Commonwealth v. Rothensies

Opinion by Porter, J., The appellant was, with Frederick G-. Anderson and Charles A. Stevens, convicted in the court below of having entered into a conspiracy with intent to cheat and defraud certain corporations, their stockholders and members. The testimony produced on the trial covers upwards of five hundred and fifty pages; we have here forty-nine printed pages of assignments of error, it is, therefore, apparent that it is impracticable to review the case in detail in this opinion. Such a review is, in our judgment, not at all necessary. The facts of the case are fully stated in the opinion of the learned judge of the court below refusing a new trial, which will appear in the report of this case. The bill of indictment was laid before the grand jury by the district attorney upon his official responsibility, after first having obtained an order of the court below permitting him to do so. It is well settled that the district attorney is not required to set forth his reasons for presenting a bill in this manner. “It necessarily follows that, upon appeal, no presumption that the district attorney did not have valid reasons for proceeding In this mode arises from his refusal to set them forth upon the record, or to state them for the information of the defendants ......Viewing this as a district attorney’s bill, sent to the grand jury by that officer upon his official responsibility and by leave of court, we are unable to conclude from the record before ms that the action complained of was an abuse of discretion both manifest and flagrant”: Commonwealth v. Sharpless, 31 Pa. Superior Ct. 96; Commonwealth v. Ramsey, 42 Pa. Superior Ct. 25. The first and second specifications of error are overruled. The specifications of error which are founded upon exceptions to the action of the court below in refusing to direct the jury to find a verdict of not guilty cannot be sustained. The evidence in the present case was strikingly similar to that considered by this court, under a — 417 — similar specification of error, in the case of Commonwealth v. Fulton, 56 Pa. Superior Ct. 86, and the language of our Brother Head in his opinion in that case is here peculiarly applicable. “We think it sufficient to say, after a careful reading of the evidence, we are convinced it tended to establish every ingredient of the offense charged. It showed a long and complicated series of acts, extending over a period of years; the creation of a number of corporations each and every one of which,' however, constantly remained under the control of the same persons; a line of transactions by which the assets real or apparent, of one corporation were shifted to the treasury of the next until all of them disappeared from the view of the stockholders who had furnished the real money embraced in the transactions. It exhibited the various steps that had been taken to bring about the final result; that it constantly required the action and cooperation of two or more people to do the things that were done and it almost irresistibly led to the conclusion that this harmony of action was neither accidental nor born of ignorance of the consequences that would follow. The results that did follow seem to us, as they seemed to the jury, to have been what would naturally be expected, and the appellant has not much ground to complain that the explanation he attempted to offer of these various transactions was not accepted by the jury. In a word then, there was a case made out by the Commonwealth which the learned trial judge must have necessarily submitted to the jury, and if they accepted as credible the testimony of the Commonwealth’s witnesses, there was no legal obstacle in the way to prevent their conclusion that the acts proven were the consequence of a combination of the appellant with others to bring about what he finally achieved.” The specifications of error which complain of the admission of evidence during the trial, relating to the organization of the various corporations, the manner in which the business of efich was conducted, the contracts — 418 — which the corporations made with each other and which they made with this appellant, and the various steps which led up to the final, catastrophe are absolutely without merit. This appellant, on October 23, 1908, caused to be incorporated in the State of Delaware the Corporation Funding and Finance Company and, also, the Reading Mutual Life Insurance Company. The certificate of incorporation of the finance company set forth the names of but three original stockholders, this appellant and two persons who were citizens of Delaware. The evidence clearly indicates that the two citizens of Delaware merely joined in the organization of these corporations for the purpose of the formal organization of the companies, they had nothing to do with the subsequent proceedings of the corporations, had no interest in them, and evidently knew nothing of the purposes for which the appellant intended to use the corporations. The appellant subsequently became the president, a director and a member of the executive committee of each of the corporations and so continued until November, 1911. The three incorporators met on the 24th day of October, 1908, at Dover, in the State of Delaware, and there proceeded to organize the corporations. The incorporators of the finance company at that- meeting adopted resolutions reciting that it had been agreed between each of the incorporators and David W. Rothensies that one share of stock of the Corporation Funding and Finance Company be issued in payment of the expenditure made by the said David W. Rothensies and in payment for his labor, service and outlay in the sale by the corporation of each share of its capital stock sold or thereafter to be sold by him; that it had been further agreed that on notice by the said David