PORTER v. COOKE, 127 F.2d 853 (5th Cir. 1942)

No. 9831.Circuit Court of Appeals, Fifth Circuit.
May 1, 1942. Rehearing Denied June 5, 1942.

Appeal and Cross-Appeal from the District Court of the United States for the Western District of Louisiana; Benjamin C. Dawkins, Judge.

Action by Fred Porter and others against Walter E. Cooke and others for the appointment of a receiver, for an accounting, and for other relief. Walter E. Cooke having died, Barclay Cooke and another, as executors of the estate of Walter E. Cooke, deceased, were substituted as parties defendant. From the judgment, plaintiffs appeal and defendants cross appeal.

Judgment affirmed in part and reversed in part with directions.

Geo. O. Durham, of St. Louis, Mo., and Edward S. Klein, of Shreveport, La., for appellant Fred Porter and others.

R.A. Fraser, of Many, La., and A.B. Freyer, of Shreveport, La., for appellee R.L. Gay.

Sidney M. Cook and C.D. Egan, both of Shreveport, La., for appellee Barclay Cooke and another.

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Cecil Morgan, of Baton Rouge, La., and Clarence L. Yancey, of Shreveport, La., and T.M. Milling, of Baton Rouge, La., for appellee Standard Oil Co., of Louisiana.

Before HUTCHESON, HOLMES, and McCORD, Circuit Judges.

HUTCHESON, Circuit Judge.

On the pleadings the suit was a class suit to hold the defendants as members with plaintiffs[1] of a partnership enterprise, to charge the defendants with fraud upon, and breach of trust as to plaintiffs, and to lay claim to, and obtain the fruits of, properties of the partnership enterprise which it was charged the defendants had gotten hold of and were misappropriating to their own use.

The prayer was for the appointment of a receiver, an adjudication that the properties described be declared to be properties of the partnership, that there be an accounting, and that plaintiffs’ interest in the property and rights against the defendants be established and vindicated. As against defendant Cooke, alleged to be a citizen of New Jersey, there was a prayer and order for service on him under Section 57, Judicial Code.[2] The district judge finding that the suit, under the laws of Louisiana, was not one asserting an interest in property, that the petition did not allege facts to show the existence of a partnership for the purposes claimed under Louisiana law, and that no cause of action was shown against any of the defendants except perhaps Gay, a resident of Louisiana, dismissed the bill.[3] On appeal this court held[4] that without regard to whether a partnership relation did or did not exist between plaintiffs and the defendants, the pleadings showed that plaintiffs had furnished money to the defendants for an investment in property in the benefits of the ownership of which plaintiffs were to share, and monies so furnished having been used by the defendants in acquiring the properties, referred to in the petition, a trust resulted in favor of the plaintiffs and we reversed and remanded the cause for trial on the issues thus tendered.

Thereafter Emlet defaulting and defendants, Cooke and Gay, answering and fully denying plaintiffs’ charges of fraud and imposition, and their allegations that they and these defendants were partners or joint enterprisers, and their claims to interests in the property sued for, and particularly in what is known as the Loring leases on which the profitable production was obtained, there followed an interlocutory hearing with Emlet, plaintiff’s chief witness, and Cooke and Gay as witnesses for themselves, interlocutory findings,[5] and an interlocutory decree.[6]

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Thereafter Cooke, pleading to the issues set for hearing before the Master, alleged that if his taking the contract of February 9, 1928, had made him trustee, his obligations as such were limited and restricted to the precise properties acquired under

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that contract, and they had been discharged by its carrying out. He also made it known that the receiver had taken possession of properties other than those acquired by the instrument of February 9, 1928, and sought to obtain their release. On the hearing before the Master, it being made to appear that the Loring operations were the only profitable ones, it was agreed that the hearing should first be limited and restricted to a determination of what properties should be held to constitute the joint enterprise and that if the Loring operations, which were the only profitable ones, were found not to be part of the joint enterprise there would be no necessity for going further while if they were found to be a part of it, the Master would then proceed to an accounting.

