Schwartz v. Duss, 187 U.S. 8 (1902)

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Schwartz v. Duss

No. 38

Argued April 22-23, 1902
Decided October 27, 1902
187 U.S. 8

CERTIORARI TO THE CIRCUIT COURT OF

APPEALS FOR THE THIRD CIRCUIT

Syllabus

In an action brought for the distribution of the property and assets of the Harmony Society on the ground that it had ceased to exist and that its assets should revert to the heirs of the original contributors, some of whom were ancestors of the plaintiffs in error (complainants below), and that the defendants now in control of the property should be enjoined from transferring the same to a corporation or otherwise dealing with the same, the bill contained allegations of fraud and conspiracy on the part of the defendants. The ancestors of the complainants had long since retired from the society and signed releases. The effect of several agreements between the members and founders of the society was involved in the action; it had been held by the master, whose conclusions of law and fact were approved by the Circuit Court and the judgment thereon affirmed by the circuit court of appeals, that none of the plaintiffs had such a proprietary right or interest in the property and assets of the Harmony Society as entitled them upon the dissolution of the society to any part of, or share therein, as prayed for in the bill, and also that the society had not been dissolved by the common consent of the members or by an abandonment of the purposes for which it was formed.

In affirming this judgment dismissing the bill, it is stated:

The Harmony Society, the history whereof has been recited and its principles characterized and defined by the Supreme Court of Pennsylvania and by this court,

Schriber v. Rapp, 5 Watts 351; Baker v. Nachtrieb, 19 How. 126; Speidel v. Henrici, 120 U.S. 377, was founded by George Rapp, and its members

were associated and combined by the common belief that the government of the patriarchal age, united to the community of property, adopted in the days of the Apostles, would conduce to promote their temporal and eternal happiness.

The relations of the society, precepts of government, personal and property rights, were provided for by several written contracts executed in 1805, and thereafter. By one of these agreements, some of the members who contributed property to the society renounced individual ownership, but by the same agreement George Rapp and his associates promised to refund to any members retiring the value of the property so brought in, and if any members who had brought nothing into the community retired, they should, provided they departed openly and orderly, receive a donation of money to be determined by George Rapp and associates.

By a subsequent agreement made in 1836, it was provided that each individual was to be considered as having finally and irrevocably parted with all his former contributions, and on withdrawing should not be entitled to demand an account thereof as a matter of right, but it should be left altogether to the discretion of the superintendent to decide whether any, and if any, what, allowance should be made to such member or his representatives as a donation.

The membership of the society having greatly diminished, many of the members retired, leaving only the defendant in this action and a few others, who had determined to transfer the property to a corporation, when complainants filed a bill claiming that the society was dissolved and that the assets were held by the remaining members and officers in trust, and should be distributed between former members and their descendants including complainants.

Held that the facts did not show that there was any dissolution of the society; that the relations of the members and the society were fixed by contract; that the plaintiffs could not have other rights than their ancestors had; that no trust was created by the agreement of 1836, and under its terms when the plaintiffs’ ancestors (who had not contributed any property) died or withdrew from the society their rights were fixed by the terms of that agreement; the members who died left no rights to their representatives, and had no rights which they could transmit to the plaintiffs.

The Supreme Court of Pennsylvania has decided in other cases involving these contracts that they were not offensive to the public policy of Pennsylvania.

The master, the circuit court and the circuit court of appeals having found that the society had not been dissolved either by consent of its members or by the abandonment of the purposes for which it was founded, this Court will not, on account of such concurrence and under the rules of the court, review the disputed facts involved in that finding.

This suit was brought for the distribution of the property and assets of the Harmony Society, which the bill alleged had ceased to exist. The bill also prayed for an injunction against John S. Duss to restrain him from in anywise dealing with the property of the society, and also for a receiver. The bill was exceedingly voluminous. It stated the origin and principles and plan of government of the society; that many industries were started and conducted by it, including a savings bank; the Town of Economy, Pennsylvania, founded by it, and that its acquisitions, including 3,000 acres of land in the City of Pittsburg, amounted in 1890 to upwards of $4,000,000, and

all of said possessions, up to and until the grievances hereafter complained of, were scrupulously used for the benefit of all its members, and for the advancement, benefit, and continuation of the society;

that, until those grievances the society,

from the period of its inception until a recent date, adhered rigidly to its plan of government, and became illustrious and highly respected by reason of its sincere advocacy of the equality of man, its espousal of the highest principles of Christianity, and its honesty and benevolent administration of all public functions, whether in the management of its internal affairs or in its many transactions with the citizens of western Pennsylvania.

