Opinion
No. 4746.
January 5, 1933.
Appeal from the District Court of the United States for the Southern District of Indiana, Evansville Division; Robert C. Baltzell, Judge.
Suit by Margaret Gray Patterson against William W. Gray, individually and as trustee under the last will and testament of Allen Gray, deceased, and others. From a decree dismissing the bill for want of jurisdiction, plaintiff appeals.
Affirmed.
This is an appeal from an order of the District Court for the Southern District of Indiana dismissing appellant's bill of complaint for want of jurisdiction. The substance of the facts as alleged in the bill are as follows:
The ground of jurisdiction is diversity of citizenship, and the suit is of a local nature.
George I. Haight and Edmund D. Adcock, both of Chicago, Ill., D.H. Ortmeyer and Bert C. Cheatham, both of Evansville, Ind., and Horace E. Gunn, of Chicago, Ill., for appellant.
Isidor Kahn and Wm. C. Welborn, both of Evansville, Ind., for appellees.
Before ALSCHULER and SPARKS, Circuit Judges, and LINDLEY, District Judge.
Allen Gray, a citizen and resident of Vanderburgh county, Ind., died testate on July 9, 1920. He left as his only heirs at law two brothers, William W. Gray, an appellee, and Harry Gray, and a niece, Margaret Gray Patterson, who is the appellant and a daughter of James Gray, a deceased brother of testator.
William W. Gray and Harry Gray were appointed, and qualified, by the Vanderburgh probate court, as executors of Allen Gray's will, and also as trustees of the trust therein created. Harry Gray died without issue on June 6, 1922. Since that time William W. Gray acted as sole executor of said will until his final report as such executor was filed and approved by the court in the latter part of 1927 or the early part of 1928. Since Harry's death, William W. has continued to act and is now acting as sole trustee of said trust.
Appellees William W. and Birdie R. Gray are husband and wife. Their children are the appellees Dorothy Gray Up de Graf, Mary Allen Gray Kerwin, and Margaret Gray Browne; the appellees William Walden Up de Graf and Harry Up de Graf are minor children of Dorothy; the appellees Mary Catherine Kerwin and Elizabeth Kerwin are minor children of Mary; and the appellees Harry Browne and Allen Browne are the minor children of Margaret. All appellees of the names Gray, Up de Graf, and Browne are residents and citizens of California; the Kerwins are all residents and citizens of Illinois; and appellant is a resident and citizen of Virginia. At the time the will was executed, appellant's name was Margaret Gray Flint.
The will of Allen Gray, in so far as it is material to the questions herein presented, devised and bequeathed his entire estate in trust to his brothers William W. and Harry, the net income of which was to be paid to William W. and Harry so long as they both lived, and, in case either died, the entire income was to be paid to the survivor so long as such survivor might live.
The sixth, seventh, eighth, and ninth items of the will describe the interests of testator's nieces and their descendants in the following language:
"Item Sixth — After the death of both of my above named brothers the income devised to them under this will shall each year, until the end of this trust, be equally divided between each of their lawful children and my niece Margaret Gray Flint, share and share alike. Except as hereinafter provided. Should Margaret Gray Flint or either of the lawful children of either of my brothers be dead at this time and have lawful children or descendants living, said lawful children or descendants shall receive the share of the above named income which their parent would have received had said parent been living at this time, share and share alike.
"Item Seventh — Should Margaret Gray Flint die after the death of my brothers, leaving children or lawful descendants, the share being paid to her under this will, at the time of her death, shall be paid to her children or lawful descendants. Should any of the lawful children of my brothers Harry Gray or William W. Gray die after the death of both of my brothers leaving lawful children or descendants, then the share which was being paid to said deceased lawful child of my brother at the time of the death of said lawful child shall be paid to the lawful children or descendants of said child. Should Margaret Gray Flint or any of the lawful children of either of my above named brothers die after the death of my said brothers without leaving any lawful children or descendants living, then the income from my property shall be distributed in the same manner as though said deceased person or persons had never lived.
