McMullen Lumber Co. v. Strother

PHILIPS, District Judge, after stating the case as above, delivered the opinion of the court. The principal objections urged against the bill of complaint are: (1) That the complainant has an adequate remedy at law as for damages on breaches of the contracts. (2) That the case made on the face-of the bill does not present the adjusting of mutual accounts between the parties. On the contrary, it presents nothing more than demands upon the defendant Strother to account to the complainant for what in law it was entitled to receive under the several contracts if kept and performed by Strother. And (3) that, notwithstanding the bill asks for a discovery from the defendant, and for relief, such a bill of discovery, if not obsolete, is not sufficient to justify a resort to equity in the jurisdiction of Missouri, where, under the Code, the defendant can be called upon to produce his books and papers for inspection, and where the defendant can be examined by the adversary on depositions taken de bene esse or ore tenus at the trial. , Taking up these objections in the inverse order, we hold that the office of a bill for discovery and relief, and the right to invoke it, exist in the federal jurisdiction, notwithstanding the criticisms made upon its exercise. In Kelley v. Boettcher, 85 Fed. 56-66, 29 C. C. A. 14, Sanborn, J., said: “It is true that the federal and state statutes now in force which enable the complainant to obtain such an examination have greatly diminished the-need of these discoveries; but it is none the less true that these statutes have neither abrogated the right nor curtailed the power of courts of equity to enforce them. They have only added another right to that which had already been secured in courts of chancery. Every bill for relief exhibited in a court of equity is, in effect, a bill for discovery, because it asks or may ask from the defendant an answer upon oath relative to the matters which it charges. The power to enforce such a discovery is one of the original and inherent powers of a court of chancery, and the right of a party to invoke its exercise is enjoyed in every case in which he is entitled to come into a court to assert an equitable right or title, or to apply an equitable remedy.’’ See, also, Ryder et al. v. Bateman et al. (C. C.) 93 Fed. 31; Indianapolis Gas Company v. City of Indianapolis (C. C.) 90 Fed. 196; Brown v. McDonald (C. C. A.) 133 Fed. 898. That bills for discovery and relief inhered in the ancient jurisdiction of courts of chancery in England at the time of the adoption of the federal judiciary°act is beyond question. This being so, the like jurisdiction inheres in the federal courts, unless abolished by statutes, changed or modified by some rule adopted by the Supreme Court. No such statute has been passed, and, so far from the Supreme Court having interdicted the practice, the rules in equity 40, 41, and 44, expressly recognize the existence of bills for discovery. The discussion of this question by Pomeroy (section 230, Pomeroy’s Equity) may be regarded as matter of argument against the propriety of courts of equity indulging with too free a hand a resort to the remedy, rather than an authoritative statement of positive law, in so far as the federal courts are-concerned. The bill of complaint discloses an embarrassing state of affairs respecting the relative attitude of the litigants. For its safeguard and' proper protection against mistakes, negligence, fraud, and deceit, al — 302 — ways possible under such contracts by the party who is to make the delivery, the parties living in different states, the lumber company stipulated in the contracts for the presence at the place of preparation, grading, and delivery of the lumber of its own representative to make inspections, who would keep tally and memoranda. Under this condition the absent company would not have to rely upon the accuracy, carefulness, or honesty of the defendant Strother, or on matters of information and evidence especially in his keeping. But when by trick, cozening, or other improper means Strother displaced, or subjected to his service, the trusted agent of the complainant, he thereby locked within his own breast and keeping much of the essential evidence which the company sought to preserve on its own behalf by the contracts. This essential information pertained to matters of infinite detail, personal observation and notation connected with the quality, quantity, assortment, and measurement of millions of feet of lumber of different sizes, lengths, and grades; transactions extending over long periods of time. After Strother had ousted, or subjected to his will, the complainant’s agent, the means of obtaining approximate, reliable information aliunde was minimized by the fraud of the defendant. Under such a state, of facts, the utmost powers of a court of equity should be invoked to search out the conscience of such a wrongdoer. Equity possesses no more plenary or effective method than by compelling such a party to purge his conscience by uncovering to his victim the information in his breast and keeping. Equity gives the wronged party this right at the very opening of the legal altercations, to enable him to prepare his case for hearing, and to open up to him, possibly, other avenues of information. In a case situated as this, we are unable to assent to the proposition, so stoutly asserted by counsel for appellees, that a court of equity cannot primarily take jurisdiction to compel an accounting by the derelict party because there are no mutual debits and credits between the parties of such prolix or complicated character as to invite the aid of a master in chancery. No hard and fast rule can be laid down as to the exact conditions on which a court of equity will take jurisdiction. Its powers are supposed to be plenary for measurably securing the ends of justice. Its protective and corrective power will be exerted or withheld, according to the exigencies of the particular