The hearing concluded, though it appeared that all of the operations except those on the Loring leases had resulted in a heavy loss and that those leases were not included in the transfer of February 9, 1928, or otherwise acquired from Emlet but were independent acquisitions by Cooke and Gay, the Master nevertheless determined that they were to be regarded as a part of the joint enterprise and Cooke held to be a trustee as to them. He did this on the views advanced by him; that when Cooke took the properties from Emlet under the contract of February 9, 1928, he not only acquired those properties but he took over the conduct and charge of the whole enterprise, that in effect he then entered into a contract of joint adventure with Emlet’s associates; and that having entered into it, he was bound to proceed with it for the benefit of them all, in proportion to their contributions, until in some way he had brought the enterprise to an end. So finding he proceeded to an accounting with respect to the Loring operations and the profit derived therefrom. On exceptions to the Master’s report, the district judge adhered to his view that Emlet was a trustee of the enterprise which he had been conducting and that Cooke by coercing him to transfer the leases had made himself trustee ex maleficio for plaintiff as to all of the properties he took from Emlet.

But he found;[7] that the properties he took by assignment were worth no more than the obligations he undertook as consideration

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for them; that he had not made a profit but a loss as to them; that the Loring properties were not gotten by or through Emlet but through his own independent efforts and with his own funds; that plaintiffs had no interest of any kind in them, and defendants, no obligation of any kind to account to them for the operations or the profits therefrom, and, disagreeing with the Master, he found for the defendants.

We have set out in the margin with some fullness, the district judge’s findings, for while both appellants and appellees do make some complaints of the fact findings, the main contention of appellants is, that accepting the judge’s findings the decree should have been for them, and of appellees on the merits is, that the decree followed naturally from the findings.

Appellees in addition insist that the record supports no other reasonable conclusions than; that Emlet had complete title to and full authority in law and fact to deal with the properties he assigned Cooke; that Cooke dealt with Emlet in good faith and without oppression or overreaching and particularly without duress; and that under Louisiana law, dealing with Emlet on the faith of the records showing title in him, he acquired the leases as his own and held them for his own benefit, wholly unaffected by any secret equities between Emlet and the plaintiffs; and that the institution of the suit and the procurement of the receivership was wrongful as against them. While urging therefore that the decree, insofar as it denies plaintiffs a recovery, be affirmed, they insist that, so much of the judgment as taxes them with costs, should be reversed.

We disagree with appellants that upon the facts found by the district judge, they were entitled to a decree. We agree with appellees that the decree for them followed the findings inevitably. What was found was; that contrary to their allegations, that they were partners with Cooke and Gay in an oil development adventure and had paid them monies to invest in it, plaintiffs were not associated with them as partners or joint adventurers, and had paid them no monies, and that Cooke and Gay sustained no relation to them whatever except that of trustee ex maleficio as to the leases and property Emlet, under duress as found by the court, had assigned to them; that these leases and properties were worth far less than Cooke and Gay had laid out as consideration for them; and that from their exploitation and development, at Cooke’s sole expense, they derived no profit but a heavy loss. That all the profits derived by Cooke and Gay were from properties which, no part of the Emlet leases, had been acquired and developed by them wholely independent of Emlet. On these facts we think it plain that no other judgment could possibly have been rendered on the merits than the one that was rendered.

