In re Mathews Consolidated Slate Co.

DODGE, District Judge. This is an involuntary petition by three creditors, filed on June 22, 1905. No objection to adjudication is made by the alleged bankrupt, but a creditor who has obtained judgment in New York against it has filed dn answer to the petition wherein he contends, among other things, that the court is without jurisdiction, because the alleged bankrupt did not have its residence, its domicile, nor its principal place of business in Massachusetts, and because it was not principally engaged in any of the kinds of business specified in section 4b of the bankruptcy act (Act July 1, 1898, c. 541, 30 Stat. 547 [U. S. Comp. St. 1901, p. 3423.]). On July 8, 1905, the issues raised by this answer were referred to the referee, to ascertain the facts and report thereon. Upon his report, filed October 19, 1905, and an accompanying report of the evidence before him, there has now been a hearing. The report is in favor of the petitioning creditors, and recommends adjudication. The referee finds that the claims of the petitioning creditors are valid and provable, that they amount to $500 in the aggregate, and are entirely unsecured. The finding that these claims were unsecured was claimed at the hearing to be unsupported by any evidence before the referee. There has been a recommittal on this question only, and on October 25th and November 9th supplementary reports have been filed, setting forth the grounds of the finding referred .to, and the respondent has now withdrawn his objections to the finding. All the above findings regarding the claims of the petitioning creditors are approved. — 729 — The referee finds that on June 9, 1905, the alleged bankrupt corporation (hereinafter called the bankrupt] voted to admit, and on June 10, 1903, did admit, in writing, its inability to pay its debts and its willingness to be adjudged bankrupt on that ground. These findings are also approved. It remains only to consider those objections which deny the jurisdiction of the court. There is no dispute that the bankrupt was a corporation organized under the laws of New Jersey, as found in the report. Its domicile therefore was not in Massachusetts. In this jurisdiction it was a foreign corporation. Within the meaning of the acts giving jurisdiction to federal courts of suits between citizens of different states, such a corporation could have no residence in Massachusetts Shaw v. Quincy Mining Co., 145 U. S. 444, 12 Sup. Ct. 935, 36 L. Ed. 768. In my opinion such a corporation cannot be said to have “resided” here within the meaning of section 2 (1) of the bankruptcy act. It cannot therefore be adjudged a bankrupt here, unless it had its principal place of business in Massachusetts for the six months preceding June 22, 1905, or for the greater part of that period. First. The referee has found it to be a fact that the bankrupt’s principal place of business and its headquarters were at Boston, within the District of Massachusetts, and the respondent contends that the finding was not warranted by the evidence. Whatever may be the correct description, for the purposes of the question which is raised under section 4b of the bankruptcy act, and which is considered below, of the business in which the bankrupt was principally engaged, there is no dispute that its business consisted in the operation of slate quarries and slate mills and in selling the slate thus obtained or produced. Upon the evidence which accompanies the report, I find the facts below stated as follows: (1) The quarries operated were situated either in Vermont or New York, all near the line between those states, and all within about 12 miles of Poultney, Vt. The principal slate mill was at Middle Granville, N. Y. This produced structural slate. At several of the quarries were also mills producing roofing slate, as is hereinafter more fully explained. (2) The company was organized in May, 1902. Its officers were, and had been since its organization, a president, vice president, treasurer, secretary, and general manager. From 1902 until the filing of the petition it maintained offices in the Sears Building in Boston. These were at least its executive offices and selling agency. In them the officers above mentioned, who all, during the six months before the filing of the petition, resided in Boston, were regularly to be found and all their official business was there regularly carried on, except that the general manager spent part of his time and performed part of his duties in Poultney, as below stated. In the same offices the directors, a majority of whom resided in Boston during the same period, held all their meetings during that period. The stockbook was kept there. The minutes of the directors and the corporation books of account were kept there. Its correspondence was conducted from there. The great bulk of sales of the product of the quarries — 730 — and mills was negotiated there or from there; about 1 per cent, only of the total sales being made from Poultney. All bills for produce sold were sent out from there, being there made up from shipping slips forwarded there from Poultney. The prices of goods sold were fixed there, and