"Item Eighth — In the event any of the children or lawful descendants of my niece Margaret Gray Flint, or any of the lawful children or descendants of any of either of my brothers' lawful children, should die without leaving lawful children or descendants, then the income from my property shall be distributed in the same manner as though said deceased person or persons had never lived.
"Item Ninth — After the death of Margaret Gray Flint and the death of all of the lawful children living at the time of my death of either of my above named brothers this Trust shall end and all of my property shall descend and go to the persons who under the laws of the State of Indiana at that time would inherit my property in case I should have died at that time intestate."
James Gray, brother of Allen Gray and father of appellant, died testate on June 20, 1904, and at that time was a resident of Vanderburgh county, Ind., and left as his only heirs at law his wife and appellant. He devised and bequeathed all of his estate in trust to his brothers Allen, William W., and Harry. With the exception of certain legacies which are not material to this controversy, the entire income of his estate was to be paid to his wife and appellant in equal proportions during their lives and the entire income to the survivor during her life. In case appellant should survive her mother (and she did), the entire estate, upon appellant's death, was then to become the absolute property of appellant's child, children, or descendants then living, if any; and, if there were none then living, the property was to descend to the heirs of James Gray under the laws of descent of Indiana. Under those laws at the time, and since this controversy arose, appellee William W. Gray and appellant were and have been the only surviving heirs of James Gray; and, if William W. should die prior to appellant's death, then the children of William W. and the descendants of any who might be dead at that time would constitute the heirs of William W.
Appellant has never borne a child, and prior to the controversy she underwent an operation, and as a result thereof it is not physically possible for her ever to bear a child. This fact was known to William W. Gray at the time this controversy arose, which was some time during the latter half of 1927.
At that time William W. had not filed his final report as executor under the will of Allen Gray, and appellant was threatening him with litigation pertaining to certain alleged mismanagement of the estate, and was proclaiming her intention to adopt a child or children in order to defeat the descent to William W. Gray or his descendants of any part of her father's estate, or that part of the estate of her uncle Allen Gray in which she had a life interest.
That controversy was compromised by written contracts and agreements executed by appellant and her husband and by appellee William W. Gray or by his wife, Birdie Gray. The substance of those contracts, in so far as it is material to the question before us, is that all differences between the parties were amicably adjusted. William W. Gray was to and did pay appellant in cash the approximate sum of $150,000. In consideration therefor, appellant was to release and transfer all her interest in the estate of her uncle Allen Gray to Birdie Gray, wife of William W., and to execute all transfers, conveyances, and waivers which were necessary to accomplish said purpose. She further agreed that a proper construction of both wills hereinbefore referred to is that no child other than the lawful issue of appellant shall or can take under either will as the child of appellant, and that all parties to the agreement would do every act and thing necessary or proper to have said wills so construed by the proper court.
She further agreed to procure and furnish all evidence reasonably available relative to her inability to bear children and to institute proper proceedings in the proper court of Indiana to perpetuate said testimony, pursuant to the Indiana statutes. All these things were done, apparently to the satisfaction of both parties, and the will was thus construed by court decree, and the testimony was perpetuated.
It is alleged in the bill that, in order to induce appellant to enter into and carry out said agreement, appellee William W. Gray falsely represented to appellant that the entire estate would not exceed in value the approximate sum of $1,500,000, and that, according to mortuary tables, her interest in the estate would not amount to over one-tenth thereof. It is alleged that at that time appellant was 40 years of age and William W. Gray was 70 years of age.
It is further alleged that appellant relied upon said false representation and believed the same to be true, and had no other means of ascertaining the truth in relation thereto, and was induced thereby to, and as a result thereof did, enter into and carry out the agreement upon her part; that said representation was false in that the estate was fairly worth the approximate amount of $5,000,000, of which fact William W. Gray had knowledge at the time he made said false representation; and that appellant is without adequate legal remedy.
