 the Cireuit Court of Appeals. In the absence of an assignment of error covering the point, there is nothing before this Court for consideration. Second: If the point were before the Court, it is with- out merit because it is based on a false assumption of fact. The Court will note from an examination of the petition for decretal order that the first suit mentioned is No. 12397, which was a suit in equity pending in the United States District Court for the Northern District of Illinois, Eastern Division, brought by plaintiffs against the five New York banks and the five Chicago banks and Bigelow, trustee. (R. 116.) The Court will also note that among the New York equity suits, one that was not tried before Judge Mack, is a suit by DeVol pending in the United States District Court for the Southern Dis- trict of New York against the New York banks, the Gen- eral Electric Company, and Bigelow, trustee. (R. 122.) This is the same plaintiff who instituted a similar suit in her own behalf and on behalf of debenture-holders who had deposited debentures with the McDevitt-Goldsborough Committee and on behalf of all other owners of I.U.I. debentures in the United States District Court for the Northern District of Illinois against the Chicago banks. (R. 118.) The Illinois suit of present plaintiffs against the New York and Chicago banks and the New York suit by other debenture-holders on behalf of all, including present plaintiffs, against the New York banks, were included in the settlement and were dismissed pursuant to the settlement. (R. 137.) There were also pending in New York against the New York banks five preference suits by Bigelow, trustee (R. 125-126), which were in- cluded in the settlement. (R. 137.) The decree in chan- cery, (R. 174-179,) and the order in bankruptcy, (R. 195- 199,) disposed of all pending suits that were described in the petition, which certainly included the half dozen suits pending in New York and the suit pending in Illi- 28 nois in which the New York banks were named as de- fendants. In addition to these suits concerning the affairs of 1.U.I., there was included in the settlement, disposi- tion of several equity suits pending in New York against the New York banks growing out of the affairs of Cor- poration Securities Co. of Chicago (R. 129-130), and some preference suits pending in Illinois against the New York banks. (R. 134.) The comprehensive settlement described in the petition covered transactions of the New York and Chicago banks with Corp. as well as_ those with I.U.I. (R. 136-137.) The petition stated that all claims involved in the New York equity suits as well as the Chicago equity suits would be settled upon the pay- ment in cash of $3,435,088.07 and the withdrawal of claims amounting to $71,979,083.95 by the banks, (R. 137-138,) and that the New York preference suits would be dis- missed and releases of all claims against the New York banks and the Chicago banks involved in said suits would be delivered upon the completion of the settlement (R. 141), and that the Court should-decree upon the consum- mation of the settlement ‘‘that all claims and suits what- soever against the Chicago banks and the New York banks or any of them on account of any matter or thing mentioned or involved in said Chicago equity suits or New York equity suits be forever barred, and that all holders and owners of said debentures of Insull Utility Investments, Ine. and said Bigelow as trustee, be en- joined and restrained from instituting any suits at law or in equity against the Chicago banks or the New York banks or any of them, and that the claims of such de- benture-holders against the banks be limited to said set- tlement fund.’’ (R. 147.) The settlement was carried out and confirmed. (R. 174-179; R. 195-199.) Thus it appears that the whole argument of plaintiffs’ counsel falls of its own weight because it is not true that all the suits pending against the New York banks had been dis- LOST ITLS LE ALEC LEAL EIN EITHER, SAR Non Soeee qe ara — 29 missed by the New York District Court before the set- tlement. Third: Even as to the six suits against the New York banks which were tried before Judge Mack, plaintiffs still had pending claims. If the appeal from the decision of Judge Mack dismissing their complaints had terminated in favor of the debenture-holders' and a new trial had been ordered, there would have been no decree and the debenture-holders would have been restored to exactly the same position they were in before Judge Mack decided | the case against them. (Wright v. Griffey, 47 Tl. App. 577, 578.) Plaintiffs take a strange position in arguing they had no claims against the New York banks after having accepted from them more than a million dollars in settlement of their claims. If there were no suits pending against the New York banks, then why did plain- tiffs take money from these banks and give releases pur- suant to the settlement agreement which in terms covered pending suits against the New York banks as well as the Chicago banks. The point has been squarely decided in Petroyeanis v. Pirola, 205 Ill. App. 310, where the Court said (p. 312): ‘*A release of liability of one joint tort feasor will inure to the benefit of the others, either before or after suit is brought and pending judgment or after judg- ment has been entered, where tortious conduct is made the basis of a claim or action.’’ WER SEN ay st PEI NE NE ABATE = rx Weer 30 ITI. The former directors of I.U.I. (respondents here) and the settling pledgee banks acted jointly in the pledging of the assets of I.U.I. and consequently all contributed to the consummation of the wrong to the creditors of I.U.1, if wrong was done. The District Court and the Circuit Court of Appeals, in sustaining the motion for summary judgment, were right in applying the well established rule of release of all by the release of one or more of several alleged joint wrongdoers. We now come to that phase of the argument of peti- tioners which amounts to an attempt to show that the settling banks did not contribute to the commission of the wrong for which the debenture-holders seek to recover from the former directors of I.U.I. This is pounding on the log after the coon is gone. It has been repeatedly held that a claimant cannot take the position that one who buys his release is not guilty. When one releases an alleged wrongdoer he cannot explain away the effect of his release nor can he make the excuse that those who settled were not in fact wrongdoers when the release is pleaded as a release of others who contributed to cause the alleged injury. In Chapin v. C. € E. 1. R. Co., 18 Ill. App. 47, the Court quotes with approval Leddy v. Barney, 139 Mass. 394, 2 N. E. 107, as follows (p. 51): ‘“‘The rule that a release of a cause of action to one of several persons liable operates as a release to all, applies to a release given to one against whom a claim is made, although he may not be in fact liable. The validity and effect of a release of a cause of ac- tion do not depend upon the validity of a cause of action. If the claim is made against one and is re- 31 leased, all who may be liable are discharged, whether the one released was liable or not.’’ Plaintiffs (petitioners here) will not now be permitted to take the position that the settling wrongdoers did not contribute to the injury which it is charged resulted from wrongs committed by present defendants, nor can they explain away the effect of the settlements by claiming that they were collecting for something other than the damages suffered by them. Guth v. Vaughan, 231 Ill. App. 143; C.C.C. & St. L. Ry. Co. v. Hilligoss, 171 Ind. 417, 86 N. E. 485, 488; Martin v. Setter, 184 Minn. 457, 239 N. W. 219, 222; Allen v. Ruland, 79 Conn. 405, 65 Atl. 138, 140; Kirk- land v. Ensign-Bickford Co., 267 Fed. 472, 475. The law fixes the rights of defendants (respondents here) and if there was in fact a release of the settling banks and if these settling banks were in fact actors in the chain of events which resulted in the claimed injury, then these defendants are entitled to the benefit of the releases given to the settling banks by the plaintiffs. Vigeant v. Scully, 35 Ill. App. 44, 47, citing Bronson v. Fitzhugh, 1 Hill (N.Y.) 185, 186; Smith v. Mann, 184 Minn. 485, 239 N.W. 223, 224; Muse v. DeVito, 243 Mass. 284, 1387 N.E. 730; Mac- Donald v. Hornblower & Weeks, 268 Mich. 626, 256 N.W. 572; Kaplowitz v. Kay, 70 Fed. (2nd) 782, 783; Spiess v. Sommarstrom Ship Building Co., 272 Fed. 109, 111; Bab- cock & Wilcox Co. v. Pioneer Iron-Works, 34 Fed. 338, 341. People v. Becker, 253 Tll. 131, cited by petitioners in support of their contention, merely holds that the satis- faction of a judgment on two state warrants, illegally drawn by the State Auditor to himself and paid to him by the State Treasurer, was not a bar to an action against the estate of the State Treasurer on other warrants drawn by the State Auditor, payable to the State Treasurer, and paid by the State Treasurer to himself. Here we have a 32 case dealing with two constitutional officers whose respec- tive duties are prescribed by law and who have separate and distinct obligations to the public. In this situation the Court expressly held that the wrongful acts of each officer were several as to the drawing and the paying of the respective warrants and that they were not joint tort feasors. Veazie v. Williams, 49 U.S. 134, another case upon which petitioners rely, merely holds that an arrangement made with an auctioneer, who had defrauded a purchaser by run- ning up the price with fictitious bids, under which the auc- tioneer testified for the purchaser in his suit against the sellers, was merely a covenant not to sue and was not a release which would bar a suit against those who had bene- fited by the fraudulent acts of the auctioneer. Petitioners rely on the dictum that the accountability of the sellers and the auctioneer rested on different grounds and that in equity a release of one of them would be limited to the one passing the consideration for the release. Whatever the law is elsewhere, it is the settled law of Illinois that where two or more persons each contribute to cause a single injury, the release of one releases all. It is immaterial whether they were joint tort feasors. It is enough if they were both liable for the same injury. One of the early Illinois cases is Chapin v. C.€E.I. R. Co., 18 Ill. App. 47, which involved a train collision. There the Court said (p. 50): ‘*It is conceded that the action in this case is brought to recover for the same injury for which settlement has been made with the Wabash Company, but it is insisted that the two companies were not joint tort feasors, were therefore not jointly liable, and that the release of one does not have the effect of discharging the other from liability to the plaintiff. Whether a ar MR es SR 2 eg Tl kd eg TEAPDSU ME BEBE LUA ORT. SNe . | | | ; 33 they were joint tort feasors or not, we do not deem it important in the view we take of the case, to de- cide. It is enough if they were both liable for the same injury. * * * (p. 51) If this be so, then a release to one discharges both.’’ A second Illinois case is Vigeant v. Scully, 35 Tl. App. 44, in which Vigeant, an architect, sued for damages al- leged to have arisen through his negligence in failing to properly supervise construction of a building, defended on the ground that the judgment in favor of Kaiser, the building contractor, in an action against Scully, the owner, for the amount claimed to be due, to which action Seully had made the defense that Kaiser’s work was defective, constituted a release of all who contributed to the alleged wrong. There the question of whether the builder and the architect acted jointly was involved. The Court dis- posed of it by saying (p. 47): “If the injury had been caused by the joint negli- gence of Vigeant and Kaiser, there would be no diffi- culty whatever in yielding this point, because it is established law that the release of one of two joint wrongdoers, or satisfaction received from one, is a release or satisfaction as to “all. ‘“‘Here is a wrong for which two persons are sev- erally, and not jointly, amenable. One of them makes complete reparation. Can the injured party demand anything more from the other tort feasor? The foun- dation for such a demand would seem to be removed. One atonement is all the law exacts. Thai having been made, ‘it is as though the wrong had never been done’. Those who have acted separately in commit- ting the injury, can be in no worse situation than they who, having acted jointly, are, by the election of the injured person, made separate trespassers.’’ ae 34 The complaint against the banks (Ex. A to the motion for summary judgment) alleges that the banks wrongfully made loans to I.U.I. and wrongfully demanded and took | pledges of assets of I.U.I., (Pars. 19-20, R. 96-100) and further alleges that the banks were fully informed with — respect to the provisions of the debentures and that they knowingly made the loans in violation of the protective — covenants, (Pars. 25-34, R. 102-107) and in general alleges that the banks by their wrongful conduct rendered them- selves liable to account to the debenture-holders for all of the assets taken by them in pledge and all proceeds thereof and accretions thereto, and prays that there be entered against the banks ‘‘a judgment for the full, fair market value of said securities, dividends and accretions as at the highest value thereof at any time subsequent to the wrongful transfer thereof.’’ R. 113. If it be conceded that I.U.I. stood in the relation of a trustee to the debenture-holders and if the banks, in deal- ing with I.U.I. assisted it in the violation of its trust, then the banks were liable with I.U.I. and its officers and direc- | tors for any injury caused the debenture-holders. It is well established that those dealing with persons acting in a fiduciary character are at all times required to take notice of that fact, and they cannot act for their own ad- vantage in disregard of the fiduciary relation which actu- ally exists. Accepting as true the allegations of the com- plaint of the debenture-holders against the banks and the allegations of the complaint of the debenture-holders against the former directors of I.U.I., it appears clear that the only alleged wrongdoers who could have had a motive for inducing I.U.I. to make wrongful loans were the banks. It was to the self-interest of the directors to protect I.U.1. from wrongful borrowings and pledgings. There is a com- plete absence of motive for wrongdoing or. the part of the respondents here. 35 CONCLUSION. We shall not extend this brief in opposition to the peti- tion for writ of certiorari by presenting an argument in support of all the reasons relied upon to support the de- cree of the District Court and the judgment of the Circuit Court of Appeals in ruling in favor of the defendants. The reasons assigned in the memoranda of holdings of the District Court (R. 290-294) and in the opinion of the Circuit Court of Appeals (R. 355-357) are sound and well supported by the decisions of the courts of Illinois and of most other American jurisdictions, as we have dem- onstrated in our argument. But there are other equally strong reasons why the judgment must be for the defend- ants. The complaint fails to allege facts which show that the requisite jurisdictional amount is involved, (See cross- petition, No. 823, pp. 24-25,) the plaintiffs were collusively selected to create an appearance of diversity of citizen- ship which does not in fact exist, (cross-petition, pp. 25- 28,) and this suit against former directors was commenced without authority and without the knowledge of the named plaintiffs. (Cross-petition, pp. 28-32.) It nowhere appears that any plaintiff was a creditor of I.U.I. when the alleged wrongful pledgings were made. (Cross-petition, pp. 18-19.) Furthermore, the settlement with and release of the four co-defendant directors against whom exactly the same charges were made as are made against these remaining defendants effected a discharge of all defendant directors from all causes of action alleged. Cross-Petition, pp. 32-35. Finally, there is a complete absence of necessary allega- tions to state a cause of action against respondents or any of them on account of the alleged violation of debenture covenants in pledging securities as collateral for bank 36 loans. Under its charter I.U.I. had a legal right to make investments in securities. It was legitimate for it to bor- row money. There is no allegation in the complaint that I.U.I. did not receive full consideration for every loan made and there is no claim that the funds so received were not used properly in the conduct of the business of the corporation. There is no allegation that the debts enumer- ated in Paragraph 30 of the complaint were the creation of indebtedness in excess of the amount of the capital of the corporation. There are no allegations of fact that the bank loans did not come within the exceptions of the de- bentures—(a) allowing the Company to pledge its assets for the purpose of securing loans contracted in the usual course of business for periods not exceeding one year, and (b) allowing such pledgings to secure the purchase price of property acquired. Despite the general allegations of fraud and wrongful conduct, this case rests only on the claim that the bank loans were made and the assets of I.U.I. were pledged in breach of the debenture covenants. The complaint does not state this cause of action. The petition does not show any of the reasons stated in Rule 38(5) which entitle petitioners to a review on a writ of certiorari by this Honorable Court. Wherefore, the peti- tion should be denied. Respectfully submitted, Conran H. Poprennusen, Epwarp R. JounstTon, Fioyp E. TxHompson, 11 South LaSalle St., Chicago Watter Brewer, Epwarp J. Farrety, 231 South LaSalle St., Chicago, Solicitors for Respondents. ot RCS TABLE OF CASES. PAGE Ayer v. Kemper, 48 Fed. (2nd) 11, 14.00.0000... 8 Bee v. Cooper, 217 Cal. 96, 17 Pac. (2nd) 740, 741........ 7 Bosworth v. Van Lanningham, 293 Fed. 875, 877........ 9 Chapin v. C. & E. T. Ry. Co., 18 Ill. App. 47, 50............ 6, 7 Chicago Daily News Co. v. Siegel, 212 Tl. 617, 629...... 9 DeCock v. O'Connell, 188 Minn. 228, 246 N.W. 885, gE ET ORE PRE OE IN at RN Gils on OMEN Me 7 Ducey v. Patterson, 37 Colo. 216, 86 Pac. 109................ 8 Farmers’ Savings Bnk. v. Aldrich, 153 Ta. 144, 133 Be Re Md he Nr RN Ich rl a ol 7 First & Merchants Natl. Bnk. v. Bnk. of Waverly, ETO Va. 4OG, 197 BT. WOR, GGG asc sesscevescascceen- 7 Gholson v. Savin, (Ohio,) 31 N.E. (2nd) 858, 863........ 8 Gibbs v. Redman Fireproof Storage Co., 68 Utah 298, Be a erie cetncecicniensecch cocina naercciccees 7 Gore v. Henrotin, 165 Ill. App. 222, 224.0000. 6 Graham v. Railroad Co., 102 U. S. 148, 153.000.000.000... 9 Guth v. Vaughan, 231 Ill. App. 143.000.000.000 6 Hanford v. Davies, 163 U.S. 273, 280...............c0s0ccceeee-e- 8 Killham v. Chaloupka, 195 Ill. App. 182, 185................ 6 McBride v. Scott, 132 Mich. 176, 93 N. W. 243, 244........ 8 Muse v. DeVito, 243 Mass. 384, 137 N. E. 730, 731........ 7 Norton v. Larney, 266 U.S. 511, 515...............-.e.cceseceee 8 Ogden v. Armstrong, 168 U. S. 224, 232.0000... 8 ROGER LEA OAL RO LEIS ii TaBie or Cases (Contd.). Petroyeanis v. Pirola, 205 Ill. App. 310, 312................ Russell v. Stansell, 105 U. S. 303, 304.........-2 ee Rust v. Schlaitzer, 175 Wash. 331, 27 Pac. (2nd) 571.... Stanley v. Leahy, 87 Ill. App. 465, 467............0..00.02....... Sterling Gas Co. v. Higby, 134 Ill. 557, 568... Thompson v. Fox, 326 Pa. 209, 192 Atl. 107, 109............ Van Weel v. Winston, 115 U. S. 228, 237........................ Vigeant v. Seully, 35 Ill. App. 44, 46.0.2... Wagner v. C. & A. R. Co., 265 Il. 245, 251....000. Wallner v. Chicago Traction Co., 245 Tl. 148, 151........ Welty v. Laurent, 285 Ill. App. 13, 14... RwLEs. Supreme Court Rule 3B(5) _.u.2..2........c.2c.cecccssescovcecssssesss ELE ORE TOE NEE IEE TIE BI BNL ROT NG NEVER EL SEIS oR IN THE SUPREME COURT OF THE UNITED STATES At THE Ocroser Term, 1941 No. 822 DE MET’S INCORPORATED, Plantiff-Petitioner, AND ROBERT E. WOOD, Intervenor-Petitioner, vs. SAMUEL INSULL, JR., er at., Defendants-Respondents. Answer to Petition for Writ of Certiorari. _—_—_—_ To the Honorable the Supreme Court of the United States: The petitioners have not made an accurate statement of the case. The complaint in this case against the former directors of Corporation Securities Co. of Chicago (R. 2-15) is even less sufficient in its allegations of fact than the complaint in the Aiken case (No. 821 here) against the former di- rectors of Insull Utility Investments, Inc. Following the miscellaneous matter of inducement, the complaint in this —_— —_ 2 case, as to the cause of action for pledging contrary to the note covenants, alleges merely that the corporation proceeded to borrow money and pledge its property with- out providing in the instrument creating the pledge that the note-holders should be equally and ratably secured thereby, (Par. 23, R. 10,) that none of the pledges were made to secure the purchase price or any part thereof of the property so pledged, (Par. 25, R. 11,) that the pledges were made at a time when the liabilities exceeded fifty per- cent of the then value of its assets, (Par. 27, R. 11,) that the corporation was pursuing no course of business which required the borrowing of large sums of money, (Par. 29, R. 11,) that despite the wording of the terms of the notes evidencing said loans none of said loans were made for a period not exceeding one year, (Par. 30, R. 11,) and that each of said loans and pledges was wrongfully authorized, approved and ratified by the defendants. Par. 31, R. 11. The notes contain the following covenant: ‘*The Company does hereby expressly covenant that, as long as any note of this issue of Serial Gold Notes is outstanding and provision for the payment thereof shall not have been made; (a) it will not mortgage, pledge or otherwise incumber any of its assets with- out securing the notes of this issue equally and ratably, with the other obligations secured or to be secured by such mortgage, pledge or incumbrance; except that the Company, without so securing the notes, may mort- gage, pledge or otherwise incumber any of its assets for the purpose of securing loans in the usual course of business, for periods not exceeding one year, and may mortgage, pledge or otherwise incumber property hereafter acquired to secure the purchase price there- of in whole or in part; (b) will neither pay cash divi- dends on its Common Stock nor redeem or purchase its capital stock of any class in whole, or in part, 3 when the effect of such payment or redemption or purchase would be to reduce the value of its assets to less than one hundred fifty percentum of its in- debtedness then outstanding; and (c) it will not create or assume any additional indebtedness if as a result thereof its total indebtedness will exceed fifty per centum of the then value of its assets, such value to be determined by a certified public accountant or firm of certified public accountants who shall be selected by the Company and be approved by the Registrar.’’ Par. 11, R. 6-7. The complaint against the defendants as former directors of Corp. was filed January 30, 1933. (R. 2.) Motions to dismiss were filed by the several defendants in 1933, (R. 17-38,) and these were continued generally on the motion of plaintiffs in January, 1934. These motions were sus- tained as to all alleged causes of action except that based on wrongful borrowing and pledging on March 7, 1940. (R. 317.) There was no necessity to rule on the motion to dismiss as to the excepted cause of action after the motion for summary judgment was allowed as to it. (R. 316.) This motion for summary judgment was filed Oc- tober 2, 1939, and it asked that a judgment in bar be entered as to the cause of action grounded on the alleged breach of covenants of the Corp. notes for the reason that it had been released as to the former directors of Corp. by a settlement with and release of the lending banks. (R. 56.) The motion was supported by an affidavit respecting the settlement (R. 57) to which was attached the complaint in the suit against the Continental Bank, (R. 58-104,) the petition for decree approving settlement, (R. 105-136,) the order providing for notice and hearing, (R. 137-151,) the answer of the Chicago banks in the consolidated case, (R. 152-155,) the findings of fact and conclusions of law, (R. 156-187,) the decree approving the settlement, (R. Earn an 4 188-190,) the decree in chancery confirming the settlement, (R. 191-204,) the order in bankruptcy confirming the set- tlement, (R. 205-209,) and the release and transfer of title to the pledged collateral. R. 210-224. The complaint in Gregory v. Continental Bank, (R. 58- 104,) which is the case in which the settlement proceedings were recorded, includes all the charges against the former directors of Corp. which are made in the complaint at bar and many more. In both suits the complaint purports to be on behalf of all note-holders of Corp. and to be based on the single wrong of breaching the note covenants in transactions between the bank and the corporation. Sig- nificant among the allegations of the complaint in the settled case are that the bank knew of the actual purpose of the organization of Corp., (Par. 9,) that a subsidiary of the bank was one of the underwriters which marketed the notes containing the covenants, (Par. 16,) that the bank knew that the proceeds of the notes would not meet the corporation’s existing commitments, and that the corpora- tion would have to resort to bank loans, (Par. 18,) that contemporaneously with the sale of the notes Corp. was selling a large issue of stock, and that directors of the bank, including two who were also directors of Corp., were subscribers to the stock syndicate, (Par. 19,) that two of the executive officers of the bank were speculating in In- sull securities before Corp. was organized and later when the loans were made and the pledges were accepted by the bank, (Par. 20,) that the bank knew that the proceeds of the bank loans were being used by Corp. in stock market support, (Par. 27,) that the bank and some of its officers and directors were personally interested in maintaining the Insull companies with an appearance of solvency, (Par. 21,) that loans were