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Smith v. Kroeger

Supreme Court of Ohio
Oct 22, 1941
138 Ohio St. 508 (Ohio 1941)


discussing common fund doctrine

Summary of this case from Nordquist v. Schwartz


No. 28607

Decided October 22, 1941.

Building and loan associations — Agreement to assume outstanding liabilities of another association — Refusal to recognize claims of holders of paid-up stock deposits — One claimant may maintain class suit for recognition as creditors, when — One of more may sue for all, when — Section 11257, General Code — Court of equity may allow attorney fees — Former stockholders' status changed to creditors and fund created or established.

1. Where a building and loan association entered into a legal contract with a similar institution, agreeing that the M. Association would assume all outstanding liabilities including paid-up stock deposits of B. Association, and thereafter the M. Association refused to recognize the holders of paid-up stock deposits in B. otherwise than as stockholders in M., one of such stockholders may maintain a suit in equity on behalf of himself and all others similarly situated to reform the books and records of M. and to compel M. to recognize such former stockholders of B. as creditors of M. ( Haggerty v. Squire, Supt. of Banks, 137 Ohio St. 207, approved and followed.)

2. Under Section 11257, General Code, when the question is one of common or general interest of many persons, or the parties are very numerous and it is impracticable to bring them all before the court, one or more may sue for the benefit of all.

3. In such case, a court exercising equitable jurisdiction may allow, in addition to costs between party and party, reasonable attorney fees, technically known as costs between solicitor and client, to be paid out of the fund under the control of the court.

4. Where a class suit results in changing the status of certain stockholders from stockholders to creditors, and there are assets in the control of the court out of which creditors may be paid, a fund for such erstwhile stockholders has been created or established, out of which attorney fees may be allowed to plaintiff's attorneys.

APPEAL from the Court of Appeals of Montgomery county.

Plaintiff below brought a suit against the Superintendent of Building and Loan Associations and the Miami Savings Loan Company, Dayton, Ohio, hereinafter called Miami, claiming in his petition that he had deposited the sum of $1,000 with The Buckeye Building Loan Association of Dayton, hereinafter called Buckeye, for which he received a certificate of paid-up stock; that Buckeye sold and transferred all of its assets and liabilities to Miami; that as a part of the sale and with the consent of the Superintendent of Building and Loan Associations of Ohio, Miami assumed and agreed to pay all outstanding obligations and liabilities of Buckeye, including all liability by reason of paid-up stock deposits, running stock deposits, etc.; that by reason thereof Miami became indebted to plaintiff and others similarly situated in the amounts of their respective claims; that the question presented by the petition was of common and general interest to more than 200 persons similarly situated. Wherefore, plaintiff prayed "that the claim of the plaintiff, Clement D. Smith, and all other parties similarly situated, be allowed as creditors' claims of the said Miami Savings Loan Company; that the books and records of the Miami Savings Loan Company be reformed to establish the plaintiff, Clement D. Smith, and all parties similarly situated as creditors of the said Miami Savings Loan Company; and for such other and further relief to which plaintiff and all other parties similarly situated may be entitled in the premises, together with their costs herein expended."

The record shows that there were approximately 1,600 other persons situated similarly to plaintiff.

As stated by the Court of Appeals: "The petition was attacked by motions and demurrer, all of which were overruled. Later answers were filed traversing the question of a class suit and also denying the relief sought by the plaintiff and all others whom he claims to represent. During the five and one-half years that the cause has been in various courts, numerous substitutions of defendants have been made as well as frequent changes in counsel representing them. * * *

"Following the taking of evidence before the master commissioner and his report thereon the trial court determined that the petition properly presented a class suit and included in the journal entry was a list of the other persons having similar claims to plaintiff Smith, together with the amounts. All were designated as having creditor's claims and not stockholder's claims. On November 24, 1939, counsel for plaintiff filed motion for allowance of reasonable counsel fees.

