Bankers' Surety Company, Respondent, v. David Rothschild and Others, Defendants, Impleaded with Isaac Frank, Appellant

Bankers’ Surety Company, Respondent, v. David Rothschild and Others, Defendants, Impleaded with Isaac Frank, Appellant. First Department, February 9, 1906. Pleading—allegations of conspiracy in action in equity — allegations ■ setting, out evidence stricken out. Though in an action in equity for an accounting for moneys obtained by the defendants-through a conspiracy of extraordinary character the rules of pleading governing an action at law should be relaxed and allegations which bear upon the fraudulent scheme of the,conspirators are proper, allegations, which ■ merely set out evidence of such conspiracy are improper and should- .he stricken out. ' ( Specific allegations considered and stricken out. Appeal by the defendant, Isaac Frank, from so much of an order of the Supreme Court, made at the Hew York Special Term and entered in the office of the clerk of file county of Hew York on the 12th day of December, 1905, as denies the said defendant’s motion to strike out certain allegations of the complaint as scandalous and irrelevant and to make the said complaint more definite and certain. The complaint alleges: “ 1. That the plaintiff is a foreign corporation created and existing under the laws of the State of Ohio and duly authorized to transact business in the State of HeYork * * *. “ 2. * * That the said Louis Késsel and Charles Kessel for many years prior to 1903 were copartners trading as Louis Kessal and Brother. * "x" * 1 “3. * * * That at the times hereinafter mentioned the defendants David Rothschild and Louis Rothschild were copartners trading as D. & L. Rothschild. “ 4. * * * That in or about .the said, summer of 1903 said defendants David Rothschild, Louis Kessel, Charles Kessel and Isaac Frank became copartners under the name or style of Kessel & Co. for the purpose of carrying on for their joint benefit the business of loaning moneys; * * * a 5, * *• * That the defendant Isaac Frank * * * has been and now is a ticket scalper or broker having an office at Ho. 347 Broadway and has never been engaged, in any, other business and was not possessed of either money or substantial credit. « g_ * * * That the said defendants Louis Kessel and Charles Kessel, trading as Louis Kessel & Bro., were at the time of their liquidation largely indebted and did not have means to liquidate their said business. * * * ", “7. * * * That the capital or funds used in carrying on the business of Kessel & Co. was obtained by means' of the various transactions hereinafter set forth. 8. * * * That- some years prior to 1903 the defendant David Rothschild organized the Globe Security Company and conducted it in such a manner that it eventually went into the hands of a receiver, * * * with very large liabilities. * * * And that while said David Rothschild was th'us engaged "with said Globe Security Company the said defendant, Isaac Frank, became: associated with said David Rothschild and the Globe Security Company- business, and shortly thereafter associated himself with said David Rothschild in the organization and incorporation. of the Equitable Rational Bank, from "which the said David Rothschild was -subsequently- compelled- to retire by reason,of his business reputation and practices, and thereafter and shortly before the year 1903 the said defendants David Rothschild ‘and- Isaac Frank with others organized the Federal Bank of Réw York, and the said David Rothschild became and was its president from the time of its organization coritinuously until-sometime in the spying of 1904, which said Federal Bank was organized for the purpose of carrying on financial transactions improper and irregular for a State bank to carry on or be connected with, and by reason of which said- bank became insolvent and is now in the hands of a receiver, and is only expected to pay a comparatively small dividend to its depositors. . “9. * * * The defendants, David Rothschild, Louis Rothschild and Isaac Frank and others entered into a conspiracy to estab-^_ lish false credits at various banks and trust companies in connection with said Federal Bank in the names of D. Rothschild, * ' * ■■*. United "Marine .Mfg. & Supply Co., * * *, and others, for-the purpose of wrongfully obtaining money by "the exchange or kiting of checks’ and the procuring of loans and,discounts -fromsaid several banks and trust companies, for the joint benefit of said defendants. ' • “ 10. * * * That the * * *. corporations thus used were each arid all of them corporations having practically no assets, credit ■or standing. ! ' , ■ ' “11. * * * That as a part of said conspiracy and in pursuance thereof the- said dófehdants David Rothschild - and Isaac Frank acquired the control and- became the owriers of said corporations, -x- . * * for the purpose of using" said corporations and each of them in establishing bank accounts arid false -credits. * * - * ~12. ~ That said corporations were * ~ offleered as a part of said general conspiracy, and in pursuance thereof and for the purpose of using said corporations in "aid thereof. : “ 13. * - * * -That said defendants maintained