case presented. While the primary idea of account — computatiq—implies matters of debit and credit, the adjustment of which will show a balance to be accounted for by the one party or the other, “it is not necessarily restricted to several distinct items, nor is it the less an account that all the items of charge are by one person against another, instead of being a statement of mutual demands of debit and credit, provided the charges arise out of contract, express or implied, or from some duty imposed by law.” 1 Enc. of L. and P. 362; Nelson v. Posey County, 105 Ind. 287, 4 N. E. 703. At common law it was the means'by “which certain persons who were under some legal duty to account for property or money of another were compelled to render such account”; especially so where the plaintiff demanded an account, and could not give evidence of his right without it. 3 Reeves, Hist. Eng. 1, 277; Field v. Brown, 146 Ind. 293, 45 N. E. 464; 1 Cyc. of L. & P. 401. Indeed, — 303 — the very condition on which a court of equity takes jurisdiction for the adjustment of mutual accounts is the presence of the fact of their intricacy and complications. It should therefore logically follow, where the intricacy and complication exist, the mere singleness of the accounting should not be controlling. State of Arkansas v. Churchill, 48 Ark. 426, 3 S. W. 352, 880. Moreover, the want of mutuality can present no barrier where a discovery lies and relief is asked thereon. Gloninger v. Hazard, 42 Pa. 389. Nor should it present any obstacle to a resort to equity where, from the peculiarly complicated transactions, a trial to a jury at law would, in all reasonable probability, fall far short of the remedial adequacy of a proceeding in equity. While judges of state courts have expressed reluctance to entertain equity jurisdiction in such conditions of an accounting, it will generally be found that they parry the force of the argument of the practical unfitness of the average jury to deal with such matters by recourse to the provision of the state Code, which in an action at law authorizes the court, in its discretion, ■ to send the matter to a referee. A striking illustration of this is furnished in the opinion of Peckham, J., in Uhlman v. New York Life Insurance Company, 109 N. Y. 433, 17 N. E. 363, 4 Am. St. Rep. 482. As the federal courts in law actions are not invested with the discretionary power of making such references (Gunn v. Brinkley, etc., Company, 66 Eed. 382, 13 C. C. A. 531), there ought not to be any question of the right to resort to the equity jurisdiction of the federal courts when the facts present such a condition of an accounting as would authorize a court of law to send the case to a referee. In Root v. Railway Company, 105 U. S. 189, 26 L. Ed. 975, the Supreme Court, in discussing a bill in equity for a naked account of profits and demands against an infringer of a patent, said: “Such an equity may arise out of, and inhere in, the nature of the account itself, springing from special and peculiar circumstances which disable the patentee from a recovery at law altogether, or render his remedy in a legal tribunal difficult, inadequate, and incomplete; and, as such cases cannot be defined more exactly, each must rest upon its own particular circumstances, as furnishing a clear and satisfactory ground of exception from the general rule.” In Kirby v. Railroad Company, 120 U. S. 130, 7 Sup. Ct. 430, 30 L. Ed. 569, the court said : “The complicated nature of the accounts between the parties constitutes itself a sufficient ground for going into equity. It would have been difficult, if not impossible, for a jury to unravel the numerous transactions involved in the settlements between the parties, and reach a satisfactory conclusion as to the amount of drawbacks to which Alexander & Co. were entitled on each settlement. Justice could not be done except by employing the methods of investigation peculiar to courts of equity.” In Gunn v. Brinkley, supra, it is true the court was discussing the question of mutual accounts, but the language and the sense are just as applicable to the case at bar. The court said: “According to this bill there is here a mutual running account that extends over a period of more than six years; it involves more than 500 items; it has been complicated and confused by the fraudulent entries and omissions of a faithless trustee; and, in our opinion, it would be next to impossible for a jury to carefully examine this account and reach a just result. That can — 304 — only be done by a reference to a master or, a hearing before a chancellor in the method peculiar to a court of equity.” Again, in Hayden v. Thompson, 71 Fed. 60-64, 17 C. C. A. 592, 595, this court said: “These long and complicated accounts can be properly taken and stated, and the just deductions can be drawn from them only in a court in which a careful, patient, and extended examination of all the evidence can be made after it is submitted by a mind trained in the science of accounting and familiar with the law which governs it.” What are the matters presented by this bill which a jury in an action at law would have submitted to them ? The accounting demanded of the defendant Strother involves the examination of 45 reports, made at different periods, to the complainant, each pertaining to eight kinds of lumber, covering 360 items, aggregating over 5,000,000 feet. The jury would be called upon to ascertain and determine which one, and how many, of these were affected with fraud, whether in respect of quantity, quality, or grading, and measurement, .and under which particular contract. It would involve the investigation and ascertainment of the amount of loss resulting to the complainant by reason of Strother’s failure to manufacture according to each contract, and the amount of each kind of lumber delivered. This would necessitate a finding as to the market value of that delivered as to the several items, and the deduction of the contract price; the