The theory on which the Master found for plaintiffs and which plaintiffs press here, that by acquiring leases and properties from Emlet, Cooke and Gay became joint adventurers under an obligation to continuously devote their time and money and talents to the service of the plaintiffs, falls flat, with the finding that there was never at any time, any agreement or understanding of any kind that Cooke and Gay or either of them, were or would be joint adventurers with plaintiffs. For, whatever in law a joint adventurer, this case law hybrid of recent origin and undetermined connotation may be,[8] and

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however difficult to distinguish in particular cases between joint adventures and partnerships, some courts having gone so far as to say that they are subject to the same rules and principles, it is as fundamental to the existence of a joint adventure as it is to the existence of a partnership, that there be a contract between the parties that they are or are to be joint adventurers. As in partnerships, whatever the case as to outsiders, as between the members the relationship of joint adventurers is a matter of intent and arises only where they intend and agree to associate themselves as such. 30 Am.Jur. page 681. It being established here both upon the findings and upon the facts the record discloses, that Cooke never intended to be and never was, either a partner or a joint adventurer with the plaintiffs, the whole theory of recovery based upon the contention that he was, falls to the ground. In his original finding of law and fact that Cooke obtained the assignment of the leases by duress and because he did, though he took it on the faith of the record title in Emlet, he became a trustee ex maleficio of the plaintiffs as to the particular leases taken and liable for profits, if any, secured from them by the expenditure of his own money, time and effort, the court went to the verge in favor of plaintiffs. On no reasonable theory could such a finding be extended to the length plaintiffs would have it go, of making Cooke trustee ex maleficio as to properties other than those acquired from Emlet. But this is not all. We think appellees are right in their claim; that the facts do not support the finding that the assignment was obtained by duress as duress is known to Louisiana law,[9] and in their claim, that it is quite clear upon the facts that Emlet had full authority to deal with the properties as in his judgment seemed best; that his action in making the assignment was reported to and concurred in by the plaintiffs; and that nothing occurred in connection with it of which plaintiffs can rightfully complain. Further, it is settled Louisiana law, that persons dealing with immovable property, deal with it on the faith of the records and that all contracts and claims not of record or secret equities are void as against third parties[10] and this wholly without regard to whether they are, in fact, known or not known to the third parties.

The theory on which the case was reversed by us when here before is not at all in conflict with these views. We thought and decided there, that plaintiffs having alleged that “each of the appellants furnished money to the three individual appellees, Cooke, Gay, and Emlet, for the purpose of being used in exploring for oil and gas and in acquiring oil and gas leases, in which appellants were to have described interests * * * and that the moneys so furnished were used in acquiring, in the names of individual appellees * * * properties * * * which the individual appellees claim adversely to the appellants,”[11] they ought to be permitted to prove, if they could, that this was so, and if they could, defendants ought not, as between themselves and plaintiffs, be permitted to deny the interest of plaintiffs in the properties sued for.

The theory which is now sought to to be urged is that though plaintiffs were not partners of or adventurers with Cooke

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or Gay, though they paid them no monies, and had no agreements or dealing with them, but only with Emlet, Cooke, because he knew that Emlet was dealing with them, could not obtain a good title from Emlet in whose name on the records, the title stood. This is not the law of Louisiana. By permitting Emlet to take the title in himself and deal with the property as his own, plaintiffs, under Louisiana law prevented themselves from asserting their claims against persons who had purchased on the faith of the records without regard to their knowledge of those claims.

It remains only to determine whether appellees are entitled to have reversed that part of the decree taxing them with the costs. We think they are. Normally the matter of taxing costs against a fund is within the discretion of the district judge, and this is especially true of receiverships. But where the facts as here show that a receivership was instituted and property was seized upon an unfounded claim, though there is authority to direct that the costs be paid primarily out of the funds, the parties whose property has been wrongfully seized are entitled, on equitable principles, to recover costs from those who have wrongfully provoked the receivership. Cf. Cochrane v. W.F. Potts Son Co., 5 Cir., 47 F.2d 1026; W.F. Potts Son Co. v. Cochrane, 5 Cir., 59 F.2d 375; Speakman v. Bryan, 5 Cir., 61 F.2d 430; Bowersock Mills Power Co. v. Joyce, 8 Cir., 101 F.2d 1000. The judgment will therefore be affirmed on the merits but as to the imposition of costs, it will be reversed with directions to retax costs in accordance herewith.

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