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:
"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
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:
"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
/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
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,
"(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
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 ...