the payments for goods sold received there. One regular salesman was employed, who was to be found there, except when on the road, and who was never to be found at the quarries or at Poultney. When on the road his reports were all made to the Boston office, and all orders from him were received there, but only a small proportion of the sales was made by him. From one to three clerks or stenographers were employed there in the transaction of the company’s business. (3) The principal banking of the company was done in Bostón. All money received for goods sold was deposited either in the City Trust Company or the Webster & Atlas Bank, both of Boston. These were the principal bank deposits kept by the company. All notes, accounts, and bills payable were rendered to the Boston office, after being approved when necessary at other places, as below, and were paid, as a- rule, by checks drawn on the above bank deposits. Such checks were drawn at the Boston office, and were there signed by the treasurer and countersigned by the president. This did not apply to the pay roll checks, further spoken of below, which were signed by the treasurer only. (4) The company -also maintained offices during the six months prior to the filing of the petition at Poultney. From there the operations carried on at its quarries and mills were directed, as below stated, subject to the supervision of the Boston office. At each quarry the company had a superintendent. Under each quarry superintendent there was a boss over each gang of men employed, whether in the quarries or mills. Weekly reports were sent from the quarries and mills to the Poultney office, from which reports of ■ product and shipments were there made up and sent to the Boston office. All shipments were made from the Poultney office, as re-. quired to fill orders, which were ordinarily sent from the Boston office. Stock sheets showing product on hand were kept at the Poult-ney office. These were compared usually every month with stock sheets kept at the Boston office. For about eight months preceding the filing of the petition, in addition to the general manager above referred to, a quarry manager had been employed, who lived at Poultney and had all the active and immediate direction of all the quarries and mills, always, however, subject to the supervision and instructions of the general manager above referred to, who ordered the increase or decrease of laborers employed at the various quarries, or the making of new openings, as occasion required. The general manager made frequent visits to Poultney, at least as often as once in each month. Prior to the employment' of the quarry manager, the then general manager had resided at Poriltney, and there performed the duties of the quarry manager, receiving his directions regarding them from the president, at Boston. Such supplies in general as were required in operating the quarries or mills were as a — 731 — rule- purchased by the quarry manager acting from the Poultney office. These purchases were made in New York and Vermont and to a small extent in Boston. Bills for goods so purchased were approved by the quarry manager and sent to Boston for payment. (5) In hanks at Poultney and Granville, N. Y., funds were deposited by the company just sufficient to cover its pay roll e'ach month. The pay rolls were made up and approved by the quarry manager at Poultney, and were then forwarded to the Boston office, where the treasurer signed the necessary checks and forwarded the required money to" the Poultney and Granville banks above mentioned, to be used to cash the pay roll checks. The general method was as above until about a year before the. filing of the petition, when it was changed so far as the Poultney banks were concerned. Objection having been made by them to paying the checks referred to because the account maintained was so small, currency to the required amount had been, during the year referred to, forwarded from the Boston to the Poultney office and the Poultney pay roll checks cashed at that office. The deposits in the Poultney and Granville banks -were chiefly, if not entirely, used for meeting the pay roll checks as stated, and the average amount allowed to remain oil deposit there was at all times small in comparison with that allowed to remain in the Boston institutions. (6) The mill and most of the quarries referred to -were owned by the Mathews Slate Company, a corporation organized under the laws of Maine. Only two of the quarries operated did not belong to that company, both of them situated in New York. One of them was owned and one leased by the bankrupt. The properties of the Mathews Slate Company were subject to a mortgage given by that company to the American Loan & Trust Company of Boston, as trustee, to secure an issue of bonds amounting to $.">()(),000. The bankrupt owned all the stock of the Mathews Slate Company, except five shares held by its directors in order to qualify them, and also owned $366,000 of the bonds issued by it, as above. All the properties of the bankrupt, including said stock and bonds, were subject to a mortgage given by it to the City Trust Company of Boston, as trustee, to secure an issue