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CHARLES KEESHIN v. FARMERS & MERCH. BANK OF ROGERS

November 21, 1961

CHARLES KEESHIN, INC., AN ILLINOIS CORPORATION, PLAINTIFF,
v.
FARMERS & MERCHANTS BANK OF ROGERS, AN ARKANSAS CORPORATION; FARMERS PRODUCE CO., AN ARKANSAS CORPORATION, FRANK HALL AND CHARLES L. GARRETT, DEFENDANTS. CHARLES KEESHIN, INC., AN ILLINOIS CORPORATION, PLAINTIFF, V. JEFF DUTY, NELSON DODD, AL HOLLINGSWORTH, JEFF BROWN, FRANK HALL, AND HARDY CROXTON, DEFENDANTS.



The opinion of the court was delivered by: John E. Miller, Chief Judge.

  The above causes were consolidated for hearing and disposition of the pending motions to dismiss now before the court. The motions are bottomed upon the contention that the Keeco Sales Corporation, organized and existing under the laws of Arkansas, is an indispensable party plaintiff in the present cases, and that if such corporation is made a party plaintiff, there will not be the requisite diversity of citizenship to support the jurisdiction of the court.

On May 26, 1961, the plaintiff filed its complaint in Civil No. 438, seeking to recover the amounts of checks drawn on the account of the Keeco Sales Corporation, which the plaintiff alleges were in fact illegal payments and for which the defendants are liable. Summons was served on all of the defendants on May 27, 1961, except defendant Frank Hall, who was served on June 3, 1961.

On June 7, 1961, the defendants filed a motion to dismiss on the ground that the complaint failed to state a claim. On June 12, 1961, the court overruled that motion, and the question therein raised is no longer before the court.

On June 21, 1961, the defendants filed their original answer, but on July 25, 1961, they filed an amendment to the answer, in which they alleged that the Keeco Sales Corporation, an Arkansas corporation (Keeco), is an indispensable party, and that upon the joinder of Keeco as a party plaintiff, the court would be divested of jurisdiction.

On June 2, 1961, plaintiff in Civil No. 440 filed its complaint seeking to recover damages which it alleges arose from the seizure of property and assets of the plaintiff and its subsidiary, Keeco Sales Corporation (Keeco), by the defendants, acting as trustees for the benefit of creditors under the provisions of a purported assignment, entitled "Indenture and Trust Agreement," which was signed by the defendants either purporting to represent plaintiff and its subsidiary, Keeco, or the several creditors. Summons was served on all of the defendants on June 3,1961.

On July 8, 1961, the defendants filed a motion to dismiss which contained the same allegations as the amended answer filed by defendants in Civil No. 438 on July 25, 1961.

It appearing that the same or similar questions were involved in the respective motions to dismiss, the motions in both cases were set for hearing at Fort Smith, Arkansas, on August 31, 1961.

The hearing on the motions was held at the time and place set, at which time ore tenus and documentary evidence were introduced by both sides, and oral arguments in support of and in opposition to the motions were made. Comprehensive briefs have been submitted by the learned counsel for the parties for the court's consideration at times prior and subsequent to the hearing.

It is admitted that the plaintiff in both cases, Charles Keeshin, Inc., is a corporation duly incorporated and existing under the laws of the State of Illinois; that the corporate defendants are corporations organized and existing under the laws of the State of Arkansas; that the individual defendants are all citizens and residents of the State of Arkansas; and that Keeco is a corporation organized and existing under the laws of the State of Arkansas.

Keeco was organized under the laws of the State of Arkansas in May 1956, and functioned until September 1958, when it suspended its operations. It was the sales outlet for Charles Keeshin, Inc., which was doing business in Arkansas as Keeshin Poultry Company and Kish-Rock Poultry Farm. It was held out to the public as a division of the Keeshin Poultry Company. Keeco, Kish-Rock, and the Keeshin Poultry Company shared the same office in Rogers, Arkansas, and the same managerial and administrative personnel operated Keeco, Kish-Rock and Keeshin Poultry Company from the same office. However, separate books and accounts were maintained for each of the organizations.