The bill further alleges that a short time prior to the death of Allen Gray he was the owner of 59.413 per cent. of the capital stock of a corporation known as the Indiana Tie Company, and that Allen Gray then transferred to William W. Gray, without consideration, a part of that stock amounting to 10.488 per cent. of the entire capital stock of the company, which was intended by both parties to be held by William W. for Allen, and that, after Allen's death, that company organized the two appellee corporations, the Southern Indiana Farms Company and the Williams Coal Company, and they were financed with the money of the Indiana Tie Company. The capital stock of the two newly organized companies was prorated to the stockholders in the same proportions as the capital stock of the Indiana Tie Company was held by them, except that 594 shares of the Southern Indiana Farms Company and 636 shares of the Williams Coal Company which should have been issued to the Allen Gray trust were fraudulently and with the knowledge and connivance of William W. Gray issued to himself and wife separately as individuals, and they still hold the same in that capacity, when in fact it should be and is an asset to the Allen Gray trust.
It is further alleged that at the time of his death Allen Gray owned 800 shares of the capital stock of the Evansville Veneer Company; but, since the death of Allen Gray, said William W. Gray, in some unlawful manner unknown to appellant, has had 116 5/6 shares of said stock owned by Allen transferred to himself individually, and that the same constituted an asset of the Allen Gray trust and should be declared to be held by William W. as trustee under said trust for the beneficiaries.
The prayer of the bill, in substance, is as follows:
(1) That the shares of stock in the Southern Indiana Farms Company and the Williams Coal Company, so held by William W. Gray and wife, be declared to be a part of the property of the Allen Gray trust, and that said Grays be held to be trustees of the same for the benefit of said trust and for the benefit of appellant and the other beneficiaries under said trust.
(2) That the appellee corporations, their agents, employees, and attorneys, be enjoined from recognizing any other than the Allen Gray trust as owner of said shares of stock.
(3) That appellees the Grays be restrained and enjoined from exercising any ownership or control of said shares of stock, and that they be removed as trustees thereof, and that a receiver pendente lite be appointed to control and manage the same.
(4) That William W. Gray be removed as trustee of all property of the Allen Gray trust now in the hands of himself or of his wife, and that another trustee be appointed.
(5) That the shares of stock in the Evansville Veneer Company now in the name of William W. Gray be declared to be the property of the Allen Gray trust, and ordered turned over to new trustees, and that William W. Gray be enjoined from exercising ownership or control over it.
(6) That upon the establishment of said trusts said William W. Gray, individually and as trustee, be ordered to account to appellant for all damages, or sums of money lost, suffered or sustained by her by virtue of any and all misrepresentations of fact made to appellant by said Gray as trustee, as hereinbefore referred to.
(7) The general prayer for relief.
The minor appellees were represented by guardians ad litem. They entered a special appearance, and on behalf of said minors, who were all nonresidents of Indiana, moved to quash the return, to set aside the service of process, and to vacate the order for service. Special appearances and like motions were separately and severally made by nonresident appellees Mary Allen Gray Kerwin, Margaret Gray Browne, and Dorothy Gray Up de Graf, and all of these motions were overruled.
Appellees Grays and the corporations also entered special appearances for the purpose of objecting to the court's jurisdiction of the action and of their persons, and filed their separate and several motions to dismiss for lack of jurisdiction. These motions were overruled, and exceptions were saved.
Later, appellees Birdie Gray, William W. Gray, as an individual and as trustee, and the corporations filed a separate and several motion to dismiss the bill on many grounds therein set forth, some of which were jurisdictional. It was stated therein that in making the motion they did so "without waiving their exception to the denial (of their former motions) and reasserting that this court is without jurisdiction of any cause of action set forth in said bill of complaint."