making of proper receipts and balances as a basis for calculating interest thereon. The same process would measurably have to be gone through in ascertaining the loss, if any, consequent upon the failure to execute the lease; to ascertain the amount to be charged to the defendant by reason of having converted to his own use the lumber in the yards alleged in the bill, which would involve a finding of the amount of lumber in the yards converted by said defendant, what amount of this had been paid for and the amount not paid for; and the profits, if any, made on the whole, and the like. It would involve the ascertainment of the amount which the complainant should have on account of the failure of the defendant, after the termination of the contract, to continue deliveries up to the time limited in the contracts. The facts to be found and results to be worked out on such an issue would especially involve matters little suited to the qualification of jurors. The whole matter is especially complicated by the fact that there are three separate contracts, with somewhat varying provisions, which were being simultaneously executed, or claimed to-have been so by the complainant, with no separate accounts kept as to each, and when the extent of the deficiencies may have been greater under one than the other. How could such involved issues, requiring close analysis, intelligent separations, discriminations, and calculations, be made with even approximate accuracy by the average jury? How would it be possible for a jury, through a protracted, tedious hearing, to carry such infinite details in their minds, and work out such problems in the wranglings of the jury room? That any result, under such conditions, reached by a jury, no matter how — 305 — intelligent or honest, would necessarily be something of guesswork, does not admit of debate. That such an accounting should be referred to a master in chancery to patiently hear, in order to work out the complex and intricate sums with deliberation, and without confusing interruption, appeals to the highest sense of justice. Indeed, the conscientious judge who should sit in the trial of such a case to a jury would feel impelled, in assisting the jury to a just result, to quite nigh perform the part of a chancellor in reviewing and analyzing the many details of the evidence, and to give the result to the jury. Under the conditions that would inevitably attend such a trial the judge’s own review and analysis could be but superficial, and probably incorrect. Such a case as this presents an apt illustration of the reasons which have impelled the Justices of the Supreme Court time and again, when counsel opposing a resort to the equity side of the court have appealed to the provision of the' judiciary act that “suits in equity shall not be sustained in any case where a plain, adequate, and complete remedy may be had at law” (Act Sept. 24, 1789, c. 20, § 16, 1 Stat. 82 [U. S. Comp. St. 1901, p. 583]), to say that the adequate remedy at law must be “as practical and efficient to the ends of justice and its prompt administration as the remedy in equity” to exclude the equitable jurisdiction. It is to be conceded that as to some of the breaches of the contracts complained of, they could well be tried to a jury in an action at law. But this fact does not oust the jurisdiction in equity. The matters complained of inhere in and grow out of the same contracts and their violation on which the jurisdiction in equity is specially based, and the remedy sought is to have the derelict render an account and satisfaction. Where a court of equity thus obtains jurisdiction over any material part of the subject-matter in controversy between the parties, it brings within the compass of its jurisdiction in the single proceeding the entire adjustment of all, to put an end to the litigation. Pomeroy’s Equity, vol. 1, pars. 181-242; 1 Cyc. of L. & P. 418. There is another ground of equitable jurisdiction presented in the bill that is unquestionable. It is alleged that the moneys wrongfully withheld by the defendants in equity belong to the complainant, and that the defendants, in effect, had surreptitiously invested the funds in real estate and personal property. This being so, the complainant has the right to follow the.funds into any property into which it has been converted. Equity converts the holders of the legal title into constructive trustees for the benefit of the equitable owner, and accords to the complainant the option either to take the trust property absolutely, or to enforce against it a lien to the extent of the amount so converted. Broom Mfg. Co. v. Guymon, 115 Fed. 112, 53 C. C. A. 16; Piatt v. Oliver, Fed. Cas. No. 11,116; Docker v. Somes, 2 Mylne & K. 665; Angle v. C. & P. Ry. Co., 151 U. S. 1-25, 14 Sup. Ct. 240, 38 L. Ed. 55; Bresnihan v. Sheehan, 125 Mass. 11; Sanford v. Hammer, 115 Ala. 406, 22 South. 117; Perry on Trusts (5th Ed.) § 166. — 306 — The objection that the bill is rendered multifarious by bringing the defendant Shepard into the controversy in order to reach said trust property, is not sustainable. It is not essential that all the parties to a suit in equity should be directly interested in all matters involved in the bill. Multifariousness is avoided if each of the parties is concerned in matters material, provided they are allied to or connected with the others. So where some defendant may be a necessary party to some essential portion of the relief sought growing out of the entire controversy, the objection of multifariousness will not obtain. Barcus v. Gates, 89 Fed. 783, 32 C. C. A. 337; Brown v. Guarantee Trust Co., 128 U. S. 403-412, 9 Sup. Ct. 127, 32 L. Ed. 468; Kelley v. Boettcher, 85 Fed. 64, 29 C. C. A. 14; Curran v. Campion, 85 Fed. 70, 29 C. C. A. 26; Weir et al. v. Gas Co. (C. C.) 91 Fed. 940. The decree of the Circuit Court is reversed, and the cause is re-' manded, with directions to set aside the decree sustaining the demurrer and to overrule the demurrer.