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Docket Number

No. 5921.

Attorney(S)

Mark P. Friedlander, of Washington, D.C., Bernard H. Conn, of Baltimore, Md., and Irving S. Rose, of Washington, D.C., for appellant. Ringgold Hart and John J. Carmody, both of Washington, D.C., for appellees.

Judges

George Ewing Martin
Charles Henry Robb
William Hitz

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Smart Summary

Case Summary: Horton v. Horton et al., No. 5921 (D.C. Cir. Aug. 6, 1934)

Factual and Procedural Background

R. Lee Horton (appellant/plaintiff below) filed a bill of complaint against his brother, Maurice E. Horton (hereafter "defendant"), and M.E. Horton, Inc. The bill alleged that in 1918, while both engaged in the grocery business, the defendant induced the plaintiff to abandon his separate business and accept employment with defendant, assuring him of permanent employment. In December 1919 the business was incorporated. The plaintiff alleges he was gratuitously issued 40 shares of the corporation's capital stock. In March 1925 the defendant purportedly requested that plaintiff assign those shares to him solely to enable the defendant to secure additional credit for the corporation; the plaintiff, relying on defendant's representations and his confidence in defendant, assigned the stock without consideration. The plaintiff served as assistant treasurer until March 1, 1932, when he was discharged without just cause, denied his salary, prevented from performing his duties, and the defendant thereafter continued to hold the 40 shares and refused to redeliver them despite requests. Plaintiff's bill sought delivery of the stock, an accounting, damages, and general relief.

The defendant moved to dismiss the bill on multiple grounds. The Supreme Court of the District of Columbia granted the motion and dismissed the bill for want of substance. The plaintiff appealed to the United States Court of Appeals for the District of Columbia Circuit. The Court of Appeals reversed the dismissal and remanded for further proceedings.

Legal Issues Presented

Whether the bill of complaint stated an equitable cause of action sufficient to survive a motion to dismiss.
Whether the averments in the bill were sufficient to support claims of misrepresentation or fraud.
Whether the allegations, taken as admitted on a motion to dismiss, entitled the plaintiff to equitable relief (delivery of stock, accounting, damages).
Whether the plaintiff's claim was barred by laches given the alleged delay between the 1925 transfer and the 1932 discharge.

Arguments of the Parties

Appellant's (Plaintiff's) Allegations

Defendant induced plaintiff to give up his independent grocery business and accept employment by promising permanent employment and an officer's position.
The corporation issued plaintiff 40 shares of stock gratuitously; later, defendant requested assignment of those shares solely to obtain additional credit for the corporation, and plaintiff complied, assigning the stock to defendant in reliance on his representations.
Plaintiff performed as assistant treasurer until March 1, 1932, when he was discharged without cause, denied salary, and prevented from performing duties; defendant retained the stock and refused to return it despite requests.
Plaintiff alleged the defendant's representations were false, known to be false, and made with intent to induce plaintiff to transfer the stock, resulting in harm to plaintiff; plaintiff sought delivery of the stock, an accounting, damages, and general relief.

Appellee's (Defendant's) Arguments

The bill failed to state an equitable cause of action.
The bill did not aver facts entitling plaintiff to equitable relief.
The bill lacked essential factual averments necessary to state a case of misrepresentation or fraud.
The allegations were merely conclusions.
The plaintiff's claim was barred by laches.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The court treated the defendant's motion to dismiss as an admission of the facts properly pleaded in the bill. Based on those admitted facts, the court identified that the bill alleged:

Ownership by plaintiff of 40 shares which were assigned to defendant at defendant's request for the alleged sole purpose of securing credit for the corporation;
That defendant was president and principal stockholder and induced the transfer with assurances of employment, after which the plaintiff was discharged in 1932;
That defendant continued to hold title to the shares and refused to return them despite plaintiff's requests.

Given these admitted allegations, the Court of Appeals concluded that the plaintiff was entitled to an opportunity for a hearing on the merits rather than dismissal at the pleading stage. Regarding laches, the court reasoned that the plaintiff's cause of action did not fully arise until 1932 (the date of the discharge and the alleged wrongful withholding of the stock), and therefore the delay before suit did not necessarily bar relief. The court further observed that, where delay is attributable to intimate personal or family relations and a high degree of confidence reposed by one party in another, courts are inclined to exercise leniency with respect to laches (the opinion cited 10 R.C.L. 403 in support of this principle). On that basis the appellate court rejected laches as a proper basis for dismissal on the present record.

Because the allegations must be treated as admitted on a motion to dismiss and these admissions were sufficient to raise triable issues, the appellate court found the lower court erred in dismissing the bill for want of substance.

Holding and Implications

REVERSED AND REMANDED.

Holding: The appellate court reversed the decree of the Supreme Court of the District of Columbia that dismissed the bill of complaint and remanded the cause for further proceedings consistent with the opinion; costs were awarded to the appellant.

Implications: The direct effect is that the lower court's dismissal is vacated and the plaintiff is entitled to further proceedings (including a hearing) on the allegations of improper inducement, transfer of stock, and wrongful retention. The opinion did not announce a new legal rule or broader precedent beyond the application of established pleading principles (treating pleaded facts as admitted on a motion to dismiss) and the statement that laches is to be applied with leniency where intimate family relations and confidence are shown.

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HORTON v. HORTON et al.

PER CURIAM.