W. Rothensies to the president or directors of the company, hereafter to be chosen, that he has sold for the company any number of shares thereof and the payment into the treasury of the said company of the par value of the number of shares which he so notifies the said president or directors, — 419 — has been sold there shall be duly issued to the said David W. Rothensies a number of shares of the said company equal to the number so sold and paid for, which said shares shall be his absolute property and which stand in his name on the books of the said corporation unless or until by him assigned, transferred or set over to other persons, and that no other payment shall be required of the said David W. Rothensies than the services, labor, &c., heretofore mentioned and that the said shares shall not be assessable to any extent whatever; and the board of directors were authorized and directed to accept such labor, services and payments to its use as of full payment of the subscription for stock so to be issued to the said David W. Rothensies. This contract was for all practical purposes made by Rothensies, as an individual, with himself as the corporation; for Rothensies was the corporation. It is here important to observe that the certificate of incorporation expressly vested in the board of directors of the finance company authority to determine the time, places and conditions under which the books of the corporation, or any of them, shall be opened to the inspection of the stockholders; “and no stockholder shall have any right of inspecting any account or book or document of this corporation except as conferred by statute or authorized by the directors, or by a resolution of the stockholders.” This placed it in the power of the board of directors, which body was under the control of this appellant, to prevent any stockholder from discovering what contracts the company had made with its officers or how the business was being managed. On January 1, 1909, the appellant and his associates acting as the Corporation Funding and Finance Company entered into a contract with themselves acting as the officers of the Reading Mutual Life Insurance Company, under the provisions of which the finance company became the sole agent to solicit business for the mutual company at a compensation to the finance company of eighty per cent, of all first year’s premiums on insurance — 420 — written, fifteen per cent, of the second year’s premiums and seven and one-fialf per cent, on the next eighteen years’ premiums. The Reading Mutual Life Insurance Company had no capital stock, but it never issued any mutual insurance policies, all the policies issued by it having been life policies upon which an annual premium was to be paid. The evidence indicates that from the inception of the scheme the intention was at a later date to form a stock life insurance company which should take over the policies that had been issued by the Reading Mutual Life Insurance Company. The companies being thus ready to start business, Frederick G. Anderson became superintendent of agencies for the finance company on January 21, 1909, on April 20, 1909, he became a director and vice-president of that company; on August 5th he became a member of the executive committee, and continued to hold those offices until March 25, 1912, when he resigned. He became general manager of the Reading Mutual. Life Insurance Company on January 20, 1910; on October 3, 1911, he became vice-president of that company and a member of the executive committee; on January 18, 1912, he became a director and continued to hold these positions until March 25, 1912. On April 15, 1909, David W. Rothensies and F. G. Anderson, two of these defendants, together with another who is a citizen of Delaware caused to be incorporated under the laws of the State of Delaware, the Reading Life Insurance Company, Rothensies became the president of this company, a member of the board of directors and a member of the executive committee and so continued until late in the year 1911. Anderson became a director of this company and, on January 20, 1910, became its vice-president, and its general manager on January 18, 1912, retaining these offices until he resigned in March, 1912. ' This company continued under ; the direct control and dominion of Rothensies and An- : derson down until the time they resigned, shortly after — 421 — which the whole system collapsed. The Beading Life Insurance Company never issued a policy; the capital stock of the company was fixed at $300,000, divided into 30,000 shares of the par value of $10 per share. At the first meeting of the incorporators of the life company Bothensies was allotted 29,994 shares of this stock, 10,000 shares at par, 10,000 shares at $12.50 and the balance at $15.00 per share, to be paid for by him when he sold at the above prices. This placed practically all the stock of the company in the hands of Bothensies, but he was not required to pay for it until he had sold it to outside parties, and when he did sell it he was entitled to retain for his services any amount realized'above the prices in-, dicated. When Bothensies did subsequently make sales of the stock he turned the proceeds of the sales into the treasury of the funding and finance company and not into the treasury of the Beading Life Insurance Company, to which it belonged. The amount of money which ought to have gone into the treasury of the life company from the sale of its stock but which was diverted into the treasury of the finance company was $234,710.75. The officers of the mutual company and the finance company diverted to their own pockets large sums of money in the shape of salaries, commissions and dividends on finance company’s stock. Excessive dividends were declared upon the stock of the finance company, in order to .facilitate sale of stock of that company from