made and assets pledged for the pur- pose of keeping up an appearance of solvency of Corp. and other companies of the Insull Group because the bank had 5 outstanding loans aggregating many millions secured only by Insull securities, (Par. 26,) that after the market crash in October, 1929, the banks made huge loans to Corp. to maintain market prices of stock which the banks held as collateral to loans and in which bank officers were specu- lating, (Par. 37,) and that two of the bank’s directors were also directors of Corp. and other Insull companies and knew about the plans and doings of these companies when the bank made the loans to and received assets in pledge from Corp. (Par. 22.) The prayer is that the bank be compelled to cancel all loans and surrender allf pledged assets, and for general relief, R. 95. After Corp. went into bankruptcy a score of suits were filed against the banks by the trustee in bankruptey and by different groups of note-holders. (R. 106-107, 111, 121- 122.) After negotiation it was agreed that all claims of the note-holders and the trustee in bankruptcy be com- promised and settled, (R. 126,) and a decree was entered in chancery confirming in the banks title to the collateral pledged to them free from all claims asserted or assert- able by the note-holders or by the trustee arising out of or in any manner connected with the pledging (R. 192) and permanently enjoining the note-holders from instituting or prosecuting any suit against the banks on account of such pledging, (R. 194,) and an order was entered in bank- ruptey reciting that the settlement had been fully carried out by the payment of $1,200,000 and the performance of other terms of the settlement ‘‘in full settlement and com- promise of all claims involved”’ in all of the pending suits, (R. 205,) and it was ordered that the acts of the trustee in bankruptey in carrying out the settlement be approved and that he deliver releases to all of the banks, (R. 207- 208,) and a general release and transfer was executed and delivered to the banks by such trustee. R. 210-215. ON NEA TI ELON NI SMILE NL IE IES IER AE LOE REBT AIRY EGER MESO BS I EE Reasons for Denial of the Writ. 1. The decision of the Circuit Court of Appeals with respect to the release of the alleged cause of action against the former directors of Corp. arising out of the alleged pledging of assets by Corp. in violation of note covenants by virtue of the release of the banks for their participa- tion in said pledging follows the decisions of the courts of Illinois. Under the settled law of Illinois the release of the settling banks released the former directors of Corp. as to all causes of action asserted or which might have been asserted by the note-holders for or on account of the alleged wrongful pledging of the assets of Corp. as collateral to the bank loans. Wallner v. Chicago Trac- tion Co., 245 Ill. 148, 151; Welty v. Laurent, 285 Ill. App. 13, 14; Guth v. Vaughan, 231 Ill. App. 148; Killham vy. Chaloupka, 195 Ill. App. 182, 185; Gore v. Henrotin, 165 Ill. App. 222, 224; Vigeant v. Scully, 35 Ill. App. 44, 46; Chapin v. C. € E. 1. Ry. Co., 18 lll. App. 47, 50. 2. The rule established by the Illinois decisions applies where all alleged wrongdoers contributed to a single in- jury, even though they acted severally. It would be diffi- cult to conceive of a complaint containing more definite, comprehensive and serious charges of wrongdoing than those stated in the complaint in Gregory v. Continental Bank, which is the case in which the settlement proceed- ings were carried out. The mere addition of the names of the former directors of Corp. as parties to that suit would have changed the suit against the Continental Bank only to an action charging the bank and these de- fendants jointly for the alleged wrong. All the causes of action asserted or assertable in the complaint in Greg- ory v. Continental Bank and similar complaints against another Chicago bank and certain New York banks were fully compromised, satisfied and released by the note- — | 7 holders and the trustee in bankruptcy. Under the law established by the Illinois courts and the courts of other American jurisdictions, this unconditional release of the banks released the former directors of Corp. (respondents here), who were charged with acting with the banks in the commission of the alleged wrongs connected with the borrowings and pledgings. 3. The Circuit Court of Appeals does not hold that the banks and the former directors of Corp. were jointly liable as tort feasors and it is the settled law of Illinois that the application of the rule of release of all by the release of some of several alleged joint wrongdoers is not confined to cases where the alleged wrongdoers are jointly liable. The rule applies where all contributed to the same injury even though they acted severally. Chapin v. UC. € E. I. Ry. Co., 18 lll. App. 47, 50; Welty v. Laurent, 285 Ill. App. 13, 14; Wagner v. C. & A. R. Co., 265 Il. 245, 251; Gibbs v. Redman Fireproof Storage Co., 68 Utah 298, 249 Pac. 1032, 1034; F'armers’ Savings Bank v. Ald- rich, 153 Ia. 144, 133 N. W. 383, 385; DeCock v. O’Connell, 188 Minn. 228, 246 N. W. 885, 887; Muse v. DeVito, 243 Mass. 384, 137 N. E. 730, 731; First & Merchants National Bank v. Bank of Waverly, 170 Va. 496, 197 S. E. 462, 465. 4, The statement that the decree approving the set- tlement with the banks was entered on the express con- dition that the cause of action against the former directors of Corp. would be preserved is directly contrary to the facts. It is immaterial that the settling note-holders who petitioned for the decree intended to release only the banks. There is no dispute among the authorities that Where there is an absolute and unconditional release of one of several alleged wrongdoers it operates to release all who participated in the same act. Stanley v. Leahy, 87 Ill. App. 465, 467; Petroyeanis v. Pirola, 205 Il. App. 310, 312; Bee v. Cooper, 217 Cal. 96, 17 Pace. (2nd) 740, DRE tayo nema: 8 741; McBride v. Scott, 132 Mich. 176, 93 N. W. 243, 244; Rust v. Schlaitzer, 175 Wash. 331, 27 Pac. (2nd) 571; Thompson v. Fox, 326 Pa. 209, 192 Atl. 107, 109; Ducey v. Patterson, 37 Colo. 216, 86 Pac. 109; Gholson v. Savin, (Ohio,) 31 N. E. (2nd) 858, 863. In addition to the grounds assigned by the District Court and the Circuit Court of Appeals in sustaining the motion for summary judgment there are other equally well-supported grounds why a decree for defendants must be entered with respect to the alleged cause of action grounded on the pledging of assets of Corp. as security for bank loans. 