"Upon order of the trial court notice of the hearing for the allowance of counsel fees was published in the various newspapers of general circulation in Dayton, Ohio, wherein the time and place was stated for the hearing on the application for allowance of fees. At the time and place specified in the notice the parties appeared, evidence was presented and thereupon the trial court determined that counsel was entitled to fees in the amount of fifteen (15%) per cent of the sum total of all claims allowed by the former order of the court. This finding and order as journalized, in part read as follows:

" 'And the court further finds that the payment of such fee to Messrs. Shaman, Winer Shulman should be made by the issuance of a certificate of claim in an amount equal to 15% of the aggregate and total amounts of all claims heretofore allowed by this court, and that the said 15% should be deducted from the claims of each of the parties plaintiff herein.'

"Under this formula of calculation the total of such certificate would amount to between seventy-nine and eighty thousand dollars. The cash value of the certificate would be approximately $55,000.

"Counsel for the Superintendent of Insurance [ sic] and separate counsel representing the Miami Savings Loan Company appeared at the hearing in opposition to the allowance of attorney's fees. A very small number of the interested claimants were present and only two took any part in the hearing. One of the two did no more than express an objection to the allowance of any fee, and the other cross-examined Mr. Shaman. Both the Superintendent of Insurance [ sic] and the Miami Savings Loan Company gave separate notices of appeal on questions of law. The question of the allowance of attorney's fees is the only one presented to us at this time."

The Court of Appeals affirmed the judgment of the trial court. The cause is before this court upon an appeal as of right.

Messrs. Shaman, Winer Shulman, for appellee.

Mr. John W. Dale and Mr. A.K. Meck, for appellant.

There is but one question raised by the record in this case, i. e., did the trial court have the power to make an allowance of fees to plaintiff's attorneys payable out of the fund recovered? The answer to this question will depend upon whether or not the instant case was a class suit, and if a class suit, was the action taken within the powers of a court of equity?

Section 11257, General Code, provides: "When the question is one of common or general interest of many persons, or the parties are very numerous, and [it] is impracticable to bring them all before the court, one or more may sue or defend for the benefit of all."

In the case of Haggerty v. Squire, Supt. of Banks, 137 Ohio St. 207, 28 N.E.2d 554, this court held: "Where a number of persons have separate and individual claims and rights of action against the same party, but all such claims arise from a common source and represent a like interest, the whole matter may be litigated in a single action brought by all of the claimants as co-plaintiffs, or, in case the parties are numerous making it impracticable to bring them all before the court, by one or more of them suing for himself or themselves and on behalf of the other claimants."

The original petition stated an equitable cause and was properly brought as a class suit under or independent of the foregoing statute.

The fundamental error of appellant's position and argument rests in his claim that his legal right of action has been transformed into an equitable cause. That is not true. By an equitable cause his legal right of action as a stockholder has been transformed into a legal right of action as a creditor. As a stockholder in Miami appellant had a legal right to a proportiomate participation in whatever assets might remain after all creditors had been satisfied. Appellant now has a right of action at law as a creditor. This right has not been extinguished. What appellant overlooks is that before his status as a stockholder was changed to that of a creditor, a decree in a chancery case was necessary. The step which changed appellant from a stockholder to a creditor was the case brought by plaintiff below on behalf of himself and all others similarly situated.

Appellant in his brief sets up four claimed "issues." In the first of these, he contends in substance that where persons have similar claims or causes of action, the several owners of the claims may object to their inclusion in a class suit. In this contention, appellant apparently is assuming that his right to participate as a creditor was established independently of the instant case. The record shows that this is not true. On the other hand, if it be appellant's contention that his premise applied equally to a proper class suit, then his contention is quickly answered by pointing out that the record discloses that no claimant objected in any manner to the representation of his claim in the instant action until an application was made, after more than four years of litigation, for the allowance of fees.