An appeal from a decree dismissing a bill of complaint for want of substance.

The appellant was plaintiff in the lower court and his brother was the principal defendant. The term "defendant," when used in this opinion, means plaintiff's brother, notwithstanding that M.E. Horton, Inc., is also a defendant in the case. The plaintiff in his bill of complaint alleged, among other things, that in the year 1918, when both parties were engaged in the grocery business, the defendant induced plaintiff to give up his separate business and to accept employment by the defendant; that defendant assured plaintiff that he would be permanently employed in any business which defendant controlled; that, relying upon this assurance, plaintiff ceased the operation of his business and became employed by the defendant; that in December, 1919, defendant caused the business to be incorporated with an authorized capital of 2,500 shares of the par value of $100 each; that at the time of the incorporation the defendant desiring to reward his employees for faithful service and to build up a permanent and efficient organization, caused to be issued gratuitously to several of the employees certain shares of capital stock of the corporation, and among others he caused to be issued to the plaintiff 40 shares of such capital stock of the par value of $100 each; that afterwards, in March, 1925, the defendant reported to the plaintiff that it was necessary that the stock issued to him be assigned to defendant in order for the defendant to secure additional needed credit for the corporation, and for that purpose alone he requested plaintiff to assign his stock to defendant; that having absolute and complete confidence in defendant and relying upon his representations, plaintiff assigned his stock to defendant to enable defendant to secure additional credit for the corporation; that thereafter defendant continued to be the president and controlling stockholder of the corporation and until March 1, 1932, plaintiff was assistant treasurer thereof, at which time without just or proper cause defendant discharged plaintiff, refused to pay him his salary for his services, and notified plaintiff not to return to his duties as assistant treasurer, and prevented plaintiff from performing his duties as aforesaid, though plaintiff was always ready, able, and willing so to do; that defendant has continued to hold the stock which he induced plaintiff to assign to him and has refused to redeliver the same to plaintiff, although frequently requested so to do. The plaintiff charges that the representations made by defendant by means of which plaintiff was induced to transfer his stock to the defendant were false and were known to be false, and that defendant made the representations with intent that they should be acted upon by plaintiff, and that plaintiff having complete and absolute confidence in the defendant relied and acted upon them to his great injury. The plaintiff avers that because of the continual progress of the aforesaid business and the profitable condition of the same and due to the large profits that had been made in the same business, defendant did plan, scheme, and arrange to obtain possession of the said stock which belonged to plaintiff, and plaintiff relied absolutely upon and believed his representations and assigned the stock to defendant without receiving any consideration whatsoever for it; that from the time in March, 1925, when plaintiff assigned and transferred the stock to defendant, until March 1, 1932, defendant committed no act which warned plaintiff that his stock in the corporation was not being held for him for the purposes aforesaid, to wit, to secure additional needed credit for the corporation and for that purpose alone; and that plaintiff had no cause to believe and did not believe that defendant was not holding the stock for him, but, on the contrary, by his acts and conduct defendant represented and assured plaintiff that the 40 shares of stock which defendant was holding for plaintiff belonged to plaintiff, and plaintiff was further led to believe in conversations with defendant prior to March 1, 1932, and after the stock was issued to plaintiff, that defendant was holding the stock in trust for him for the purpose aforementioned, and that nothing was ever said or done by defendant up to March, 1932, that would cause plaintiff to believe that the aforesaid stock was not held for him. Plaintiff prayed for an order and decree requiring defendant to deliver the stock to plaintiff and for an accounting, damages, and general relief.

The defendant filed a motion to dismiss the bill of complaint upon the ground (1) that it did not state an equitable cause of action; (2) that it averred no facts entitling plaintiff to equitable relief; (3) that it did not contain averments of fact essential to state a case of misrepresentation or fraud; (4) that the allegations therein were conclusions; and (5) that plaintiff had been guilty of laches.

The lower court granted this motion and dismissed the bill at plaintiff's cost; whereupon, the present appeal was taken.

We are of the opinion that the lower court erred in dismissing the bill. The motion to dismiss is in law an admission that the plaintiff was the owner of 40 shares of stock of the corporation; that the defendant, his brother, was the president and principal stockholder of the corporation; that for the purpose of defrauding the plaintiff of his shares the defendant requested him to assign and transfer the shares to him for the sole purpose as alleged of increasing the credit of the corporation; that the plaintiff was thereby induced to transfer the shares to the defendant for that purpose only; that at and before this time the defendant had assured the plaintiff that he would be regularly employed as an officer of the corporation, but that afterwards in 1932 the plaintiff was discharged without cause and removed from his office as assistant treasurer of the corporation; that during all of this time the defendant had continued to hold title to the 40 shares of stock which had been assigned to him by plaintiff and refused to return the same to plaintiff, although requested so to do.

We think that these conceded statements entitle the plaintiff to a hearing upon the cause presented by him.

In our opinion, the averments of the bill do not show that plaintiff's cause is defeated by laches, for it did not fully arise until in the year 1932. Moreover, in considering questions of laches, the utmost leniency is manifested by the courts where it appears that the delay is due to the intimate personal relations existing between the parties and the high degree of confidence reposed by one in another. In such case, and especially when the family relation exists, the same degree of diligence is seldom required (10 R.C.L. 403).

The decree of the lower court is reversed, with costs, and the cause is remanded for further proceedings not inconsistent herewith.

HORTON v. HORTON