The corporate structure of Keeco is as follows: President, June Keeshin; Vice President, Seymour Keeshin; Secretary, Frank Hall; and Bookkeeper, Sue Craig.

Seymour Keeshin is the President of the plaintiff, Charles Keeshin, Inc., but Charles Keeshin, his father, is the majority stockholder. Although June Keeshin is the wife of Seymour Keeshin, she owns no stock in her own name in Charles Keeshin, Inc. The defendant, Frank Hall, is a minority stockholder in Keeco, but his only connection with Charles Keeshin, Inc., was that he was employed as general manager of Kish-Rock and Keeshin Poultry Company in Rogers, Arkansas. He received his orders directly from Seymour Keeshin as to matters of policy or over-all operations of the Keeshin enterprises in Rogers, but it was his duty and responsibility to make decisions as to the day-to-day operations since Seymour Keeshin spent most of his time in Chicago. Keeshin made only periodic business trips to Arkansas, and Hall had no occasion to go to Chicago. Other than communicating by letter or by phone, Keeshin and Hall would on occasion have a conference at some intermediate location or on the few instances that Keeshin came to Arkansas.

The majority stockholders of Keeco and the plaintiff, Charles Keeshin, Inc., were closely related and the dealings between the corporations were far from being at arm's length. Keeco derived the bulk of its operating capital from the plaintiff. Furthermore, as the sales outlet, it received preferential rates in the purchase of the poultry products of Keeshin Poultry Company, and in reciprocation it resold to Charles Keeshin, Inc., the same products at a like preferential rate.

As to the external appearance of these corporate manipulations, the defendants introduced at the above-mentioned hearing on August 31, two letters:

The first marked as defendants' Exhibit 1, dated October 31, 1956, upon the stationery of Charles Keeshin, Inc., which was addressed to Mr. Charles Garrett as President of the defendant Farmers & Merchants Bank of Rogers, Arkansas, reads as follows:

"Dear Charlie:

    "This is to certify that all goods and merchandise
  transferred from Keeshin Poultry Company to Keeco
  Sales Corporation and assigned to Farmers & Merchants
  Bank is a good, complete, and valid transfer of
  title, and that Keeshin Poultry Company relinquishes
  all right, title and interest in said property.
          "Yours very truly,
          "Keeshin Poultry Company
          "/s/ Seymour M. Keeshin
          "Seymour M. Keeshin
          "President"

The second letter marked as defendants' Exhibit 2, dated July 23, 1957, upon the stationery of Keeco Sales Corporation, Division of Keeshin Poultry Company, General Offices Chicago, Illinois, reads as follows:

"To Whom It May Concern:

"Re: Notice of Separate Entity.

    "I, June Keeshin, President of Keeco Sales
  Corporation, Rogers, Arkansas, declare the following
  to be the correct and just statement of facts:
    "On a sale from Keeshin to Keeco to Kish-Rock, the
  transaction includes two separate and distinct
  corporations and is not, and should not be confused
  as the same companie or corporations.
    "I, June Keeshin, President of Keeco Sales
  Corporation, have no interests in Keeshin Poultry
  Co., Kish-Rock Poultry Co., Chas. Keeshin, Inc., and
  never have had any association with aforesaid
  companies.
                                 /s/ June Keeshin
                              June Keeshin, President"

By September 1958, at which time Keeco suspended its operations, Charles Keeshin, Inc., apparently was in financial difficulties, and on February 16, 1959, filed its petition in the United States District Court, N.D.Ill., E.Div., seeking an arrangement under Chapter XI of the Bankruptcy Act. As for Keeco, its assets were impounded by the Benton Chancery Court on July 10, 1959, pending further orders by that court. This action by the Benton Chancery Court grew out of a complaint filed by the defendant trustees on November 1958 against Keeco and the plaintiff, Charles Keeshin, Inc., in which they sought to have a judgment against Keeco and Charles Keeshin, Inc., for the total amount of the claims of the creditors represented by the trustees. After intervention on behalf of Benton County to secure a tax lien on the above assets and after the Referee in Bankruptcy for the United States District Court for the Northern District of Illinois, E. Div., entered an order, dated June 24, 1959, directing the trustees to deliver the assets in question, the court found that it should impound the assets held by the trustees until the rights of the various parties could be fully determined.