The bill also averred that the society "but once in a period of ninety years suffered from serious internal disorder," which arose from the induction into the society of one Count De Leon, his artifices and subsequent secession. That, in 1890, there

began a second conspiracy, the results of which overturned and destroyed the entire government of the society, wasted nearly its entire wealth, depleted its membership to a few aged and infirm women, and placed the management of the society and the control of its remaining assets in the hands of one man, and certain associates and confederates within and without the ranks of the society.

That the acting and directing mind of the conspiracy was John S. Duss, and he obtained his power as follows: in 1847, a plan of regulation and government of the society was adopted by which its internal affairs were managed by a "board of elders," composed of nine members, and its external affairs were managed by a "board of trustees," composed of two members. Romulus L. Baker and Jacob Henrici were chosen the first board of trustees. Baker died in 1868, and Henrici and Jonathan Lenz became the board of trustees; the latter was succeeded, upon his death in 1890, by Ernest Woelful; Woelful also died in 1890, and Duss became his successor. Henrici died in 1892, and one Samuel Sieber was appointed, and, on his retirement from the society, Gottlieb Riethmueller, a relative of Duss, was elected trustee. At the time of the filing of the bill, Duss and Riethmueller were trustees.

The bill detailed the acts and purposes of Duss at great length. It is, however, enough to say that the bill alleged that he became senior trustee and a member of the board of elders, and conceived the purpose of wrecking and dismembering the society, and attempted to execute such purpose. That the condition of the society gave him opportunity; that he caused the expulsion of at least one member, and induced or paid others to withdraw. That the increase in the society could only be through the admission of new members, and he directed that no new members be elected under any circumstances whatever, and as a result thereof the said Duss and Susie, his wife, were the last members admitted in the four years preceding the filing of the bill.

That he entered into certain arrangements with one Henry Hice and John Reeves, of the Town of Beaver, Pennsylvania, by which he used $1,000,000 of the society’s money, without the knowledge or consent of its members, "to pay off the alleged indebtedness of the Economy Savings Bank, of which said Hice and Reeves were the principal officers," though at the time he knew that the bank was wholly insolvent by reason of the overdrafts made by said Hice and Reeves, and although he knew that they had caused a loss to the society of over $2,000,000, "as officers and stockholders in said bank, and officers and stockholders in the Beaver Falls Cutlery Works and File Works, the debtors of said bank;" that he had not sued to recover back the money, but, on the contrary, had abetted them in obtaining further assets of the society.

That, in pursuance of his scheme to defraud the society, and to pay the indebtedness of the Economy Savings Bank, and for paying off claims upon which the society was only partly liable, if at all, he and his co-trustee, Henrici, executed a mortgage for the sum of $400,000 upon the real estate of the society, but that Henrici at the time of its execution, "was in articulo mortis, and wholly beyond any power of comprehension of his act." And on the ___ day of June, 1893, he caused to be executed another mortgage, without the knowledge or consent of the members, for $100,000, bearing interest at six percent, upon the land described in the former mortgage, to raise a fund "wherewith to secretly secure and induce removal of those members most likely to inquire into the validity or propriety of his conduct as trustee."

It was averred that the society had certain dividend-paying stocks which Duss, in pursuance of his scheme, disposed of without the knowledge of any member of the society, except possibly his wife and Gottlieb Riethmueller. The names of ten persons were stated who, it was alleged, Duss, "by representation, coercion, and the payment of large sums of money," induced, within two years preceding the commencement of the suit, to withdraw from the society, and that he was endeavoring to compel remaining members "to depart, by means of intimidation and oppression."

That the membership of the society was reduced to eight persons, none of whom was aware of the actions of Duss or was consulted by him.