Appellees the daughters of William W. Gray and the guardians ad litem for the minor children also filed a similar motion to dismiss, and reasserted lack of jurisdiction of the court over said appellees. Among other grounds assigned, they allege that a proper alignment of parties according to their interests overcomes the allegation of diversity of citizenship upon which jurisdiction depends.
The court sustained the motions of appellees to dismiss for want of jurisdiction and rendered judgment for costs against appellant.
The sole question presented by this appeal is whether the federal District Court for the Southern District of Indiana has jurisdiction of the instant suit.
It is quite obvious that the primary basis of the action is the alleged fact that appellee William W. Gray deceived and misled appellant by falsely representing to her that the value of the estate of Allen Gray did not exceed the sum of $1,500,000, and the further fact that she was thereby induced to, and by reason thereof did, release and transfer to Birdie R. Gray, for her husband, William W. Gray, appellant's entire interest in the estate, which resulted in the damage of which she complained.
We think the court's ruling in dismissing the bill for lack of jurisdiction was proper. The facts pleaded constitute a legal action for deceit. The complaint is good on that theory, whether appellant intended it so or not, and we are convinced that there is no other cause of action stated.
On the facts pleaded, appellant had her choice of two causes of action, but she could not have both. She could rely on the contracts and hold that which she had received under them, and sue William W. Gray for damages on account of his fraudulent representations; or she could rescind the contracts and have returned to her the interest in the property, or its equivalent, which she had transferred to William W. Gray, provided she returned what she had received or made an equitable tender. Until she rescinded the contracts, she had no interest in the trust estate, either legal or equitable, and her remedy in that event would be against William W. Gray for damages. Shaw v. Barnhart, 17 Ind. 183; McGuire v. Callahan, 19 Ind. 128; Horner v. Lowe, 159 Ind. 406, 411, 64 N.E. 218, 220; Perry on Trusts (1929), Vol. 2, pp. 1413, 1414.
In Horner v. Lowe, supra, the court said: "* * * being possessed of the fruits of the contract as ultimately made, it became necessary for appellee to elect as to the status that the transaction should assume. If he would have accomplished a rescission, it was his duty to so elect with reasonable promptitude, and to return or offer to return whatever of value he had received by the contract. By an omission to pursue this course he affirmed the contract."
The bill discloses that on September 26, 1928, appellant was apprised by William W. Gray of the fact that the true value of the estate at the time she entered into the contracts was more than three and a half million dollars in excess of what he had represented to her the estate was worth when the contracts were made. This action was instituted on January 5, 1931, and she has not yet rescinded the contracts and does not ask her release from them, and she prays for damages resulting to her by reason of the misrepresentations. We are not passing on her right to rescind her contracts now or later, for that question is not before us. These observations are made from facts alleged in the bill, and are for the purpose of showing the impossibility of construing the bill to be based upon any theory which assumes that she had any present interest in the trust property, for she cannot have such interest until her contracts are rescinded.
Our position in this matter is further fortified by the fact that, even though the contracts be considered rescinded, she still would have no right to quiet her title to any of the trust property under section 57 of the Judicial Code ( 28 USCA § 118) as she contends; for, under the will, she would have no present and subsisting interest. She receives nothing under the will unless she survives William W. Gray, and therefore has no such interest and never had such interest as contemplated by section 57 of the Judicial Code, supra. De Rees v. Costaguta (C.C.A.) 275 F. 172, 177; Vidal v. South American Securities Co. (C.C.A.) 276 F. 855, 870-873; Scott v. Neely, 140 U.S. 106, 11 S. Ct. 712, 35 L. Ed. 358.
Under such circumstances, we regard the bill as stating a legal cause of action for deceit, of which a court of equity has no jurisdiction; and, if transferred to the legal side of the court, there would still be a lack of jurisdiction, because neither appellant nor William W. Gray nor his wife, Birdie R. Gray, is a resident or citizen of Indiana, and there is no specific property of the trust within the Southern District of Indiana in which appellant can be said to have a present and subsisting interest.
Decree affirmed.