The substance of appellant's second "issue" is that in a representative or class suit there is but one plaintiff, in this case Smith, and unless there was a fund recovered out of which an allowance of fees might be made, the attorney for plaintiff would have to look to plaintiff only for any fees. As we decide that there was a fund recovered in this action, this "issue" is moot and need not be discussed.

In appellant's third "issue" it is claimed that no fund was "created, established, recovered, protected, or preserved." Until the final decree in this case, appellant and all others similarly situated were stockholders in Miami. The instant case changed their status of stockholders to that of creditors. The record shows that creditors are being paid in full with interest. The rights of these erstwhile stockholders to participate in the fund from which creditors were to be paid shows that for them a fund was created, established, recovered, protected and preserved.

As the fourth "issue," appellant asks: "If a fund is recovered or preserved, must the attorney fees be taxed against the fund or may they be taxed directly against the claimants and taken out of their respective interests?" Asserting that the fees must be taxed against the fund only, appellant then contends that he has been deprived of his property without due process of law.

The fund out of which the trial court decreed that these claimants should be paid was dedicated to more purposes than the payment of the claims here under consideration. These claimants were not entitled to preference over the others who had a right to participate in the general creditors' fund. Therefore, it would have been inequitable either to segregate a part of the entire fund for the payment of these claims or to make the entire fund bear the expense of establishing the right of these particular claimants to participate in the fund. The trial court properly met the situation with a practical solution by allowing these claimants to participate proportionately and by deducting from the amount to be paid each claimant such claimant's proportionate part of the expense of creating or establishing the fund out of which they could be paid.

Furthermore, the trial court actually did meet the technical objection raised by plaintiff in respect of the payment out of the fund when it provided in its journal entry that a certificate for the aggregate amount of the allowance should be issued forthwith by Miami to the attorneys. Technically, this left the amount in the fund for creditors applicable to the claims here in question 85 per cent of the amounts of their respective claims and ordered paid to these claimants all of the fund recovered except that part allowed to the attorneys as fees.

The power of an Ohio court exercising equitable jurisdiction to allow attorney fees is properly stated in the following language of 10 Ohio Jurisprudence, 369, Setion 258: "The general rule is that a court of equity, or a court in the exercise of equitable jurisdiction, will in its discretion order an allowance of counsel fees, or, as it is sometimes said, allow costs as between solicitor and client, and sometimes directly to the attorney, who, at his own expense, has maintained a successful suit for the preservation, protection, and increase of a common fund or common property, or who has created at his own expense, or brought into court a fund in which others may share with him."

In the case of Mason v. Alexander, 44 Ohio St. 318, 7 N.E. 435, Judge Spear said, at page 337: "As to the allowance of attorney's fees: It is urged that there was no power in the court to make any allowance at all. The proceeding was in equity. Its purpose was to bring into court a fund for distribution among creditors. Quoting from the brief of counsel for plaintiff in error: 'The action is for the equal benefit of all the creditors. No one creditor can ever obtain any advantage or preference over the remaining creditors. All are to share in the fund recovered from the stockholders pro rata.' The labor of the plaintiff's counsel being, therefore, for the equal benefit of all the creditors, why should the whole expense of attorney's fees be borne by the plaintiff? Should the other creditors, sitting by and observing counsel do work which inured as much to their benefit as to that of plaintiff, be heard to say that in good faith and fairness they should not contribute to a reasonable recompense? Indeed, there is much reason for the claim that the circumstances raise a presumption of a promise to pay on their part."

The judgment of the Court of Appeals is affirmed.

Judgment affirmed.


BETTMAN, J., not participating.

Summaries of

Smith v. Kroeger

Supreme Court of Ohio
Oct 22, 1941
138 Ohio St. 508 (Ohio 1941)

discussing common fund doctrine

Summary of this case from Nordquist v. Schwartz
Case details for

Smith v. Kroeger

Case Details


Court:Supreme Court of Ohio

Date published: Oct 22, 1941


138 Ohio St. 508 (Ohio 1941)
37 N.E.2d 45

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