Weiss v. Haight & Freese Co.

148 F. 399, 1906 U.S. App. LEXIS 4982

• Court: District Court, D. Massachusetts
• Decided: July 13, 1906
• Docket: No. 208
• Status: Published

Opinion

POWFIX, Circuit Judge.

Anna Weiss, the complainant, admin-istratrix of Charles Weiss, filed this bill in equity in behalf of herself and all such other creditors of the defendant as should join therein. The bill alleged, in substance, that Charles Weiss had employed the defendant as broker to buy stocks on margin; that the defendant had deceived and defrauded Charles by pretending to do this as a legitimate broker, while in fact it carried on merely a bucket shop, and had made no real purchase of stocks. The bill further alleged the defendant’s insolvency, its keeping of false and fictitious books of account, and the conversion of its property by its officers to the use of the latter. The bill prayed for a receiver wlio should distribute the corporate property among the creditors.

Janies D. Colt was appointed receiver, and took possession of a large amount of property belonging to the defendant in this commonwealth, hike proceedings were begun in Connecticut, New York, and Pennsylvania, and considerable sums of money were taken by the receivers appointed in those states. Many persons, alleging themselves to be creditors of the defendant, have intervened, and have been made parties complainant in this proceeding. The defendant’s answer, as amended, set out that it was not a bucket shop, but actually bought and sold stocks for its customers, including Charles Weiss. It set out further that it was not bound to make actual purchases of stock, and that (liarles Weiss did not intend that any purchases should in fact be made; that he understood fully the nature of the business; that he, during his lifetime, and Anna Weiss, as his administratrix after his death, executed full releases to the defendant of all claims against it. The answer further denied insolvency and fraud. The case was referred to a master, who has reported in favor of the parties complainant on substantially all the issues raised. To this report the defendant has filed sundry exceptions.

Most of these exceptions may be disposed of summarily. The defendant objected that the master failed to report all the evidence, but this was not required by the order of reference, and is not usual. Objection was made to the master’s use of the phrase “bucket shop” and “long” of stocks. The meaning of the report is plain. Objection was made to the master’s finding of fraud, but the defendant’s fraud was proved, not only by the general method of its dealings, as shown in evidence, but also by letters written bv the persons who directed its operations. The letters were admissible in evidence. If the issue lo be determined concerns the honesty or fraud of corporate dealing, letters written by those who control the corporation, which describe and characterize its fraud, may be given in evidence. The defendant had $150,000 of property, and owed $500,000, and therefore it was insolvent. The defendant objected that the master made no allowance for the good will of the business. As the defendant’s officers characterized this business as that of a “gambling house” and as “vulnerable and amenable to the law,” the master’s omission was obviously necessary. That many, if not all, of the intervening creditors were deceived, and thus defrauded by the defendant, also appeared. It follows that a decree may be entered conformable in general to the prayer of the bill.

There remain only to consider certain exceptions relating to the original complainant Weiss. Whatever conclusion the court may reach regarding this claim, the decision of the case as a whole will be the same. The defendant contended in argument that Weiss knew that the defendant was merely a bucket shop, and so was not deceived or defrauded; therefore, that his administratrix cannot recover. It is to be noticed that the defendant set up in its amended answer: First, that its business with Weiss was that of a legitimate broker; and. second, that Weiss knew that the business was that of a bucket shop. The inconsistency of these defenses does not strengthen the defendant’s position. To support her contention that Charles Weiss was deceived by the de-, fendant, the complainant offered the evidence of Berry, who testified to conversation with Charles Weiss, in which the latter asserted in effect that the defendant’s business was that of a legitimate broker, and that stock was actually bought by the defendant. To the admission of this evidence the defendant objected, but its admissibility seems well settled by binding authority. The issue was Charles Weiss’ knowledge of the defendant’s business, the state of his mind upon the subject. To prove intention, knowledge, or other mental state the statements of the pérson in question are held admissible. In Mutual Life Insurance Company v. Hillmon, 145 U. S. 285, 12 Sup. Ct. 909, 36 L. Ed. 706, the issue concerned a journey alleged to have been taken, by Walton, who was a party to the suit. The letters of Walton stating his intention to take this journey were admitted against objection. Whether Walton was living' or dead at the time of trial was uncertain. His previous intention to take the journey in question made the journey more probable', and his statement of intention was admitted for the ultimate purpose of proving that the journey was taken. So, in Commonwealth v. Trefethen, 157 Mass. 180, 31 N. E. 961, 24 L. R. A. 235, the statement of a person deceased that she intended to commit suicide was held admissible to prove that she had killed herself and so had not been murdered by the defendant. These cases go further than this court is required to go in the case at bar, for in them the statement of intention was used to prove the doing of the act intended. The speaker’s mental condition was irrelevant, except so far as it tended to prove the doing of the physical act. In the case at bar, the opinion or knowledge of Charles Weiss was the ultimate fact to be proved, and to prove it his statements regarding his knowledge or opinion were admissible. Lake Shore Railway Co. v. Herrick, 49 Ohio St. 25, 29 N. E. 1052.

The defendant further objected that the receipts, signed first by Charles, later by Anna, released the defendant from the cause of action here sued on. The master was of opinion that they released only the special right of recovery given by Rev. Raws Mass. c. 99; but they are of broader scope, and were expressed to release all Weiss’ claims against,the defendant connected with these transactions.

The complainant contended these receipts were obtained by-the defendant’s fraud. Upon the whole, considering that Weiss had been deceived by the defendant, and that he supposed that the defendant was doing a legitimate business, considering the incongruous and disreputable character of the defense set up in the answer, and the relation of the parties, I do not think it is going too far to hold that the releases given by Charles Weiss were obtained by fraud, and I have less doubt on this head regarding the releases which were signed by Anna Weiss.

The receiver has asked for an allowance on account for himself and for his counsel. The circumstances are extraordinary. The except tional energy and vigilance of the receiver and his counsel have secured large sums of money for the creditors of this fraudulent gambling house. The litigation has been long and has been hard fought, and the -compensation of an officer of the court should not be postponed until the decree of distribution. I shall allow on account $5,000 to Mr. Colt, the receiver; $5,000 to Mr. Turner, his principal counsel; and $1,000 to Mr. Fitzgerald, who has rendered valuable and necessary services in' a subordinate capacity. Counsel for the complainant has also asked for an allowance, but this should be deferred until distribution.