3. The complaint fails to allege facts which show that the requisite jurisdictional amount is involved. Plaintiff says it owned notes of the face amount of $20,000 when it filed the complaint. (Par. 10, R. 6.) But it does not allege when it acquired these notes except that it acquired them before maturity, which may have been any time before suit was commenced; nor what it paid for them except that it was something of value; nor that it owned them when the challenged pledging took place; nor that it has been damaged to the amount of $3,000 or in any other amount. The complaint must affirmatively and positively allege facts which show that the jurisdictional amount is present and the allegations cannot be helped by pre- sumptions or argumentative inferences. (Norton v. Lar- ney, 266 U.S. 511, 515; Hanford v. Davies, 163 U. S. 273, 280.) This is not a true class action, (Ayer v. Kemper, 48 Fed. (2nd) 11, 14,) and it must be dismissed as to each plaintiff who does not individually and severally allege affirmatively and distinctly that he has a claim in excess of $3,000. Ogden v. Armstrong, 168 U. S. 224, 232; Russell v. Stansell, 105 U. S. 303, 304. 6. There is no allegation that plaintiff was a creditor at the time of the alleged wrongful borrowings and pledg- 9 ings. For all that appears from the complaint plaintiff may have acquired the notes after the corporation was declared a bankrupt. Courts do not encourage specu- lation by litigation. Because of the failure of the com- plaint to show that plaintiff held its notes at the time of the challenged transactions plaintiff has failed to state a cause of action. Graham v. Railroad Co., 102 U. S. 148, 153; Chicago Daily News Co. v. Siegel, 212 Ill. 617, 629. 7. The complaint alleges no facts to show that the bor- rowings and pledgings were in violation of the note cove- nants. All the allegations as to this cause of action are mere conclusions of the pleader. Van Weel v. Winston, 115 U.S, 228, 237; Sterling Gas Co. v. Higby, 134 Ill. 557, 068; Bosworth v. Van Lanningham, 293 Fed. 875, 877. CONCLUSION. We shall not extend this answer in opposition to the petition for a writ of certiorari by presenting an argu- ment in support of the reasons relied upon to support the decree of the District Court and the judgment of the Cireuit Court of Appeals in ruling in favor of the defendants. The reasons assigned in the memorandum of holdings of the District Court (R. 292-296) and in the opinion of the Cireuit Court of Appeals in the Aiken case, adopted in this case, (R. 349-352,) are sound and well supported by the decisions of the courts of Illinois and of most other American jurisdictions, as we have dem- onstrated in our answer in Aiken et al. v. Insull et al., No. 821. The petition does not show any of the reasons stated in Rule 38(5) which entitle petitioner to a review on a 10 writ of certiorari by this Honorable Court. Wherefore, the petition should be denied. Respectfully submitted, Conrap H. Poppenuusen, Epwarp R. Jounston, Fioyp E. Tuompson, 11 South LaSalle St., Chicago, Joun J. Heaty, 135 South LaSalle St., Chicago, Solicitors for Respondents. IE SLES AEE GI IS REIT ee ge Sf es CSc Se eee . : ; > AN i f , IN THE JAN 26 1942 Supreme Court of the United:States. -;,...,| Ocroser TERM, 1941, °° rr ed SAMUEL INSULL, JR., er at., Cross-Petitioners, No. 824. vs DE MET’S, INCORPORATED, Cross-Respondent. STANLEY FIELD, No. 827. vs. DE MET’S, IN CORPORATED, Petitioner, _ Respondent. BRIEF IN OPPOSITION TO CROSS-PETITION AND TO PETITION FOR WRIT OF CERTIORARI. Epmunp D. Ancock, 33 North La Salle Street, Chicago, Illinois, Roger Q. Wurtz, 120 South La Salle Street, Chicago, Illinois, Lewis F’, Jacosson, 33 North La Salle Street, Chicago, Illinois, Gerorce F. Cattacuan, 105 West Adams Street, Chicago, Illinois, Avsert W. Froenpe, 77 West Washington Street, Chicago, Illinois, Counsel for Respondents. RDP ARLE L EP LIES RENO BI ss a ' me eee as ace PAGE POTP s5k5s sins ce siae tends ee ees 1 The Supreme Court should not grant certiorari for the reason that the judgment attacked is not final...... 3 Argument as to Insull, et al. v. DeMet’s, No. 824..... 4 I. The Cireuit Court of Appeals correctly held that a cause of action was stated under the Illinois statute for declaring or assenting to dividends in impairment of capital or while insolvent and that the plaintiffs should have been given leave to file proffered amendments to. the opulent es i655 bis ec sc we Kise. oe II. The District Court and the Circuit Court of Appeals correctly held that the complaint made a sufficient showing that the requisite jurisdictional amount is involved........... 6 Argument as to Field v. DeMet’s, No. 827............ 11 A. The complaint adequately alleges knowledge by all defendants of the financial condition of Cor- poration Securities Company................ 12 B. The allegation that dividends were declared in the first instance by the Executive Committee and thereafter ratified by the Board of Direce- tors does not relieve the defendants from lia- Ry Cheretee fis iis. c sss ae ee 12 CORT ai oe cs ei aeds bea eeeu or eee 12 Cases CITED. General Pet. Corp. v. Beanblossom, 47 Fed. (2d) 826 (ee eer’ Ter ee ere rere Hanford v. Davies, 163 U.S. 273. .............cee eee Howard v. Insull, 294 IH. App. 20............see0e. Kline v. Wright, 42 Fed. (2d) 927 (D. C. D. Idaho) (p. BE or cia teed Ame athe cae ek Meee e es Lion Bonding Co. v. Karatz, 262 U. S. 77........... Mutual Life Insurance Co. v. Thompson, 27 F. (2d) WE Sas kia icin Rae RR ON Ke Sokene Vib bene ee es 7 Norton v. Larney, 266 U. S. 511............ cee eees 7 Pianta v. Reich Co., 77 F. (2d) 888..............006- 8 Smith v. McCullough, 270 U.S. 456.................. 6 St. Paul Mereury Indemnity Co. v. Red Cab Co., 303 Se BO eet eee 9 White-Wilson-Drew Co. v. Lyon-Ratcliff Co., 268 Fed. PE ice ck Cun ba wcbaaneandes s+ tetas se kaer ss 12 Wolfe v. Hartford L. & A. Ins. Co., 148 U.S. 389..... 7 Woods v. Thompson, 14 F. (2d) 951 (C. C. A. 7)..... 7 Woolverton v. Taylor, 132 Ill. 197................4.