an office at Ro. 346 Broadway, * * * in the names of and as the place of busi- riess of" said corporations, * * ' * under thé personal manage- ment and direction of thesaid Frank * f *; that no part expense of maintaining said office was ever charged to or paid by said corporations or any of them, but such expense was paid annually by said Frank as such acting treasurer or financial agent -of said defendants out of the funds obtained as a result of their said conspiracy. “ 14. * * * That * * * the said defendants, * * * trading as Kessel & Co., took over the business carried on by said Frank at 346 Broadway * * *: “15. * * * That accounts were opened in said Federal Bank of which said David Rothschild was the president and organizer, in the names of all of said corporations and that the total _ deposits in such accounts in said bank in the names of David Rothschild and D. & L. Rothschild between the respective dates hereinafter set forth is* as follows: (Setting them forth). “ 16. - * * * That the discounts obtained by said corporations, said D. Rothschild and D. & L. Rothschild between the respective dates hereinafter set forth at said Federal Bank is as follows: \ (Setting them forth). “ 17, ■* * * That as a part of said conspiracy, and in pursu ■ anee thereof, the said Frank opened and kept the following bank accounts in which the total deposits between the respective dates hereinafter set forth were substantially as follows: (Setting them forth). . “ 18. * * * That as a part of said conspiracy and in, pursuance thereof the following loans and discounts between the respective dates hereinafter set forth were obtained by said Frank from said Banks and Trust Companies. (Setting them forth). “ 19. * * * That the Equitable Rational Bank failed and has been wound up, and plaintiff has no information as to the amount of deposits and discounts, made and obtained therein by the said Frank or the amount of deposits and discounts made and obtained by the Hygienic Fibre Company in the Federal Bank. “'20. * * * That as a part of said conspiracy and in pursuance thereof, a bank account was opened in the Mercantile Trust-Co. in the name of one Louis Hasse in which large sums of money were from time to time deposited. * * * “ 21.1 * * * That sometime in or'about tlie fall of 1902 or tlie spring of 1903, the said defendants Louis Kessel and Charles Kessel associated themselves with- the said David Rothschild -and Isaac Frank in some or all of their "financial transactions as. hereinbefore and hereinafter set forth, and became parties thereto and participants (therein). ' • -. .“ 22. * * * That as a part of said general conspiracy * '* * said defendants by and with the assistance of one; John W. Wooten, the then attorney for said David Rothschild and the Federal Bank, one, Armitage Mathews, one of. the. then attorneys for the plaintiff herein; one. Samuel I. Ferguson, also an attorney, and others, conspired to cdntest the will of one William Weisell, deceased, and-to have the said David Rothschild appointed temporary administrator thereof * * ■ * for-the purpose of wrongfully and illegally using the assets óf said Weisell* estate. * * * “23. * * * That the said David Rothschild, John. W. Wooten, Armitage Mathews and Samuel I. Ferguson have been indicted by the grand jury of New York County for said conspiracy and are now under said indictment. (This paragraph was stricken out by tlie court below.) 1 • ' ■ . “24. That the said David Rothschild was appointed the temporary administrator of said Weisell* estate * * * and * * ,* came into possession of the assets of said estate * * ' * • "aggregating upwards of $150,000. “ 25. * * * That as a part of said conspiracies * * * the. said Armitage Mathews,-one of the. then attorneys for the plaintiff as aforesaid, concealed from plaintiff the true state of affairs " and * * * induced the plaintiff to execute the bond of said David Rothschild as such temporary administrator in- the sum of. $400,000. as surety thereon without joint control of the .assets of said estate. * * * “26. * * * . That immediately after the qualification * * *, as such temporary administrator * * * the .said David Rothschild by and with the aid of his có-conspirators and agents or.dummies,- began to wrongfully and unlawfully use .the assets of said" Weisell* estate and borrowed.money tl-iereon for the joint benefit of himself and those associated with him in said conspiracies. “ 27. * * * ' That as a part of said conspiracies and- in. pursuance thereof the said David Rothschild * * * borrowed' the following moneys from the following parties upon assets belonging to said Weisell* estate which were in the possession of'said Rothschild as such temporary administrator thereof, and under the following circumstances: * * * “ 28. * * * That all of said bonds were of the par value of $1,000, and of the market value of considerable more.” 29. Alleges the alleged division of the proceeds of the said loans. “ 30. *■ - * * That "said various notes * * * as they matured were renewed and the interest thereon to date was paid, so that the said Title Guarantee' & Trust Company eventually held a note of said Hasse for $32,500, the