of its own bonds, amounting to $600,000. The coupons on these bonds, due semiannually, were payable in Boston. The money to pay them was regularly deposited as they became due with the City Trust Company, by the treasurer of the bankrupt company, at Boston. Since the organization of the bankrupt company in 1902, and the giving of the mortgage by it as above, the Mathews Slate Company had maintained its organization under the direction of the bankrupt company, but had done no other business and had ceased altogether to operate the quarries or mills belonging to it; such operation being from that time conducted wholly by the bankrupt company. (7) The product of the different quarries and mill was stored at or near them until shipped by direction from the Poultney office as above. None ©f it appears to have been stored in Massachusetts. The property of the company in Massachusetts not already referred — 732 — to consisted of tbe office furniture in the Boston office only, and some samples of slate there kept. Just what property was kept at the Poultney office does not appear. (8) From 100 to 150 men were emploj-ed at the quarries and mills referred to, not including the mill at Middle Granville, where about 10 men were usually employed. (9) By the bankrupt's certificate of incorporation, dated May 1, 1902, it is declared that its principal office in the state of New Jersey is in Jersey City in that state. It is also provided that the corporation is to have one or more offices. It had an office in Jersey City from the time of its incorporation, at which office all stockholders’ meetings were held. The stockbook was kept at the Boston office as above found. No stock transfer records appear to have been kept at the New Jersey office. It was contended by the respondent, and apparently not denied, that the New Jersey corporation laws required the keeping of all the books at that office. The above being all the facts which seem to me material upon the question, as I find them established by the evidence, I agree with the referee that they show the bankrupt’s principal place of business to have been at Boston and within this district. The bankrupt had many places of business. Besides its New Jersey office, its Boston office, and its Poultney office, each of the quarries operated and the structural mill as well was a place at which it regularly did business. It does not seem to me that the determination of the question, which of these various places of business was the principal one, can depend upon the amount of property kept or the amount or value of product turned out or the number of men employed at each of them. It might appear that some particular quarry or the mill was principal in this sense; yet to call that particular quarry or the mill the bankrupt’s principal place of business would not be in accordance with what is usually understood by that expression. Certainly, any one who desired to have business dealings with the corporation through its representatives would be more likely to go to the Poultney or to the Boston office, even though fewer employés and less property were to be found there, and no production was actually done there. If he went to the Poultney office he would do so because he would be more likely to find there some one authorized to act for the corporation regarding its quarrying and milling operations. These however, though immediately directed from Poultney, were ultimately controlled from Boston, and at Boston was also transacted a large part of the company’s business with which the Poultney office had no concern, a part not less important in its relation to the business of the company as a whole than the part which was done at the quarries, the mills, or the Poultney office. The fact that the supreme direction and control over all the company’s operations and dealings, and over its entire plant and property, was exercised from the Boston office, and the fact that in order to the exercise of such supreme direction and control all its operations and dealings, whether relating to production, or to sale, or to the company’s finances, if not done at the Boston office, were re — 733 — ported to tliat office and there passed upon by the appropriate officers, who were regularly there for the purpose of exercising such supreme direction and control, in my opinion makes the Boston office the headquarters of the company, and prevents that office from being regarded as a “mere executive office and selling agency” according to the respondent’s contention. If it be said that the supreme authority lay with the stockholders, and that they met only in Jersey City, in the business of the company, their authority could only be exercised through the officers whom they elected. When elected, those officers must have been understood to be regularly performing their duties at Boston. The facts in this case differ materially from those in the case relied on by the respondent, in Re Elmira Steel Company (D. C.) 109 Fed. 456. The headquarters of the bankrupt in that case could not be said to have been in Philadelphia. On the contrary, as is said in the opinion in Re Magid-Hope Silk Mfg. Co. (D. C.) 110 Fed. 3523, “Its office in Pennsylvania seems to have been merely a branch office.” The referee found that the business done in that office was less the business of the Elmira Steel Company than the business of its selling agents (109 Fed. 468), and that everything done in Pennsylvania was incidental to what was done at Elmira, N. Y. No similar finding seems to be possible in this case. It may be added that the Elmira Steel Company, organized under the laws of New York, expressly located its principal business office at Elmira by its certificate of incorporation. 