- 9 ESSIEN HE IED SUES HTS ETP EN OCC ROS ERLE IN THE Supreme Court of the United States Ocroser Term, 1941. No. 824. SAMUEL INSULL, JR., Er At., Cross-Petitioners, vs. DE MET’S, INCORPORATED, Cross-Respondent. No. 827. STANLEY FIELD, Petitioner, vs. DE MET’S, INCORPORATED, Respondent. BRIEF IN OPPOSITION TO CROSS-PETITION AND TO PETITION FOR WRIT OF CERTIORARI. To the Honorable, the Chief Justice and the Associate Justices of the Supreme Court of the United States: FOREWORD. This brief is being filed, to avoid duplication, in opposi- tion to both the cross-petition in No. 824 and the petition for writ of certiorari in No. 827, inasmuch as both of said wee Sete, aD Os rae DN a ead) Rage ITIL ATE MIS EEE, NLT PREAH A i ee RMN A oh Nee SOO PS RNIN — . IAL TRESTLE GOEL LI ILE NOE ALYD RDS ARS 2 petitions are addressed to the same judgment of the Circuit Court of Appeals and raise substantially the same ques- tions, No. 827 being filed by Stanley Field, one of the defendants below, and No. 824 being filed by the other defendants. The judgment sought to be reviewed by these petitions is that portion of the judgment of the Circuit Court of Appeals (R. 359) which reverses the judgment entered by the District Court, wherein the District Court sustained motions to dismiss the complaint as to the cause of action under Section 23 of the Illinois Corporation Act of 1919 relating to dividends and refused to permit amendments and thereupon dismissed the complaint as to that cause of action for wart of equity (Decree, R. 316). The facts and questions in this case and in the case of Samuel Insull, Jr., et al. v. Thomas D. Aiken, et al., No. 823 in this Court, are similar and the two suits are re- lated. They were heard jointly in the District Court and a joint Memoranda of Holdings was filed by that Court (R. 292). Likewise, the Circuit Court of Appeals heard the two matters jointly and by reference incorporated its opinion in the Aiken case in its opinion in the DeMet’s case (R. 346). Some of the petitioners in No. 824 (Stuart and Insull, Jr.) are also petitiomers in No. 823. As stated by the Circuit Court of Appeals, the com- plaints in both suits, in substance, make the same allega- tions (R. 344). The differences in the facts in the two suits are primarily in respect to the name of the company involved, the names of the plaintiffs and defendants, dates of various events and amounts. The suit of DeMet’s In- corporated (Nos. 824 and 827) is against the directors of Corporation Securities Co. of Chicago, while the suit of Thomas D. Aiken, et al. (No. 823) is against the directors of Insull Utilities Investments Inc. The petitions for certiorari filed in this case are not so PR AG Salome PEP LIES TEN LONNIE I WORRY terran te ae neta 3 broad as those filed in the Aiken case. The petition in No. 827 is limited to certain of the points raised in Point I of the cross-petition in No. 823 and answered in Point I of our brief in opposition in No. 823, which is hereby adopted to supplement this brief. The cross-petition in No. 824 is limited to the points raised in Points I and II of the cross-petition in No. 823 and answered in Points I and II of our brief in opposition in No. 823, which is hereby adopted to supplement this brief. The Supreme Court should not grant certiorari for the reason that the judgment attacked is not final. The argument on this point is substantially the same as stated in the opening of the opposition brief filed by the respondents in case No. 823, which argument is hereby adopted. However, we shall proceed to answer the arguments in the briefs filed in No. 824 and No. 827 in the same order in which they were presented in those briefs. ARGUMENT AS TO INSULL, ET AL. v. DE MET’S, NO. 824. I. The Circuit Court of Appeals correctly held that a cause of action was stated under the Illinois statute for declar- ing or assenting to dividends in impairment of capital or while insolvent and that the plaintiffs should have been given leave to file proffered amendments to the complaint. This matter is fully argued in Point I of the opposing brief in No. 823, which is hereby adopted. The complaint here alleges that the company had no surplus at any time during the years 1930, 1931 and 1932, and nevertheless the company paid cash dividends during each of these three vears on all classes of its preferred stock, the exact amounts of which cash dividends are unknown to plaintiff (R. 12, Par. 33). The complaint also alleges that for a long time prior to April 18, 19382 (date of bankruptcy), the company was wholly insolvent and that on that date its liabilities ageregated over $56,000,000 and its assets about $12,000,- 000 (R. 7-8). It also alleges that the directors authorized or ratified the payment of dividends as above set forth, thereby rendering themselves liable under the statute to plaintiff and all other creditors (R. 12, Par. 34). For the reasons stated in Point I of the opposing brief in No. 823, these allegations of the original complaint are sufficiently specific to charge all defendants for all dividends paid in impairment of capital or while insolvent. As held by the Cirenit Court of Appeals, even though lacking in details it was not fatally deficient (R. 346, 355). The details are stated in full in the proffered amendments (R. 301). Petitioners point out that the original complaint in this suit said nothing about an Executive Committee and the 5 connection of the defendants therewith and therefore, they . complain that the Circuit Court of Appeals, in its opinion, improperly assumed those facts. Petitioners are mistaken in that respect. The Cireuit Court of Appeals was re- ferring to the amendments to the complaint in which the facts concerning the Executive Committee are alleged in detail. Even without any allegations in the original com- plaint in this cause concerning the Executive Committee, the complaint is no less sufficient, inasmuch as it alleges that the directors ‘‘authorized or ratified the payment of dividends as set forth above and thereby rendered them- selves liable under the statute’? (R. 12, Par. 34). This adequately put defendants on notice that they were being sued for their liability under the statute for declaring or assenting to the dividends. Furthermore, all of the details as to when and how and by whom the dividends were de- clared or assented to are fully stated in the amendments. The suit is clearly in behalf of all creditors (R. 2). The prayer is for an accounting and judgment against defendants in favor of the plaintiff and ‘‘others similarly situated’’ (R. 14). Petitioners’ argument that it is nowhere alleged that plaintiff was a creditor at the time the dividends were declared and paid is utterly without foundation. The com- plaint in the cases at bar alleges that DeMet’s Incorpo- rated purchased on or about September 1, 1930, and at the time of filing the suit still owned, $20,000 of the $31,- 00,000 of Serial Gold Notes issued and sold by Corpora- tion Securities Co. to the public, including plaintiff, at approximately par (R. 6). From the above it clearly appears that plaintiff owned its notes during the entire period when dividends were declared and paid and that it purchased the notes at about par. : The