which the appellant realized very handsome commissions. The result of the contract between the Mutual Life Insurance Company and the Corporation Funding and Finance Company, which Bothensies had made as the representative of both companies, diverted the premiums received by the mutual company into the treasury of the finance company, the contract of Bothensies with the Beading Life Insurance Company, under which he obtained absolute control of almost the entire issue of that company’s stock put it into his power to divert the moneys received from the sale of that stock to the treasury of the — 422 — finance company. The contract which Eothensies, acting as the Corporation Funding and Finance Company had made with himself as an individual enabled him, with the aid of his co-conspiratorg, to absolutely control that corporation and make such distribution of the funds which came into the treasury of that company, from all sources, as might be dictated by his own cupidity. The result was that at the end of the year 1911 the Reading Mutual Life Insürance Company did not have enough money left to pay in the small amount of money required by the laws of the State of Delaware as a reserve-to secure its policyholders. The extent to which the companies could be successfully plundered had almost reached its limit. Eothensies resigned his various offices in the corporations late in 1911 and Anderson resigned in March, 1912; when, in June, 1912, receivers were appointed for the corporations the money which ought to have gone into the treasury of the Reading Life Insurance Company, as the proceeds of the sale of its stock, was not there and it had entirely disappeared from the treasury of the finance company; there went into the hands of the receiver for the finance company only the sum of $32,324.88, and the mutual company at about this time had a balance of only $29,701.75. The mutual company had paid as benefits to the holders of its policies the sum of $30,000. The sum of $784,257.07 of the total received from all sources by the several companies had in some way been disposed of under the direction and management of this appellant and his codefendants, as is shown by the opinion of Judge Wagner, of the court below, refusing a new trial. Whether the contracts which had been entered into by the several corporations with each other and by this appellant with the several corporations were made in good faith and honestly intended, or were made in pursuance of a conspiracy on the part of the defendants for the purpose of so using them as to defraud the several corporations and their stockholders and members was a question of fact to be de — 423 — termined by the jury under the evidence in the case. The specifications of error which refer to the admission of these contracts in evidence and the refusal of the court to instruct the jury to disregard them are dismissed. The appellant and his associates dominated the several corporations, but they were trustees for the innocent policyholders of the Mutual Life Insurance Company and the unsuspecting stockholders of the Corporation Funding and Finance Co. and the Reading Life Insurance Co. These contracts were at the very foundation of the scheme to defraud and the contracts and all that was done by the defendants under them in the management of the several corporations were properly admissible in evidence: Commonwealth v. Donnelly, 40 Pa. Superior Ct. 125; Commonwealth v. Sanderson, 40 Pa. Superior Ct. 473; Commonwealth v. Cotter, 55 Pa. Superior Ct. 554; Commonwealth v. Fulton, supra. The specifications of error which refer to the admission in evidence of testimony as to the manner of the sales of life insurance and shares of stock to persons who became directors of the corporations are not well founded. This testimony disclosed that this appellant and Anderson in some cases both joining in the proposition to a man whom they wished to have as a director of the corporations would make him a proposition to sell him a bond of the Reading Mutual Life Insurance Co., a life insurance policy of said company and a number of shares of stock of the Corporation Funding and Finance Co., or the Reading Life Insurance Co. and take his note for the amount of the premium on the life insurance policy and the price of the shares of stock in the other corporations, agreeing that the purchaser should not be called upon to pay the note, but that he would be elected a director in the companies and be paid a salary, as director, of twenty-five dollars a month by each corporation, said salary and the dividends upon his stock in the funding and finance company to be credited upon the note until it was paid. It may be well to give a single in — 424 — stance, which is a fair specimen of all the transactions to which these specifications of error refer. This appellant and Anderson sold to L. L. Bailey one bond of the Reading Mutual Life Insurance Co. for $600; a five thousand dollar policy of insurance in said company, the premium on which was $379 and fifteen shares of stock of the Corporation Funding and Finance Co. for $150; making a total of $1,129, for which amount he gave his note. It was at the time agreed that Mr. Bailey should not be required to pay'this note, that he should.be elected a director of the two corporations at a salary of twenty-five dollars a month from each, which salary together with the profits from the Corporation Funding and Finance Company’s stock should be credited upon the note until it was paid. This transaction involved the issuance of a life insurance policy, not a mutual policy, upon the express agreement that the insured should not be required to pay the first premium, and put into the possession of Mr. Bailey a bond of the Mutual Life Insurance Co. for $600, for which he was to pay nothing save to serve as a director in the Mutual Life Insurance