109 Fed. 466. If a manufacturing company, under the circumstances shown in that case, does its manufacturing and selling in one state and its banking in another, it may well be considered, as was there held (109 Fed. 471), that it is the principal place of its principal business that must govern. I do not regard the fact that the present bankrupt did the greater part of its banking in Boston as of itself enough to make Boston the headquarters of the company. The banking done was only one of the component parts of the bankrupt’s business. I consider the Boston office to have been the bankrupt’s principal place of business, because all the component parts of its business were so far done at or directed from that office, as to make it proper to regard both the other offices, and each quarry, and the mill, as subordinate places of business. Second. The referee has found that the bankrupt “was not only engaged in manufacturing, trading and mercantile pursuits, but mining as well, and therefore subject to the provisions of the law in relation to bankruptcy.” The respondent contends that these findings are not warranted by the evidence. The further facts material to the question thus raised which seem to me to be established by the evidence are below stated. (1) In the bankrupt’s certificate of incorporation which has been already referred to, the objects of its incorporation are stated to be “to carry on the business hereinafter enumerated” either within the state of New Jersey or within the United States or any of its possessions or any foreign country. The, description which follows is of considerable length and in terms of a very comprehensive charac — 734 — ter. It is said in one place that the corporation is “in general to do mining and quarrying of all kinds, manufacturing of all kinds, transportation of all kinds,” etc.; and the remainder of the description is so framed as to secure ample scope for the application of the general language quoted. Among other things, it is provided that the corporation is to produce mineral substances, to reduce such mineral substances to the most profitable merchantable value by appropriate' processes, and “to dispose of such products by sale, exchange, or in any other way and for whatever prices it deems expedient.” It is also' to “manufacture, sell, or otherwise dispose of, trade in, and deal in goods, wares, merchandise, and property of every class and description, whether its own products or those of other persons, firms, or corporations, and to do ■ so either for its own account or as agent or broker for persons or corporations.” (2) In the operation of its quarries the slate was first taken out of the quarry pits in large blocks, by drilling, blasting, and hoisting. The quarries were all of them open, as distinguished from underground excavations. The large blocks taken out were next converted either into roofing slate, to which about 85 per cent, of the product of the quarries was devoted, or structural slate, in which form the remaining 15 per cent, or thereabouts was utilized. (3) It is necessary, in preparing roofing slate, to split the blocks as they came from the quarry promptly upon their being taken out. As taken out they can be split easily, because they then contain moisture. If this moisture is allowed to dry out of them, ás it will quite rapidly under exposure to sun and air, they are split with difficulty. If not to be split at once, they are so covered as to prevent drying as much as possible. As part of the ordinary operations of slate quarrying wherever carried on, it is the method commonly practiced to split and trim the roofing slate at the quarries, and this method was followed by the bankrupt at its quarries. (4) The blocks as taken out were first broken into lesser blocks of convenient size for handling, and then split, and the slate trimmed by revolving knives 'operated by foot power. At two or three of the quarries operated an improved method was used, according to which the large blocks were sawed instead of being broken. The saws used were operated by steam power, installed at the quarries for use in hoisting or similar purposes. Sheds were built over the saws, and these constituted the “roofing slate mills” which have been referred to. At such quarries as were not provided with steam power and saws, there were sheds under which splitting was carried on in the ordinary way from blocks broken instead of being sawed. (5) After the roofing slate had been thus split and trimmed, part of it was sometimes drilled, which operation consisted in making with a machine holes for the nails to be used in attaching the