question as to delay in presenting the amendments is the same as in case No. 823. In both cases the delay was acquiesced in by both sides and the intervening period TH YY TN EN NTN LAER RI eae SPIRO OL IES RE ALL ELIE BI) BAIT es 6 was devoted to suits against banks and their settlement (R. 39, 307, 338). The District Court passed on the amend- ments in both cases jointly (R. 292). All other arguments of the defendants in case No. 824 under their Point I are fully answered in Point I of the opposing brief in No. 823. II. The District Court and the Circuit Court of Appeals cor- rectly held that the complaint made a sufficient showing that the requisite jurisdictional amount is involved. The Record shows that plaintiff acquired its $20,000 of debentures about September 1, 1930 for approximately par and owned them continuously thereafter (R. 6, 2438). The complaint contains a formal allegation of jurisdic- tional amount (R. 3). No question as to jurisdictional amount was ever raised in any of the motions to dismiss the complaint filed by any of the defendants (R. 17-38). It was raised in the Cireuit Court of Appeals and in this Court for the first time. The complaint shows that the suit was brought in behalf of $23,233,000 of debenture holders (R. 6), who, in addition to the claim based on wrongful dividends, claimed equal and ratable security in $12,000,000 of collateral pledged to banks for loans of $15,000,000 (R. 8). Those facts alone disclose that more than $3,000 is involved in the suit. The defendants persist in arguing (p. 19) that the com- plaint must allege sufficient evidentiary facts in addition to and in support of the general allegation to prove that the matter in controversy exceeds $3,000. That is not the law. The cases cited by defendants either are not in point or they support our position. In the first case cited by plaintiffs, Smith v. McCullough, 270 U. S. 456, the court amended the complaint in order 7 to have it include necessary jurisdictional facts appearing elsewhere in the Record. In the next case cited by defendants, Mutual Life In- surance Co. v. Thompson, 27 F. (2d) 753, the court allowed an amendment to clarify the allegation as to jurisdic- tional amount and said (p. 755): ‘‘However, federal jurisdiction, in a case of this kind, is not necessarily defeated by even an impossi- bility of arriving at the exact value, or by difficulty in approximating the value, of the object sought by the bill. If this object has a pecuniary value, and if that value could exceed $3,000, the court cannot, on motion to dismiss, refuse to accept as true an allega- tion that the value of the object sought exceeds the jurisdictional minimum.”’ Defendants then cite the case of Woods v. Thompson, 14 F. (2d) 951 (C. C. A. 7), for the proposition that ‘‘it is not enough that a complaint contain a formal allegation of jurisdictional amount’’ (defendants’ brief, p. 19). The court’s complete statement indicates under what cireum- stances the formal allegation is not enough (p. 952): ‘“‘The general allegation that the amount in con- troversy, exclusive of interest and costs, exceeds the sum of $3,000, is not controlling. If the particular averments of the complaints disclose the contrary, the general averment is of no avail.’ There are no averments in the complaint in the instant ease which disclose that less than $3,000 is involved. In Norton v. Larney, 266 U. S. 511, another case cited by defendants, no question of jurisdictional amount was involved, but the case is helpful to us because the court itself amended the complaint to include jurisdictional facts appearing elsewhere in the Record. Hanford v. Davies, 163 U. S. 273, does not involve any question of jurisdic- tional amount. In Wolfe v. Hartford L. & A. Ins. Co., 148 U. S. 389, the plaintiff alleged in his complaint that 8 he was a ‘‘resident’’ of New York, but no evidence as to his citizenship was introduced at the trial and his citizen- ship was nowhere disclosed by the record. The court said: ‘Tt is essential in cases where the jurisdiction de- pends upon the citizenship of the parties that such citizenship, or the facts which in legal intendment constitute it, should be distinctly and _ positively averred in the pleadings, or should appear with equal distinctness in other parts of the record.’’ The court in the last case cited above reversed the cause for further proceedings and the above-quoted language makes it clear that if the facts as to jurisdiction are not alleged with sufficient detail in the complaint, such defi- ciency will be cured if the jurisdictional facts are furnished during the trial or appear elsewhere in the Record. In Lion Bonding Co. v. Karatz, 262 U. S. 77, the com- plaint on its face showed that less than the jurisdictional amount was involved and consequently the general allega- tion that the jurisdictional amount was involved was contradicted. This is made clear by the following state- ments by the court (pp. 85-6): ‘‘The facts specifically stated show that the amount in controversy was less than $3,000. Plaintiff’s claim against the company was $2,100. * * * Since the bill in this case discloses that the amount in con- troversy was less than the jurisdictional amount, the general allegation that it exceeds this amount is, therefore, of no avail.’’ In Pianta v. Reich Co., 77 F. (2d) 888, the complaint again showed on its face that the plaintiff’s claim was for less than the jurisdictional amount. The court said (p. 890) : ‘We turn now to the appellant’s attack upon the jurisdiction of the District Court. The complaint in the receivership action showed on its face that the plaintiff’s claim was for only $600.’’ ‘ BS Tak > DNTP EERO NE REPOST mR 9 The defendants reargue (p. 20) their theory that the debenture holders are entitled to no relief unless they owned their debentures on the dates when the dividends were improperly declared and paid. This is a matter of defense which would have no relation to the question of whether or not the complaint contains sufficient allegations to show that the jurisdictional amount of $3,000 is in- volved. However, in the case of Woolverton v. Taylor, 132 Ill. 197, the Court held that the directors were liable under the statute to all of the creditors of the corporation regardless of when they acquired their claims and said (p. 212): ‘“‘The officers, if liable at all, are liable to all the creditors of the corporation,—those existing prior to the contract creating the excessive indebtedness, those whose debts are created [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA43086415_0884%3A06. Public record. Not legal advice.