Co. and in the Finance Company. The sale of insurance, bonds and stock in this unusual manner was perhaps partially to be accounted for by the fact that Rothensies, under the contracts hereinbefore referred to, would receive for himself fifteen shares of the stock of the funding and finance company, as his compensation for making the sale to Bailey, but it is only reasonable to assume that the principal purpose of Rothensies and Anderson in making a contract of this character was to procure for these corporations a director who would be subservient to their wishes because of the very manner in which he had acquired his interest in the corporations. Bailey was elected a director, and his note was subsequently cancelled by crediting upon it his salary of $50 a month, $25 from each corporation, and the dividends declared upon the stock which he held in the finance company. Mr. Bailey, no doubt, entered into the ar — 425 — rangement innocently, but it is manifest that it was a shrewd move upon the part of the appellant and Anderson to obtain a director who would be friendly to them and not likely to oppose any measures which they might advocate. The testimony shows that Eothensies, in at least one other case, assisted by Anderson, made at least six sales of stock, bonds and policies of insurance and took the notes of the purchaser for the amount thereof under an arrangement similar to that made with Mr. Bailey, in each case agreeing that the purchaser should be made a director in two of the corporations. The fact that every one of the parties with whom such an arrangement was made became directors in the corporations not only makes clear the absolute domination of the companies by Eothensies and his associates but is evidence of the manner in which it was proposed to continue that domination, by procuring as directors men who would not be anxious to ferret out irregularities in the management. These directors were all given to understand that the board of directors met only once in three months, at the City of Eeading, and the evidence indicates that they gave very little attention to the business of the company and accepted as verity the reports of the executive officers. We do not find in the case anything to justify us in sustaining any one of the specifications of error which relate to the admission of this evidence. The 16th and 19th specifications of error relate to evidence which affected only the defendant Stevens, relating to statements which he had made as to the standing of the companies. It was clearly established by other evidence that this appellant had made like representations. The evidence admitted under these specifications was offered for the purpose only of showing that Stevens was a party to the combination and its admission worked no injury to this appellant’s case. The specifications are .overruled. The questions raised by the specifications of error which refer to the so-called second and third counts of — 426 — the indictment have become immaterial. The appellant was convicted on all the counts of the indictment, the first count is undoubtedly good and conviction on that count is sufficient to sustain the sentence imposed by the court below, and the specifications of error must be dismissed. The twentieth specification of error is based upon the refusal of the court to withdraw a juror and continue the case because of certain language used by the district attorney in his closing argument to the jury. In disposing of a motion of this character the court below exercises a discretion which is reviewable only for abuse. There may be instances where the refusal to withdraw a juror because of an objectionable remark of the district attorney would be, in all the circumstances, an abuse of discretion, but the remarks complained of in the present case are not of that nature and it may be fairly held that they were called out by the appellant’s counsel, who it is admitted had said “The Commonwealth is bound to prove its case; we are not bound to prove our innocence ; and the fact that they took five days and a half to present their case, and we took one hour, shows to you, gentlemen of the jury, that they must have considered that they had a very hard job on hand.” This language upon the part of defendant’s counsel invited a retort in kind and the language of the district attorney in that retort is the subject of the complaint under this specification of error. What was' said by our Brother Orlady in Commonwealth v. Sarves, 17 Pa. Superior Ct. 407, is applicable in this instance: “While the printed record indicates that in the contest before the jury excessive earnestness on the part of contending counsel was displayed, and expressions of doubtful professional propriety were used, yet it is not clear that the manner of trial injuriously affected the defendant. Such forensic displays rarely affect the deliberate judgment of a jury, and in this case they were conducted under the supervision of the trial judge, who fully guarded the — 427 — rights of the defendant in a temperate and impartial charge.” The court below was in better position to know than we are whether the remarks were likely to have a prejudicial effect, an effect which could only be counteracted by allowing the motion. Upon a full view of the charge of the court, which followed these alleged objectionable remarks, and of the evidence in the case, we are unable to conclude that there was such abuse of discretion as requires a retrial of the case: Commonwealth v. Shields, 50 Pa. Superior Ct. 1. The judgment is affirmed, and it is ordered that the defendant, the appellant, appear in the court below at such time as he may be there called, and that he be by that court committed until he has complied with the sentence, or any part of it, that had not been performed at the time this appeal was made a supersedeas.