payment of which was secured by 42 bonds, the property of said Weissel estate, and the Mercantile Trust, Company eventually held "a note of said Hasse for' $'39,000, the payment of which was secured by 46 bonds, the property of said Weissel* estate. “ 31. * * * That the said David Rothschild has been indicted and convicted of " a felony and * * * sentenced to serve a term in States Prison for upwards of nine years, and pursuant to said sentence is now incarcerated in the. State Prison at Ossining, Hew York. (This paragraph was stricken out by the court below.) “ 32. * * * That * * * said Prank acted as the treasurer or financial agent and general manager for the said defendants in their said conspiracies and became a party thereto under an agreement that he was-to receive a portion of the moneys made out of said transactions. 1 “ 33. * * * That a decree was made and entered in the fall of ,1903 admitting said "will to probate, and an appeal from said decree was thereupon taken pursuant to said general" conspiracy and as a part thereof, and the undertaking giyen upon said appeal was executed by the said defendant Charles Jiessel as surety thereon at the instigation of th.e defendant Louis ICessel. “34. * * * That in said contest * * * a motion was made by the executors named in said will for an order of the Surrogate’s Court permitting them to exercise their functions as executors under the said will, and compelling the said temporary admin- , istrator to turn Over to them tire assets of said estate. * * * That said motion was defeated and denied, and the assets of said estate were allowed to remain1 in the hands of said temporary - administrator. * * * ' “ 35. * * * That during the fall of 1903,. when the plaintiff through its then attorneys was demanding joint control of the assets of said Weissel*. estate or that it be discharged from all liability on the temporary administrator’s’bond, the said defendant Louis Kessel was actively engaged * **/ ' in endeavoring to procure another surety company to go upon the bond of said temporary - administrator in the place arid stead of the- plaintiff herein, and actually did procure another -surety company so to do, but upon terms which the said defendant David Rothschild would not accept.-■ ; “ 36. * * * That in various other ways the said defendants Louis and Charles Késsel, aided, abetted and assisted in the contest over the probate of the said Weissel will in the prolongation of said temporary administratorship and in the retention of the possession of the assets of said Weissel* estate by' said- temporary administrator. ■ “37. That * ¥ * the plaintiff made application to-the Surrogate’s Court, blew York County, * * * to be discharged from , all' liability upon said bond of said David1 Rothschild -as such temporary administrator and such proceedings were thereafter * * * had that pursuant to the order of said court the plaintiff filed the account of the said David Rothschild as su-ch' temporary administrator * * * ; that objections to said account were filed by the executors of. said estate and certain legatees, which * * * were referred, and said reference is now pending, * * * as a result .of which and pursuant to - two orders of said Surrogate’s Court, the plaintiff took up all the outstanding.loáns which had been obtained, upon the security of the- assets of said Weissel* estate and returned all of said bonds to the duly qualified- executors thereof; and subsequently thereto upon its petition the said plaintiff by an order of the Supreme Court, 'New York County, has been subrogated to all the legal and equitable rights and refnedies .which .said Weissel* estate, the executors arid legatees thereof, may have against the said defendants and others without regard to whether said rights and remedies were immediately available or not. “ 38. * * '* That the said Isaac Frank * * * kept a ledger account between himself and the said David Bothschild and Louis Bothschild * "x" * , and likewise * * * with * *< « Louis Kessel and Charles Kessel * * * , and also with the said firm of Kessel & Co. * * * which * * * said Frank has testified * * * he lost * * * . “39. * * * That said David Bothschild kept a ledger account o£ transactions with said Frank in a small book which he designated as his private ledger, * * * which shows that said Frank had received from the said Bothschild in excess of what the said Bothschild had received from said Frank, the following amounts: (Setting them forth). “ 40. * * * That * * * said Frank by and under the instructions of the said Bothschild delivered to * * * Louis Kessel & Bro. various sums of money aggregating $47,000 and between said dates the said Frank credited said Louis Kessel & Bro. with $17,000, * * * «44. * * * That * * * the said Isaac Frank * * * delivered to the said firm of Kessel & Co. numerous and large sums of. money * * * and * * * credited the said Kessel & Co. with the return of said monies. “ 42. ‘ * * * That * . * * the. said Frank and the said Louis Kessel & Bro. and Kessel & Co. fixed up between them * * * a statement of account, whereupon they agreed upon a balance in favor of said Frank, * * * which said account was not taken