That on the 12th day of April, 1894, the said Duss, without any authority from the members of the Harmony Society and in the utmost disregard to his trust, secretly entered into an agreement with said Hice, Reeves, and one James Dickson whereby he, the said Duss, agreed to convey the Town of Economy, the surrounding properties, and certain other lands of the Harmony Society, situate in Allegheny County, to the Union Company, an alleged corporation created under the laws of the State of Pennsylvania. And your orators allege that a conveyance has been made by said Duss for the lands as aforesaid, and that the same was made without the knowledge of your orators or any members of the said society, excepting possibly Susie C., wife of said Duss, and Gottlieb Riethmueller. That by the said pretended conveyance and sale of the home of the Harmony Society and its other properties, the said Duss has attempted to wholly terminate the existence of said society, not only as to the government thereof by the board of elders and by the members, but also as to the ownership of any property. That the said Union Company, in addition to said Duss and Riethmueller, is composed of said Hice and Reeves, debtors of the said Harmony Society, as hereinbefore stated, and one James Dickson, the private bookkeeper and confidential agent of said Duss, whose interest in said corporation was acquired by gift from said Duss.

That your orators are advised that it was not competent for the said trustees to convey said properties to the said Union Company, but such transfer was a breach of trust, and wholly invalid.

It was further averred that the principle of equality had been departed from. That Duss and his family enjoyed every luxury, while the aged and infirm members were obliged "to be content with the bare necessaries of life, awarded with grudging, stinting hands."

And it was finally averred --

That recently, said Harmony Society has become dissolved as aforesaid; that all of its purposes and practices, established as aforesaid by the founder of said society and by the ancestors of your orators, have been abandoned; that the pursuit of agriculture no longer exists in said society; that its chief assets, consisting of bonds, stocks, and other securities, and the Town of Economy, with its buildings, and the adjacent lands of said society, consisting of some 3,000 acres, and which constituted the basis of organization and business of said society, have been sold and conveyed away by the said Duss as aforesaid, in fraud, however, of the rights of your orators and their cotenants, and that, by reason of the facts hereinbefore set forth, your orators and the said last members, except the said Duss and wife, are now tenants in common of all said lands and tenements, and entitled to partition thereof in proportion to their respective interests.

That for some time past, the members of said Harmony Society have been retiring therefrom, and have received the amount of their interest in said association in the land or money, or both, the land being set apart in severalty to them, and have released all of their rights and interests in said association in consideration for such payment or conveyance to them, and that, by said retirement and withdrawal, the membership of said association has been reduced to the persons hereinbefore named members; that, by common consent, this association has ceased to exist as an association, and that, if the property thereof has ever been impressed with a trust (which your orators deny, as being contrary to public policy, and void in law or equity), such trust has wholly ceased, and the assets of such dissolved association have reverted to the donors thereof, among whom were the ancestors and intestates of your orators, as hereinbefore fully set forth.

Duss, Hice, Reeves, and the Union Company answered separately. The other defendants joined in an answer. By agreement of the parties, the case was referred to a master, with

authority to hear and take all the testimony, and to find all the issues of law and facts, and to report the testimony and such findings to the court, and if the report of such master shall suggest a decree that the plaintiffs, or any of them, are entitled to an account against the defendants, or any of them, and the same be confirmed by the court, then the case shall be referred again to the master to state such an account, and report thereon to the court.

Under the orders of the court, the master considered the following questions:

First. Have the plaintiffs, or any of them, such a proprietary right or interest in the property and assets of the Harmony Society as entitled them, upon the dissolution of the society, to any part of, or share in, such property or assets, or as entitles them to the account prayed for in the bill?

Second. Has the Harmony Society been dissolved by the common consent of the members or by an abandonment of the purposes for which it was formed?

On both propositions, the master reported adversely to the claim of the petitioners, and recommended a decree dismissing the bill. His conclusions of fact and law were approved and accepted by the circuit court, and a decree entered dismissing the bill. The decree was affirmed by the circuit court of appeals. The case was then brought here by certiorari on petition of the plaintiffs in the circuit court. Other facts will be stated in the opinion.