slate to roofs. For slate so drilled a slightly increased price was charged. (6) At the structural slate mill at Middle Granville, which has been referred to, suitable stock brought thither from the various quarries was converted into various forms of structural slate as required. While roofing slate was not sold by the bankrupt and is not generally sold in the rough block, slate suitable for the manufacture of struc — 735 — tural slate is sometimes so sold. The structural slate produced by the mill formed 10 or 15 per cent, only of the annual total production of the bankrupt. About one-third of the total value of the structural slate produced was clue to what was done at the mill; the other two-thirds being about the value of the mill stock as it came to the mill. (7) In some instances the bankrupt bought slate from other producers. These purchases were in order to fill orders when the company had not the size or color required. On two occasions only it had purchased, for short periods, the entire product of other quarries. The amount of all such outside purchases was inconsiderable in comparison with its total product. (8) In the manufacture of its product the cost of getting out the rough blocks formed from 00 to 80 per cent, of the total cost, and the other processes from 20 to 40 per cent. (!)) The facts relating to the sale of the bankrupt’s product, and its storage at or near the quarries or mill until sold, have been referred to above. At the filing of the petition the bankrupt had on hand about $80,000 worth of unsold product of the kinds described, and there was due it, in payment for product sold before that date, from $15,000 to $20,000. The facts hereinbefore found are all the facts which seem to me material upon the question now being considered. In so far as the bankrupt was engaged in converting the quarry blocks of slate rock into merchantable slate, whether roofing or structural slate, it was engaged in manufacturing. Notwithstand-ihe fact that in operating slate quarries it is usual and necessary to split the quarry blocks as soon as possible after ihey are taken out, I do not think that the manufacturing carried on can properly he regarded as merely incidental to the quarrying operations. Nor do I think that the bankrupt’s dealings in its manufactured product can properly he considered as incidental only to its quarrying operations, any more than its processes of manufacture. It quarried only in order that it might manufacture, and it quarried and manufactured only in order that it might sell the product obtained. In its certificate of incorporation, all the different kinds of business carried on as above were expressly named among the various kinds of business to do which the bankrupt was incorporated. 1 do not find it necessary to decide whether or not the manufacturing and selling carried on, considered separately and apart from the quarrying operations, can properly be regarded as the business in which the bankrupt was “principally engaged.” The quarrying operations were, in my opinion, “mining,” within the meaning of section 4b, as amended hv 1lie act of 1903. I am unable to believe that the word “mining” is to be there understood in the strict sense contended for by the respondent, notwithstanding the fact that for many purposes “quarrying” and “mining” are to be distinguished. The construction of “mines” adopted in Midland Railway v. Robinson, 15 App. Cas. 19. is such as to include quarries or surface operations, and under this construction quarrying operations are properly included in "mining.” The referee has relied upon this case, and I agree with — 736 — him in believing that the construction of the word in question which the case sanctions is more in consonance with the intention of Congress as manifested by the spirit and history of the successive enactments which have resulted in producing section 4b, as it now stands, than that for which the respondent contends. The same construction has also, as it seems to me, the sanction of an unreported decision of this court. In re Quincy Granite Quarries Company, No. 8574. In reporting on the question of adjudication, the referee in that case held that “quarrying is one of the methods of mining, and is properly included under the broader term,” and held also that the alleged bankrupt, a quarrier of granite which it afterwards sold in part as quarried and the remainder after being manufactured by it, was chiefly engaged in mining and manufacturing. The referee’s result was approved by the court in an opinion dated July 22, 1904, although there is no express approval of the ruling that “mining” includes “quarrying.” If, as was done in Re H. J. Quinby, etc., Co. (D. C.) 121 Fed. 139, and in Re White Mountain Paper Co. (D. C.) 127 Fed. 180, 181, 182, “pursuits” in section 4b may be read in com nection with the participles which precede it, and a corporation is thus subject to adjudication if principally engaged in “mining pursuits,” the conclusion is further supported that a. quarrying corporation is within the meaning of the section. I agree with the referee upon this question also. . His report is therefore confirmed and adjudication is ordered.