from the ledger of the said Frank which had been lost as aforesaid, but was made up from an alleged pass-book and from entries on check stubs of checks drawn and monies deposited in the possession of the said Frank, * * *. ■ “43. * * * That said Frank kept a private book purporting to be a record of the monies delivered by him to the said Kessel & Bro. and the said Kessel & Go. * * * ;, that all monies delivered to said Kessel & Go,, with one exception, were either delivered in currency or in the checks of third parties, and that all payments made by Kessel & Co., * * * were made in currency or in checks to or by third parties under an agreement between the defendants for the purpose of concealing from the Various banks in which the ■ defendants were carrying their accounts, the transactions which they were having, and that at no time did§aid Frank have any note oí Louis Iiessel & Bro. or Iiessel & Co. for said monies or-any part thereof or any security for the payment thereof. “ 44. * * * That the said David Rothschild, as such temporary administrator of said Weissel* estate, deposited in the Bankers’ -Trust Co., pursuant to the order of the Surrogate’s Court, monies belonging to said estate aggregating about $6,000, and without the order of the Surrogate’s Court wrongfully. withdrew from said account most of said monies and used them for the joint benefit of himself and his associates in the transactions hereinbefore set forth. “ 45. * * * That each and all of the defendants were parties to •said conspiracies and to said transactions and had knowledge thereof;. and the said David Rothschild by his wrongful use of the assets of said Weissel estate * * * and the other defendants by inter-meddling with him as aforesaid * * * became and were trustees de son tort and liable to the estate of the said William Weissel,* deceased, * * * and the plaintiff by its subrogation * * * is entitled to all the legal and equitable rights and remedies of said estate against said defendants, * * *. “ Wherefore, the plaintiff demands judgment that the defendants and each of them account to the plaintiff for all moneys procured or obtained by them jointly and severally upon assets belonging to said Weissel* estate * * *” Carlisle J. Gleason, for the appellant. Henry White, for the respondent. Sic. 8ic,. Sic. Sic. Sic. [MAJORITY — Ingraham, J.:] Ingraham, J.: The learned judge at Special Term recognizing the extraordinary character of this action came to the conclusion that while he would be inclined in an action at law to apply the strict rules of pleading in an equity case of the extraordinary character of file case here presented, in view of-the inherent difficulties necessarily involved in the presentation of the case, he deemed it a better and safér practice to remit the consideration of the questions presented upon the motion then before him to the deliberate action -of the trial justice, before whom all the facts would be unfolded. I am inclined to think that he was right in so far as this applies to the allegations of the complaint which relate to the relations between the various defendants and which bore upon the scheme adopted by them resulting in the wrongs for which the plaintiff seeks to hold these defendants liable; but giving the plaintiff the full benefit of this conclusion, there are certain allegations of this complaint that can have no possible bearing upon the combination between these defendants or, if they have any relation at all, it would be an allegation of evidence to(prove the general allegations of a conspiracy or combination between the defendants. Thus, the 8th paragraph of the complaint, alléging the organization of The Globe Security Company and the Equitable 'National Bank, seems to be of no possible relevancy. The 12tli paragraph seems to be also irrelevant. At most the facts alleged might be proved as tending to establish the relations that existed between Bothschild and the appellant Frank,.but are entirely out of place in a .complaint. The same ■ applies to paragraphs 12, 13, 16, 17, 18, 19 and 20. Paragraph 38 is also irrelevant. Paragraphs 39, 42 and 43, while irregular in form, contain some allegations of fact which may be relevant: I think it is improper to allege in a pleading the fact that Bothschild kept a ledger account .of transactions with Frank in a small book which he designated as liis private ledger,-and what Frank did as a witness before a referee in another action and his testimony as to these books. While it is possible that some of these facts might be competent evidence upon the trial, they are improper in a pleading. Fly conclusion is that the order appealed from should be reversed, with ten dollars costs and disbursements of this appeal, and the-motion granted to the extent of striking out paragraphs 8, 12, 13, 15, 16, 17, 18, 19, 20, 38, 39, 42 and 43, with ten dollars costs, the plaintiff to have leave to serve an amended complaint. O’Brien, P. J., McLaughlin, Laughlin and Clarke, JJ. concurred. Order reversed,, with ten dollars-costs and disbursements, and. motion granted to the extent stated in opinion, with ten dollars costs, with leave to plaintiff to serve amended complaint.