Stated simply, the motions before the court present this issue: Whether Keeco is an indispensable party plaintiff to the causes of action of Charles Keeshin, Inc., and if so, whether the citizenship of Keeco is such as to destroy the diversity of citizenship of the parties requisite to support the jurisdiction of this court.

Therefore, the first question to be decided is whether Keeco is an indispensable party plaintiff to the present causes of action. This court considered the same question in Young v. Garrett, 3 F.R.D. 193 (D.C.W.D.Ark.1953), aff'd 149 F.2d 223 (8 Cir. 1945), in which it made the following statement of the general rule concerning indispensable parties at page 194:

    "(1) The absence of an indispensable party may be
  raised by motion to dismiss. Hale v. Campbell et al.,
  D.C.N.D.Iowa, 40 F. Supp. 584, See, also,
  Supplementary Commentary, 5 Federal Rules Service,
  pages 820-822.
    "(2) Indispensable parties are those whose
  interests are so bound up in the subject matter of
  the litigation and the relief sought that the court
  cannot proceed without them, or proceed to a final
  judgment without affecting their interests. Division
  525, Order of Railway Conductors of America et al. v.
  Gorman et al., 8 Cir., 133 F.2d 273, 276; State of
  Washington v. United States, 9 Cir., 87 F.2d 421;
  Bland et al. v. Fleeman et al., D.C.W.D.Ark., 29 F.
  669; Franz v. Buder, 8 Cir., 11 F.2d 854; State of
  California v. Southern Pac. Co., 157 U.S. 229, 15
  S.Ct. 591, 39 L.Ed. 683.
    "(3) If indispensable parties have been omitted and
  the making of them parties properly aligned on the
  basis of their actual legal interest and the apparent
  result to them would destroy the requisite diversity
  of citizenship, the causes should be dismissed for
  lack of jurisdiction. 28 U.S.C.A., § 80; Thomson et
  al. v. Butler et al., 8 Cir., 136 F.2d 644."
  In deciding whether there are grounds for dismissal under the general rule, there are certain criteria which must be considered in order to determine whether a party is indispensable to a cause of action. A landmark case which set forth these criteria is State of Washington v. United States, 87 F.2d 421 (9 Cir. 1936), in which the court, beginning at page 427, stated:
    "There are many adjudicated cases in which
  expressions are made with respect to the tests used
  to determine whether an absent party is a necessary
  party or an indispensable party. From these
  authorities it appears that the absent party must be
  interested in the controversy. After first
  determining that such party is interested in the
  controversy, the court must make a determination of
  the following questions applied to the particular
  case: (1) Is the interest of the absent party
  distinct and severable? (2) In the absence of such
  party, can the court render justice between the
  parties before it? (3) Will the decree made, in the
  absence of such party, have no injurious effect on
  the interest of such absent party? (4) Will the final
  determination, in the absence of such party, be
  consistent with equity and good conscience?
    "If, after the court determines that an absent
  party is interested in the controversy, it finds that
  all of the four questions outlined above are answered
  in the affirmative with respect to the absent party's
  interest, then such absent party is a necessary
  party. However, if any one of the four questions is
  answered in the negative, then the absent party is
  indispensable."

In accord: Wesson v. Crain, 165 F.2d 6 (8 Cir. 1948).

It is to be noted that the underlying prerequisite for an indispensable party is that it must be an interested party in the cause of action. In the present cases there is no doubt that Keeco meets this preliminary requirement, for its ...


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